todd basnight Add a comment...It is a penalty tax for doing well. To segregate taxes to a select group is in my eyes a crime. Just apply a flat tax across the board. That will eliminate the IRS and all businesses and individuals would pay there equal share.

todd basnight It is like the death tax, that 50% of your assets go straight to Uncle Sam- how can you tax the dead. It takes money from the family and gives it to system of government that spends money like a teen age Prom Queen. It should be called Taxed to Death Tax.
All They are doing is assuring that the medical devices are not created in the states and jobs are leaving to foreign countries because the tariffs are cheaper than the taxes

Heather Thompson Great question. What is challenging about the tax, which many others before me have pointed out, is that start-ups have to pay for the tax the minute their device is on the market—before they even show a profit. Since start-ups often have the most innovative technologies, the device tax signals an added burden in a new era that seems to discourage real medical device disruption.

Further: most companies have noted is that the device tax is not the only cost burden that they have to contend with—it is part of a combination of complexities. They also, for example, have to pay higher user fees this year, as well as implement a unique device identification system.

Finally, really. it is unfair. The majority devices cater to medicare and medicaid patients, capital equiment, or elective surgical procedures. That means that in the new era of thousands of new patients, very few of them will actually translate to more dollars for the medical device industry. We won't see an uptick in customers like pharma will.

Is all this enough to make the device tax seem like the end of the world? Perhaps not. But it sure seems like an unnecessary burden.

Mark McCarty I see the tax as having at least two effects. One is that the money from the tax used to finance enrollment in health insurance exchanges will in the end be paid by tax monies paid into Medicare, so to that extent it's a shell game.

To the extent that the burden is carried by Medicare beneficiaries (20% of the cost of a procedure sometimes, or added expense by Medicare supplementary coverage), it has quite an odd effect, but one assumes Max Baucus assumed the cost would not be passed on this way. That's unaccountably naive.

A second effect is that the tax favors the healthier firms in those markets that will not accommodate a pass-along, so some consolidation may occur, assuming some companies will find their margins squeezed beyond feasibility, but Heather's point about start-up firms is another consideration.

One suspects that Medtronic and other firms with huge market cap will find a way to provide a buffer for the little guys who innovate so much, but there will be squawking about whether a start-up whose finances are underwritten by the big guys are really independent, hence leading to questions as to whether they are truly innovative. Sounds like an indie film debate to me, but it'll take time to see how all that pans out.

Finally, I think the tax will boost device flight, which was already going on, but why add to it? Some of the job losses claimed by industry would have happened anyway, but one has to wonder what the point is in pushing a tax compliance cost onto industry when in the end, it'll be the taxpayer who foots most or all the cost, anyway.

The answer is politics of course. Device makers are the bogeyman and hence the path of least resistance. A bit like a sin tax when you think about it, but that's Washington for you.

David Pennington, PE One thing to consider is that medical device companies compete in the capital market for investor dollars with non-medical device companies. Unless the medical device companies can figure out a way to keep this new tax from affecting their profitability, and their return on investment, they will not fare well in this competition, going forward.

John Abbott Some good comments (I apologize for the title typo - keyboards have a mind of their own).

Regarding the "death tax" comment a quick response: I assume you mean the defeated inheritance tax proposal? The term "death tax" is pejorative and poor English. Better miht be a "living tax" since it is the living that pay the tax in the end.. Also I don't see how it applies to this discussion. Finally, there is the old axiom: "when you have won, QUIT FIGHTING!".

The impact on start-ups is a fair complaint although I would say that the tax is just part of the cost of doing business. And I used to work for a major multinational device manager. They won't "absorb" the 2.3%. They will roll it into the overall price of their products just as they do all overhead costs. Large and established companies always have a certain advantage over smaller companies in managing overhead costs. I am not so sure that this tax significantly changes this - but then I don't work for an SME.

I have also heard the argument that the tax contributes to "device flight". Problem is, I haven't seen any real data to support this. It is a great sound bite but will the tax REALLY be a measurable contributor? Remember that not all companies exist simply to make the most money in the shortest period. Many WANT to be part of their region's economy. If this argument were completely true there would be zero manufacturing in most western countries. Companies are made of people and people live and work where they want to live and work.

But back to the discussion: There have been some great comments but no one has yet addressed the issue of people wanting more than they are willing to pay for. Nor the question of an alternative revenue source. Any thoughts?

Mark McCarty To David Pennington: I alluded to the problem with financing for small start-ups in my remarks about Heather Thompson's comments.

My impression is that the demand for devices is persistent and will always draw at least some financial interest. Question is how much and will larger firms step in to help when advances begin to lag.

For John Abbott, I would note that its going to be tough to derive data as such unless someone studies it. I did say device flight was already an accomplished fact and that the tax would only exacerbate it. Dan Moore of Cyberonics said he had decided to locate a plant overseas in part because of the tax. But if you're looking for numbers, someone will have to finance a study.

Mark McCarty Let me clarify regarding the remarks by Cyberonics' Moore. He said in congressional testimony that a decision to locate a facility outside the U.S. was "tied to the device tax" at a hearing for a House Ways and Means subcommittee on March 5.

Just because he said it does not make it true, but when you add the cost of the tax to compliance costs associated with the tax, it does make sense that an operation that was borderline about going overseas before the tax might find the tax and associated costs provide the coup de grace.

Todd Staples, MBA John, Let me give you a different perspective to view this tax from - Imagine if I were to tell you the world's ocean level in every part of the world was going to rise by a uniform 5ft? Now, if every coastal area were the same, the effect would be equivalent as you suggest is the case with this tax. But the truth is, some areas are low lying and others are mountainous, which is also true in the medical device industry, every company has differing levels of profitability, and it is unfair to assume that everyone has the same level of Net profit from which to extract this tax. Now if it were truly NOT a competitive issue as you mention, the tax would be on Net profits, and therefore 2.3% of my small pile is just the same as 2.3% of your bigger pile. Because it is on revenue, and all companies feel it the same, this means those with single digit profit margins will fee the effect disproportionately to the larger companies.

Case in point - Ernst and Young's "Pulse of the Industry Report 2012" shows us that the top 30 US MedTech companies (those selling over $1B) collectively had a 22% increase in Net Income in 2012. A 2.3% tax on those guys probably won't be catastrophic. But the remainder of the industry, those selling less than $1B annually, collectively only make up 17% of the revenues in the US, but that grouping on the whole had a -186% decrease in Net income (loss) so guess what? That loss just climbed even higher, or deeper depending on how you look at it.

So much for supporting small business. This isn't about politics, it is about fairness, and taxes on profits are fair, taxes on top line revenue are small business killers. Pretty simple.

Keith Kretchmer Excise taxes are presently levied on may types of products in many industries. The Medical Device Excise Tax is but the newest one. Though I haven't analyzed the impact of these excise taxes on the various industries historically, my impression is that these taxes have not caused the wholesale collapse of the telecommunications, fishing rod, and other industries.

David Pennington, PE The excise tax--luxury tax, to pay for the 1895 Spanish-American War--is not a good choice for comparison, for the very reason that it has been around so long that it is part of the landscape. This new tax has significant issues surrounding it that make it harder to determine just who pays and who collects the tax. Medical devices are not free-market products, as fishing rods are. The reimbursement schedules regulate many prices. It's not so simple as you make it sound.

My previous comment about capital markets and investors was a broad statement. Publicly traded companies compete on the stock exchanges for capital dollars. So it's not just start-ups and venture capital markets that are affected.

To John Abbott's original question: one purpose of government in a representative republic is to utilize the resources available to it--time and expertise--to craft sound public policy. The fact that the public may want more services than it wants to pay for (John's statement of the matter) only serves to underscore the importance of those who govern doing two things well: crafting sound public policy, and educating the public so it understands.

Utilizing the criteria the FDA applies to drugs and devices for the use of the term, corrupt, we most clearly have a thoroughly corrupt government, in this regard. Not only do those in Washington neither craft sound public policy, nor educate the public, they do the opposite, throwing together adulterated public policy while fanning the flames of ignorance to generate popular support for same. The ACA is only excellent as a case in point.

Mark McCarty I don't think anybody's arguing "wholesale collapse." To me, the most conspicuous things are the tax will be passed back to the government - including cost of compliance - via Medicare, and second, it comes at a time when industry is already moving offshore in significant numbers. The tax is more than a bit irrational as a matter of industrial policy. People who fish for fun will pay an additional 2.3% to catch fish and it does not affect the federal budget. This does.

Todd Staples, MBA @Keith this new excise tax simply says to our Medical device companies "if you cannot survive on X-2.3% margins, then you have no place in this industry". Sounds manageable when you look at big industry leaders who saw an increase in Net Income of 22% last year, but for the commodity manufacturers that sell for pennies on the dollar for profit, taking another 2 or 3 cents puts them out of business.

So, how does our industry changes when selling commodities is no longer even mildly profitable? That's an easy answer - prices go up for the commodities, or of course they just start flooding in from China in greater numbers as the American commodities are priced out of the market. This is starting to sound familiar isn't it? Where was that fishing pole manufactured again? How about your iPhone?

Two objections to the tax. First of all it is part of a purported "affordable care" act. It seems counter-intuitive to institute a tax that will be "passed through" to the consumer thereby making it less affordable.
Secondly, the tax will divert investment from medical devices to other areas of the economy. That 2.3% revenue tax may cause an investor to put their money behind a new type of junk food rather than a new medical device just because of the difference in profitability.
It hurts budding, unprofitable, start ups more than established manufacturers. The path to profitability of many successful medical device companies is on the order of 5-10 years. That is 5-10 years of additional tax (venture investment) that is necessary in medical devices that exists in no other industry. It is asinine...but not the end of the world.

John Abbott Great discussion and some very well thought out arguments - although a few are difficult to support without proper research. That said, I still ask the question: "if not 2.3% on medical devices then where?". It is EASY to just say "repeal the tax!" It is not so easy to identify and implement a viable alternative.

Todd Staples, MBA John, you are asking a great question and I think very few in our industry would have been vehemently opposed to a 2.3% tax on PROFITS. The largest part of this legislation that really isn't fair is the fact that the tax is on revenues, which presumes that all companies in the sector operate at a fairly consistent Net margin. A simple check of public data reveals the discrepancy with that logic. Perhaps including the most rapidly growing sector of healthcare (HIT) could have allowed the same tax revenue to be generated and would have allowed the tax to be placed onto profits. Medical Devices and Pharma are now both two of the most heavily regulated sectors, and capital investment into these has consistently been moving to other industries where government has little or no role in profitability.

Mark McCarty I think the question of whether the device tax misses the point. Anyone with even a passing understanding of the economy knows this will end up being paid by the taxpayer, and to a lesser extent, the Medicare beneficiary. If you want to fund health insurance exchanges and stick the taxpayer with the bulk of the bill, this is one rather convoluted and disingenuous way to do it. Repealing the device tax would simply force policymakers to confront the idea in a straightforward fashion.

"Fair" has zip to do with it. It's whether the device tax is sound economic policy, a test it flunks because it's absurdly convoluted and some of it will be paid by Medicare beneficiaries. There simply is no getting around it. Some of this will be paid by Medicare beneficiaries. I'd like to see supporters of the tax deal with that point. I'll be dead before that happens.

If you want an alternative funding mechanism that avoids the smoke-and-mirrors approach, just tell the taxpayer up front they'll have to pay more in income or Medicare taxes in order to fund the health insurance exchanges and let them have their say. Really, is there any other way of doing this without trying to fob off yet another ridiculously dishonest explanation on the taxpayer?

Fantastic discussion!

Don Rosenkoetter The very good comments provided above reflect a very high level of rational angst created by an irrational act. Observations are that:

1. We are agonizing over logic where there is none.

In economics we learned that any tax on manufacturers / suppliers will ultimately be passed on to the end user to enable the true value providers to maintain margins and shareholder returns. This tax on value providers to help support healthcare improvements must therefore ultimately result in hirer cost to the consumer / payers with no benefit to the accessibility, standards of care or clinical outcomes.

1. We are looking for "fair". When it comes to taxation fair is a place where people throw cow-chips for distance.

Any tax on revenues is discriminatory to those at the lower end of the economic spectrum since the effective tax on basic needs (read break-even) is far greater that for the wealthy (read high margin). So the tax is far less onerous to those mature companies with higher margins and those who enjoy an ability to either raise prices to offset the increased tax burden or can introduce a "new and improved" version at a higher price. Who loses: the lower end of the food chain, typically lower technology content products, which are the most vulnerable to foreign low-cost competitors and the early stage companies that need to invest in their growth and are often the birthplace of solutions that generate clinical and system-cost improvements.

