< 1 min reading time

As originally asked by Tom McCall.

I don’t think there is any doubt that med device manufacturers will need to find a way to creatively deal with the med device tax, but from every conversation I’ve had with hospital administrators, IDN and GPO supply chain managers, and colleagues on the device side, slipping a 2.3% up-charge on to invoices is not going to fly. Certainly not on currently contracted products.

Over the long term we’ll need to continue to drive cost out of the business, boost operational efficiencies, negotiate with suppliers to maximize our own supply chain, and negotiate price increases as part our next contract.

So what do we do in the short-term?

---

Mark McCarty
Regulatory Editor at Clarivate Analytics
I said the trade associations have not complained about my coverage, not that they haven’t complained about the device tax. And if Cook really wanted to find out what I’m writing, it can subscribe. Until then, John, thanks very much for your feedback. Have a nice day!

John Eckberg
Media Relations
Mark, You’re going to cover what you’re going to cover. My point is only that if you don’t talk to companies, you’re missing the story: EBITDA is a thing of the past, free cash flow is getting crushed, companies are headed for low-tax nations. You apparently cover policy. Maybe your stories don’t peculate up through Google News because they are behind a really expensive paywall and one of the things the device tax is bringing home to companies is that cost containment – ie. periodical subscriptions – is paramount. As to why major tech associations haven’t complained? My guess is that, like most people, they are terrified of upsetting anybody in the media and fearful of petulant reprisals. Just a guess…

Mark McCarty
Regulatory Editor at Clarivate Analytics
Look, anyone who thinks I can do all the policy and regulatory coverage for Medical Device Daily myself and focus exclusively on the device tax while ignoring Medicare (including the sequester/CR, the new CED, prospective payment systems, new-tech add-ons, health IT matters such as meaningful use, and that’s not all), patent law (the Myriad suit at SCOTUS, the Prometheus decision, the America Invents Act, PTO’s regulatory proposals to deal with AIA, and that’s not all), FDA’s latest guidances (and there are always tons), FDA warning letters and recalls, private-payer clinical policy bulletins, news about device with higher than expected failure rates, such as leads for ICDs and metal-on-metal hip joints … need I go on?

You guys seem to think I can just drop everything and focus solely on the device tax. Clearly you don’t understand what I do for a living and if you had a subscription to MDD, I’d be more willing to take your comments to heart. But you don’t even know what I’ve done with coverage of the tax, do you?

I don’t have time to interview six executives over the device tax. I’ve covered this topic extensively and if you had a subscription to Medical Device Daily, you’d know that. I will tell you this, though. I know for a fact that the three major med tech associations have subscriptions and I have never heard any complaints from them about my coverage of the device tax story.

Anyone care to subscribe and actually see my work before they critique my work? If you don’t have a subscription and you’re complaining about my coverage, I’ll have to ask you if you’re kidding. That’s absurd.

John Eckberg
Media Relations
Mark, No, you are right. I don’t subscribe to Medical Device Daily mostly because it’s about $214,395 a year. And yes, you have covered the horse race that is the repeal effort in Congress from time to time – slanting stories to include the angle of this tax repeal being impossible, unlikely or maybe, at best, quixotic.

But have you spoken to any actual business owners, CEOs, presidents or top executives? A half-dozen interviews would be a nice start and if you need the contact information, I have a roster of about 190 men and women who say this tax is going to crush their company, jobs and innovation. Have you ever used the term, now outdated by the structure of this tax, of EBITDA? Have you explored the contention that companies will not get 30 million new customers? Will there be flood of patients clammoring to buy a percutaneous tracheostomy tube because it has become de rigeur? I don’t think so.

So many stories to write beyond: what are the chances this tax repeal makes it. I mean, how many times can you write that story? Last time around, this House repeal, assuming 17 Democrat Congressmembers didn’t disappear as no shows and would have been forced to vote what their constituents wanted, came to within a vote of a veto-proof majority. Don’t recall seeing that story anywhere.

Mark McCarty
Regulatory Editor at Clarivate Analytics
Thomas I never claimed it was based on discussions with med tech CEOs or other authorities. It’s pretty common knowledge that a stand-alone device tax repeal has no chance at all in the Senate, let alone any prospect of getting out of the Oval Office alive. So a device tax repeal would absolutely have to be packaged with something else in order to have any chance at all.

