[Senate Hearing 114-224]
[From the U.S. Government Publishing Office]
S. Hrg. 114-224
A FRESH LOOK AT THE IMPACT
OF THE MEDICAL DEVICE TAX ON JOBS,
INNOVATION, AND PATIENTS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH CARE
of the
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
APRIL 23, 2015
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
______
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COMMITTEE ON FINANCE
ORRIN G. HATCH, Utah, Chairman
CHUCK GRASSLEY, Iowa RON WYDEN, Oregon
MIKE CRAPO, Idaho CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington
JOHN CORNYN, Texas BILL NELSON, Florida
JOHN THUNE, South Dakota ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina
Chris Campbell, Staff Director
Joshua Sheinkman, Democratic Staff Director
______
Subcommittee on Health Care
PATRICK J. TOOMEY, Pennsylvania, Chairman
CHUCK GRASSLEY, Iowa DEBBIE STABENOW, Michigan
PAT ROBERTS, Kansas MARIA CANTWELL, Washington
MICHAEL B. ENZI, Wyoming ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland
DANIEL COATS, Indiana SHERROD BROWN, Ohio
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina
(ii)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Toomey, Hon. Patrick J., a U.S. Senator from Pennsylvania,
chairman, Subcommittee on Health Care, Committee on Finance.... 1
Stabenow, Hon. Debbie, a U.S. Senator from Michigan.............. 3
Coats, Hon. Daniel, a U.S. Senator from Indiana.................. 5
Heller, Hon. Dean, a U.S. Senator from Nevada.................... 6
WITNESSES
Heugel, Bruce A., senior vice president and chief financial
officer, B. Braun of America, Bethlehem, PA.................... 7
Farrar, Quinton J., principal partner, West Surry Strategies,
LLC, Keene, NH................................................. 9
Donisvitch, Alyra, patient, Manchester, ME....................... 11
Judge, Mark, patient advocate, Pittsburgh, PA.................... 12
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Coats, Hon. Daniel:
Opening statement............................................ 5
Donisvitch, Alyra:
Testimony.................................................... 11
Prepared statement........................................... 27
Farrar, Quinton J.:
Testimony.................................................... 9
Prepared statement........................................... 28
Hatch, Hon. Orrin G.:
Prepared statement........................................... 30
Heller, Hon. Dean:
Opening statement............................................ 6
Heugel, Bruce A.:
Testimony.................................................... 7
Prepared statement with attachments.......................... 31
Judge, Mark:
Testimony.................................................... 12
Prepared statement........................................... 43
Stabenow, Hon. Debbie:
Opening statement............................................ 3
Toomey, Hon. Patrick J.:
Opening statement............................................ 1
Prepared statement........................................... 44
Communications
Advanced Medical Technology Association (AdvaMed)................ 47
Alcon Research, Ltd.............................................. 48
Alliance for Aging Research...................................... 49
American Association of Neurological Surgeons (AANS)............. 49
American Dental Association (ADA)................................ 50
ARC Medical, Inc................................................. 51
Biocom........................................................... 51
Carmell Therapeutics Corporation................................. 52
Cook Group Incorporated.......................................... 53
CryoLife, Inc.................................................... 56
ELITechGroup, Inc................................................ 57
Exactech......................................................... 58
Florida Economic Development Council............................. 59
Florida Medical Manufacturers Consortium (FMMC).................. 60
Gradient Technologies LLC........................................ 61
Healthcare Leadership Council.................................... 62
HoverTech International.......................................... 63
LifeScience Alley................................................ 63
Medical Device Manufacturers Association (MDMA).................. 64
Medical Imaging and Technology Alliance (MITA)................... 65
NeoTract, Inc.................................................... 67
OptiScan Biomedical Corporation.................................. 67
Pennsylvania Biotechnology Association........................... 68
PhotoMed Technologies, Inc....................................... 69
Research!America................................................. 70
RoundTable Healthcare Partners................................... 71
Siemens Healthcare............................................... 72
The Spectranetics Corporation.................................... 75
3D Medical Manufacturing, Inc.................................... 77
U.S. Chamber of Commerce......................................... 77
Vapotherm........................................................ 80
Welch Allyn Inc.................................................. 81
Wenzel Spine, Inc................................................ 82
Zimmer........................................................... 83
ZOLL LifeVest.................................................... 83
A FRESH LOOK AT THE IMPACT OF THE
MEDICAL DEVICE TAX ON JOBS,
INNOVATION, AND PATIENTS
----------
THURSDAY, APRIL 23, 2015
U.S. Senate,
Subcommittee on Health Care,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:03
a.m., in room SD-215, Dirksen Senate Office Building, Hon.
Patrick J. Toomey (chairman of the subcommittee) presiding.
Present: Senators Grassley, Thune, Portman, Coats, Heller,
Scott, Stabenow, and Cardin.
Also present: Republican Staff: Brad Grantz, Staff
Director, Subcommittee on Health Care. Democratic Staff: Kim
Corbin, Legislative Counsel; and Sarah Shive, Legislative
Counsel.
OPENING STATEMENT OF HON. PATRICK J. TOOMEY, A U.S. SENATOR
FROM PENNSYLVANIA, CHAIRMAN, SUBCOMMITTEE ON HEALTH CARE,
COMMITTEE ON FINANCE
Senator Toomey. Welcome, ladies and gentlemen. The Senate
Finance Subcommittee on Health Care will now come to order.
First of all, I want to thank Senator Hatch for encouraging
us to begin this process of exploring the medical device tax
with this hearing. I want to thank Ranking Member Stabenow for
all of her leadership on health care issues generally, and her
interest in exploring this topic as well.
I am very grateful to our witnesses for taking the time,
and in some cases traveling a considerable distance, to be with
us to share their expertise and their perspective on a really
important issue. So, I will make no bones about it, my strong
preference would be to have a full and permanent and complete
repeal of the medical device tax, because it is my view that
this tax is doing considerable harm--economic harm. I am
concerned about the impact that it has on innovation in the
medical device industry, and I am really concerned about the
impact it has on individual patients--current patients and
future patients.
So we will discuss this. I want to start with just a little
illustration of some of the absolutely wondrous things that are
being invented and developed in this space. I have in my hand,
if you can see this, a ventricular assist device. This is a
mechanical heart pump for those with congestive heart failure.
This has kept 7,000 Americans alive while they await a
transplant. Three hundred thousand people die every year in our
country from heart failure. It took 5 years to get the FDA
approval for this.
The company, HeartWare, that developed this product spent
$200 million on research and development over the first 5 years
of their existence as an American company, and they racked up
$112 million of losses before they ever were able to begin to
turn a profit, but think of the lives that were saved by virtue
of this remarkable invention.
Here we have a spinal implant. For those who are not close
enough to see, it looks remarkably like a vertebrae, but it
clearly is not. It is used to mend bone fractures. This
material is an alternative for over 400,000 people annually who
have spinal fusion surgery to deal with severe and chronic pain
in the lower back. It is made by a company called Synthes. The
company employs hundreds of people in my State of Pennsylvania
in Westchester.
Last, this is a vagal nerve stimulator. This is implanted
in the chest, surgically implanted, this very device, and it
sends an electrical current to the patient's brain, and it
treats epilepsy and it treats treatment-resistant depression.
