Medical gear makers howl at push for tax
Say plan to fund health bill could cost jobs in Mass.
A plan to tax makers of medical devices to help pay for an overhaul of the nation’s health care system is raising alarms in Massachusetts, where device companies say the estimated $400 million they would have to pay could force them to cut jobs and reduce research.
The proposed tax is included in the health care bill being debated and amended by the Senate Finance Committee this week. That bill, expected to be the principal vehicle for the final health care overhaul plan that will go before Congress, could be reported out of committee as early as today.
State industry leaders, including heavyweights such as Boston Scientific Corp., of Natick, and Covidien, of Mansfield, have been lobbying to get the tax deleted from the bill introduced by Senator Max Baucus, Democrat of Montana, who chairs the finance panel. Manufacturers argue it could cripple innovation in a sector that includes 225 companies with a total of 20,000 employees in Massachusetts.
Paul Donovan, senior vice president at Boston Scientific, which makes stents, defibrillators, and other devices and has 2,000 Massachusetts employees, said the impact of a tax would be dramatic. “On a scale of 1 to 10, this is an 11 for us,’’ Donovan said.
He said policy makers in Washington have been trying to encourage more high-paying research jobs in the United States, but such a tax would have the opposite effect.
“It doesn’t make sense to ram through a proposal that’s going to harm the very jobs they’re trying to protect,’’ Donovan said.
The tax proposal aims to raise $4 billion nationwide from manufacturers of medical devices.
Some backers of national health care legislation said parties that stand to benefit from expanded medical coverage have a responsibility to help fund it, including device makers, whose markets could expand as newly insured residents gain access to medical care and undergo more medical procedures.
Raising money from device makers, drug firms, and insurers may be the only viable way to finance the overhaul in a political climate where taxing citizens is considered untenable, they said.
“There’s always going to be a constituency out there that will oppose any revenue-raising tool if it’s going to come out of their pocket,’’ said Linda J. Blumberg, senior fellow for health policy at the Urban Institute, a nonpartisan policy research group in Washington. “That doesn’t mean it’s a bad tool. If you’re trying to make health care more affordable for everyone, you can’t do that without raising money.’’
The excise tax proposal - whose annual flat fee of $4 billion on medical equipment manufacturers would start next year - applies to companies with more than $5 million in annual US sales. The equipment covered ranges from imaging machines to pacemakers, and the tax would vary, based on revenues.
Some companies, which pay taxes on their profits, say an added excise tax on revenues would roughly double their tax bills.
Smaller companies that are still working to become profitable worry a device tax could impose an additional burden.
“For us, this would represent about 10 percent of our US employees’ salaries,’’ said Michael R. Minogue, chief executive of Abiomed Inc., a Danvers maker of heart pumps. It has about 400 employees, including 200 in Massachusetts. “It’s equivalent to 15 percent of our research and development budget. And it could potentially be more than we spend to provide health care to all our employees.’’
When the tax measure surfaced in the Senate Finance Committee earlier this month, the Massachusetts Medical Device Council wrote to Senator John F. Kerry protesting the provision. The letter, cosigned by 49 medical gear companies based in the state, said the tax “would have a significant and unfair impact’’ on device companies, which account for about 10 percent of all goods exported from Massachusetts.
Kerry, an advocate of health care overhaul, sits on the finance committee and supported another provision in the bill that would tax some health insurance plans. But he expressed qualms in a committee meeting this week about the proposed tax on medical device makers.
“Different industries are different, period, and a broad brush can be counterproductive,’’ Kerry said in a statement. “In this case, the medical device companies pave the way on new technology that saves life and money, so anything that could stifle research and development concerns us.’’
He would not say how he planned to vote on an expected amendment to strike the devices excise tax from the health bill.
Thomas J. Sommer, president of the state’s device maker council, MassMEDIC, said medical equipment producers have been working with Kerry and other senators to highlight an irony: A health care bill aimed at controlling costs contains a provision that could drive up expenses.
“Hospitals, doctors, and clinics are going to be looking at higher costs for medical devices, and they’re going to pass these costs on to the end users,’’ Sommer said.
By raising companies’ expenses, the tax could prompt them to reduce research and development staffs, which would have a disproportionate impact on a research-intensive state such as Massachusetts, some device makers warned.
“If it comes out of research and development, that’s not a good thing,’’ said Eric Kraus, senior vice president of Covidien, an Irish maker of laparoscopic equipment that has its US headquarters in Mansfield. “It could result in the loss of a significant number of jobs.’’
Robert Weisman can be reached at weisman@globe.com. 