Hmmmmm . . . is it not a pillar of the administration that we should keep existing jobs at home and provide succor to the new and exciting companies that generate new employment and societal benefits, as well as an expanded tax base? Guess it's back to point one above.

All of this would make for good entertainment were it not for the real world cost in human suffering that results from the loss of jobs and diminished clinical outcomes.

Stephen Glassic I have read about a great deal of promising research in the areas of medical diagnostic and treatment that have the potential to greatly improve patient outcomes at a fraction of the cost of many current diagnostic and treatment methods. These current technologies are a huge cash cow. If some of the promising research that is currently in progress were to make it to market, that cash cow would become very sick. The cost of medical care could be significantly reduced but it could have a huge impact on the large medical device and pharmaceutical corporations. In turn, it would cause a reduction in jobs in the industry and a huge upset in the financial market. It seems to me that science and technology is currently poised to accelerate at a faster pace than ever. You might say that science and technological advancement is like a caged pit-bull ready to escape as soon as it has a chance. The tax has strengthened it's cage so it won't be able to get out and attack the cow. It will only be able to take little bites through the bars. I don't know if it is a good thing or a bad thing but I would say that if the pit bull gets out it could certainly tear up the cow. Could this be one of the underlying reasons the tax was conceived?

Mark McCarty That sounds a bit like conspiracy theory if I understand your remarks correctly. I'd point out that the large firms are easily able to buy out their smaller brethren, a routine practice of late. I don't see a business case for using the tax to keep innovation down when the larger firms rely on those innovators to keep their product pipeline stocked. No doubt there are exceptions, but this is how the R&D environment works for the most part that I'm aware of.

Can you give some examples of diagnostics and treatments that can improve outcomes at a fraction of the cost?

Clifford Thornton I'm surprised no one on here has mentioned the further product development and supply-line risks that the medical device industry here in the U.S. would be impacted by in the case of a major war (occurring on the turf where operations are outsourced to) or major global political shifts of power (through currency shifts or geographic power grabs).

Looking to history, most of the battles during WWII were won or lost due to logistics/supply-line strategies/tactics. Things turned dramatically in the war once the Allied powers figured out how to militarily defend more effectively against the U-boats.

Also, the cost of your raw materials used to make your medical devices could increase dramatically under this scenario, making cost-savings in foreign labor/overhead costs irrelevant.

I'm wondering if we have any participants here who are Alumni of major War Colleges, either in the U.S. or within the country of one of our major allies, or current or past commanders/captains of military units.

Todd Staples, MBA I certainly wouldn't put much stock into the idea that America will be threatened militarily by policies that push commodity manufacturing overseas, after all do we manufacture ANY electronics in the US anymore? Even Blackberrys brought to us from our more liberal friends to the north are manufactured in Mexico, Brazil, Hungary, and Malaysia. Just like in WWII, should the need arise manufacturing lines here in the US are easily changed and production can be ramped very quickly in times of national need.

The concern with commodities in the medical market is very real however, because though they make up a much smaller piece of the Medical Device revenues generated annually, their Net margins are generally single digits margins, and a 2.3% revenue tax cuts directly into that margin. So for example if a commodity knee brace maker has a 5% Net margin, that is 5% of their revenues that they retain as Net profit. 2.3% MDET comes right out of that so now they have a 5.0 - 2.3 = 2.7% Net profit. Ouch. Commodities are manageable business generally because a low margin is sustainable with sufficient volume. It is my opinion that further driving down profitability with commodities will drive these companies out of business while foreign commodities will fill the void. We have seen this exact trend in numerous other industries.

Clifford Thornton Thanks Todd for your very detailed and knowledgeable comment. That is good to know there are solid options to adapt to any major changes in supply-line brought on by war or major political instability. My goal here is to highlight how the availability and supply of life-saving or life-sustaining devices (such as cardiac devices) could be threatened by a war/political shift. Additionally, as the current costs are already a major deciding factor in the use of these life-saving devices, an event as specified has the potential to swiftly and dramatically raise their costs even further, potentially putting them completely out of consideration for some.

I just wanted to point out that I specifically worded it to point out the risk created if the country where operations are outsourced to are attacked/infiltrated by an enemy force. Also, the ensuing battle is likely to disrupt or terminate flow of raw materials or parts of finished components.

Frankly, I'm concerned about tensions in North Asia/Sea of Japan. I can't say I know enough about the industry to comment on what percentage of overall product/components (in terms of volume or the equivalent translated into a dollar values) originate in that geographic area, however I'm guessing it is not negligible.

It seems a counter-strategy commodity device type makers can employ is to source from multiple suppliers (spread across geographic areas, when possible). Or perhaps they can do some product research and find other market applications (medical or otherwise) for one of their components or utilization of their factory assets to produce a revenue producing product. This was, in a way alluded to by others, in previous comments.

Paul M. Stein Is the tax the end of the world? No, not by a long shot. The old, established medical device companies stopped doing internal R&D years ago, so only the start-up medical device companies are producing new devices to treat unmet medical needs. They never produced anything in the pre-tax era, so any price they come up with for brandy new devices will have the 2.3% mixed into their new device prices..simply as a cost of doing business. Hence, no effect whatsoever for anything new. The large medical device companies who acquire these start-ups will simply carry on the old prices, so again, no effect there. It is only where old companies keep selling old stuff where the 2.3% can cause any pain. But, because they lost any real effort to push themselves to revolutionize themselves and their products, shouldn't they deserve to be hurt? Aren't we taught the principle of survival of the fittest in business? Yes, there are unfortunate ramifications for these companies becoming so stale, in the form of layoffs, but where should the blame really fall, on the Government for creating the 2.3% excise tax, or the Corporate "Leadership" for creating the exact economic situation that set the company up for the fall?

US corporate tax rates are among the highest in the world when you take the national tax rates of 35% and local rates of 0 - 12%. In looking this info up I saw a few small countries with 40% rates and one as high as 48%. The rest of the world was 35% and below (most below). If you take the US 35% and a local rate of 12% added to that you're up to 47%. Profit margins of med tech companies typically range from 5% to 15% maybe higher for a handful of companies as a percent of sales. The Med Tech tax amounts to an additional 15% to 50% of profits so yes the Med Tech tax is a big deal. It hurts shareholders saving for retirement, companies trying to raise capital . . .etc not too mention the higher cost of doing business. So if you tax the Med Tech companies for helping to pay for healthcare, why not add an excise tax to heavy equipment companies to help pay for our roads . . oh and how about an excise tax to publishers to help pay for public libraries and why not an excise tax for airlines to pay for airports and air traffic controllers. Where does it end?

Clifford Thornton Bill, great points. I think that's the point. Under our current administration there is no end in sight. If the trajectory of these trends are not changed in the next administration or the following I'm wondering if the fundamental business models and incentives for creating, investing in and growing a business that exist today will be relevant in the future. If all businesses are forced to run on paper thin margins just as the RBOCs ended up doing, what does that mean for innovation, investing & returns, and general economic growth and prosperity?

We, as a nation, have to ask ourselves, how far down this road are we going to go before it's too late to turn back? Perhaps the med device Cos have been targeted due to the fact that price increases, brought on by the transfer of taxes to the final invoice, are not as transparent as with other industries. Either that or the government just thinks that these companies can get by on much thinner margins. Clinical diagnostics are taking a hit too.

We failed to improve the healthcare system in the 90s, we failed to reduce and control costs of chronic diseases, we failed to modernize and better sustain the medicare system, we got ourselves into two major wars, in which outcomes are zero sum gain and wasted billions and billions which could have paid for said revamps many times over and now we are paying to high price of our failures and poor decisions.

The problem is the American public does not read enough. Most people are happy watching the 5:00 news (and the relevance and value of this is more and more of a joke) and "The Voice" and calling it a night. So, we have many uneducated voters (as in uneducated on issues). And not really dedicated to the political process. Even with the last very hyped Presidential election we only saw approximately a 57.5% voter turn-out. Source: Statistic Brain (http://www.statisticbrain.com/presidential-election-voter-statistics/). Compare this with (these are 2003 figures and in this study the US was at 67%): Finland (77%), Singapore (95%), Iceland (86%), South Korea (81%), and Russia (69%) - Source: NationMaster (http://www.nationmaster.com/graph/dem_pre_ele_reg_vot_tur-presidential-elections-registered-voter-turnout)

This is the real, tough, reality, plain and simple.

David Pennington, PE Good ideas for raising additional "revenue", Bill. I'll forward those to my Congressman...tomorrow. ;-)

John Eckberg It is the end of the world if you are a small company, employing a few dozen or more and you have to compete with companies based in Ireland, where there is a 12.5 percent tax. This device tax is the log that breaks the camel's back. Emergo predicts, based on a recent survey, that ONLY 11 percent of the companies in this space are going to lay off employees.

So, that's 1,500 companies laying off, say, five percent of their workforce and since the average company in this space has 100 employees, call it five employees per company. That totals 7,500 companies.

John G's analysis is great if you're a sophomore in high school. This tax takes the effective tax rate for the average device company in the U.S. to somewhere between 40 percent and 60 percent of earnings. Anybody thinks that's not a big deal is just not paying attention. The tax won't be passed along - we're not talking about MP3 players here - so companies will have to eat it.

Pay attention to what Bill Dickinson has to say, particularly those who claim to be in the media/journalists but haven't bothered to do the legwork to call up a half-dozen companies or, imagaine that, a dozen companies to find out who this tax is going to hit them. I remain the media relations director at Cook Medical and just now an woefully depressed at how few people on LinkedIN in this space understand how terrible this tax really is.

David Pennington, PE My read on the situation is this:
a) We have the 2.3% tax on medical devices. That's law.
b) The President and his party have been clammering for new taxes since forever, and now they have power. The "other" party is practicing its "roll-over-and-play-dead" trick. Together with the Federal regulation mill, this makes for a business-hostile environment for the foreseeable future.
c) This is just the "first" new tax, with more to come, as the true cost of the ACA comes to light.
d) I am not a manufacturer, nor do I advise any, but now looks like a good time to move off shore, and yesterday would have been better.

David Pennington, PE 'Irreversibly losing a leadership position' strikes a chord for me. One of my former employers had enjoyed a 70% market share with a particular medical device. Responding to some erosion of that share to lower cost, less durable competitive devices prompted a decision to "blow the market away" with a new feature-packed replacement product at a lower price. Unfortunately, it did not work well, and shipments became negative, as production was halted and customers returned what they had received. Five years later, problems fixed, but reputation shot, we had clawed our way back to a 4% market share. We probably only achieved that because in our therapy niche, we had a 60+% share over all.

There are many ways to lose a leadership position, but once lost, for whatever reason, it's unlikely to be regained.

gordon collins all of these words being thrown about from high school to doctrine level... use the KISS method folks.... it is simply a way to raise taxation.... and yes it will/is detrimental to business....

John Abbott Hmmm... then maybe we need more high school sophomores and fewer so-called "financial experts". My observations are less "analysis" (since I am not an economist but simply a lowly engineer) but rather big-picture macro questions. Economists can analyze the problem to death , develop models that support their positions, and pick anecdotal cases here and there but in the end, it all devolves down to the consumer (as other have said) and the issue of wanting more than he is willing to pay for. Will the tax drive some companies out of business or out of the country? Almost certainly yes. But would they have eventually died or moved out anyway? Many of them, also certainly yes. My question was whether the 2.3% tax is really the end of the medical device business in the US as many opponents seem to be claiming. Some seem to say yes while others say it is simply one more straw on the camel's back while others seem to say it is the natural order of things and that the business will settle out with little of no real difference.

As I have said, I neither support nor oppose the tax. However I do expect the opponents to do more than "just say no". Propose and actively lobby for alternatives so that we, as a society, DO begin to pay for all the things we want.

David Pennington, PE @John - You do us all a disservice by disavowing taking a position.

John Abbott I disagree. If you check my original post, I started this to engender discussion on an important topic. I am neither an economist nor a company CFO so my opinion one way or the other would have unnecessarily colored the discussion form the start. I simply have questions both for the proponents and for the opponents. Perhaps after this discussion has played itself out, I'll feel comfortable taking a stand one way or the other. But not now.

David Pennington, PE The ACA is somehow noble?

To borrow from the late Richard Feinman, "Surely, you're joking, Mr. Eckberg."

John Eckberg David, No, it did have noble intent. There's no doubt about it. We can afford to bring peace of mind to those Americans who are without health insurance or cannot get it because of a pre-existing condition.

David Pennington, PE I disagree completely. The ACA was never about accomplishing those noble-sounding goals, it was always about what it will lead to shortly: eliminating the private insurance industry and instituting a single-payer, government-run healthcare system in this country. (I was listening carefully to what folks like Sen. Durbin and Rep. Schakowsky were telling their critics from the left. Besides that, I read a considerable portion of the legislation, and talked with others who had analyzed it as well.)

