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Innovative Manufacturers? Tax Them

By | Communications, Health Care, Innovation, Taxation | No Comments

The Business Council of Alabama and the Alabama Technology Network held their annual Manufacturer of the Year awards event Wednesday, with three innovative manufacturers receiving recognition. The National Association of Manufacturers helped sponsor the awards, and NAM President John Engler provided a video salute to the honorees.

Large Manufacturer of the Year: ADTRAN, Inc. is a leading global provider of networking and communications equipment, providing solutions for voice, data, video and Internet communications across a variety of network infrastructures. ADTRAN, Inc. has been recognized by Fortune Magazine as one of the nation’s 200 Best Small Companies, as one of the “40 Best Stocks to Retire On,” and in 2009 was voted one of the Best Places to Work in Huntsville/Madison County.

Medium Manufacturer of the Year: STERIS Corporation, Montgomery is a leading provider of infection prevention and surgical products and services for the health care industry, serving thousands of customers in more than 60 countries. The Montgomery facility’s 260 employees produce a variety of products for the operating room and surgical environment, including surgical tables, lighting systems, scrub sinks, stretchers, warming cabinets, and equipment management systems that provide medical personnel ready access to medical gases, electrical power, and communication services.

Small Manufacturer of the Year: Turner Medical of Athens transitioned from a leading supplier of automated equipment for the automotive and appliance industries to a manufacturer of surgical instruments for the medical industry. Today, Turner Medical is one of the highest quality medical manufacturers in the Southeast and one of the fastest growing facilities in north Alabama. Turner Medical’s 80 employees supply a wide variety of surgical instruments as well different implantable rods, plates and screws to the orthopedic medical history.

Congratulations to all three. Innovation, investment and excellence occur across all sectors of industry, but it’s certainly no surprise to find outstanding examples in telecommunications equipment and medical device manufacturing — areas where the United States remains a global leader.

Congress asks, how can we screw that up?

A tax on medical devices is a good start. From The Boston Herald, via The Daily Caller, “Health-care sales tax could kill thousands of Bay State jobs“:

A dire warning from Bay State medical-device companies that a new sales tax in the federal health-care law could force their plants – and thousands of jobs – out of the country has rattled Gov. Deval Patrick, a staunch backer of the law and pal President Obama.“This bill is a jobs killer,” said Ernie Whiton, chief financial officer of Chelmsford’s Zoll Medical Corp., which employs about 650 people in Massachusetts. Many of those employees work in Zoll’s local manufacturing facility making heart defibrillators.

“We could be forced to (move) manufacturing overseas if we can’t pass along these costs to our customers,” said Whiton.

U.S. Senate Republicans also identified the Medical Device Tax as damaging policy and potentially good politics, proposing amendments during last night’s debate on the reconciliation bill.

A Battery of Good Issues

By | Health Care, Regulations, Technology, Trade | No Comments

Just dropped over at the website for the Medical Device Manufacturers Association, www.medicaldevices.org, and find the MDMA to be engaged in the very same issues Shopfloor has been blogging on. Yes, not that big of a surprise — they’re manufacturers. But health care AND lithium battery shipping practices!

Relevant excerpts from the MDMA’s releases follow:

“House Health Care Bill Passes“: “MDMA is very concerned about the impact a $20B device tax will have on patient care, innovation and small businesses. If eliminating the tax is not possible, structuring it to provide relief for smaller companies is critical. Under the current structure, many companies will owe more in taxes than they generate in profits, requiring companies to lay off employees, cut R&D budgets and slow the development of new therapies that will improve the quality of care for all Americans. Moving forward, these issues must be addressed before the tax takes effect in 2013.”

“MDMA Submits Comments on Lithium Rule“: “MDMA submitted comments today on a proposed rule by the Department of Transportation that would limit the ability of medical devices and other products containing small lithium batteries to be transported by aircraft. Specifically, the rule would force a greater number of finished medical products to be classified as hazardous material, which would likely impede the ability for devices to reach patients in a timely fashion. MDMA acknowledged these concerns in the comment letter and further expanded upon the impact on small businesses.” The comments are available here.

