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Medical Device Industry Simply Refuses To Pay Their Fair Share

Category: Erik Paulsen
Posted: 01/27/16 03:57

by Dave Mindeman

MinnPost published an extensive, balanced article on the Medical Device Tax issues. It is worth the read.

But there are some points that keep getting brought up that lack clarity.

For instance, the Medical Device industry's claims about how it hurts the device makers and their workers....

But are any of those doom-and-gloom claims true? For observers in the policy world, and for fact-checkers in the media, tales of major job loss and stifled innovation in the medical device industry don't add up.

Here is a statement that looks skeptical...

In interviews and statements to MinnPost, Paulsen and Klobuchar recalled hearing constantly from business owners that the medical-device tax ended up preventing them from hiring more people and researching new technologies. "What the device tax means to the community," Paulsen says, "is, you have two fewer projects, a couple less engineers, borrowing from banks to pay off the tax."

Notice how there is no evidence offered. They heard about the problem, but from who? The medical device owners themselves. Paulsen only regurgitates what they tell them - a mouthpiece for the industry.

How about the threats to jobs?

The nonpartisan Factcheck.org examined job-loss claims made by the industry's boosters in Congress -- such as Paulsen's 33,000 figure -- and found that these numbers were exaggerated thanks to overly generous math on the part of the industry's advocates. (Much existing research comes from AdvaMed, the industry's official trade group in Washington.) As of October 2013, Factcheck's analysts found that perhaps 9,000 jobs in the sector -- at the very most -- have been lost due to the tax.

That actual number of job losses could very easily be the result of all the mergers and acquisitions that are taking place in the industry. And even these numbers may be a stretch.

Beyond that, a Washington Post article fact-checking the claims of Paulsen and others also found holes in their claims. It cited a January 2014 survey in which about nine percent of U.S. medical device firm managers said they did not have to lay anyone off because the tax; fully half of the respondents said they didn't change how they did business at all as a result of the tax.

What about claims that investors are scared away by the tax?

Recent numbers show that, on the whole, Minnesota firms are doing just fine. According to Medical Alley, 2015 was a record year for investing: Minnesota firms raked in a total of $434 million in investment dollars, a seven-year high.

There is really only one legitimate claim that can be made from the industry about the tax. It is a drawback for start ups and research oriented firms that operate in the red for several years before any breakthroughs. But I fail to understand why these companies cannot be granted exemptions in that regard.

The continuing problem is that the device tax is a component of the Obamacare funding mechanism. Republicans are concerned about the deficit and the debt, yet when the device tax repeal is brought to the floor, there is never any replacement funding suggested. The successful 2 year repeal does not offer any revenue stream as replacement and I guess that there will be some Congressional slight of hand performed to fix that.

The industry has been enormously profitable, but as in the rest of the economy, the rich get richer....

The GAO studied 102 medical device firms, from large companies (including Medtronic and St. Jude) to mid-sized and small firms. Overall, the audit found that from 2005 to 2014, medical device companies' profits increased by 43 percent, even through the difficult recession years.

That prosperity wasn't spread evenly, however: the 30 biggest companies accounted for 95 percent of net sales annually, and the smallest 37 accounted for one percent of that total.

But I can imagine you will figure out who contributes the largest portion of Congressional lobbyist money. Most of it comes from the top 5 companies... and Medtronic, the Irish inversion company, had their fair share.... they can afford it with $13.9 billion in profits last year.

Nobody in the Minnesota Congressional delegation questions the industry. They are strong Minnesota companies and our representatives feel compelled to do their bidding.

It is no wonder that we cannot balance a budget in this country - the corporate trough cannot be ignored.
comments (2) permalink
01/29/16 19:08
In my mind the tax situation is simple. The tax applied to the companies is non-factor. The tax is basically passed along to the purchaser at a cost that covers the tax. After having a hernia surgery several years ago I saw an itemized billing that included a Bic razor that was charged at $7.00. Chump change, but typical of so much over pricing of supplies consumed by hospital patients. These charges are directly related to everyone's higher premiums. Our Washington delegation should be more concerned for cost containment, something that would benefit consumers rather than giving tax breaks to the industries that just continue to make money at the expense of the ill
01/28/16 09:03
Your point is valid ... the industry does not want to pay a tax (regardless of the fact that they have added it into the product cost which is paid by the consumer.)
Add to that, politicians want to get re-elected ... thus, a marriage is made ... "I push for a tax repeal, you send me campaign cash and voters."

I was surprised that there was no mention of Johnson and Johnson ... especially after their announcement last week to cut 3,000 jobs -- all strictly coming from orthopedics, surgery, and cardiovascular product lines -- but not vision care and diabetes products.
3,000 is a big number (where those jobs are at and when the cuts will occur has not been announced)
Yet, is the problem not the tax, or, competition and past product problems ?
If it was the tax, then Medtronic, Smith and Nephew, Zimmer, et al should also be cutting employment levels ... thus it may be more the DePuy etc products and lawsuits, then the tax. J&J products can no longer just be pushed by surgeons as the insurance companies are pushing back.

Funny thing is that the J&J reporting says that they still plan filing for marketing approval of 30 new medical devices by the end of 2016, and it's already more than halfway there.

Funny thing, too, is that Erik Paulsen did not tweet about the job losses ... instead his government account as well as his campaign account both tweeted about his efforts to reduce taxes for craft brewers.
Once again, another tax cut ... for an industry that seems to be growing.
Once again, another tax cut ... where Democrats and Republicans can push
Once again, another tax cut ... that can actually be enacted because craft brewers are growing in many other congressional districts.

Hmmm .... it seems that your point is valid ... the industry does not want to pay a tax (regardless of the fact that they have added in to the product cost which is paid by the consumer.)
Add to that, politicians want to get re-elected ... thus, a marriage is made ... "I push for a tax repeal, you send me campaign cash and voters."

One comment about the MinnPost article, which I agree was fairly balanced (although it did not need to confuse readers that crutches could be called a medical device), there was no mention that Angie Craig has received donations from Medtronic, Smith and Nephew, as well as St. Jude Medical ... and her contributions exceed what Erik Paulsen, Amy Klobuchar, et al have received.


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