Millions of Americans suffer from each of those maladies. The
company that makes this also experienced, as so many start-up
companies in the medical device space do, losses for years as
they were in the stages of developing the product and bringing
it to market and getting the approvals. In fact, they incurred
$250 million in losses before they were able to turn around.
Sadly, the CEO has announced that, in part to offset the costs
of the medical device tax, they are going to build their next
factory in Costa Rica rather than in the United States.
One of the big concerns is that this tax on sales is going
to threaten America's global leadership in this space. The
medical device industry is a huge economic contributor, not
just in my State of Pennsylvania but across the country. The
range of products is stunning, from pacemakers to orthodontics,
hearing implants, surgical tools, knee braces, joint
replacements. The industry employs over 400,000 people
directly. There are another 2 million people who are indirectly
employed because they are vendors or supplier companies to the
medical device industry.
Interestingly, we had a big debate yesterday about trade
policy, as Ranking Member Stabenow knows very well. The medical
device industry, for the last 5 years, has run a substantial
trade surplus. Because we are the leaders in the world, we make
the best products, and we sell them all around the world, we
have had a trade surplus, on average, over the last 5 years.
So it is a big, it is an innovative, it is a dynamic
industry. It pays good wages above the averages. It improves
the quality of our lives through the products that it makes, so
it is really important, I think, to all of us that this
industry thrives.
My view is that the medical device tax is not only onerus
in its scale, but it is bad in its design. It is a tax on
sales, not a tax on profits, so these companies that I alluded
to that spent large sums of money making these products and
bringing them to market, they were losing money for years.
Even when they started to have sales the initial years,
those sales were not enough to be profitable. To impose a tax
on those sales prior to there even being a profit just adds to
the debt load that these companies have to carry, and there is
only so much debt that can be financed. This is one of the
concerns that I have. The design of this tax is very, very
unfortunate.
I think we are going to hear from some of the witnesses
that this has cost us jobs across the country already. Some
companies have had to cancel plans to expand; others are
looking to move to other places.
I want to read an excerpt from a letter from Carmel
Therapeutics, which is a Pittsburgh-based company. The
president and CEO is Alan West, and he sent me a letter last
month in which he states that ``it has also been''--the ``it''
he is referring to is the medical device tax--``a strong factor
in discouraging venture capital from even considering medical
device and early stage deals. Currently, the majority, 55
percent, of clinical trials are now being conducted overseas,
and most novel medical devices are now launched outside the
U.S. 4 to 5 years before they are available in the United
States, according to the U.S. Department of Commerce. This is
the complete opposite of the situation only a few years ago
when the U.S. was taking the lead. As a case in point, my
company, Carmel Therapeutics, conducted a clinical trial in
South Africa and is planning to launch our first product next
year in Europe.''
As I said earlier, I am concerned that, of course, if we
slow down the pace of new development of new medical devices,
we will harm the patients who would benefit from these. So for
these and other reasons, I am very hopeful that we will, in
this Congress, be able to repeal the medical device tax. I am
pleased that we have had bipartisan support for this concept.
We had 79 U.S. Senators, obviously big majorities in both
parties--every Republican and a large majority of Democrats--
voting in favor of an amendment to the budget resolution in
2013.
I am delighted that we have bipartisan support for the bill
to repeal it entirely. Again, I want to thank Chairman Hatch
for his cooperation in this effort. I want to thank the members
of the committee who are here, and the witnesses.
At this time, I would yield to our ranking member, Debbie
Stabenow. Again, I want to mention how grateful I am for her
leadership on health care issues in general, her leadership on
this committee, and, at this time, I recognize her for an
opening statement.
[The prepared statement of Senator Toomey appears in the
appendix.]
OPENING STATEMENT OF HON. DEBBIE STABENOW,
A U.S. SENATOR FROM MICHIGAN
Senator Stabenow. Well, thank you very much, Mr. Chairman.
It really is an honor to be the ranking member on the Health
Subcommittee. It was health care, which has been a lifelong
passion of mine, that actually got me into public service. I
will not say how many years ago, it makes me feel too old, but
it is something that I have been involved with my entire life.
Thinking about last night, because it does feel like we
never went home, I think the good news for your industry, from
a trade standpoint, is that this tax does not apply to exports.
So that is good news, because we want you to be here and be
exporting. So, that is at least one good piece about this.
Today we want to hear testimony about the medical device
industry and your feelings on the medical device tax, but also
to focus on the vital purpose that you serve in the delivery of
top-quality health care. I think that is really what the point
is: creating life-saving technologies, which the chairman spoke
about. I do not have anything to hold up, but it is amazing to
look at these items.
From simple things like an insulin pump or the various
supplies like our witness, Ms. Donisvitch, uses to control her
diabetes, to an arsenal that another witness, Mr. Judge, and
his doctors are relying on to combat his cancer, like imaging
scans and surgical tools and radiation beams, the medical
device industry's work and creativity really are a part of
every medical success story and are so very important to health
care, very important to our economy.
The industry does these things by investing in critical
research and development that holds the promise of leading to
the next medical breakthrough. I think it is also incredibly
important to underscore the partnership--public-private
partnership--in our country and the need to continue to invest
in basic research, which then leads to the next steps for the
industry to be able to move forward, as we move forward
ourselves, debating things like, do we have sequestration caps,
what is the budget going to look like? Investing in basic
research is a very important piece of all of this if we want to
continue to have those innovations.
So the next new technology could help a child to walk or
hear better, or help heal our seniors' wounds, help our doctors
and nurses give better, safer, more efficient care.
In addition to spurring innovation, this industry is
helping to spur local and State economies all around the
country. Because of key investments by the industry, American
manufacturing is growing. This is a form of manufacturing.
We have lots of manufacturing in Michigan, and one of those
types of manufacturing comes from great industries where,
instead of an assembly line, someone is sitting at a desk doing
that work, and on a very intricate, individual basis. I know
firsthand--watching this innovation, the investments, and the
exciting breakthroughs--because of what is happening in my home
State of Michigan. Because of how important this industry is to
Michigan, I helped lead the effort, when we were writing the
Affordable Care Act, to actually cut the original proposed tax
in half to the level that it is today as a step forward.
The good news I want to conclude with is that the
Affordable Care Act is working and saving lives: 16.4 million
Americans now have insurance thanks to the Affordable Care Act.
Because of the premium tax credits that we all in this
committee worked on so hard to secure to make it more
affordable, more than half of consumers in the marketplace have
a plan with a premium of under $100. Let me say that again:
more than half of consumers in the marketplace have insurance
plans that cost less than a cell phone plan or a cable
television bill.
Because of the strong insurance market reforms, fewer
Americans are going into bankruptcy due to medical bills.
Because of Medicaid expansion, over 11 million additional
Americans have coverage now under Medicaid or the Children's
Health Insurance Program, and that means millions of Americans
now have access to lifesaving medical devices, things that had
been financially out of reach for way too long.
So, Mr. Chairman, I remain committed to working with you
and the medical device industry on this tax issue. It is also
critical that, whatever approach we take, we protect the
ability of people to be able to have the health care that they
need and deserve, to have affordable insurance, and to keep
access to medical devices. We all know how important it is that
any solution be fiscally responsible and not add to our
Nation's deficit.