There was analysis as long ago as 2009 that showed that virtually all of those uninsured before the passage of ACA would remain uninsured once it was enacted. More recently, we have learned that even more people are being added to that number as its full implementation approaches.

We cannot--and it's readily demonstrated using nothing more advanced than high school practical math--"afford to bring peace of mind to those Americans who are without health insurance or cannot get it because of a pre-existing condition".

As one healthcare executive opined to me, "We can afford to provide everyone with healthcare that is not more advanced than what was available in 1955, but that's about all we can afford."

Those goals, as stated, are not noble. They're the stuff of '60s head-music: "Imagine", if you will.

Keith Kretchmer Some comments:

Help me understand how the MDET is avoided if domestic manufacturers are "pushed offshore." If these manufacturers' products are imported and sold in the US, then they will still be taxed on sale regardless of where they were manufactured.

The full impacts on our industry of the MDET remain to be seen.

I believe that the ACA WAS about accomplishing these noble-sounding goals. Some members of Congress and the Administration pushed hard when for a single-payer system during negotiations about the structure of the ACA, but this did not appear to be pragmatic or politically possible at the time. Bringing in the existing private insurance infrastructure to the resulting law was a brilliant political stroke, because the private insurance companies have a vested interest in the implementation and successful outcome now. Whether a single-payer system is the ultimate step or not also remains to be seen and cannot be predicted now.

The ACA is not perfect at all, and it will surely be refined and improved as time passes and we all see more clearly where these improvements need to be made. Medicare wasn't perfect when it was passed. But--the status quo in our health care system in the US is dysfunctional and unsustainable. The ACA is a huge step to correcting this situation.

Frankly, there is still a lot of hand wringing going on about what will happen with the various provisions of the ACA as they continue to come online. As we all observe and learn where the problems are, we can work to correct and improve the ACA.

John Eckberg Hello Keith, The problem is that even though the evidence is obvious (thousands of jobs shifted to low-tax nations by global giants in the past year) changes have not come to the ACA. Congress Members don't like change very much, I guess. And the Senate can't tolerate it at all.

Here's why this tax chases companies to Costa Rica, Mexico, Canada and Ireland. It's not to avoid paying the tax. As you pointed out, the tax is on the U.S. sale so it's unavoidable.

But this is what happens: companies can manufacture a catheter in Ireland and pay a 12.5 percent tax on Irish earnings (not revenues) then bring it into the U.S. where it is sold and that triggers the 2.3 percent tax on revenues from that sale. A 2.3 percent tax on top line revenues, for the sake of argument and this conceit, yields a 15 percent tax on earnings. (For some companies it may well be way higher and for a few others lower but just say for the sake of this example, it's 15 percent). That's a 27.5 percent tax rate.

Say the same catheter is manufactured in the U.S. - in a small town like Spencer, IN. way out in the heartland. That Spencer catheter is taxed at 35 percent under the traditional U.S. tax rate (though job creators get a few points of credit so it's lowered to 33 percent). Tack on the 15 percent equivalent from the new tax on top line sales PLUS another 5 percent in state taxes for a combined rate of 53 percent.

So even though both catheters are subject to the excise tax, the catheter made in Ireland gets a head start of about 25 percent from a tax rate that is far far lower. You're a device company executive: where are you going to have the catheter made? Where's your next catheter factory going to be built? Not in Spencer, that much we know.

David Pennington, PE The most depressing thing to me is to find folks on this forum defending the ACA. We are most certainly doomed, economically, and the good healthcare we have enjoyed in this country is soon to be a thing of the past. If the people on this forum cannot see that, to a person, there is little hope of stopping the damage.

Joerg Schulze-Clewing Folks, this is the hard reality and shows that "Oh, they'll just have to pay a little more" is not a good idea:

http://www.cnbc.com/id/100324088/The_039Real_Loser039_in_the_Medical_Device_Tax

In my line of work I can clearly see the trend described in the article. I am a consultant and used to work mostly in medical devices. Now that is down to well under 10% and I have migrated into non-med fields. Which is ok for me but stuff like that does not bode well for our country. We are in the leadership position when it comes to med tech. We are obviously headed towards a socialized medicine system such as we have it in the UK or Canada. Now we should take a look at how many successful med tech start-ups there are in those countries, versus in the US. Quite likely this shows us what's in the cards for our future.

How easily and irreversibly we can lose a leadership position has become abundantly clear in other fields, such as LCD technology.

John Eckberg Okay, John G., let's see. I'm no tax expert but it's not too tough to come up with some better ideas than a dumb top line tax.

No. 1. A 10% increase in tobacco taxes local, state and federal would have raised the same amount as this tax without crushing the free cash flow of companies that are striving to bring innovation to market. Innovation in this space means less suffering, less mortality and more families preserved. That's one alternative. Should be top of the list.

No. 2: Since the otherwise noble ACA seeks to bring health insurance to tens of millions of Americans, the cost of that effort should be spread across multiple industries with a focus on global giants in order to preserve the thousands of companies with relatively small payrolls. So, since there is $1.4 trillion of profits held in overseas accounts by U.S. companies that have already paid taxes on those profits in those jurisdictions. These companies, for good reason, refuse to bring the profits back to the U.S. because it's already been taxed once. If those overseas profits were allowed to be returned to the U.S. over a 10-year schedule and taxed at 2.3 percent, it would raise $3.2 billion annually for healthcare.

And if the repatriation mandated that the funds be spend on wages/jobs, that would pump at least another $700 billion into federal coffers through more payroll taxes and social security taxe collected.

No. 3 - Since automobiles cause much of the trauma in emergency rooms, a tax on automobiles (and tires) is justified, say $100 a car. That's $1.5 billion.

No. 4 - Tax carryout soft drink sales and fast food sales.

No. 5 - If the ACA is bringing device companies new customers, which it's not, then tax profits or earnings from the marginal increase - not the top line.

Sometimes, usually after I read a chat string like this one on LinkedIN or spend a bit of time considering the tens of thousands of journalists in this country who have managed to avoid writing in depth about this tax - sometimes I walk past the work stations where the real work is happening at Cook Medical. I consider the thousands who are diligently creating devices that save lives and preserve families and how they do it day after day. I think about the jobs that ought to be here in the U.S. instead of places like Ireland, Costa Rica, Mexico and elsewhere.

And if I'm feeling bad about the tone of a comment I've made or the tone of a story pitch I've made, I return to those workers and realize that this is a fight worth fighting. Check out the Web site http://www.no2point3.com/corporate-leaderboard ...This is a fight worth fighting.

Stephen Glassic Maybe it should be renamed HRA (Healthcare Reduction Act) since this is the effect it will ultimately have in its current form. They should be doing more meaningful things such as facilitating research in the areas of preventative medicine, early disease detection and prevention and more effective and economical treatments. They should also be promoting and facilitating the practice of preventative medicine. I don't know how it is in other states but in New York, many of the less expensive health insurance options require higher co-pays or limited or no visits to your PCP. This only causes more visits to the emergency room or urgent care after a condition escalates to the point where more expensive treatment is required. There should also be an aggressive campaign to promote healthy lifestyle to reduce the incidence of obesity and all the health problems that come with it. This could include exercise and healthy recreational activities in the workplace and in communities, and healthier eating habits and food options. There may have to be some incentives put in place along with an aggressive campaign.

David Pennington, PE @Stephen - You get it. I'm encouraged. I like your recommendation: HRA. I think I'll start using that.

Education and research are important, but freedom is, too, for many of us. The problem we are coming up against is the desire by a large number of our fellow Americans to provide "healthcare for all", which means that the cost of the consequences of individual free choice will be borne by all, not by the individual.

The inevitable resolution of this conflict will be to curtail individual freedom. The irresistable driving force behind that will be the critical need to control healthcare costs. It is just one of the many forms of rationing that will take place. (Reducing care for the elderly is the first and most obvious.)

The Social Contract, such as it is, will be--ah--renegotiated. (Actually, it will be dictated, but you get the idea. We are now living out what the writers of "Animal Farm", "Brave New World", and "1984" described. I can hardly wait for "Fahrenheit 451" to get its day.)

Keith Kretchmer When our cost per capita of delivering health care in the USA is among the highest in the world, and the outcomes are statistically poorer than those of most of the other developed countries, and substantial numbers of people have no insurance coverage and are bankrupted by a major illness, then our current healthcare system is broken and dysfunctional. The ACA, imperfect as it is at present, is a major, necessary, and important step to fixing our broken system.

I'm not buying the "curtailing freedom" argument. All of the other major industrialized countries have figured out how to organize their healthcare delivery systems to make them more cost efficient, efficacious, and equitable than our present one, not that these systems are perfect either.

John Eckberg Hello Keith, If you just dropped all medical device spending out of the U.S. healthcare equation, every last dime, essentially made it an industry of non-profits... that would lower the nation's healthcare bill by a whopping five, maybe six percent. That's all. Just six percent. The cost per capita of delivering healthcare in the U.S is not the fault of devices. This industry, in fact, is the leading edge of why costs haven't risen even faster.

This in MassDevice (not saying I have a clue about the true estimate):

Economist: Medical device tax would push 146,000 jobs overseas
http://massdevice.com/news/economist-medical-device-tax-would-push-146000-jobs-overseas

David Pennington, PE When I worked for the major multinational firm that's on my profile, our census was about 40,000, and our annual sales were around $11 billion. Is it safe to estimate that 146,000 jobs represents about $44 billion in sales by domestic firms?

As I recall, we were looking for something north of 10% profit, after taxes, or $4.4 billion. If that sum is 60% of gross profit, moving that off-shore represents a loss of tax revenue (national and local) of $2.93 billion.

Is that a reasonable estimate of forfeited tax revenues?

Charles Collier I came from a small medical device business that I help run for 42 years. This tax is nothing more than the Federal government recognizinging that there was a market segment that was profitable and they needed to extract more mony from. It's nothing but greed on the part of the Feds. No amount of money will satisfy their agenda.

David Pennington, PE Those who want to regulate and tax the activities of the productive, and subsidize (buy votes from) the unproductive, are very fond of the word, 'greed'. They have the meaning turned 180 degrees around, of course: it is not greed that motivates the productive to keep possession of the fruits of their labor. It is the height of greed, on the other hand for the unproductive, and their representatives in government, to insist that they "have a right" to a share of the produce, merely for having a pulse.

And you are right: ask them to name a percentage of taxation, above which they would not go, and see if you get a coherent answer. Odds are against it.

Don Rosenkoetter David, Not sure about the $. Am sure that when thinking about individual cases and trying to extrapolate it is pretty easy to get hung up in one's drawers. . . and people study this stuff for decades and cannot agree. My logic issue is that I assume headcount in the census includes sales, marketing and admin positions which would not be exported. And if goal was Net Earnings of $4.4 billion after tax . . .that translates into around $7 - $8 billion pre-tax from $11 billion in sales. . . . leaving $3 billion for manufacturing costs (labor, materials and factory overheads) PLUS sales, marketing administration, interest etc. . . . even if the 10% were pretax the issue remains.

Perhaps a simpler way of approaching the economic impact is something like this:
- for every job that is lost / exported another .50 -.66 jobs are lost at the company's previous suppliers coupled with the trickle down effect impacting employment at restaurants, car dealers, consumer electronic stores etc, etc.(from EconomicPolicy Institute) So the true impact on the US economy becomes 1.6 x direct jobs / wages lost or exported.
- the jobs being relocated are primarily factory workers. Their average cost in the US is $23 / hour in wages and $8 in benefits (Bureau of Labor Statistics) for a total cost of $31 / hour. Assuming compensable time per year is 52 weeks x 40 hours per week x $23 / hour we get a direct wage loss of about $ 48,000 per job (excluding benefits). The full impact per job loss on the economy becomes $48,000 x 1.6 or about $77,000.
- Therefore exporting 146,000 jobs can be very roughly estimated to have an $11.2 billion impact if you buy the 146,000 figure (which my sensibilities, absent hard analyses, believe to be at the very high end of the register).

My math is intentionally simplistic and may be fuzzy headed . . . but the number will be very very large regardless of your methodology. . . and that's the point

David Pennington, PE I like your approach.

You're saying we're taking $11.2 billion out of the U.S. economy, in direct labor costs. I recognize there are other losses, related to utilities, facilities, etc., but I'm willing to ignore that for now.

Given the assumptions you've suggested, the tax revenues lost will come out to something just shy of $2 billion, federal and state.

On the flip side of that coin is the cost of the safety net: unemployment (beyond the insured coverage), food stamps, and other government assistance. I'd be surprised if that only added another $2 billion to the government liability, bringing the total impact on government to about $4 billion.