MDMA Raises Concerns with Proposed International Tax Increases“: “MDMA, along with other trade and business groups around the country, signed a letter of opposition to Congress regarding a proposed increase in international tax provisions for manufacturers exporting products overseas.  The tax increases, included in the Administration’s FY2011 proposed Federal budget, would increase the tax burden for exporting companies by a collective $122 billion over the next 10 years.” The NAM also signed this letter.

(Hat tip: Area Development Online.)

The Encompassing Tax on Medical Devices, 2.9 Percent

By | Health Care, Taxation | One Comment

Subtitle E, Section 1405 in the House substitute amendment to the health care legislation is “Excise tax on medical device manufacturers”

The section states:

(a) IN GENERAL.-There is hereby imposed on the
sale of any taxable medical device by the manufacturer,
producer, or importer a tax equal to 2.9 percent of the
price for which so sold. 

There are exemptions for eyeglasses, contact lens, hearing aids and items purchased by the general public at retail stores, things like tongue depressors. Even with the exemptions, there’s much covered under the bill’s definiion of “taxable medical device,” which “means any device (as defined in section 201(h) of the Federal Food, Drug, and CosmeticAct) intended for humans.”

From the FDA, “Is The Product a Medical Device?”

Medical Device Definition

Medical devices range from simple tongue depressors and bedpans [presumably exempt as noted above] to complex programmable pacemakers with micro-chip technology and laser surgical devices. In addition, medical devices include in vitro diagnostic products, such as general purpose lab equipment, reagents, and test kits, which may include monoclonal antibody technology. Certain electronic radiation emitting products3 with medical application and claims meet the definition of medical device. Examples include diagnostic ultrasound products, x-ray machines and medical lasers. If a product is labeled, promoted or used in a manner that meets the following definition in section 201(h) of the Federal Food Drug & Cosmetic (FD&C) Act it will be regulated by the Food and Drug Administration (FDA)4 as a medical device and is subject to premarketing and postmarketing regulatory controls. A device is:

  • “an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is:

    • recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them,
    • intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or
  • intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of it’s primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.
  •  Funny how health care “cost controls” so easily morph into tax increases.

    President’s Health Care Proposal Provides More Details, Taxes

    By | Health Care, Taxation | No Comments

    Anticipating Thursday’s Blair House event, President Obama’s health care plan provides some more detail than the White House’s previous proposals. Bloomberg:

    Feb. 22 (Bloomberg) — President Barack Obama proposed the first Medicare tax on unearned income including capital gains, while raising fees on drugmakers and scaling back a levy on high-end benefits as part of a new plan to overhaul the nation’s health-care system.

    The Obama plan released today marks a reversal from months of leaving the details of the legislation largely up to congressional Democrats, and is intended to break an impasse in negotiations. Much of the proposal draws from separate bills passed by the House in November and the Senate in December.

    This morning we predicted the White House would provide “framework of principles of conceptual reforms,” but in fact, the website provides a little more substance than that. A little more. For example, on the revenue side, Title IX, one section states:

    Title IX. Revenue Provisions
    Health Industry Fees

    The Act will impose fees on various sectors of the health industry, intended to recapture some of the benefits they get as more Americans purchase health insurance. These include: (i) a fee on branded prescription drug pharmaceutical companies in proportion to their federal sales; (ii) an excise tax on medical devices; (iii) an annual fee on health insurance companies; and (iv) an excise tax on indoor tanning services.

    You can dig down further for more information. For example, on the medical device tax, there’s explanation in the “Other Policy Improvements” section:

    Delay and Convert Fee on Medical Device Manufacturers to Excise Tax.
    The medical device industry also stands to gain from expanding health insurance coverage.  Both the House and Senate bills raise $20 billion in revenue from this industry over 10 years.  The President’s Proposal replaces the medical device fee with an excise tax (yielding the same revenue) that starts in 2013 to facilitate administration by the IRS.

    Replacing a fee with a tax! Now that IS reform.

    This is just a quick reax from one blogger (with an interest in the medical device industry, under so much attack on the litigation front.) The NAM will have a statement later in the day.

    Tort Reform Savings in Health Care

    By | Briefly Legal, Health Care, Taxation | 2 Comments

    A Washington Times editorial, “Tort Reform Savings,” wonders why Congress or the White House would prefer taxes to finance expensive health care legislation instead of saving money through tort reform. Enact tort reform, spare the consumer taxes.