The stories we are going to hear from Ms. Donisvitch and
Mr. Judge are exactly the reason that we fought so hard, and
continue to fight, for the Affordable Care Act and for the
affordability provisions that finally put health insurance and
critical medical innovations within reach of so many American
families.
So I look forward to hearing from our witnesses, Mr.
Chairman, and working with you on this issue.
Senator Toomey. Thank you very much, Senator Stabenow.
Would any other members like to make an opening statement?
Senator Coats?
OPENING STATEMENT OF HON. DANIEL COATS,
A U.S. SENATOR FROM INDIANA
Senator Coats. Well, thank you, Mr. Chairman. I will try to
be brief. I do not want to repeat what has been said.
Indiana is the home to over 300 medical device companies, a
major manufacturing industry in our country offering high-
skilled jobs with literally 56 percent, on average, higher pay
than other manufacturing jobs in Indiana. But more than that,
more than what it does to our economy, what has already been
mentioned, the improvements in health and lifesaving results of
medical device innovation are truly, truly extraordinary.
We as a Congress, and we as a Federal Government, ought to
be doing everything possible to encourage this industry for
moral reasons alone, but for also a number of economic reasons
and the fact that it is making a significant difference in
people's lives.
The tragedy of what has happened here is that, while there
is as much bipartisan support for this legislation as any other
piece of legislation in the last 5 years within the Congress,
we are unable to get to the finish line. There is one person
standing in the way of our passing this on a bipartisan basis--
79 votes in the last Congress, all 45 Republicans and 34
Democrats. I do not know what the ratio is now, but it
significantly exceeds anything else that we have been dealing
with.
Yet, the White House is reluctant to do this. It has been a
pay-for, obviously, for a failed health care act. But it is an
egregious tax that is not only costing a lot of companies a lot
of money that they could have been putting into innovation, but
has also denied people the ability to improve their lives and
potentially save their lives.
In 2013, in testimony before the Senate Budget Committee,
Cook Medical chairman Steve Ferguson stated, and I am going to
quote because this, I think, reflects what the consequences of
not taking action are: ``Cook has made the difficult decision
that without repeal of the medical device tax, we will move
important new product lines outside of the United States. Our
previous plans to open five new manufacturing facilities in
American towns are now on hold as we have to use this capital
intended for these projects simply to pay the excise tax.''
It is more than time that Congress took up this
legislation, passed a bill on a bipartisan basis, delivered it
to 1600 Pennsylvania Avenue, and, if necessary, was prepared to
override a presidential veto. We desperately need to move
forward with this legislation and take action. We have had all
the hearings that we need, and this one is important. This is
part of our moving forward.
I have small companies in Indiana that are researching and
pouring money into innovative improvements and yet are denied
the opportunity to go forward. They are losing money in the
research phase, which they cannot capture through the sales
that they have because they are taxed not on profits, but they
are taxed on sales. Excise tax is one of the most egregious
taxes ever dreamed up by any form of government.
So, as you can tell, I am pretty exercised about this whole
issue. I am really happy that you are having this hearing, and
I want to move from this hearing, Mr. Chairman--and I would
mention the ranking member also because this is a bipartisan
effort. Let us get to the point where we no longer allow the
executive branch to say, well, Congress has not moved on that.
Let us move on this. Let us get a bill there, and, if
necessary, let us override a veto and get this excise tax
repealed.
Thank you, Mr. Chairman.
Senator Toomey. Thank you very much, Senator Coats.
Senator Heller?
OPENING STATEMENT OF HON. DEAN HELLER,
A U.S. SENATOR FROM NEVADA
Senator Heller. If I may. Mr. Chairman, thank you. And to
the ranking member, Senator Stabenow, thank you very much for
holding this hearing. I will be brief, but I probably will be
repetitive. [Laughter.]
We are here to talk about the impacts of Obamacare's
medical device tax on jobs, innovation, and, most importantly,
patients. So let us begin with jobs.
This is an issue that is critical to my home State of
Nevada, especially as we continue working to bring one of the
Nation's highest unemployment rates down. At a time when one of
our top priorities in Nevada is expanding and diversifying the
economy, we need pro-growth policies, not new taxes on
promising industries.
But the medical device tax does not create jobs or grow the
economy. It funnels money into the general fund that could be
spent on more employees or to continue research and
development. In fact, the Medical Device Manufacturers
Association reports that three-quarters of members' companies
have slowed or halted the creation of new jobs thanks to this
tax.
Second, we talk a lot about the ideas of promoting
innovation here in Washington. The medical device industry is a
perfect example of a sector where innovation is a fundamental
part of its success. Yet, here we have an excise tax that
stifles the development of new products that improve the
quality of life for Americans, help us live longer and
healthier lives. Excise taxes are often used to deter certain
behavior, alcohol or tobacco consumption. In this case, the
medical device tax deters innovation and the use of devices
that can make our lives better.
Which brings us to the most important aspect of this
discussion: how patients are harmed by this tax. Like nearly
any tax, the burden ultimately falls on the consumer. Not only
do patients end up paying more, their options are more limited,
and they have to wait longer for new devices, or manufacturers
are forced to cut back on their efforts. Medical device
manufacturing represents a huge growing market, both in Nevada
and throughout this country. We should be encouraging
innovation in this sector, not stifling it.
Mr. Chairman, again, thank you for your efforts to bring
attention to this critical issue, and I will look forward to
what the witnesses have to say.
Senator Toomey. Thank you, Senator Heller.
Let me introduce our witnesses now. First, Bruce Heugel.
Mr. Heugel is the senior vice president and chief financial
officer of B. Braun Medical, Inc., which is a medical device,
surgical, and pharmaceutical company located in Bethlehem, PA.
Mr. Heugel is a certified public accountant, has a master
of science degree in management from Purdue University and a
bachelor of business degree in accounting from the University
of Toledo, where he graduated magna cum laude. Mr. Heugel,
thank you for joining us.
Next is Mr. Quinton Farrar. Mr. Farrar is the founder of
West Surry Strategies, LLC.
He currently holds more than 20 patents and has served in
executive and engineering roles at multiple medical device
companies, including Genzyme and Smiths Medical. Mr. Farrar
holds a bachelor of science degree in mechanical engineering
from Fairleigh Dickinson University and currently resides in
New Hampshire.
Third is Alyra Donisvitch. Ms. Donisvitch is currently the
assistant to the executive director at Maine Centers for Women,
Work, and Community in Augusta, ME. She also has Type I
diabetes.
Finally, Mr. Mark Judge. Mr. Judge is a patient advocate
near Pittsburgh. He has been diagnosed with colon cancer and
undergoes chemotherapy and radiation treatments.
Thank you to all of you for being willing to testify today
and for joining us today.
With that, I recognize Mr. Heugel for 5 minutes of
testimony.
STATEMENT OF BRUCE A. HEUGEL, SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER, B. BRAUN OF AMERICA, BETHLEHEM, PA
Mr. Heugel. Good morning, Chairman Toomey, Ranking Member
Stabenow, and members of the Senate Finance Committee. I am
honored, and I appreciate the invitation to appear before you
to discuss the medical device tax.
I am Bruce Heugel, the CFO of B. Braun of America. We are
proud to manufacture and distribute high-quality, safe,
innovative, and life-saving medical devices and pharma-
solutions that are used for the care of thousands of Americans
every day.