How much revenue is this 2.3% tax supposed to generate?

Keith Kretchmer @John Eckberg: I agree.

I am neither defending nor campaigning against the MDET. It is but one of many mechanisms for funding the changes in the structure of our healthcare delivery system mandated by the ACA. My sense is, despite the handwringing and doom and gloom prognosticating, that the effects on employment and production in our industry of MDET are still largely unknown since it has only been in effect since January 1. I value and remain interested in this discussion and appreciate the many contributions here.

Notwithstanding the pros and cons, this tax is simply bad policy. Any tax requires a cost of administration and has an economic drag associated with it. For example, studies have shown that every dollar of income tax has a cost on the economy of about $1.60 (including compliance costs). I suspect the drag this tax has on the economy is significantly greater than 2.3%. Look at time people on spend in this group discussing it!! If, as you state above, this tax is simply going to be passed through (which I agree, it will) and the tax goes back to the government, who in turn uses it to pay for healthcare, on a macro level what has been accomplished other than the shifting of cost and tax burden. As a tax professional, from a policy standpoint this is the most asinine tax I am aware of in the US or any other country. Unless the intent was to shift burden, the tax was very ill conceived.

George Walls Why single out one industry? If a 2.3% tax is good for device manufacturers why not apply it to all companies in the country?

Answer ... because that would take 2.3% directly out of GDP (or at least transfer it to government) and have dramatic economic impact. I suspect while it would not be Armageddon, it would have enough impact that no one would ever propose it.

To return to my question, why single out one industry? Wouldn't things be better and more efficient if all companies paid the same tax and had the same tax breaks?

John Eckberg On Wednesday, Senators Hatch (R-UT) and Klobuchar (D-MN) proposed an amendment to establish a deficit neutral reserve fund to offset a repeal of the device tax. Repeal backers expect the amendment to be offered as a part of the Senate budget resolution currently under debate. Below is a list of Senators who are currently cosponsors on the amendment.

Arizona Jeff Flake (R-AZ); Georgia Johnny Isakson (R-GA); Idaho James Risch (R-ID); Indiana Joe Donnelly (D-IN), Dan Coats (R-IN); Iowa Chuck Grassley (R-IA); Kansas Jerry Moran (R-KS); Massachusetts William Cowan (D-MA), Elizabeth Warren (D-MA); Minnesota Amy Klobuchar (D-MN), Al Franken (D-MN); Mississippi
Roger Wicker (R-MS); Montana John Hoeven (R-MT); New Hampshire Kelly Ayotte (R-NH); North Carolina. Kay Hagan (D-NC) Richard Burr (R-NC); Ohio Rob Portman (R-OH); Pennsylvania Bob Casey (D-PA), Pat Toomey (R-PA) South Dakota John Thune (R-SD); Tennessee Lamar Alexander (R-TN); Texas John Cornyn (R-TX) Utah Orrin Hatch (R-UT)

If your Senator is NOT on the list above, reach out to them with a phone call or letter. Write a letter to your local newspaper and encourage their support of the amendment. Or, to contact your Senator and urge them to support the amendment, please cut and past this into your browser:

http://www.capwiz.com/mdma/issues/alert/?alertid=62528356&type=CO

todd basnight Covidian Is now moving its plant in Alabama to the virgin islands. My wife and I was looking at leaving California because the industry is dying here, all are leaving for Mexico because of the free trade agreement . Covidian is closing the plant in two years because the tariffs are far cheaper than the tax and if the ship it to Mexico it is free trade across the border all they have to do is rent a warehouse.
Our present government does not realize that it is the wealthy that employ people (no minimum wage ever employed anyone) And they have the capitol to leave the country.
The president and this system of present government is not good for business. socialism is not capitalism.

David Pennington, PE @George - I rather imagine that has been discussed. It would "level the playing field", afterall. All of this is a prelude to the VAT, of course. Tax the living daylights out of everybody, but conceal it, so no one knows quite how much.

I agreed with some of your comments but you definetly lost me at polls. Who is getting polled and if you believe in poll statistics then I have a bridge I would like to sell you. The poll guys are the same guys that are telling the public that employment and consumer confidence numbers are getting better... the numbers are bogus. Stop drinking the coolaide, tax is a disinsentive.

Stuart Taylor The question: "Is it REALLY the End of the World?" is a bit hyperbolic and exaggerates the stance of those of use against Obamacare and all of its tentacles (e.g. the medical device tax). But it did have the desired effect and got my attention!

John (Abbott), what do you mean that opponents need to propose an alternative to the medical device tax? And what do you mean by alternative? Alternative tax? If so, why should an opponent of the tax have to propose an alternative tax which on priniciple is objectionable? That makes no sense at all to me and would force opponents to accept the position that a tax is needed. Implied in your suggestion is the fact that we couldn't afford these devices without the tax, which also makes no sense.

Bottom line: We have to repeal the medical device tax AND Obamacare, and truly improve our healthcare system.

David Pennington, PE Well put, Mr. Taylor.

John Abbott Well... the title was intended to be a bit hyperbolic to draw attention and engender discussion - which it seems to have done.

As to your second question: it is very easy to stand on the sidelines and throw stones. It is much more difficult to work with people who you disagree with to come up with a viable solution that EVERYONE can at least live with. The fact is that the ACA is established law which is almost certainly NOT going to be repealed at least in the next 4 years - and the longer it is in place, the more it will get embedded into societal expectations. There was similar opposition to social security and medicare when they came into force and yet I suspect repealing them would be impossible - "fix" or otherwise alter them, yes, but repeal? Never.

By only repealing the tax without providing an alternative revenue stream, we just contribute even more to the debt - this from a segment of the society that is demanding a balanced budget. I am of the belief that, just like new spending must be matched by cuts elsewhere, so too must tax reductions be matched either with equivalent tax increases or specific spending cuts. In this case, since the spending of the ACA will almost certainly not be repealed, that means an alternative tax OR some other program cut. Which one do you propose?

I agree that the healthcare system in the US needs overhauling, same with the tax system, and social security, and, and, and... These are all difficult if not intractable problems and any solution will contain contributions from EVERYONE - even those you vehemently disagree with. We have been struggling with these issues for DECADES and there is nothing to suggest that a final solution is anywhere NEAR achievable.

So my concern is that by repealing the tax without something to replace the revenue stream we just exacerbate the debt problem without "fixing" the ACA - unless, of course, you REALLY believe that the ACA will be repealed.

So, in the end, I just see no benefit to sitting at one end of the spectrum yelling about how everyone else is screwed up and refusing to work towards a mutually viable solution. Compromise is NOT a dirty word. No one ever gets (or deserves) everything they want.

David Pennington, PE A couple of us were attempting to estimate the effect this tax will have on the debit side of the government's ledger, based on the estimate by others of 14X,000 jobs being lost. The number I put forward was $4 billion/year.

How much revenue is the tax projected to produce?

Compromise, for the sake of "bipartisanship" generally presupposes that there are no principles involved, just differences of opinion. In point of fact, however, it is more often the equivalent of mixing ice cream with gravel. Yes, there is something praiseworthy in the mix: the ice cream. Unfortunately, you can't get it without getting gravel, too.

The ACA, of course was not a compromise. It was not bipartisan. In fact, there was no legislative process involved in its development or passage. To even get a party-line vote there had to be arm-twisting and bribery.

todd basnight The powers that be are shooting the cow then milking it. There is a lot more revenue in keeping businesses in the states and collecting taxes from all the people that work there.
The employed buy goods and services pay taxes buy homes etc. He is nothing short of a socialist and Russia failed it does not work. What is the point of getting an education earning a sizeable income, to be taxed to the point that those that work for you have more money in the end.
A flat tax is the only fair conclusion all business, and individuals pay the same 12% and businesses will come back.

The medical device tax will not "kill" the medical device business in the US. It is just one more cut, among many, that afflicts the industry and in particular small businesses. Consider compliance expenses as part of the total cost of this punitive tax. Without doubt this will cost jobs and in some cases close businesses or prevent promising enterprises from forming. Those who naively say this is 'just another overhead cost' need to get into the real world and engage with small businesses that drive much of the US economy. The tax is a reduction in top line that flows right through the income statement to net profit, which would otherwise be more usefully deployed to furthering innovation or creating jobs. The new tax, created for the convenience of politicians, does nothing to create jobs or contain health care costs. This is another example of what happens when there are no requirements in the law that it be reasonable, rational, based on facts or enacted by informed legislators.

Stuart Taylor Thanks John (Abbott) for taking the time to respond to my question.

I take issue with your following statement:

"So my concern is that by repealing the tax without something to replace the revenue stream we just exacerbate the debt problem without "fixing" the ACA - unless, of course, you REALLY believe that the ACA will be repealed.

So, in the end, I just see no benefit to sitting at one end of the spectrum yelling about how everyone else is screwed up and refusing to work towards a mutually viable solution. Compromise is NOT a dirty word. No one ever gets (or deserves) everything they want."

I do not accept your premise that we need to replace the "revenue stream", which implies that we couldn't afford medical devices without the tax. That is profoundly absurd. It also implies that government bureaucrats know best how to spend your money.

"Replace the revenue stream" is politispeak for "it's not your money in the first place."

Those of us who oppose the monstrosity that is Obamacare are not, as you say "yelling about how everyone else is screwed up and refusing to work towards a mutually viable solution". Again, your characterizations are gross and unfair exaggerations. On the contrary, we do have alternatives and are NOT refusing to work towards a solution.

And speaking of compromise . . . . where was the compromise and promised transparency when Obamacare got rammed down the throat of the American people on a completely party-line vote? Hmmmm . . . . . ? Yeah, compromise was the word of the day then, wasn't it?

To suggest that adding the manufacture need not add the tax to his invoice to to
Demonstrate the same level of understanding of business that is reflected by
the current administration. Businesses are concerned about margins not
invoice amounts. When costs go up it is reflected in the products price. When it
Is something like salaries or electric bills, it is considered a normal exspense and
simply factored into the price. When the reason you need to explain to your
Customer that his costs are going up are the result of government deciding that
Your company should fund their vote buying approach to budgeting, it makes perfect
Sense to piont out that the increase is beyond the manufactures control. To think
The the manufacturer would just reduce his margins, smile and agree to eat any
tax sent their way in silence is beyond the pale. Unlike the government, these folks
Actually have to make money to stay in business , let alone prosper.

Andrew Adams John G:

You started this conversation by talking about "real issues."

The real issue is that people have a need for health and sickness-care, but we've given them insurance instead. Health insurance is not "wrapper" for healthcare. It doesn't directly convey the benefits of healthcare. While there is no doubt that insurance plays an important part in gaining access to the healthcare (mostly sickness-care) function, why are we so focused on trying to figure out how to pay for a system that doesn't actually do what it needs to do?

They called it the affordable care act. Does it actually reduce or control costs?

Does it address the fragmented provision of services commonly seen in the care system? Electronic health records may help in this area.

Does it effectively deal with the most expensive 1% of patients? No, it actually makes it "worse" by prohibiting discriminatory practices related to pre-existing conditions.

Does access to the current "healthcare" system actually bring down costs due to sufficient preventive care? For certain classes of conditions, absolutely it can redirect people from emergency care to urgent care... but only while the cost of minor corrective care is reasonable (for example, preventing a staph infection).

Does it affect the nutritional content of the food supply? Not that I'm aware of.

Does it encourage employers to nurture a healthy workforce? Through increased cost pressures--sure!

Does it encourage individual people to eat healthier, exercise, and seek care "early" when it is most effective and inexpensive? Not really; it has focused on getting young healthy people into the system so the real cost of unhealthy Americans can be distributed in a "socially responsible" way. I'm not saying young people don't benefit from the law. I am saying that the law fails at a basic responsibility to preserve the health of those who already have it.

Does the law encourage new technology that can vastly improve the healthcare efficiency and effectiveness? No; instead it forces the medical device industry into "high risk - low reward" scenario when viewed from a capital markets standpoint. Investors don't benefit from healthcare - they benefit from investment returns! This excise reduces the total pool of capital that is within reach for the medical device industry. The medical device industry competes for capital just like every other industry.

Does the excise tax reconcile a long-standing social imbalance? What about an environment imbalance? The medical device industry isn't out there making cigarettes and alcohol. They aren't especially polluting the environment more than another industry. What reason is there for wanting to disincentivize the use of medical devices as this is what excise taxes have been historically used for?

I don't know John. When you talk about the real issue being "how to pay for it," I just can't take you seriously. It is not the responsibility of the medical device industry to figure out who should get stuck footing the bill. The whole argument Obama made was that Medical Device manufacturers would be flooded with new orders and that it would be "neutral." I haven't seen a single shred of evidence to support that idea.

