Debate on Medical Device Manufacturers Tax

Medical device manufacturers are bristling over a key provision in the nation’s new health care law which they say forces them to shoulder an unfair cost of expanded insurance coverage.

The companies say a 2.3 percent excise tax on medical devices like heart defibrillators and surgical tools for hospitals, health centers and ambulance services will cost them an estimated $20 billion in new taxes over the next decade. And they say that will force them to lay off workers and curb the research and development of new medical tools.

The tax, which doesn’t kick in until 2013, has also pitted the state’s two senators against each other. “Many small to midsize medical device companies will owe more to the federal government in taxes than they make in profits," said Mark Leahy of the Medical Device Manufacturers Association. It could have been worse: the initial proposed tax was $40 billion.

Sen. John Kerry, a Democrat, who helped arrange meetings between medical device companies and Democrats leaders in Congress to convince them to cut in half the original proposed tax hike, maintained there would be a benefit for the companies. He explained about the expanded marketplace for 32 million people who are going to buy the products.

The tax, which doesn't kick in until 2013, has touched a nerve in Massachusetts, the state that provided the blueprint for the health care law. Massachusetts is also a hub for medical device companies, with more than 200 firms calling the state home. It has also pitted its senators against one another.

California has the highest number of medical device workers with more than 72,400 followed by Massachusetts with nearly 22,000, Florida with nearly 20,000 and Minnesota with more than 18,000, according to industry estimates. Other states with significant medical device hubs include: New Jersey, Pennsylvania, New York, Texas and Ohio.

When the negotiations started it was going to be $40 billion and our industry negotiated it down to $20 billion.