In 2013, 79 Senators voted to repeal the tax. A 2015 bill,
S. 149, to repeal the tax, was introduced by Senators Hatch,
Klobuchar, Toomey, Casey, and many bipartisan members of the
Senate. On behalf of our 5,000 American manufacturing
employees, thank you. We respectfully encourage you to pass the
bill now.
We are not alone, because 1,000 organizations,
associations, and companies representing hundreds of thousands
of jobs have also requested a repeal of the medical device tax.
A history of B. Braun of America. In the late 1970s,
Professor Braun took a chance on America. His 140-year-old
family medical company rescued a struggling company based in
Bethlehem. This was good news for the thousands and thousands
of people who were laid off due to the demise of the former
industrial giant, Bethlehem Steel. The B. Braun focus on
innovation, efficiency, and sustainability grew B. Braun of
America from $6 million in revenue and 300 employees to $1.5
billion in revenue and 5,000 American employees, truly a
success story. Bethlehem Steel had over 300,000 employees; now
they have zero.
Our plant and office overlook the former Bethlehem Steel
headquarters building, now an abandoned 20-story monument
reminding us each day of the cruel realities of global
competition, job loss, and the importance of sustainability.
Sustainability is key to our company, B. Braun. We have the
responsibility to our employees, our shareholders, and our
community not to end up like Bethlehem Steel.
So, when the new medical device tax takes away $33 million
through 2015, we are forced to launch painful countermeasures.
As a CFO working for 37 years, we follow a simple rule: we
balance our checkbook, and we do not spend money we do not
have. The tax is enormous for B. Braun. Our Federal tax bill
increased by 29 percent, and we are not alone.
The Federal tax liability for the entire industry has
increased by 29 percent per the study I reference below, and
some start-up product lines are not yet profitable, but we pay
the tax because it is a gross receipts tax, not a tax on
ability to pay, not a tax on profits. A gross receipts tax is
just bad tax policy.
The tax also wipes out 29 percent of the entire United
States industry's profit. Per the study I reference below, it
reviewed U.S. medical companies employing 458,000 people. For
many companies, those profits are typically reinvested into
developing new products. There is no windfall. Some justify the
tax anticipating a windfall in new patients. This has not been
our experience, and studies document that we are not alone. In
fact, our operating margins have declined in this industry.
But if there was growth in new patients using our new
technology, then new Federal taxes would have automatically
been generated without the new medical device tax, and the new
tax is generated at the highest corporate income tax in the
world. Please do not punish our American manufacturing jobs by
double taxation.
The industry is cutting back on jobs, people, capital
spending, research and development, and innovation. It has been
well documented. The claims are real. In our company, we have
launched painful countermeasures to balance our checkbook. For
the first time in history, we did not provide raises for our
workers. We did it twice. We are not proud of it.
We cut clinical trials; research; development; capital
investment; product line expansion; building a new headquarters
building, campus, and training center; important national sales
meetings; trade shows; travel; and our pension plan. We cut
people's pay, we cut the company's share of benefits, we cut
most budgets.
We are in a hiring freeze, and new jobs have not been
created. True, B. Braun has not launched a large workforce
layoff. We are just hopeful that the tax will be repealed now.
But our total American medical device workforce is down 200
through budget reductions. The impact on our employees, on our
families, is real.
In closing, thank you, Senators, for listening. On behalf
of our 5,000 American manufacturing workers and hundreds of
thousands of jobs in our industry, please repeal the medical
device tax, and please do it now.
Thank you.
Senator Toomey. Thank you, Mr. Heugel.
[The prepared statement of Mr. Heugel appears in the
appendix.]
Senator Toomey. Mr. Farrar?
STATEMENT OF QUINTON J. FARRAR, PRINCIPAL PARTNER, WEST SURRY
STRATEGIES, LLC, KEENE, NH
Mr. Farrar. Thank you, Chairman Toomey, Ranking Member
Stabenow, and members of the Senate Finance Committee, for the
opportunity to discuss the medical device excise tax's negative
impact on innovation in the medical technology ecosystem.
I started in medical device research and development when I
was a very young man, still in college and looking for a way to
pay my tuition as I studied mechanical engineering. Little did
I know that it would be my first step in my life's work
dedicated to improving patient care and solving complex health
care-related problems. The first product that I worked on was a
dialysis system.
Through hard work, team work, and determination, I am proud
to report that we built and installed the first central-
delivery bicarbonate-based system in Senator Toomey's hometown
region of Allentown, PA. That morning, when I woke up and that
system switched on and I saw the benefits to the patients, I
was absolutely hooked. The results were amazing.
From that first innovation, I knew what I was going to do
with my life, and I was committed to finding better ways to
treat patients and improve outcomes. I have been very fortunate
to work on a range of very innovative medical technologies,
such as developing the first self-contained insulin syringe.
This device freed diabetics from the need to carry big,
bulky blister-packaged devices around. Anyone who has a loved
one who is a diabetic knows just how important this was, and
this technology is still utilized today in the configuration we
designed. I have some samples of that first device with me
here, which I can pass around later.
I also was part of the team that developed the post-
operative cardiac auto-transfusion. This cutting-edge
technology allowed patients to receive their own blood
following heart surgery. It was developed at the very same time
that HIV was discovered in the blood supply and there were no
screening tests. Just imagine what this type of technology
meant to the patients and providers at that very delicate time
when we first learned about HIV.
I eventually joined a company called Smiths Medical to help
expand their line of products and grow innovative platforms.
The wide range of new products that we worked on there went
from needle-stick devices to drug delivery pumps with advanced
medication error prevention systems. In fact, the last product
that I worked on for Smiths Medical was the Medfusion system, a
drug delivery device that was shown recently on a ``60
Minutes'' segment detailing a very promising new clinical study
being conducted at Duke using polio to treat brain cancer.
While at Smiths, we were grappling with managing the cost
of the medical device tax. So, after 10 years at Smiths and 35
years of my life developing innovative life-saving devices,
including obtaining more than 20 U.S. patents, my position was
eliminated.
Of course, I cannot speak on behalf of Smiths Medical, but
when the tax went into effect, I saw firsthand the challenges
that the device tax was placing on our business. I understand
that 200 other jobs across multiple sites have also been
eliminated, and they have had to close three manufacturing
facilities thus far since that tax has been in place.
All this comes on the heels of the implementation of this
medical device excise tax. As a person who has been on the
front lines of making these decisions on how, where, and when
to make investments with precious R&D resources, I can tell you
that the single largest costs are to employ the team. Simply
put, if a company has to save $15, $20 million a year in
additional expenses, R&D is going to be impacted. Medical
technology innovators have no choice but to shelve R&D projects
and move U.S. manufacturing to lower-cost regions to address
this punitive tax.
When a huge hurdle such as the medical device tax is put
before innovators, the net result is what we are all seeing.
Promising next-generation life-saving, life-changing
technologies are being shelved or unnecessarily delayed.
As someone who has led countless teams that have embarked
on research projects, I know just how critical it is to have
the proper resources available to take those leaps of faith.