Andrew Adams Mark McCarty: Google "Jack Andraka" to learn about an innovative diagnosis method that has the potential to reduce a typical cost by a factor of 26,000 and is 400 times more sensitive at detecting the condition. This example has some unique elements, but it is also illustrative of just how far we have to go in the medical device industry. The way I see it, we are still in the "dark ages" of our industry.

http://en.wikipedia.org/wiki/Jack_Andraka

Stephen Glassic Andrew, I've read about Jack. The problem is that his innovations may never make it to market since they will upset current markets. Investors like to make a few waves but not a tsunami.

Stuart Taylor This may be off the path a little, but demonstrates further damage caused by the medical device tax and Obamacare . . .

Obamacare was supposed to lower health care costs. Yeah, right.

There’s a widely-overlooked side effect of the Obamacare tax on medical equipment: it’s going to hurt pet owners, too. Devices used only on animals are exempt. But veterinarians also use many of the same machines and supplies that doctors use, and they don’t get reimbursed by Medicare. They’re facing a big hike in costs that will have to be passed on to pet owners. The higher vet fees will be especially hard on low-income pet owners, and animal shelters that need lots of vet care and have very tight budgets. It’s just the latest example of why even some Democrats who support Obamacare admit that the tax on medical devices may be the dumbest tax ever enacted. It’s a standard rule that if you want less of something, you tax it. So why tax medical equipment? It makes no sense at all.

John Abbott Andrew: Tough to answer all of your comments at one go. Certainly a number of them are quite legitimate. But then legislation OFTEN has flaws of this type. Sometimes they get fixed... sometimes not. Whether all of the ones you cite will play out as you propose remains to be seen. My crystal ball is not so clear. But the reality is that the ACA is established law. It is NOT going away anytime soon. And the longer it stays on the books the longer it will get ingrained into the psyche and expectations of the population - whether it is "good" legislation or not and whether it is "fair" (whatever that is) or not. As to all of your concerns my somewhat "flip" answer is "welcome to the wonderful world of the legislative process". If you only approve legislation that is "fair", equitable, solves every problem, etc, etc. etc. you will be be a very unhappy person probably until the end of your days.

So, yes, I DO believe that we have to pay for it somehow - even if we don't like it. To simply eliminate the tax does nothing but add to the deficit. Just eliminating the medical device tax (as ill-conceived as it might be) will not repeal the ACA. So, yes, I DO think it is a matter of coming up with a means for replacing the income stream should the MD tax be repealed. As I have said, it is EASY to stand on the sidelines and hurl epithets. It is MUCH HARDER to get in with the sausage making and come up with compromise political solutions that can make it through the legislative process.

As to your comment "It is not the responsibility of the medical device industry to figure out who should get stuck footing the bill" I must take serious exception. We are ALL part of society and it is EVERYONE's responsibility to figure out how to pay for the things our elected officials have put in place - again, whether we agree with the legislation or not. I have been in the medical device business for over 30 years and I have seen nothing that suggests that the MD industry is somehow immune from the responsibility we all carry.

In general, I agree with most of the people on this thread that suggest that the MD tax is ill-conceived - perhaps not for all of the reasons stated as there is a lot of speculation which will almost certainly be very different from what actually happens. But there are certainly sound economic reasons why the tax may not deliver the net income expected. And, yes, there will be unanticipated side-effects/consequences as is true in just about all legislation (no such thing as "perfect"). But where I disagree with many on this thread is that I am trying to identify a replacement revenue stream that can get through the legislative process. It is not enough to simply say "repeal the ACA" because we all know that is not going to happen.

So I challenge the people that have contributed to this thread again: assuming you don't want to add to the deficit, propose an alternate revenue stream that will generate the needed funds and which can get through our dysfunctional legislature. Be part of the solution.

Stuart Taylor John (Abbott) - there you go again with your mantra of "alternative revenue stream". I reject your premises and "challenge" completely because they are flawed. There would not be a "revenue stream" if there was no medical device tax!!!. The "revenue stream" is an artificial result of the tax itself! You also talk about the tax as though without it we couldn't afford medical devices. This is a ridiculous premise. But I am repeating my earlier points and this is getting tiresome and pointless. Repeal the tax and Obamacare. It is one of the dumbest taxes and laws ever. It is hurting our country and healthcare. It is that simple. You are making it way too complicated. Be part of the solution, instead of buying into flawed premises, and a defeatist attitude like "we all know that repeal is not going to happen."

Being a part of the solution is fighting to perform major surgery to get rid of Obamacare and the medical device tax, instead of tinkering around with band-aids. We need real reform that empowers patients, doesn't hurt the economy and individual freedom, and doesn't empower the government or involve the IRS in our healthcare.

Andrew Adams John, I get what you are saying. Here's a link to the 2012 budget where it's pretty easy to pick some targets for cost reduction or even elimination. http://goo.gl/Ck3hm We only need 2 or 3 billion a year to offset the MDET. I could name 100's of billions that I personally would be fine with letting go.

I guess I just see it as beside the point because what I'm bringing to the table here are some concerns that fundamentally revolve around the question of the long term sustainability of the system regardless of who gets stuck paying for it in the short term. I think our obligation to get the right system in place is of a higher order than that of figuring out how to pay for the wrong system. By definition, the wrong system gets the wrong results. That is what we have had, and for the foreseeable future, will continue to have. The only good news I have is that life expectancy is declining for most demographics in the U.S., which means I don't have have to worry about this stuff nearly so much as the previous generation. Now that's what I call a silver lining!

gordon collins Just wondering if those that are defending the tax are actually politi-Rats fused into this conversation to try to convince those that oppose it, it is a good thing. It has become tiresome and pointless.

John Eckberg Hello Gordon Collins, You really do have to steel yourself for the onslaught of blind allegiance to President Obama. This tax never was really about him. Arguably, it wasn't his idea nor was it his tax. The Senate dropped this on the Oval Office and the president held his nose and signed the measure into law. It came out of a Senate committee as punishment because the medical device industry did not go into the backroom and bargain, as if there was a unified medical device industry in the first place.

As for the apologists for President Obama, they drop their one or two lines of political kant and then usually disappear. They almost never respond when their orthodoxy is rebutted. Comes with the territory. Don't give up and keep hope alive.

Bogdan Baudis ..well ... the arguments against taxes and regulations are always very easy to make ... however our recent past experiences tell us that if there is an industry howling against them loudly maybe it actually needs MORE of them ? I know MedDev is NOT responsible for the last economic crash (financials industries are), but there is always possibility for another crash from other source .. I am sorry but I am getting suspicious of the mass bellyaches lately ...

John Eckberg Hello Bogdan Baudis - If you waved a magic wand and suddenly all the medical device costs were dropped out of the U.S. healthcare equation, that act would lower the cost of care by a whopping 5 percent, maybe 6 percent. That's all. Medical devices are not the cause of the exploding cost of healthcare - not even close. Devices have held that 5 percent share for about 20 years, and it's why the bright lights at the Senate, in their first incarnation of this terrible new (note NEW) tax came up with "Ok, five percent of the cost of healthcare, then lets have a 5 percent tax..."

Burrell (Bo) Clawson I can not agree with all the premises of the author that started this thread.

I'll make one example: For a tax to be fair on any group it has to be fair and when you tax, for instance, a family with 4 kids at a rate & then a married couple at the same rate, you are not encouraging a stable maintaining population to maintain a good country. Kids are expensive to raise & they definitely benefit society over time.

Businesses "are expensive to raise". So our wonderful leaders come in and add a tax, not on profits (established business), but on revenue, from dollar one received.

Taxing a populace this way is recognized to be punishment and that is a disincentive to create a business and jobs, which is ostensibly the aim of the US Govt. So there is deception going on and everyone sees it plainly except the king with no clothes.

Burrell (Bo) Clawson Families, businesses, states and cities have to cut back in downturns.

The US Federal Government is the ONLY entity that grows every year, no matter what, including recession and depression times. They ALWAYS claim a need and right to tax more, about 5% per year at least, and then loudly claim that they haven't raised enough.

Ding them with "sequestration" and they act like the end of the world has occurred, and the rest of the country knows it is an out and out lie, because they still have more dollars to spend than the year before.

Let us stick to basics.

Keith Kretchmer Andrew Adams makes many good points about things not (yet?) addressed within the ACA in its current form. Many things need to be dealt with as part of a restructuring of the health status of our nation's residents and the system of delivering and paying for health care to those who live here. I trust that with time the foundation that the ACA has laid will be built upon to correct many of these imperfections and omissions. The ACA is a major start to a process, not the final form. Much work needs to be done.

The MDET is but one of many funding mechanisms that is part of this restructuring. I am neither defending nor campaigning against the MDET (though nobody likes taxes, including me and my company), but if the revenue stream from MDET is eliminated, the cost of funding ACA still exists, and this revenue stream must be replaced. John G. Abbott is correct on this point in regards to the projected costs of ACA at present.

John Eckberg Hello Keith, The top line tax is going to crush small companies - is crushing them as I type and yet you and I both know that revisions to the ACA will never willingly include a roll-back of a tax. In reality, the MDET contribution to the cost of the ACA is a rounding error - 2 percent. Maybe 3 percent.

This tax was clearly punishment/retribution from a petulent Senate Finance Committee - nothing more, nothing less. The first incarnation was going to be five percent of revenues, until one of the Senate staffers woke up and realized that this tax at five percent would claim ALL of the profits of the average U.S. device company!

This is not a high-profit margin industry.

As for a "pay for", assuming more revenues are needed, let's tax autos since cars cause much of the medical trauma in our nation. Or a 10 percent increase in state, local and federal tobacco taxes would have raised just as much. The device industry was a sitting duck so two senators (Reid and Baucus) who have little to no industry in their states decided to whack the states that do have a device industry.

How Boxer (D-CA), Brown (D-OH), Carper (D-DE), Coons (D-DE) & Feinstein (D-CA) can get away with supporting this tax continues to astonish me. Folks on this string who live in those states ought to be writing letters to the editor of their local newspaper to call out the Senators who support a measure that crushes free cash flow, innovation and jobs. You can write a letter to their Senate office, of course, but a form letter will come back thanking you for your information and that's that.

Write a letter to your local newspaper calling them out and that will get their attention.

Stuart Taylor John (Eckberg) - thank you for nailing it perfectly. Well said!

Stephen Glassic To John Eckberg, About tax on tobacco. I don't know how it is in other states but in New York they have already taxed the hell out of tobacco. I don't believe it has raised much additional revenue for New York. Everybody I know or meet that smokes, gets them from the Indians to avoid the taxes. $20 a carton for Indian brand cigarettes as opposed to about $80 for name brand off the Reservation.

Bogdan Baudis Unless we have the real discussion about our tax system we are going nowhere... we have "taxes" and taxes. We have Social Security deductions (which are NOT going to Social Security), we have high-speed rail-budget (which is NOT building any high-speed rail), we curbing welfare why at the same time replacing it under the radar with disability, fuel taxes which do NOT fix the potholes (at least not where I live). On one side we have public and business unwilling to get taxed but still demanding services, on another we have dishonest politicians promising everybody NO taxes and ALL the services and bureaucrats/technocrats in the middle playing budget/accounting games.
I think we all start by growing up and answering (honestly) the question what do we need from the government and then how are we going to fund it. And NO, we cannot have a small government since we are NOT a small country ...

David Pennington, PE @Bogdan - The corruption of our government is as you describe, and worse. Yes, we--The People--need to take the reigns by becoming informed on the issues, so that when we vote, we're not a bunch of sheep, going where the New York Times leads us. On the matter of the size of our government, the useful way to discuss it is in terms of percent of GDP. A much lower percentage than we have now is better, for uncountable reasons.

Bogdan Baudis @David, ..I could agree .. if you agree that our military budget should be as big as say (only!) combined military budget of our three biggest potential enemies :-) This solves the GDP % right away .. and don't get me started how much waste we could eliminate!

Burrell (Bo) Clawson Bogdan, unless we make a decision that 50% (or whatever is deemed fair) of the national output of goods and services is the maximum the entire local, state & federal government can take in the Constitution, we are sunk, as it will soon be 60%.

The problem we have is there are people advising at least one party in power that to "solve" their problems with not enough cash we do 2 things:

1. Print money: They call it something else (easing), but the result is the world oil market knows the money doesn't buy as much so oil prices went up drastically over the last 4 years. Net effect is about 18% inflation on oil prices. Wait until other prices start running at 18% inflation rate. Then the international currency value plummets & buying power drops like a rock. Sounds like the Carter years.