    On Oct. 9, the Congressional Budget Office estimated that lawsuit reforms could save the government about $54 billion in health care costs over 10 years. Frankly, we have seen savings estimates nearly four times as high, but even $54 billion is nothing to sneeze at. According to CBO analysis, if Congress instituted caps on noneconomic damages (“pain and suffering” awards and the like), it would be able to eliminate a proposed new tax on medical devices that threatens to put some small manufacturers of health products out of business. At $38.6 billion, that proposed new device tax could be blocked, and Congress still would have more than $15 billion left over.

    On top of that, Congress could avoid two-thirds of a proposed new tax on manufacturers and importers of branded drugs, which is slated to bring in $22 billion. Of course, for consumers who really need those medicines, that tax is no bargain. It clearly would be added to the prices consumers pay or to the price of the insurance that covers them.

    And more from the Manhattan Institute:

    On Tuesday, October 13, 2009 the Manhattan Institute’s Center for Legal Policy, released Trial Lawyers Inc. Update: Healthcare. This report examines the detrimental effect health related litigation has on healthcare costs and defensive medicine practices.
    Listen to Paul Howard, director of the Center for Medical Progress, interview Jim Copland, author of TLI: Healthcare.
    Here’s what is stopping tort reform Jim Copland, Washington Examiner, 10-14-09
    Put this one on your favorites Waterbury Republican American, 10-14-09
    Malpractice from Manhattan David Freddoso, Washington Examiner, 10-14-09

    Anti-Jobs, Anti-Innovation — The Medical Device Tax

    By | Briefly Legal, Health Care, Innovation, Taxation, Technology | No Comments

    the great successes of the U.S. medical device industry in life-saving innovation have made the device manufacturers a target in Congress’ legislation to expand government control over health care. The revenue raisers have the industry in their sights.

    From The Washington Post, “Medical-Device Firms Criticize Tax Proposal“:

    Under the bill approved on Tuesday, the medical-device industry would pay a total of $40 billion over 10 years. Players big and small in the industry, which makes items from tongue depressors to artificial hearts, warned that the tax would harm their ability to innovate.

    “This is a really devastating proposal for a large number of our membership,” said Stephen J. Ubl, president and chief executive of the Advanced Medical Technology Association, the organization hosting this week’s AdvaMed 2009 conference at the Walter E. Washington Convention Center. “It’s bad for patients, bad for jobs and bad for research and development.”

    An amendment to remove the $40 billion tax was defeated last week in the Senate Finance Committee by a partyline vote, 13-10.

    At a time when unemployment is still rising even with the nascent recovery, the device tax also represents a tax on job creation. As USA Today reports:

    Twenty House members from California, home to heart-valve maker Edwards Lifesciences, signed a letter asking the Senate Finance Committee to reconsider the tax. Senators from Minnesota and Indiana — three Democrats and one Republican, in all — sent a similar letter.

    “Minnesota, like many states, has lots of people employed in the medical device industry,” Sen. Amy Klobuchar, D-Minn., whose state is home to Medtronic, one of the nation’s largest device manufacturers, said in an interview. “I want to keep jobs in my state.”

    Mark Leahy, President and CEO of the Medical Device Manufacturers Association, in a statement: “There can be little doubt — the proposed tax will have a cascading effect upon innovation, access to technology and employment in the industry.”

    Meanwhile, the only interest group to have escaped the taxers and “reformers” in the health care legislation, the trial lawyers, also has the medical device industry targeted. The Medical Device Safety Act is one of the American Association for Justice’s top lobbying priorities, the goal being to replace a consistent federal regulatory regime with a patchwork of state regulations determined by the courts — that’s a much more lucrative environment in which to sue manufacturers.

    In March, when the bill was reintroduced, NAM President John Engler issued a statement, making the central point: “At a time when our country is mired in a severe recession, suffering from rising job losses and a financial system in tatters, Congress is proposing legislation guaranteed to discourage innovation and drive up medical costs even further.” See also the Forbes column by Richard Epstein, “A Sickly Medical Device Safety Act.”