Oftentimes, quite frankly, we did not know if we would succeed,
and many times we did not. But as innovators, we charged
forward with knowledge that our life's work is making big
differences in the lives of patients across the world. No one
can ever know the totality of the medical device programs that
are not getting funded because of this tax. They leave no
footprint.
Regrettably, I can assure you that the impact on the future
quality of care as a result of this device tax is real. We all
treasure our loved ones, and surely many of us have faced our
own health scares over the years. Would any of us want to know
that even $1 that was to be invested in treating the condition
or disease state that impacted our lives was somehow diverted?
Finally, I thank the committee and members for the
opportunity to testify today, and I respectfully ask that the
Senate take up and pass S. 149, the Medical Device Access and
Innovation Protection Act, authored by Senators Hatch and
Klobuchar. Thank you.
Senator Toomey. Thank you, Mr. Farrar.
[The prepared statement of Mr. Farrar appears in the
appendix.]
Senator Toomey. Ms. Donisvitch?
STATEMENT OF ALYRA DONISVITCH,
PATIENT, MANCHESTER, ME
Ms. Donisvitch. Mr. Chairman, Senator Stabenow, and members
of the committee, thank you for inviting me to testify on this
very important hearing today.
My name is Alyra Donisvitch, and I am from Maine, and I am
absolutely thrilled to be here to share my experience for
receiving a life-saving medical device by enrolling in an
Affordable Care Act marketplace health insurance plan.
I was diagnosed with Type I diabetes when I was 15 months
old. Type I diabetes is an auto-immune condition. Having Type I
diabetes means that my body killed my insulin-producing islet
cells, thinking that they were foreign objects. Now my body no
longer produces insulin on its own.
This means that I have to put insulin in my body and
monitor my blood glucose levels to stay alive. Without good
blood sugar management, I am at risk of damage to my heart,
blood vessels, nerves, eyes, and kidneys. Without insulin, I
would not be able to live.
When I was growing up, I used insulin injections to treat
my Type I diabetes. When I was 10, my doctors transferred me to
an insulin pump. The pump changed my life. I no longer worried
about the roller coaster that came with being on insulin
injections, as the insulin pump made the control of my diabetes
much more accurate and simple to maintain.
Being able to have such good control of my blood sugars has
helped me to prevent all of the side effects that normally come
with this disease. Throughout my childhood there were periods
when my family did not have insurance. Both of my parents are
self-employed, and sometimes we could not afford coverage.
Those times were scary for all of us.
Luckily, when I was a teenager, my family learned that I
qualified for Maine's version of Medicaid, called MaineCare. I
was able to stay on the program until I was 20. When I no
longer qualified for MaineCare, I struggled to pay for the
supplies I needed to keep myself alive.
At that time, I was a full-time college student, and I
worked two jobs to pay for my medical supplies and living
expenses. Even though I enrolled in programs to help with the
costs, they only helped with the cost of insulin; they did not
cover the expenses related to managing my diabetes. I was
always worried that something was going to go wrong. There was
no way I could afford insurance.
I finally hit a breaking point when the insulin pump I had
been using for years began to fail and the warranty ran out. I
looked at different options and found that it would cost over
$9,000 to get a new pump. I did everything I could to keep my
insulin pump running. A small crack began to appear near the
reservoir cartridge. I held it together with nail polish,
knowing that if the crack opened all the way, the entire pump
would have died. There were days when I worried I would need to
drop out of college so I could work and save enough money to
purchase a new pump. The stress was constant and all-consuming.
When the Affordable Care Act's new health insurance
marketplace opened in Maine, I looked for a plan that would
meet my needs. It was important for me to find something that
would cover my insulin, a new pump, and my endocrinologist. I
was fortunate to find a plan, through Maine Community Health
Options, that only cost $12 each month. I had a $200 deductible
and a $500 out-of-pocket maximum. Shortly after my plan began
on January 1, 2014, I used my marketplace insurance to replace
my insulin pump. I only paid $500.
I cannot tell you how relieved I was to finally have
coverage. For the first time since I was on MaineCare, I felt
like I was in control of my diabetes. Thanks to the Affordable
Care Act, I was able to finish my undergraduate degree without
worrying about what might happen. I put the money I saved into
buying a reliable car and towards paying off my student loan
debt.
When I graduated, I was named one of two distinguished
students at my university. That would not have been possible if
I had been forced to leave school because of very high medical
expenses.
Today, even though I have coverage through an employer-
sponsored health plan, I no longer worry about what will happen
if my insulin pump stops working or how I will pay for my
medications. Because of the Affordable Care Act, I take comfort
in knowing that I do not need to worry about the health
complications that come with not being able to afford the care
and medical devices I need to survive.
The Affordable Care Act has truly been life-changing for
me. Thank you again for allowing me the opportunity to testify
today and share my story.
Senator Toomey. Thank you, Ms. Donisvitch.
[The prepared statement of Ms. Donisvitch appears in the
appendix.]
Senator Toomey. Mr. Judge?
STATEMENT OF MARK JUDGE,
PATIENT ADVOCATE, PITTSBURGH, PA
Mr. Judge. Chairman Toomey, Ranking Member Stabenow, and
members of the Senate Finance Committee, thank you for the
opportunity to discuss the medical device excise tax's negative
impact on patients who are suffering from cancer.
My name is Mark Judge. I am from Pittsburgh, PA, and I have
stage 4 terminal colon cancer. I was first diagnosed with colon
cancer in January 2013. I had limited signs or issues as it
related to cancer, but I had gone to be pre-tested for rotator
cuff surgery. My primary care doctor noted that my iron level
in my blood was unusually low, which would lead one to believe
that somewhere there had been blood leaving the body.
Since I had no family history of cancer and up to that
point I had never been sick, she suggested I get a colonoscopy.
I was 46 at the time, and colonoscopies are not usually done
until you are at least 50. Thankfully, we agreed to the test,
and they found a tumor in my colon that was defined as stage
3B.
I immediately began 6 weeks of chemotherapy and 6 weeks of
radiation. During this time, I was admitted to the hospital on
two occasions with complications. One of these times, I was put
on a Fentanyl patch, which is, if you are familiar with
Fentanyl, 20 times more potent than morphine.
After completing the 6 weeks of chemo and radiation, I had
resection surgery to remove the tumor in my colon. When I awoke
from surgery, I was surprised to see that my intestines were
sticking out of my gut. I had a colostomy bag. I had the bag
for approximately 3 months, and then I had the reversal surgery
in August of 2013. The recovery from that is still ongoing.
They call it a new normal, meaning you are no longer able to go
to the bathroom the way you used to go. There were times that I
would have to go 60 to 70 times a day. Basically, I was a
prisoner of the bathroom for many months.
During this time, I was deemed NED, no evidence of disease.
I was scanned every 3 months, and on the second scan the
doctors discovered some nodules in my lungs. After two
biopsies, it was discovered that my cancer had metastasized to
my lungs. The reality is, I was probably stage 4 all along. The
cancer was always there. I fall into the 20 percent of cases
where doctors cannot see the cancer in the blood, the way it
worked out.
This was March 2014. The average life expectancy I was
given is 3 years. In April of 2014, after another lung surgery,
I embarked on 6 months of intense chemotherapy. I was on three
different chemo drugs. I had surgery to place a port in my
upper chest so they could administer the chemo and take blood
easier. In December of 2014, I had my sixth surgery to remove
the upper right lobe of my lung and to remove two other
nodules.