2. Eliminate personally held tax deferred retirement plans: They propose moving YOUR retirement funds to the Government to hold in an interest bearing account paying (maybe) 3%. Problem is, this is less than the expected inflation rate, so you will not want to take ZERO real ROI. So you invest in real estate & assets outside of a tax deferred plan. The other issue is when you transfer maybe 16 trillion dollars of retirement savings to the government, they then virtually OWN THE STOCK MARKET & a good chunk of the bond market & if they sell, guess what crashes. This will fuel a fixed asset run-boom-crash.

Charles Collier I believe, as I suspect that most of you do, that whatever tax revenue the Fed gets will never be enough because Federal speeding is done with no responsibility. That being said, I think that this tax is simply "Shock Testing". This tax is a new deal for an industry that all bureaucrats thinks is reaping tremendous profits and they want their share. This shock test is to see how loud we will all scream. Maybe it's a stupid comparison, but look what is done periodically with consumer products. An item, say Coffee, will increase dramatically in price, then when everybody raises hell, the price drops back but never to the previous level, just like gasoline. It's all about power and manuliplation of the industry on the part of the Feds

Bogdan Baudis @Burrell ... well ..
Re: 1. This is how economy works since some time already. We print money. Before we were digging gold, really similar idea. The issue is how much and who and how controls it. I can agree that it seems like the current system got broken, although you can find places in the world that are much worse. We need to fix it. By the way: the other party when was in power was not doing anything drastically different: they were borrowing (and you can make argument that this actually may be worse).
Re: 2. I lost my faith in me retirements. I will work until I die. 401k looks to me as a ploy to make more money available for Wall Street speculators, anything other "reforms" probably have similar goals, I don't think it is the government unless you count lobbies as the part of it (that actually may be the correct view ...). All that "investing" is really moving money from one pocket to other but the "movers" take the fee every time. When we all end up sitting before PC investing the invisible hand of market is going to fix everything (by obsoleting us...).

John Abbott This thread has been informative, lively and enlightening - at least to some of us. However it may all be moot with the Senate having passed a budget amendment to repeal the tax (http://www.massdevice.com/news/flash-senate-votes-79-20-favor-medical-device-tax-repeal-amendment). This non-binding amendment also creates a deficit-neutral reserve fund to help offset the cost of repealing the tax.

Not a done deal by any stretch of the imagination but at least a step in the right direction both in removing a poorly crafted tax AND developing a deficit neutral fund.

John Eckberg Hello John, These threads are the best thing about the Web and LinkedIN in particular. Sometimes folks get pretty far afield into politics and that's too bad when it happens. Thanks for posing the question...

todd basnight The major problem with the government is that it is unable to run any business. The post office is going bankrupt and UPS is thriving, the DMV is the worst run institution as we all know, Cal trans has 4 people watching while one works. They have to follow affirmative action instead of choosing the best qualified individual. For every dollar they spend they waste 3 dollars, so they raise the cost of stamps and they apply a tax to build a road.
Here in San Diego, in the county of El Cajon they passed a ordinance to allow businesses to not pay a city tax for 5 years if they employed at least 3 people. The city was thriving all the empty buildings were filled downtown was revived.
The city then repealed the tax credit and then asked the businesses to pay back the taxes, most all went under. The town has a 63% vacancy.
There solution was a LIE they passed a 2.5 percent sales tax http://www.tax-rates.org/california/el_cajon_sales_tax and stated (It is for the police and fire departments new building) it has been built for several years and the tax is still in place. El Cajon. The people of El Cajon come to Santee to buy there groceries, gas, and goods and services.. Car sales in El Cajon have plummeted and the town is in destitute. Santee is thriving it has the lowest tax rate in San Diego.
This is always the government solution, It fails because businesses need to make a profit and government needs to be ran LIKE A BUSINESS.

Bogdan Baudis Well, I disagree. The government is NOT a business and the business is NOT a government. The government should be run like a government and the business should be run like a business.
The USPS is actually a good example: it should be either a government agency or spun off as a private business because it is neither. The reason is unprofitable is because of the Congress loading it with mandates which no business can tolerate.
There are reasons while some of the infrastructure should NOT be private: some of it is needed and does not make business sense (example: disaster management).
Can we grow up?!
If governments was a such bad thing why countries with REALLY small governments are the ones which we really even don't want to think about visiting?

John Abbott "Run government like a business" is a common clarion call but when examined in practice it is more likely impractical or possibly even impossible. Why? Very simply because governments are not businesses. They have completely different operation models. It isn't even "apples and oranges". More like "apples and wheel bearings". The biggest problem is that the "stockholders" in government are the people. You and me. And "we" demand a level of performance and perfection that no business could survive under. Businesses can choose to operate under "acceptable risk" whereas the "people" demand "zero risk". Businesses can choose to ignore certain customers while government must serve everyone. Just to name a few...

Also UPS vs. USPS is a poor example. The USPS is a constitutionally mandated resource more like the military than a private business. I don't recall anything in the constitution that demands that the Postal Service be revenue neutral. The USPS MUST serve everyone - even that crazy guy out in the Idaho wilderness - while UPS can choose not to serve unprofitable areas. USPS handles 1st class mail, UPS does not. Two completely different operational models. I suspect that if UPS had to operate under the same operational model demands that the "stockholders" place on the USPS, they too would have financial problems.

BTW: the DMV here is WA State works pretty efficiently. I recently changed my address and requested an updated license. I received it - and a new voter registration card - in the mail not 3 days later.

Can government operate more efficiently? Maybe. But if you trace the anecdotes you describe back to the real reasons why they are the way they are, I expect you will encounter operational model requirements that no business would accept or adopt. We The People have the government we demand.

David Pennington, PE Another poster and I attempted to estimate the downside of the MDET to the federal government, based on the published estimate of the loss of 146,000 jobs. The number I suggested was about $4 billion/year.

Another poster suggested that the revenue generated by the tax would only be about $2 billion.

I'm no expert, and, further, have no idea what numbers should be assigned to the in and out revenue figures. However, one thing is clear: the revenue generated by the MDET would be at least partially offset, if not eclipsed by the costs that would result.

I had truly hoped that some of the more knowledgeable folks on this thread would take up this line of inquiry.

Pat Ridgely, MD Bruce, I am glad you raised that point. I've been wondering if it's just me that thought Advamed seemed to get blindsided on this one.

Bruce Toman Based on the reporting from the time, there doesn't seem to have been any "blindsiding." AdvaMed was asked to make an offer, and instead played hardball, eyes wide open, and offered nothing, and the industry continues to take that stance that "nothing" is the right answer... I respect tough negotiating but let's name it for what it is. The industry took and is taking a very different stance from all the other players in the healthcare industry.

Adding one minor, but important point to this thread: The biggest impact I, and many others in med device startups, have seen is that it gives investors another reason to say, "NO!"

Unfortunately, this has happened not directly due to the tax, but instead because of us making it seem like the tax means there won't be a medical device industry anymore! Why invest in something that is on it's death bed??

John Eckberg Hello Bruce Toman,

Of course what you're leaving out in your revisionist history is that Big Pharma filled up the Obama campaign war chest with massive donations. Nice photos on the society page of the NYTimes of pharma vps leaving campaign parties. In return, low cost Canadian drugs were kept out of the U.S. market. Probably other cookies that I missed.

Hospitals, of course, got the future bad debt from mandated care off their books, so they and their administrators, of course, also loaded up on donations. But the 10-person company in Montana, the 50-employee company in Skokie, the 11,000 employee company in Indiana (Cook Medical, where I am media relations director) we got a tax that takes our total tax rate to nearly 50 percent of every penny earned.

And we're lucky. Others are paying 70 percent tax rates and even 100 percent tax rates when compared to 2012 earnings.

Did we get 30 million new patients? No. Here's why: nobody, absolutely nobody, is going to go, hey, I have ACA insurance, I think I'll go get me a balloon-assisted tracheostomy device jammed into my throat. It'd be de rigeur and I've always wanted one of those. Maybe a drainage catheter, too, while I'm at it. It's ridiculous. We're not going to get tens of millions of new patients because, in fact, those devices are already used today in emergency settings because it's the law of the land. You can wipe out all the cost that medical devices bring to healthcare in the U.S. and it would only lower the overall cost by about five percent.

So we were ambushed by a president who is supposed to represent everybody and we remain whacked by a Senator from a state that has virtually no medical device industry in it (Montana has a grand total of 31 registered device companies) and the population of Evansville and Indianapolis combined. This industry was a sitting duck.

Major device companies, the really big ones, they have a Big Pharma arm so they are going to get 30 million new patients at four heart pill prescriptions each. So of course they'll do what it takes to get the ACA passed. The majors actually want this tax because their big Pharma arms will make up the difference and because it will lead to a fire sale of small device companies in the years to come as those founders throw in the towel and cash out. Boston Scientific had 22 deals between 2007 and 2012. Their future R&D, a euphemism for M&A, will plummet in the years to come because smaller companies' free cash flow will be decimated in about, oh, four more months.

You are right about one thing: the device industry did indeed take a different stance. We didn't fill up the campaign coffers because most companies have just 50 employees and there isn't a lot of cash laying around to pay for invites to Senators' birthday parties.

Mark McCarty Well, here's an interesting development. Sen. Mitch McConnell has suggested the House take up a device tax repeal bill as stand-alone legislation.

http://www.rollcall.com/news/mcconnell_to_house_move_device_tax_repeal_soon-223450-1.html?pos=hbtxt

David Pennington, PE Of course the truth of the "30 million new patients" line is that it was just a line: a campaign slogan. Sen. Mark Kirk, then in the House, only conservative in fiscal matters, analyzed the situation, before, during, and after. His conclusions were: a) the number of uninsured was over estimated, and actually stood around 13 million, and the all important b) that the net result of the ACA would be that none of those 13 million would have insurance after it was enacted, either, leading to the (typical) finale, c) that when the dust settled, there'd be additional people uninsured, but the costs associated with care, its quality, its availability would go all the directions no one would want.

He and I have seldom agreed on anything, but he did his homework on this, and I believe he's got it right.

Bruce Toman Hi John Eckberg

How is the Wall Street Journal report from the time the negotiations were happening, and the reports from Healthpoint from that time, 'revisionist history'?

John Eckberg Hello Bruce Toman, Well, for one thing it's revisionist because reporters are always in the tank for the left, I'm sorry to say, and most, even WSJ reporters, don't have a clue except for what Senators tell their staff to tell them. You ever meet a reporter?

Bruce Toman Thanks John - it is clear we are not in the realm of reasonable conversation. Have a great day.

John Eckberg Everybody except for Mark McCarty, of course....he works at a trade publication and they usually play it straight and offer insight that daily reporters could care less about. Medical Device Daily has no agenda but bring readers news about new devices, developments and treatments....

John Eckberg Lost in all this, of course, is the actual harm this tax is doing to companies. At Cook Medical, for instance, we are paying the equivalent of a $70,000 a year job with $30,000 in benefits - lost to this tax and Washington D.C. every three days and that's in addition to an existing tax rate of 35 percent, the highest corporate tax rate in the world.

John Eckberg Hello Bruce Toman, You believe what you want. I was a newspaper reporter for 30 years. I'm speaking from experience. You may not like what I'm telling you but it's the truth. You, too, have a great day.

Bruce Toman John, this is where conversations just go off the rails. The publicly reported facts are that everybody else made deals, and the med device industry offered nothing (except, 'tax the other guy'); if what you are saying is that AdvaMed did offer something directly, but that offer was never reported, that would be interesting to hear. But the publicly reported facts are what they are. You can have your own beliefs, but not your own facts.

David Pennington, PE What John is saying, Bruce, is that the FACTS are not reported, so the truth winds up being kind of squishy.

John Eckberg Hello Bruce, I will give you that those are the "publicly reported" facts. But in fact, there is no there there when it comes to this industry: 15,000 companies. AdvaMed is dominated by big players and they have big pharma arms. They don't speak for the vast majority of the companies in this space - nobody does, sadly.

Bruce Toman Hi David (and John too). Please tell me what facts I have mentioned that are not true. And please provide sources to prove it. Please show the offer AdvaMed made to pay something itself or save the feds money. Please show how the other players did not make revenue-generating/revenue-saving concessions for the feds. Thanks.

Mark McCarty John, I might be inclined to give MDMA credit for representing small firms. They've been quite outspoken about things.

Bruce Toman Hi Mark - was MDMA at the negotiating table back in 2009, or did it fight for a place?

John Eckberg Hello Bruce, The first story I open from the WSJ, about the fifth paragraph it cites an unnamed source called "This person..." No name. No source. I rest my case and want a summary judgment

David Pennington, PE The $900 billion "stimulus" of 2009 became integral to the baseline, so it was repeated without discussion in 2010, 2011, 2012, and--less 3% of the total--in 2013.

Never before has Congress been so rolling in dough. But in spite of that, there's complaining we're "not spending enough".

Not buyin' it.

