Memphis Daily News: Alexander Denounces Device Tax

Posted on May 6, 2013

By Jennifer Johnson Backer

U.S. Sen. Lamar Alexander, R-Tenn., said he’d push to repeal a tax that levies an extra 2.3 percent on the sales of medical devices, saying the tax makes it harder for medical device makers to hire new employees.

“It is critical that we repeal the 2.3 percent tax on medical devices that is in the new health care law because that tax is causing us to lose thousands of jobs and it is raising the cost of medical care for people all over the country,” Alexander said Thursday, May 2, at a press conference in the lobby of Onyx Medical Corp. in Memphis.

The medical device tax levies a 2.3 percent excise tax on the sales of everything from implantable pacemakers and hips to MRI machines and surgical tools.

Since the tax took effect Jan. 1, device manufacturers now pay an estimated $194 million per month in medical device tax payments, according to AdvaMed, an industry group. The new tax will raise about $30 billion over a decade to help fund the health law, according to the Congressional Budget Office.

“The tax makes it harder for any medical device manufacturer to hire new employees,” Alexander said. “It puts pressure on the major suppliers and on the smaller suppliers like where I am today, who sell to the major suppliers. That pressure goes all the way down the line.”

After the conference, Alexander toured the Onyx Medical manufacturing facilities, a niche company specializing in supplying products used for orthopedic and computer-navigated and minimally invasive operations.

The Memphis-based company develops and manufacturers pins, wires, screws and drills used by surgeons. While Onyx is not directly impacted by the tax, the company is concerned the device tax could have a negative, trickle-down effect on suppliers like Onyx Medical.

In late March, the push to repeal the medical device tax got a boost in the Senate with a 79-20 vote on an amendment that would remove the tax. But because the amendment was attached to the Senate Democrats’ budget proposal, a partisan bill that likely won’t pass, the vote was largely considered symbolic.

While symbolic, the vote encouraged device makers, who have fought a three-year battle to repeal the tax. But the push to repeal the device tax still faces an uphill battle as legislators search to recoup the $30 billion the medical device levy will provide over 10 years to help fund parts of the Affordable Care Act.

Medical device makers have said the tax adds to their costs at a time when they already are dealing with increased pricing pressure from hospitals and other customers and a weakened economy.

Minneapolis-based Medtronic Inc. told the Wall Street Journal it expects the tax to cost $125 million to $175 million annually and said it would take funding away from other possible investments.

Medtronic Spine, the Memphis-based division of Medtronic Inc., will cut about 60 local jobs as part of a strategy to reduce overall costs by 5 percent, a company spokesman confirmed May 2. The Spine division employs about 1,300 in Memphis.

While the company did not attribute the cuts solely to the medical device tax, Eric Epperson, senior director of public relations and communications, told The Daily News in an April 26 story the medical device excise tax was a factor, along with increased pricing pressure, more complex customer device purchasing processes, and expanded medical device governmental review times and requirements.

Smith & Nephew’s Orthopedics division also recently eliminated 63 positions in Memphis, 20 in Andover, Mass., and a dozen in Europe. The company employs about 1,800 in the Memphis area.

“The medical device industry provides more than 4,000 of the best paying jobs in the Memphis area,” Alexander said. “It is one of the fastest-growing and best industries we have in Tennessee