In January of 2015, I again went on the three-chemo
regimen. I have my seventh surgery scheduled this coming Monday
to remove two more nodules from my left lung. Obviously, I am
aware that every time they go into my lungs, they take more and
more of my lungs out, and at some point I will need oxygen to
breathe. I will probably be on chemo for the rest of my life.
I have accepted my situation for what it is. I am very
thankful for the scans that have prolonged my life to this
point. If not for them, I would not be here today. I am a
success story from that standpoint. Unfortunately, many of my
friends in cancer forums and advocacy groups have not been as
lucky. Many of them have not had the access to scans, and for
others it has been too late.
I am going to continue to fight for my life. I have an 11-
year-old daughter who is my co-pilot in this journey, and I
will not let her down. I need to see her grow up; I need to see
her graduate and go on to college. I need to see her become a
woman. These are not things that she or any child deserves to
do alone.
The imaging devices that found this disease cost millions
of dollars to develop. The additional taxation on these devices
could prevent many health care providers from purchasing them.
It also reduces the incentive for companies to invest in
improving them, so cancer is detected earlier. The trickle-down
effect is, this stops the innovation of new technologies.
I can only ask the question, what new technologies are
there that could save my life and the lives of millions of
others that are not going to be produced because of this tax?
That is why I am here today. I cannot see the rationale for
imposing a tax that will reduce investment in the very life-
saving technologies that I and millions of others rely on and
hope to see in the future.
With that, I respectfully ask the Senate to pass S. 149,
the Medical Device Access and Innovation Protection Act,
authored by Senators Hatch and Klobuchar. Thank you.
Senator Toomey. Thank you very much, Mr. Judge. Thank you
very much for having the courage to come here and to tell this
very, very painful story. I appreciate it.
[The prepared statement of Mr. Judge appears in the
appendix.]
Senator Toomey. I am going to begin with the questions
here, and I will keep to the 5-minute clock. I would like to
start with Mr. Heugel. You touched on this briefly, but I
wonder if you could elaborate a little bit, Mr. Heugel. The
question is this: when this tax was being designed and being
contemplated, it was assumed that most, if not all, health care
providers, and medical device companies among them, would have
a huge increase in business.
This was going to bring people into the conventional health
care treatments that were not there before. The result would be
a huge surge in sales. The huge surge in sales would result in
far greater profitability, and so you could easily afford a tax
on these sales. I think that was a big part of the rationale,
this notion that you were going to get a big windfall.
But it seems that that is not the case with B. Braun, and
you represent a large, sophisticated medical device company.
Was it the case that you got a huge windfall from this or was
it not, and what are your thoughts on that?
Mr. Heugel. I am glad you asked this question. In our case,
first of all, I would say that if there was a windfall, it
would be bad tax policy, because then we are getting taxed
twice, once on our highest corporate tax rate in the world and
then, additionally, on a new medical device tax that raises the
tax rate by 29% for everyone in this industry, per the studies.
In our case, we were hoping for a windfall, we were hoping
for a lot of patients, but we have not seen any. In our
products, there has been no windfall, no bolus of patients
coming into our industry, so that has not been our experience.
There are a lot of studies out there that also indicate, in
different types of medical treatments, there are no new
patients or no new bolus of new patients, so they never showed
up.
Senator Toomey. Thank you, Mr. Heugel.
Mr. Farrar, you touched on something that I think is really
important but is difficult, and that is, it is very difficult
to point to the product that never got invented. It is
difficult to imagine the enormous benefits that would have
occurred. You have spent your adult life, basically, in this
industry.
If there is a reduction in R&D expenditures by medical
device companies because their funds are being diverted to this
tax, how certain are you that we will either see fewer new
devices, new inventions, or that there will be a delay in the
time in which they are available to patients?
Mr. Farrar. Very short answer. First of all, I am
absolutely certain many leaders in the medical device industry
have come before this body, very honorable people, including
Mr. Heugel here, and told you what is going to happen. I see
firsthand the allocation of funds and investment decisions
being prioritized toward activities to pay this tax--in other
words, reducing costs, laying people off--as opposed to
investing in things with higher risk and longer pay-back. So it
is absolutely certain that R&D has been, and is continuing to
be, cut. Again, as I said, leaders of this industry have come
before you, have predicted what is going to happen, and it is
in fact happening.
Senator Toomey. Thank you, Mr. Farrar.
Mr. Judge, as I understood your testimony, it was some very
sophisticated medical imaging devices that were able to detect
the spread of cancer, allow for the treatment of that, far
earlier than it could have been otherwise detected--as I
understand it. Is it your view that had you not had access to
those scanning devices, had they not yet been invented, had
they not been generally available, that the course of your
treatment would have been different?
Mr. Judge. Yes. Flat out, I would not be here today if it
were not for the medical devices that were used, the PET scans,
the CAT scans, which I get periodically every 3 months, and
sometimes more than that depending on my treatments. But I
would not be here testifying today, so to answer your question:
without question, medical devices have been pivotal.
Senator Toomey. Thank you.
Back to Mr. Heugel. You made the point that if there had
been a surge in sales, which you never did see--it did not
occur--but had it occurred, you presumably would have had a
profit on that portion of sales, and you would have then been
subject to the highest corporate tax rate in the world. But
under the medical device law, of course, in addition to that,
you would have yet another tax on the sales.
My question is, is it your view that this additional layer
of tax that we impose on your industry, on top of the highest
corporate income tax rate in the world, does that discourage
the attraction of capital by this industry? Does that
discourage investment in this industry?
Mr. Heugel. Very good question, Senator. It absolutely
does. The tax rate is widely broadcasted throughout Europe.
Last week, I was in Europe at a meeting with 26 different
country managers. Everyone knows the U.S. tax rate is the
highest in the world.
I have attended, where I spoke, an international trade
event to try to recruit a business to Pennsylvania and the
United States, and everyone in the audience always raises the
question, you have the highest corporate tax rate in the world.
I have the PricewaterhouseCoopers study right here that
says we have the highest corporate tax rate in the world. We
also have a Canadian business up in Ottawa, and the good people
to the north--where it was always at parity at 35 percent--they
lowered their tax rate from 35 percent to 25 percent. It was so
successful, they lowered it down to 15 percent and are asking,
please come back up to Canada.
Our tax is 133 percent higher than theirs before you add
the additional medical device tax burden which, per the studies
by another Big Four firm, says it increases the Federal tax
burden by 29 percent. So I can tell you, rest assured, from a
person who has worked in 17 countries and lived in two,
everyone knows our corporate tax rate is the highest, and it is
uncompetitive.
We as a Nation have to be competitive in our technology, in
our jobs, in what we do in our education. We have to be
globally competitive in our corporate tax rates, and this does
not help us at all. A 45-percent effective tax rate is too
high. Thank you, Senator.
Senator Toomey. Thank you, Mr. Heugel.
Senator Stabenow?
Senator Stabenow. Well, thank you very much to all of you.
I have lots of questions, actually, for all of you. First, Ms.
Donisvitch and Mr. Judge, thank you so much for being here. Mr.
Judge, thank you for sharing such a difficult story, and our
thoughts and prayers go with you as you struggle going forward
with this horrible disease.