    So here’s a test by which one can hold elected officials accountable: If in a speech, a member of Congress claims the future of the U.S. economy involves high-tech jobs, innovation, and the growth of medical sciences, just ask if this member supports the $40 billion tax on medical devices. If the answer is yes, judge the previous statements accordingly.

    Senate Finance’s Health Care Bill: Votes and Hidden Taxes

    By | Health Care, Taxation | No Comments

    CNN reports: “The Senate Finance Committee will vote on its long-awaited health care bill next Tuesday, Majority Leader Harry Reid announced on the Senate floor Thursday.”

    Charles Krauthammer on Fox News All Stars last night did a good job in describing some of the presentational ploys used in the bill’s depiction by Congress. Via National Review Online, The Corner:

    Two items here. One of them is the $120 billion assumed of income from what are called “fees” of the big players in health care — the health insurers, the drug companies, the guys who do diagnostics and who produce the medical equipment.


    The fee is a tax, and the tax, $120 billion, is going to end up out of your pocket and mine, because every penny of it will be in higher insurance, higher costs for drugs, for stents — any kind of medical devices — and for diagnostics. Everybody will pay.


    But it’s hidden. It is a cowardly way to do a tax. You do it on the industry and it is passed on.


    Secondly, there are individual mandates. People are going to be shelling out a huge amount every year on insurance, and those who don’t are going to have to pay a fine, also a tax, but under another name.


    There are huge costs in here, which are all hidden, and that’s why it looks OK.


    Medical Malpractice Reform, the Administration’s Signals

    By | Briefly Legal, Health Care | No Comments

    Below we linked to stories about the White House holding out the possibility of medical malpractice reform as an element of a broader government restructuring of health care.

    A serious offer to win more acceptance from the medical profession and business? Or just positioning, talking points to move the debate forward even as the public recognizes that the costs of “reform” are staggering?

    Well, here’s one way to tell. This Thursday, the House Energy and Commerce Committee, Health Subcommittee, holds a hearing, “‘Medical Devices: Are Current Regulations Doing Enough For Patients?‘”

    As an industry, medical device manufacturers rank as a priority target for trial lawyers: The companies do make money and for all the lives the devices save, nothing is perfect. We exist in a world of risk. The one-in-a-million malfunction can, in isolation, produce a compelling story of individual suffering that leads a jury to hand out a huge award.

    The hearing Thursday figures to be a follow-up to the subcommittee’s session in May on H.R. 1346, the Medical Device Safety Act. (We blogged about the hearing here, here and here.) The goal of the bill is to end legal protections gained by the device manufacturers when their products win FDA regulatory approval. The bill would end this federal preemption and allow litigation ins state courts, in effect creating a 50-state regulatory regime — costly and capricious.  As the Washington Times editorialized, “This bill would kill innovation.” More lawyers and their clients would win gigantic awards, but medical advances would be hampered and health care costs would increase.

    So here’s at least one way to judge the Obama Administration’s seriousness about tort reform as an element of broader health care legislation: If an Administration official testifies at the hearing in opposition to H.R. 1346, that’s a good sign the White House regards tort reform something other than a mere talking point, raised and then abandoned as a negotiating tactic.

    UPDATE (noon): Wall Street Journal Law Blog, “Will Obama Buck Dems on Medical Liability?“:

    But to deliver a deal with doctors, Obama would probably have to defy senior members of his party in both houses of Congress. Many Dems oppose putting limits on medical lawsuits because they believe it is ineffective and unfair to patients. Senator Harry Reid of Nevada, the Democratic leader, has, for instance, called “the whole premise” of a presumed medical-malpractice crisis “unfounded.”

    And any effort to restrict patients’ legal rights to sue will face tough opposition from the American Association for Justice, perhaps not surprisingly. Linda Lipsen, the association’s chief lobbyist, said practice guidelines were established by unregulated medical societies and “should not be conclusive” in a court of law.

    UPDATE (1:15 p.m.): President Obama tells the AMA:

    I want to be honest with you. I’m not advocating caps on malpractice awards (murmurs, laughter) which I personally believe can be unfair to people who have been wrongfully harmed. But I personally I think we need to explore a range of ideas about how to put patients’ safety first, how to let doctors focus on practicing medicine, how to encourage a broader use of evidence-based guidelines.

    Full sound clip of the President’s remarks on tort reform. It’s 1 minute 50.