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Firms Fight for Repeal Of Medical Device Tax

Several San Diego firms are lobbying to repeal the medical device tax, a recently enacted levy that will raise funds as part of President Obama’s Affordable Care Act.

The 2.3 percent tax, which came into effect January 1 this year, is projected to raise more than $30 billion over the next decade to support health care reform.

The bipartisan effort in Washington, D.C., to repeal the tax has already garnered significant support from the House of Representatives, and lobbyists are now working to drum up support among the Senate.

Companies like Volcano Corp., ResMed Inc., Nuvasive Inc. and CareFusion Corp. are working with the Congress to express their disapproval of the tax, which they say could stymie job creation and research and development efforts. The tax applies to a variety of devices — from bedpans to surgical tools to breathing devices, like the ones manufactured by San Diego’s ResMed Inc.

“First and foremost, it’s very bad public policy,” said Scott Huennekens, CEO of Volcano Corp., a company that develops devices to diagnose and treat cardiovascular disease. “The negative consequences are going to mean there’s less technology available for innovation and to help patients, and it’s going to be bad for jobs relative to developing that innovation in the U.S.”

New Patient Opportunities?

Proponents of the tax say that, with the influx of an additional 40 million Americans into the health insurance market, medical device sales will skyrocket and the extra revenue will make up for any losses incurred by the taxes.

Rep. Scott Peters, D-Calif., is one of the original sponsors of the House bill to repeal the tax.

“This tax targets an industry where we’re a world leader — we’ve watched the solar industry get taken away from us by China and Germany, and we don’t want that to happen to the medical device industry,” Peters said. “It’s bad policy, and we need to figure out another way to pay for our health care (rather) than these taxes that discriminate against one industry.”

The Protect Medical Innovation Act of 2013 was introduced Feb. 6, and has 187 co-sponsors. However, the device tax came into effect January 1 this year, after the Affordable Care Act was declared constitutional by the U.S. Supreme Court decision last year — which is why repealing the levy will be an uphill struggle to succeed. Though several representatives are on board, neither senator from California is on board to repeal the tax.

About 240 medical companies are based in San Diego, and the sector employs about 10,000 people locally. San Diego is the nation’s second-largest life sciences hub, according to a recent report from global real estate brokerage firm Jones Lang LaSalle.

“To offset this tax increase, we were forced to make a very difficult decision to reduce investments in research and development and to delay an anticipated 200 new jobs,” said Alex Lukianov, chairman and CEO of San Diego-based NuVasive Inc.

The company, which develops devices that help speed spinal healing after surgery, employs about 1,600. Lukianov flew to Washington last October to speak to Congress about the importance of repealing the tax.

Massachusetts Model

Tim Tardibono, vice president of public policy at Connect, is working full-time in Washington, focusing his lobbying work on senators to approve a repeal. He cited a study from Orange County-based investment banking firm Roth Capital Partners LLC, examining the state of Massachusetts’ institution of universal health care as an indicator to how national reform will work.

“In Massachusetts, where they had ‘Romneycare,’ they did not have a tax on medical devices but also didn’t see this windfall and expansion for medical device companies in Massachusetts as promised by the Obama administration,” Tardibono said.

“The flaw with that reasoning is the new ‘Obamacare’ patients are not going to be the ones that use medical devices,” Tardibono said. He said that currently the market for medical devices is much older, with users already having insurance through their employer, retirement system or Medicare.

Tardibono said the 45 Republicans in the Senate will likely vote to repeal the tax — they opposed it in 2012 — and several Democrats are on board as well. Eighteen have expressed concern over the tax, he said, and lobbyists are edging up to the 60 required votes to overturn the bill.

“The windfall is not going to come about,” he said. “The tax is really going to be a detrimental tax, and it will be borne harder by the small, medium and emerging companies because it’s a tax on revenue, not profit.”

Despite the looming likelihood that the president will veto any efforts to repeal the bill, companies say that results might change now that the election is over.

“There was very little chance prior to the election to repeal the tax because no Democrat could do anything to admit any part of the ACA was problematic or was wrong, or needed to be rethought,” Huennekens said. “Nothing ever gets done completely correct the first time, and legislature understands that they need to continually improve things.”

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