I have to start, though, by saying, as somebody who wants
to fix this, I have to get some facts out here on the record
just because I think, if we are not careful here, it is going
to be difficult to fix. We have to fix this based on accuracy.
First of all, let me just say that we had a debate last
night about trade, Mr. Heugel. You should have been here. We
were talking about Bethlehem Steel last night and
globalization, because we are very concerned about the global
economy, what is going to happen here as it relates to our
trade laws, which is a whole different discussion.
Is it not true that in fact you can deduct the medical
device tax as an ordinary business expense? There is not double
taxation here. I just think, as someone who wants to fix this,
it is very important that there not be misrepresentations. In
fact, it is deducted as ordinary business expense.
Mr. Heugel. Thank you, Senator, for raising that question.
Of course it is deducted as a cost, but it is still double
taxation.
Senator Stabenow. I appreciate that. I mean, I appreciate
what you are saying is double taxation, but, because it is
deducted, I just think that that is important that we say that.
Mr. Heugel. May I add----
Senator Stabenow. Yes. I have limited time, but you are
welcome----
Mr. Heugel. All right. Thank you, Senator. Of course it is
deducted. If you look at the studies I have attached here, the
average return on sales for the entire industry is 5.3 percent.
As a result, if you take the medical device tax at 2.3 percent,
add an effective corporate tax rate of 35 percent and lower it
to 1.5 percent, you take 1.5 divided by the 5.3, and you have a
huge tax increase of 29 percent for the entire industry,
representing 458,000 workers.
Senator Stabenow. I appreciate that. I appreciate all the
numbers. We are going through tax reform, and there is a
broader issue that we need to address in tax reform. I also
think that we have a medical device industry that is thriving
in America. It would be very unfortunate to have the word go
out that somehow this is an industry falling apart. That is
certainly not true in Michigan.
In fact, it is important to say that--because this has to
be credible if we are going to get this fixed--even in your own
annual statement in 2013, the company said that continued
growth is predicted for the U.S. health care market. In fact,
when you say that you got no new customers, you got two of them
sitting right here, two new customers as a result of the
Affordable Care Act.
So, yes, we want to fix this, we want to do something that
is fair. But I have to say that when we look at, even in your
own instance, a $5.9-billion revenue increase, 2014 gained 5
percent from the year before, and there is projected growth in
2015 of 4 to 6 percent.
Certainly in Michigan and across the country, we are seeing
growth. I just think we need to make sure that we support the
industry by tackling, not just a 2.3-percent tax, but a whole
range of things that we need to do to support innovation and to
support growth in terms of other issues as well. And it is
important to say that, according to a respected tax economist,
Marty Sullivan, U.S. medical device companies are paying an
average effective tax rate of about 7 percentage points lower
than foreign competitors.
So I am not saying our tax rates on paper are not higher,
but the effective rate is different. So again, when we go to
what is competitive and where we need to do those things to be
supportive, we just need to make sure that we are really
sharing the same numbers here as we fix this.
So I want to make sure that what we are doing makes sense,
but I think it is important also that people understand that we
have a medical device industry that is growing and innovating
in America. I hope you are not suggesting that this is going to
devastate everything when there are so many other issues we
need to work on together to grow the industry.
So just finally, I know I am out of time, but I do want to
just say to our two folks here who are your customers, Ms.
Donisvitch, it is my understanding that for you--I mean, I do
not know what would have happened if the nail polish had not
worked. That is a pretty scary thought.
But I am assuming that at this point, when you look at the
fact that you are paying $12 a month and $500 instead of $9,000
for a pump, that for you, making sure what we do does not
undermine the Affordable Care Act, I assume would be pretty
important?
Ms. Donisvitch. Yes, definitely. I mean, without the
Affordable Care Act for me, in my circumstance, I would not
have been able to get a new pump, and I do not even want to
think about what would have happened when the nail polish
failed, which it would have.
Senator Stabenow. Thank you. I know I am out of time, but,
Mr. Judge, I just also want to say that it is my understanding
right now that, because of your situation, you are also on
Social Security Disability Insurance and on Medicaid, and we
certainly understand that situation.
But, Mr. Chairman, I think that this story is also an
example of why we need to be very careful about not cutting
Medicaid. We just saw a budget come through this Senate, and
one in the House, that would essentially devastate Medicaid,
eliminating the expansion and making altogether about $1.2
trillion in cuts in Medicaid and potentially block-granting it
to the States, as well as cuts in Medicare.
So, when we look at all of this, I just want to make sure
that, in the end, we have a thriving industry, but also make
sure that we are keeping our eye on the prize, which is making
sure the people here today have access to affordable quality
health care. Thank you.
Senator Toomey. Thank you.
Senator Portman?
Senator Portman. Thanks very much for holding the hearing.
Thanks for the testimony, some of which was very emotional, and
some of which was very important information we need to have to
be able to understand how to help our medical device companies
deal with what is already a very competitive global
marketplace.
Clearly, the combination of our tax structure that is not
working and then this additional excise tax, which typically is
something you put on things like cigarettes and alcohol--so-
called ``sin taxes''--is something that we have to deal with.
I am for eliminating it, because I see in my home State of
Ohio the impact it has had. I have had the opportunity to visit
a lot of medical device companies, and I plead with them to
show me their books, and sometimes they do. What has happened
is two things. One, companies in Ohio have been forced, because
of the bottom line, to lay people off. I have looked at some of
the, again, specifics of some of these companies.
To my colleague from Michigan, talking about how well the
business is doing in some respects, in some areas of the
country, I will just tell you, it would be doing a whole lot
better if you did not have a tax, not on profits, but on
revenues, that just makes it very difficult to be able to make
the U.S. industry competitive.
So the second thing that is happening is, research is being
cut back. What they tell me is, Rob, what we are going to do
next year is change our budget for research, because, again,
our bottom line is not as good because of this tax on our
revenue. We do not want to lay people off, so we are going to
try not to, but the only way to do that is to cut back on our
seed corn, which is our research.
So it is happening. In my State of Ohio, there are 1,600
bio-science firms, over 400 focused on medical devices and
equipment. They leverage an extensive supply chain of over
2,000 suppliers and service providers.
Mr. Heugel, I wanted to ask you a couple of questions
quickly. In your testimony, you describe how B. Braun, similar
to many companies in Ohio, has seen a decrease in operating
margins and how the benefit from any new, increasing consumer
demand for your products would be more than offset by the
burdens imposed by the medical device tax and other taxes.
I guess what I would say is, kind of going to this issue of
research, how does the excise tax, in comparison with other
taxes, affect your firm's incentive to develop new products and
do that research that we all want to see happen in order to do
as Mr. Judge told us so poignantly, come up with these new
devices to be able to handle some of the toughest diseases?
Mr. Heugel. Thank you, Senator. That is a good question.
Basically, it is extra money going away. First of all, we
balance our checkbook. So, when we add up the total budgets for
our $1.5 billion company and recognize that we are going to
have to pay, over this 3-year period, $33 million to balance
our checkbook, we are forced with hard decisions.
That is why you see a lot of firms in Ohio and everywhere
that are making those hard decisions. You will many times cut
your clinical trials, cut your research and development, and
cut a lot of your future. Why? Because you will not get paid,
or those monies will not make a return to pay for those
investments until 5 years, 8 years, 10 years, or longer.