Bruce Toman John, the conversation is more weighty than that - not substantial enough to rest an argument on.

Bruce Toman And John I would love to hear your presentation of the facts.

Bruce Toman I've been debating whether to raise this, but here goes. Only one poster here has referenced how this tax came to be. The Obama administration gathered all the players and asked them to make a deal. The framework was -- if we can get everybody insured, everybody will win; but it is going to cost money to get this done. So everybody was asked, what can you do?

All the players in the health care industry agreed in these negotiations, to help pay for the expansion in coverage that Obamacare would create. Pharma, providers, the insurance industry, all made deals, where they got some things they wanted and agreed to either cut costs or pay more tax. AdvaMed made no offer and so got no special consideration -- but did of course get a tax - as did everybody else. The device tax was originally set a $4B/year for 10 years, This was negotiated down as the legislation progressed. This is the origin of the device tax. Even while this was going on, the common comment was that AdvaMed blew the negotiation. Why is nobody talking about this context, then or now?

http://online.wsj.com/article/SB125297599091410349.html

http://dyn.politico.com/printstory.cfm?uuid=BD18F267-18FE-70B2-A8F5960026D227DF

http://www.healthpointcapital.com/research/2009/09/16/senate_introduces_healthcare_reform_plan_including_fees_for_devicemakers/
http://www.healthpointcapital.com/research/2009/10/05/device_fee_negotiations_continue_as_advamed_counteroffers/

Let me first say that I am not in the medical device industry, but I am strongly opposed to the medical device tax.
First, Washington needs to figure out how to get spending under control. Last time I checked, you cannot spend your way into a balanced budget. They whined like stuck pigs when mandatory budget cuts of about 3% recently went into effect. I don't think there should be any new programs till we can pay for what we have. $16,687,289,180,215 - US Debt as of February 2013
Second, it is morally wrong to take something from someone else just because you can. Mr. Stein doesn't think it is a problem to take from those who have simply because it is a small percentage - it is still morally wrong. And if someone was stealing from him I am certain he would put a stop to it. But because it is big corporation money, it is okay? I was recently talking to a rep from a large med device manufacturer in my area - they estimate 200 million off their bottom line because of this tax. That is a lot of millions!
Third, they didn't even read the bill before the voted it in. Mar 9, 2010 House Leader Nancy Pelosi said, “But we have to pass the bill so you can find out what is in it, away from the fog of controversy.” Why should I have higher health care premiums, so that the insurance company can pay for a device that costs more, because the device company has to charge more, to pay for the tax that the politicians force down our throats, because nobody know what they were signing?
Which is a great segue into my forth point: It is wholly dis-ingenuous to label this program as "affordable". Clearly, when you increase taxes and the companies pass the cost along to the consumer, it has made it a "less affordable.healthcare act". March 14, 2013 the Senate Budget Committee estimated a $6.2 Trillion increase to the already growing deficit. This can only mean one thing: Get ready, because before we know it, our cute little 2.3% tax will be all grown up one day.

One word: Unsustainable!

John Eckberg Hello Bruce,

This is starting to feel like Prufrock's tedious argument of insidious intent. While I have posted about 3,245 comments in the past month on this board, I will post another. What's one more?

It's true. It's a fact. Healthcare providers committed to $155 billion over 10 years and the pharmaceutical industry committed to $80 billion toward the ACA. But providers are getting bad pays off the books at their facilities and Pharma, well, they are, indeed, getting 27 million new, paying customers at about three or four heart or diabetes meds apiece. Big pharma arms of major companies also ducked having to pay a "tax" on disposables and anything retail, an immense break.

Big device companies didn't exactly roll up their sleeves to try to repeal this tax either because the tax serves as a barrier to entry and will drive down their future R&D by driving up the rate of M&A and crushing the free cash flow and therefore valuation of smaller, nimble companies. The tax was a beautiful thing for big device companies that also have Big Pharma arms and sell retail. They were high-fiving in the hallways over at J&J the day this tax was approved.

What's worse, the device industry is not getting 27 million new customers and based on a Roth Capital study, will probably lose customers. Nobody is going to rush out to get an nephrostomy catheter just because they now have coverage under the ACA.

I return to my point that AdVaMed does not speak for small device manufacturers or even average-sized device manufacturers and while the MDMA does a far better job of doing that, it can't speak for a company that has, say, 10-50 employees and is not a dues-paying member. So when the Senators petulantly stung this industry with a 5% tax because well, that's a nice round number (their logic, not mine) and because there was no there there to negotiate with anyhow, this tax took on a life of its own. That's when just three dozen Congress Members, mostly from Pennsylvania and Minnesota and Indiana started to blow the whistle. And it's when Cook Medical, where I am the media relations director, started to point out big flaws with this tax - at least whenever the biased media Scrooges gave us a forum on some Tuesday morning editorial page that nobody reads.

So here we are, two years later and finally the Senate got a chance to articulate its collective will. Four of five said this top line tax, which renders EBITDA obsolete for this sector, had to go. How they manage to do that? What's the "pay for" (not that President Obama or anybody else needed a "pay for" to kill that whacky reporting compliance just 30 days after the ACA passed) is anybody's guess.

I like taxing repatriated profits but I'm a majority of three: me, myself and I. Thanks for asking.

David Pennington, PE John, I've not read your other 3000 posts, but have gotten much out of your thoughtful and knowledgeable comments on this thread--even when we have not agreed. It's comforting, in this present age, to hear from critical thinkers, who apply those skills to matters of public policy.

Mark McCarty Well done John Eckberg. It does seem there are a few in Washington who are etherized upon a table, no?

David Pennington, PE Reminds me of the Far Side cartoon with the two frogs in a car. The passenger expresses concern about the driving and asks the driver, "What's the matter, are you pithed, or something?"

John Eckberg What did one frog say to the other? Time's sure fun when you're having flies...

Burrell (Bo) Clawson John, David, Mark and all…WDC legislators are mostly all about REELECTION, as that is literally the only way to have a say and get power and ultimately the perks of high income. They get that by promising things to voting constituents. Now one party has taken this to a high art, by appealing to the most possible constituents, including those who are not citizens or who are not even in this country yet (which doesn't benefit those of foreign birth who are already here hanging onto their jobs by a thread.)

Legislators never try, en masse, to promise to eliminate spending, ever, even when they know it is riddled with fraud and duplication, since duplication just means more handouts & bragging rights back home and more votes. Hence, they wiggle their arguments in favor of everything they pass as if there is nothing or never will be anything wrong with it and thus never need to be repealed or reformed. Then when something does go wrong & threatens their baby, they warn their constituents of "taking away your rights". As I recall it, the only rights we have are in the consitution, all else being subject to change by Congress.

To prevent the public at large of questioning legislators and their legislation, the public schools have become so beholden to the legislature (from reelection donations from unions) that they dumb down their education system and stifle it until most schools are just cattle cars for kids until they are dumped out on the street (at least in NYC per the articles last week.) The exceptions are those parents with income and skills to make sure their kids read and write before they go to school (indeed amongst my friends this is universal, meaning teachers are not doing what they claim they are paid to do in many schools).

According to the rulling class in Congress (taught about as well as a typical student), more spending by the US Government is better. They spend about 1/4th of everything we create in society now at the federal level every year, and must borrow a significant chunk of it, fortunately at low interest rates today. But according to them we must spend more and it will make the country better. The total take is somewhere around 50% of all GDP value of goods & services in the country. If 50% is not good enough is 60% or 70%, because that is where they want to go. Will the country collapse when interest rates finally rise? The federal debt payments will be the largest budget item when interest rates rise and the purchasing power of the dollar collapses even faster.

Cyprus, Greece, Italy & Spain are the early warning indicators that the US is heading for a BIG fall, if they don't reign in the spending. My bet is a form of revolution is going to come to some countries in the EU. My guess about supposed huge ammunition purchases by the DHS are due to their paranoia about civil insurrection in the US based on what they see in the EU. I have yet to see anyone show me a successful Socialist based society of any reasonable size that works. The smallest at Jamestown certainly did not as founded.

Yet the US Congress sees nothing wrong with what is a society it runs specifically for the benefit of their reelection as opposed to the careful continual growth so citizens can live normal lives with the ability to learn, earn and grow a community free from tyranny of the taxman wanting 50-60% or more of everything they earn. That makes the normal person a serf to Congress that controls them.

I view the US as at an inflection point where change can fix the system, but the water temperature in the melting pot of the changing people mix in the US has been raised so slowly that the average unengaged & uneducated voter has no clue he is being decimated in his ability to earn a good living for the,m and their kids.

Either the people start to demand smaller government or the system will collapse.

Bruce Toman John, thanks for your answer. I agree that the object of the tax is not good, should be lower down, and that taxing repatriated profits is interesting. But some things I don't agree with... It is not clear to me at all, that there would not be increased use of medical devices with expanded coverage (I am thinking, uninsured guy with back pain who could benefit from spinal fusion but forgoes it and just keeps taking tylenol and living with the pain) -- however I need to do some research on this as I have no data at all to back up that gut feeling, so i am looking forward to learning about this. Also I am not clear on why you say that the big device companies like this -- many of the biggest that have done layoffs have blamed the device tax (http://www.fiercemedicaldevices.com/special-reports/10-largest-medical-device-layoffs-2012). Finally, you still have not said what anybody in the device industry offered when the negotiations were going on -- you write as though there were no negotiations, but there were - there was not "nobody to talk to." The point of my original post was that the segment of the device industry that was at the table offered nothing in the original negotiations, and the other segments don't seem to have gotten their act together, to get to the table. Overall, seems to have been a blown opportunity to make this a reasonable hit, if not a win.

David Pennington, PE @Burrell - Right on.

@Bruce - The negotiations you speak of--I knew of their existence, but did not follow them--smack of crony capitalism, an anathema to a republic of free citizens, and a free-market (even a 'mixed' free market) economy. That, taken together with the complete absence of legislative process--open debate, time to reflect, public comment--make the passage of the ACA one of the darker chapters in the history of the Congress.

There was no "win" available. The apparent gains achieved by those who made deals will likely prove to be pyrrhic victories, much to not only their chagrin, but ours, as well.

We live in times in which our liberties are threatened by the very structure that was put in place to protect and defend them: our government under the Constitution.

Bruce Toman Hi David- Two disagreements that I will air. (Your broader political remarks are off topic and we should remain on topic) The legislative process was extremely public and open - I posted several articles reporting on the negotiations over the legislation as they were ongoing. Also I would not classify these negotiations as "crony capitalism" -- in my mind governing is about getting things done, and of course getting things done involves negotiations among the relevant players. This is nothing new in American history. If you refuse to negotiate of course you are going to be unhappy with the outcome -- this is what the device industry seems to have done, unlike all the other players in healthcare. Which, again, is my point.

Burrell (Bo) Clawson Collapse. Everyone thinks it can't happen. Like the frogs in a pot, it occurs slowly. In today's OC Register is an article about the shutdown of Anaheim General Hospital with 142 beds.

<http://www.ocregister.com/articles/hospital-501344-anaheim-general.html>

People reading the article get the impression it was run badly somehow and that is the big problem.

I know the person who was brought in to fix it after the Joint Commission and Medicare shut it down for failure to follow "the rules" a number of years back. He is a shareholder in a company I'm starting (so you can say I might be biased.) He did get it back approved and running.

He warned the owner that it was not sustainable because of the high Medicare load and low reimbursement from Medicare which was never going to cover their costs. This is what caused the previous administrator to cut costs, which starts chipping away at the professionalism when the staff sees what is happening (think of rats jumping ship maybe.)

What does this portend for the citizens of the US. I can recall an article in the OC Register maybe 5-7 years back noting over 50% of the hospitals in California were operating "in the red."

Medicare is a "give away" that is not actuarially sustainable. If you and I set up private plan like this, it would be ruled a Ponzi scam and we would serve time at Terminal Island State Prison.

Now you dump Medicare, the ACA, FDA and Joint Commission rules on small hospitals and what do you get? Insufficient funds to run a very complicated system supposedly meeting literally many tens of thousands of pages of regulations.

If the smaller hospitals in smaller "towns" can't handle the Fed. Govt. rules and keep solvent, guess what? A law will be passed to "Stop the Crisis in Hospitals" and the US Government will become the owner of small hospitals to "SAVE THE COUNTRY."

Is this the only way to run our medical system? Is this system primarily benefiting legislators and bureaucrats and the political people that primarily support them?

Bruce Toman Bo this is off topic.

Burrell (Bo) Clawson Bruce, it is off topic, unless you see that this one tax inordinately affecting device manufacturers, will ultimately raise the price of devices on everyone including hospitals.

That makes the hospitals viability even more of a problem, as does the ACA regulations on hospitals, employers, manufacturers and the insured.