As for packaging the repeal bill with a tax reform package, Rep. Erik Paulsen mentioned that in an interview I had with him in the Feb. 7 edition of Medical Device Daily, and yesterday (March 6), the House Ways and Means oversight subcommittee held a hearing addressing the device tax and a couple of other ACA-related taxes in the context of tax reform. It is unmistakably clear now that tax reform is widely viewed in the House as a vehicle for a device tax repeal.

But you’re right, I don’t base my views on interviews with med tech CEOs. I base them on the opinions expressed by people who write laws and make budgets. I think they’re in a better position to say what Congress will actually do, wouldn’t you agree?

Mark McCarty
Regulatory Editor at Clarivate Analytics
What are the odds that tax reform will be available as a vehicle for a repeal of the device tax? [http://mdd.blogs.medicaldevicedaily.com/2013/03/04/med-tech-tax-repeal-is-tax-reform-a-viable-vehicle/|leo://plh/http%3A*3*3mdd%2Eblogs%2Emedicaldevicedaily%2Ecom*32013*303*304*3med-tech-tax-repeal-is-tax-reform-a-viable-vehicle*3/3ew5?_t=tracking_disc]

Mark McCarty
Regulatory Editor at Clarivate Analytics
Because I’ve covered the opposition to the device tax extensively, practically to the point of beating it to death. This is a different leg of the story. Need a subscription to Medical Device Daily?

John Eckberg
Media Relations
Mark, Rather than writing about the 44 companies that are trying to pass this increase along – .3 percent of the 15,000 companies in this space – why not write about the 10,500 individuals who have signed up at www.no2point3.com to urge lawmakers to repeal this tax. There are probably 3,000 to 4,000 companies represented by those employees. More than 1,000 people have signed up just in the past three days and the paced doesn’t seem to be abating. That grassroots effort is the story.

Mark McCarty
Regulatory Editor at Clarivate Analytics
For now that would appear to be the case. I’ve contacted the Senate Finance Committee for my write-up, but we’ll see if they respond.

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
Mark, with that, the answer to Tom McCall’s original question is “No.”

Mark McCarty
Regulatory Editor at Clarivate Analytics
Update on this topic. Go to devicetaxwatch.com and you’ll see firms passing the tax along. It would appear that the ACA does not forbid this, but we’ll see if Congress wants to get involved. I’ll be covering this for the March 5 edition of Medical Device Daily

Joerg Schulze-Clewing
Electronics Design Consultant
Thomas, if your last questions was meant to each one of us personally my answer is this: As an engineer I must see the reality you outlined, the fact that the president is going to veto any attempts of a repeal. Therefore, I will (and have already, big time) branch away from medical devices development to a large extent. It’s sad, but it has to be that way. So now most of my consulting work is in oil/gas, industrial, aerospace, chemical pump control, and so on. Because the funding climate didn’t collapse there, those fields are actually doing quite well.

John Eckberg
Media Relations
Mark, You’ve put your finger on why I believe the large companies in this space were high-fiving in the hallways the day the ACA passed, particularly those with Big Pharma arms: the tax is yet another barrier to entry, for a large company it’s a haircut, that is, they lose $150 milion from profit but still have $2.85 billion in profit to play games with; they filled up the coffers of their Senate favorites and, well, President Obama so the ACA would pass, thereby keeping consumables out of this tax and bringing those Big Pharma arms 30 million new customers.

Unlike medical device companies, which will not see the benefit of 30 million newly insured patients, companies in the Pharma space will see that number of new prescriptions times four as 50-somethings are finally able to get heart medications and diabetes and cancer drugs.

The ACA in many ways is a noble and long-overdue piece of legislation. It’s just that this tax is dumb. If a company exists in part to sell products with the revenues going to wages, now companies have to sell products and pay a tax on revenues before they are directed to wages. It’s what you’d expect from a group of people (lawmakers) who have never run a business before, to be honest.

