Top executives continue fight to repeal device tax at AdvaMed conference

Hillary Clinton, former U.S. secretary of state, speaks at the concluding plenary session of the AdvaMed conference on Wednesday Oct. 8, 2014.
Hillary Clinton, former U.S. secretary of state, speaks at the concluding session of the AdvaMed medical-device maker conference on Wednesday

By Mary Lee

At a Chicago trade industry conference that closed Wednesday, top medical-device company executives renewed their assault against the controversial sales tax on medical devices, mounting a new effort to abolish the tax.

“This tax is hurting us,” Caroll H. Neubauer, chairman and chief executive officer of B. Braun Medical Inc., said at the Advanced Medical Technology Association gathering.  “And I do not hesitate to tell that to anybody, everywhere I can, Washington, and anywhere else I find an audience who may be able to help us change this ridiculous situation.”

As part of the Affordable Care Act passed in 2010, lawmakers approved a 2.3 percent medical device excise tax to be paid by manufacturers or importers.  The theory was that device makers could afford to pay the tariff because they would benefit from increased sales after the Obamacare measure provided health insurance to millions of uninsured Americans.

Device makers have angrily contested the measure, which went into effect last January.  According to medical device companies, they have been unable to mitigate the detrimental impacts on the industry.   The sales tax, they assert, hinders job creation, stifles medical innovation and increases health care costs.

Supporters of the excise tax argue that industry lobbyists have distorted statistics and exaggerated the impact of the tax.

On Wednesday, the device makers at the AdvaMed meeting pushed former U.S. Secretary of State — and presumed candidate for the Democratic presidential nomination — Hillary Clinton to take a stand.  They were disappointed.

Clinton, a speaker at the meeting, discussed health care and held a Q & A session.  But when the moderator asked her opinion regarding the medical device tax, she declined to take sides, and instead emphasized the importance of compromise.

“On the tax itself, again, I think we need to look to see what are the pluses and the minuses that are embodied in a decision about either to remove, alter or continue this particular piece of the Affordable Care Act,” Clinton said.

“I just think we have to get out of the ideological wars that either we can’t change anything or we have to change everything. And begin to be smart, and pragmatic problem solvers again.”

The contentious issue continued to simmer throughout the length of the three-day meeting, as indignant representatives griped about the tax’s consequences on employment, deferred or cancelled capital investments, reduced research and development spending and manufacturing relocation overseas, according to a recent report from AdvaMed.

Many of the critics object to the fact that the sales tax is levied regardless of profit.

“The problem for a small company that is not profitable and is innovating, it prohibits importing new innovations into the U.S. as well, which is similar to what’s being described for the local companies,” said Barbara Kinnaird, chief operating officer at Response BioMedical Corp. in an interview. “It’s just stopping people from taking their products into the U.S., and they’re going elsewhere to sell.”

Others disagree.  The tax causes manufacturers to shift production abroad because the tax applies to both imported and domestically produced devices, according to a press release from the Center on Budget and Policy Priorities, a non-partisan organization that examines fiscal policies and public programs.

That’s not the only issue medical device makers say is squeezing them.

“We get this double-whammy in a bad tax situation,” Neubauer said. In addition to the 2.3 percent revenue tax, he explained, both the Centers for Medicare and Medicaid Services (CMS), as well as hospitals and other providers, pressure medical device companies to hold down prices.

Its repeal would save 43,000 American jobs, save billions of dollars for investments in future treatments and cures, and improve global competitiveness, AdvaMed contended in a  press release.

“We held off two major R & D programs, and there’s also a bunch of other efforts within our G & A that’s sustaining our business,” said Joseph DeVivo, president and chief executive officer at AngioDynamics. “We don’t have very large profit margins, but there’s a lot of investment we’ve had to cut.”

The industry’s effort to roll back the tax might still prevail, some device makers say.  “If you look at the bipartisan support we’re getting today, we are starting to shift the pendulum,” AngioDynamics’ DeVivo said.

Clinton stayed determinedly neutral.  “I don’t know what the right answer about the tax is,” she told Wednesday’s audience.  “But I think we could take a look at everything, and not standing there with our arms folded staring at each other across the partisan divide, but begin to sort it out.”