It is an illustration that the US Government does not know how to design complex systems and that is what the US healthcare system is.

Bruce Toman This is a medical device group and the thread is in response to the initial post, which is focused on the medical device industry response to the medical device tax. You are way off topic.

Burrell (Bo) Clawson Worse yet, the US Government will never understand how to actually run an efficient US Government owned healthcare system, which is what it is moving toward.

Cloward & Pivens presaged the events we now see coming with Medicare down, ACA up and taxes going through the roof.

This is not a trivial medical device tax, but a view into the future.

David Pennington, PE I'm with you, Burrell. All of these comments regarding the ACA--how it came to be, what it portends--are germane to a discussion of the MDET. We are in a pickle.

As Will Rogers once said, "If stupidity got us into this mess, why can't stupidity get us out of it, too?" We've certainly no lack of same in DC.

I stand by my assertion that the ACA was crafted in a closet, depriving the American people the benefits that derive from an open legislative process. None other than Speaker Pelosi told us we'd have to pass it, so we'd know what's in it.

Members of the healthcare industry certainly had/have a vested interest, and they would have been utter fools to not take a seat at the table, if only in an attempt to minimize the damage. The sad truth is that all the supposed benefits to various parties will be eclipsed by the damages they will suffer, the insurance carriers being the ones hardest hit, as they will be out of business completely in a few short years.

Deny that last assertion if you will, but I challenge you to devise a business plan for a health insurance company that will show a profit under ACA, fully implemented. Some have suggested that carriers have a 20% profit margin. That's not what you'll find if you go looking for the real numbers. It's more like 3.5% in aggregate. AETNA and Humana are at about 2%. http://biz.yahoo.com/p/522qpmd.html

It is not beyond the realm of possibility, and is, in fact, probable, that the ACA was Congress's "fix" for the damage Medicare was/is/will do to healthcare, as Burrell provided but one example of. It is--or should be well known that Medicare reimbursements do not cover the cost of providing services. What's taken up the slack? Private sector payors, principally insurance companies.

"Congress: if you don't like the problems we create, wait till you see our solutions."

Burrell (Bo) Clawson John G. stated very clearly in the beginning: "The Medical Device Tax: Is is REALLY the End of the World?"

"Before I get started, let me state that I am neither for nor against the Medical Device Tax. What I oppose is the illogical rhetoric that seems to infuse the debate and hide the real issues. Here is a chance to contribute to the debate in a civilized manner."

I argue that I have adhered to John G's request to in effect not "hide the real issues" as stated above.

Manufacturers will simply reduce profit, increase prices, drop product out of production or sell the product to another company. Now the obvious might be said that they could move the product to their own foreign subsidiary to limit the damage to the company, while damaging their employees. There is nothing left for a manufacturer to do.

Real issues have to do with an explosively increasing regulatory environment coupled with the tax burden to pay for it.

Kevin Busto I took a poll of some of the medical manufacturers I work with. The only reason I could find from any of them is that it will drive up their administrative costs. Tracking the tax and paying it would be a burden.

I also asked the medical device manufacturers what if they could keep 1% of the tax they collected? Every one I talked too would not mind collecting it.

David Pennington, PE Presuming they can pass the tax along to their customers, a 1% fee to administer its collection might well cover the cost. According to some others who have posted here, the trick lies in passing the tax along. Not every manufacturer is going to be able to do that with all its customers and/or products. Its the prospect of having to eat the tax that lies at the root of most of the complaints.

It still seems worth discussing how a tax that will generate less than $4 billion a year in revenue, but may well result in $4 billion a year in costs to the government can be worth doing in the first place.

Burrell (Bo) Clawson David noted "Presuming they can pass the tax along to their customers."

When you can't pass it along, maybe it is time to redesign, repackage or repurpose your product in some way to get more revenue?

John Eckberg Bo and David - Price hikes cannot happen.

We are not talking about MP3 players, fishing rods or razor blades here. Medical devices, particularly implantable devices, have prices that are extremely inelastic and it has little to do with demand.

There's no "pass along" because these prices are negotiated in contracts that usually last three years and often hold for five years. Group Purchasing Organizations and Independent Delivery Networks negotiate these prices with device companies for their hospital clients and the prices are set in stone.

This is one of the most commonly misunderstood elements of this tax - particularly with the Tea Party set, and, mysteriously enough, the left-leaners, too, who think that price increases of 2.3 perent can easily be passed along. It's not going to happen and in this sector, that's just the way it is.

By the way, I did a quick roster count at http://www.no2point3.com/ and found while there are more than 10,700 signatures there, those folks work at about 4,500 companies. The repeal movement may not have big numbers on its side but those who are fighting for repeal do come from several thousand companies.

This map of about 8,300 of those petitioners takes a while to download but it's worth the wait:

https://www.batchgeo.com/map/8e2bca544a3de76aff8664789bd0443d

Burrell (Bo) Clawson I agree price hikes can't happen quickly, Premier & Novation contracts and such.

Taxes are a great disincentive for innovators, UNLESS...they figure out a better way to skin the onion.

David Pennington, PE John, you were the principal person I was thinking of when I spoke of the "trick".

As for figuring out a better way to skin the onion, I used to work for Baxter Healthcare, where a good portion of the R&D budget is always and forever spent on doing just that. I was pretty far removed from manufacturing, but the word on the street was that plants had to show cost reductions EVERY year, particularly on disposables*. With the kind of pressure that those folks work under WITHOUT the tax, I'm skeptical that they'll suddenly "move their game to the next level" and take another 2.3% of RETAIL out of the cost of producing/delivering their products.

*Someone said something about disposables being exempted from the MDET, in which case the Baxters in this business won't find a lot of change. Hardware--IV pumps, and the like--are almost loss-lead items, since every such device represents a regular customer for the disposables.

Stephen Glassic I remember back in 2000 when I was working in a large hospital, when they switched to a new IV pump, the pumps were supplied free of charge as well as the parts to maintain them. The company made their money on the disposables and IV solutions.

Clifford Thornton Sounds very similar to the HP model.

Burrell (Bo) Clawson Stephen, as I recall that was to eliminate the long capital equipment purchase times, by amortizing that cost into the disposables. It worked well in lower cost capital items.

Clifford Thornton I also believe they are focusing on the "cloud model" and enabling apps via that type of infrastructure, but I've read it's going to be at least a few years until it all comes together (worrisome given a few years in tech is quite a time frame).

We're probably not there yet with ultrasound/echo/vascular, but I wonder if they'll be a day where the equipment costs (computers, probes, etc.) come down enough where the initial equipment purchase price is nominal and the product marketers such as Philips, GE, Siemens, Biosound, Toshiba, etc. make their margins on new apps. Right now, the way it is you purchase the equipment along with X, Y, Z software packages (i.e. transthoracic echo, transesophageal echo, pediatric echo, 3D Echo, etc.) or add-on to other systems (given they are new enough to add-on the latests apps/DICOM compatible) as needed. Given though that the protocols on these studies tend to remain pretty constant (as tech training costs, possible errors, time added to existing studies, etc are detractors) and a change or addition to the protocol only comes around every 1-2 yrs. or so this type of model is not likely to work for them for some time to come. Maybe the leasing model for a s/w package, however again then you have to worry about the tech initiating the package correctly, how it's approval done, is the tech qualified to ensure the app is loaded correctly, also most of these systems do not have wireless capability.....only the very newest one's. It's very complicated.

Even under the current routine model, these systems sometimes have hiccups, system errors, the boards collect static, etc. We keep our biomed equip. people employed! Adding another layer of complexity would be troublesome. The manufacturers need to make these systems more bulletproof. Difficult to do in today's environment of cost-savings, lean-manufacturing, etc.

Medical Ultrasound technology sits at this interesting intersection of hardware & software intensive applications. Not quite as sophisticated, but a similar intersection as a F-16 fighter jet....incredibly sophisticated targeting and flight stability software and just as incredible bodyframe aerodynamics and engine capabilities (1.3 Mach +).

Sorry if this discussion is a tangent.

Bogdan Baudis ... except that I am not sure what "HP mode" is anymore ... :-) I've heard they are ditching the printer business .. if they think that they ditch the printers and keep the disposables they may be for (another) rude surprise ... I think their current focus is on "enhancing shareholders' value" ... whatever it is ...I think it translates: "pleasing Wall Street any way we can" ...
Seriously: the disposable model works wonders, charging fee per test too. There are plenty good examples of diagnostic devices sold/leased under-price or almost given away however to the captive disposable users!

John Abbott The short answer is that "it ain't that simple". Many manufacturers feel that they are in such a highly competitive environment that they cannot raise prices - even if everyone else does it. More problematical is the fact that reimbursement rates have not increased the requisite 2.3% so the additional costs cannot be passed on to the consumer. Which means either the manufacturer or the clinician gets squeezed. For multi-use devices, like diagnostic equipment, it is less of a problem since the user can simply extend the life of their purchase 2.3% and recoup the amount through additional use. But for single use devices (from catheters to LADs) the additional 2.3% must simply be absorbed by the manufacturer or the clinician.

Maybe one solution might be to increase reimbursement rates for medical devices by 2.3%?

John Abbott Reimbursements rates are used by everyone, public and private so it is not a wash. Also, the fallacy of government conspiracy theorists is the assumption that the different parts of government work together as a well-oiled coordinated machine that someone or some group could hijack to everyone's detriment. The reality is that not only do agencies not talk to each other, they actively compete (and sometimes work at cross purposes) with each other. This tends to be the case within the larger agencies also. In this particular situation the group in charge of the tax is different from the group responsible for reimbursement rates. The only practical way to do this would be through the legislative process which, given the present lackluster service coming out of Congress today, is highly unlikely.

Sorry I missed reading these comments last Spring. Let me add a comment on another aspect of the tax, how poorly it was administered. The ACA passed in March 2010, with the Med Device tax due to phase in Jan 2013. The government did not issue final rules on how the tax would be applied until December 2012! They took 2.5 years to set up the tax, gave industry only 4 weeks before the first tax payment had to be sent in Jan 15.

Another issue is complexity. I spent a significant amount of time in 2012 working with our tax and compliance department, trying to read the smoke signals about how the rules would be written. What transactions would be subject to the tax? That is, which entity in the commercial stream from raw materials to patient treatment pays the tax? Lots of confusion here -- I am sure some firms paid the tax twice (once to the IRS directly, another due to the supplier incorrectly paying and passing along the tax).

Our tax department estimates that our compliance costs will almost equal the direct tax. What a deadweight economic loss, incredibly inefficient way for the government to collect revenue!

Stephen Glassic I wouldn't be surprised if the cost of compliance far exceeded the the tax for most companies and if the govt. cost of administering it eats up most of it on the receiving end. I would be interested to see some figures on this. Another example of wasted productivity.

Charles Collier It's not the tax, it's the question "When will enough be enough". Pure and simple govco found a market segment that they could extract another pound of flesh from. Govco shows absolutely no intelligence regarding how they spend taxpayer dollars. They act like a kid in a candy store with absolutely no oversight.

The tax has always been a delicate subject. Here in Brazil we pay 33% of taxes (there are 3 over medical devices) for national goods. On the other hand, there is a project passing that gives immunity over imported devices (aka your devices). No need to say, the national industry and all health professionals are a little upset concerning this matter. But I agree when you say that you can't just increase reimbursement rates, for this would be catastrophic to all national industries. But how adress the matter? Pass a bill? I really can't see the light at the end of the tunnel...

John Eckberg Check out this map. This is why most Senators want this tax repealed...

https://batchgeo.com/map/69f741790d461f23fe1b6baa6ffd6936#

John Eckberg Chet, Back to the price question. There's no way to "add" 2.3 percent to the cost of a product because those prices are negotiated for three to five years. Don't understand why you don't understand that. Also, hospitals get the reimbursement, not medical device companies.

What's even worse, competition from companies that manufacture in low-tax nations like Ireland or Costa Rica mean that when those contracts are negotiated for the next three to give years, the foreign-made product will have an immense price advantage. The three year delay in implementing this tax gave global companies a three-year headstart on relocating manufacturing and that's just what has happened. Four of five senators want this tax repealed, the majority of two Houses of Representatives want this tax repealed. The repeal has clear bi-partisan support. Even though it is crippling our industry (peeling the equivalent of a job that pays $85,000 annually from the ballance sheet of a company in this space every 20 minutes!) it will only pay for about 3 percent of the cost of the Affordable Care Act.

In short, this tax was a terrible idea, self-inflicted trauma that will send the medical device industry to foreign shores just like automotive, textiles, tires and too many consumer products to count. In the interest of full disclosure, I am the media relations director at Cook Medical and still think that results at www.no2point3.com offer the best hope for repeal.