And I should point out that a 10% increase in local, state and federal tobacco taxes would have raised the same amount as this tax. So why didn’t lawmakers do that instead, after all, these are not stupid people nor did they get into the business of politics to hurt people? I think because of the reasons (above) and for one more reason: a tax of this magnitude will lead family-owned companies and companies on the brink of profit to throw in the towel and sell to the major device companies. Expect a fire sale on device companies in 2013 and 2014 unless this tax is repealed.

How can companies survive and an industry thrive when the tax rate is 50 percent, 60 percent or 70 percent of earnings while companies based in, say, Ireland, pay 12.5 percent?

Jamie Green, MBA, CMRP
System Director, Strategic Sourcing – Clinical/New Product Introduction at Baylor Scott & White Health
Not only will passing it on to current contracts won’t work, but also for future contracts. Hospitals, big and small, are going through tough times to keep cost down on a regular basis and adding this device tax to our bills will only help to create a relationship that won’t be so pretty. It’s already hard enough fight to keep down regular price increases and now to do it for a device tax that is between the government and medical device manufacturers; this should not be passed on to hospitals/healthcare facilities, period.

Mark McCarty
Regulatory Editor at Clarivate Analytics
I have to assume Max Baucus & Co. figured the device tax would not hamper revolutionary (PMA) products so much as evolutionary (510(k)) products and were comfortable with that. Assumes investors will always want in on the Next Big Thing, but suggests, too, that the pace of iterative change will abate. Frankly, fewer 510(k)s is what FDA wants – I don’t care what at the agency says, there is no doubt it’s what they want – so one has to assume Hamburg and/or Shuren didn’t advise Congress to avoid the device tax.

Fred Adler
President and CEO at Innominata dba GenBio
You said it, and I use EMERGO myself for my CE marks, 20% pro. I think that 20% will turn as they work on Form 720, IRS and see twice monthly prepayments. Also, for the comment back to me talking about NEW things for which there is no reimbursement code, good luck. I know biotechs waiting past year 3 to get anything other than out of pocket payors. So, you spend a fortune to develop something new and nobody pays for years? That does not work. That is why so many of us are selling outside of the U.S. with CE only. U.S. regulatory is so much more difficult and costly, we can’t afford it. We fund our U.S. costs with foreign sales and there you only have Europe since most Asian (you can’t do Japan either because of their regulatory cost and time) is lower reimbursements.

Mark McCarty
Regulatory Editor at Clarivate Analytics
Unfortunately for opponents of the device tax, the Emergo Group report that came out recently indicates that about 20% of firms doing business in the Americas are not worried about the tax. Proponents of the tax will use that to argue the tax is not especially problematic.

Would also add that firms with higher margins and/or great market share might find the tax appealing because it could weed out some of the competition.

John Eckberg
Media Relations
Here’e what scares me: a recent survey found that about 11 percent of companies in this space are going to lay off workers. Directly and indirectly there are about 15,000 companies that are involved in producing medical devices in some manner or fashion in the US. If 1,500 companies each lay off four people, probably 10 percent of their workforce, that’s 6,000 jobs lost…

John Eckberg
Media Relations
There are 418 public Medtech companies in the US and Europe. The after-tax income % of these companies compared to revenues, according to an E&Y report, was exactly 6%. This tax taxes one third of that profit, a profit that is eeked out, by the way, in a nation that has the highest corporate tax rate in the world. This tax crushes free cash flow and harms the vitality of our med device industry to the point of disaster.

Fred Adler
President and CEO at Innominata dba GenBio
No Paul The way it works is “reimbursement” codes at cms.gov. Insurances follow that. So the end user wants 60-70% if that, the distributor wants half of whats left so you are left with the low numbers depending on the levels of distribution. That is the fundamental failure to understand by Pelosi (who is a key pusher of this) and Obama who refuses to drop it even though we now have a majority of House AND Senate understanding how poorly conceived this tax is. IF something is really so new that company has spent on a PMA (years and millions in clinical costs), they need a return on investment for their shareholders who are largely union pension funds, retired people, etc. THe small start up is HIT the worst since many of them are NOT even profitable yet so they have to take operating capital which is BORROWED from shareholders and investors and pay this stupid tax.