So it is just basically that simple. We take the checkbook,
see the cost increases due to the new tax, so therefore we have
to reduce a cost from other parts of the business. That is why
you see in my testimony all the cuts that we made. Thank you.
Senator Portman. Mr. Farrar, you seem to have an interest
in answering that question about research, too.
Mr. Farrar. Yes. As Mr. Heugel said, R&D is sometimes--and
you used the term ``seed corn.'' It is viewed as discretionary
and does not affect the immediate production of product and
operations, and therefore, when you are under pressure like
this, it tends to be the first thing that is deferred, because
it is viewed as discretionary, future standard of living.
The other thing, why it is a tax on innovation, is because
it is a dollar-one tax. It starts on the first dollar, and many
new products lack scale efficiency in their early days. They
cost more money, as my colleague just alluded to, with clinical
studies to support them. To build on patient advocacy and those
sorts of things, it costs more at the beginning, and therefore
the returns are less, and it particularly affects new products
and new initiatives, so you do less of them. That is the simple
fact of how an excise tax works: it discourages investment.
Senator Portman. So, Ms. Donisvitch, you talked about your
experience; Mr. Judge, you talked about yours. I mean, what I
am hearing from the companies in Ohio, and I think what I am
hearing from you all today, is that part of the problem with
the device tax being on revenue is that, not only do you have
less research, as you say, things that are discretionary tend
to go first, but also it just takes longer for the products or
the technology to get to the patient so that some of these
lifesaving devices are not going to be there in a timely way.
Can the two of you talk a little about that, in your
experience: what difference it would have made to you not to
have had the devices that you were able to take advantage of,
and any information you have on sort of this time frame of how
long it takes to go from the development stage to having
something be available that can be used.
Ms. Donisvitch. I mean, as far as the tax goes, I am not
familiar with all of that.
Senator Portman. Yes.
Ms. Donisvitch. I mean, the insulin pump that I have is
made by Tandem, and I do not know anything about that. I mean,
I am glad I was able to get the insulin pump. I think what I
would bring it back to is, if I did not have health insurance,
I would not have been able to get it in the first place, so
what is the point about making something, if it is not
affordable for the consumer? So figure out the tax whichever
way you want to, just please make sure that these devices are
accessible and affordable for us.
Senator Portman. Accessible. Yes.
Ms. Donisvitch. That is what makes a difference to me.
Senator Portman. Yes.
Mr. Judge, any thoughts on that?
Mr. Judge. Yes. Just to piggy-back on what Ms. Donisvitch
said: without the scans, my doctors and myself would not have
had any idea what was going on inside of me. As I mentioned to
Senator Toomey, I would not be here today if I did not have
those initial scans. In order for me to combat this, I need
scans periodically.
Without the new technology, which is the PET scans and the
CT scans--because I have cancer in there, but PET scans can
only see the cancer at a certain size. It emits heat, so we
want to get it as early as we can, because it is more
affordable in the long term, but also for my sake, it will save
my life. So that is basically where I am with that.
Senator Portman. Yes. Thanks. My time has expired. I would
just say, this is an economic issue, it is a tax issue, and it
is also obviously a very personal issue, not just for the two
of you, but for our constituents, so many of whom rely on
America being at this cutting edge on providing these new
innovations and devices and technologies. So we hope that the
combination of coming up with a better solution here and our
overall climate in this country, will allow us to continue to
take the lead.
Thank you, Mr. Chairman.
Senator Toomey. I have to apologize to my colleagues. I did
not realize that Senator Grassley had checked in, so I should
have recognized Senator Grassley before Senator Portman. Let me
recognize Senator Grassley now.
Senator Grassley. I am not going to ask any questions, but
I was chairing the Judiciary Committee and I wanted to show my
support for this issue. I think a little bit of history is very
important to understanding why this punitive tax was put on.
This branch of medicine did not kowtow to the White House like
the American Hospital Association or the pharmaceutical
industry. This is a punitive tax just because they did not cave
in.
Also, some of the history is, this tax would have been
taken off last June. We had a bipartisan group, enough to
override a presidential veto, with that many Democrats who were
willing to support it. When this was going to pass, along with
the pipeline bill, then the extenders tax bill was taken down
by Senator Reid. He said, ``We are not going to do that until
after the election.'' So we have the support to get this
passed, and I just want everybody to know that we ought to get
it passed.
I associate myself with the remarks about the bad economic,
as well as medical, impact this has had on the delivery of
medicine. Many of us pointed out the flaws in this tax during
consideration of Obamacare in 2009. At that time, the
nonpartisan Joint Committee on Taxation was telling us that
this tax would ultimately hit consumers of their products.
Our colleagues on the other side could not be bothered by a
nonpartisan analysis and marched ahead with enacting a fatally
flawed health reform legislation. We are now left with the
consequences of this tax, and that is what is being discussed
here. It has negatively impacted everyone, from manufacturers
to small business people to patients, and it is time to repeal
this tax once and for all.
I yield.
Senator Toomey. Thank you, Senator Grassley.
Senator Scott?
Senator Scott. Thank you, Mr. Chairman. Thank you to the
panel for taking your time and investing your energies on
illuminating such an important issue. This really is an issue
about people, not products. I think, Mr. Heugel, your comments
and your response to the question of deductibility of the tax--
your numbers were quick, 5.3, 2.3, 35 percent, 1.5, 29 percent,
so most folks probably did not have a chance to allow those
numbers to get traction.
But let us just say it slower and differently so that we
can help ourselves understand and appreciate what we are
talking about. I am going to just give you a scenario, and
please, let me know if I am right or wrong.
In order for the business to deduct something, you have to
make something. So far, so good?
Mr. Heugel. Yes.
Senator Scott. All right. So if you make, at the end of the
day, an 8-percent profit and you are going to take, not 2
percent of the profit, but 2.3 percent of the revenues
generated to pay down your liability to the government, that
8.5-percent profit is slashed by about 29 percent.
Mr. Heugel. Yes, sir.
Senator Scott. So if you are taking that 29 percent and
giving it to the government for some purpose, you probably
cannot take that same 29 percent and use it for R&D.
Mr. Heugel. Yes, sir.
Senator Scott. If you cannot use it for R&D, the chances
are innovation at the highest level will probably not happen.
Mr. Heugel. You get it.
Senator Scott. So the two folks to your left--not your
immediate left, but beyond Mr. Farrar--are benefitting from the
innovation and the creativity in an industry that is allowed to
take the seed corn, the profit, or the revenue and reinvest
that revenue in such a way that you actually are able to have
more life-saving devices available on the market. As Ms.
Donisvitch said, they have to be affordable to the consumer. Am
I on the same page?
Mr. Heugel. Yes, sir.
Senator Scott. Sometimes we complicate the matter. If we do
not appreciate and understand the absolute impact of paying a
tax on gross revenues that then has to be translated out of the
net profit, we do not necessarily understand the economic
impact, not just on your company, but on an industry's ability
to provide life-saving devices that are desperately needed. Of
course, the industry is growing because people are living
longer, because the medical devices are actually working. That
does not necessarily make them less expensive, but it makes
them more important, more valuable to all of us who want to see
our friends and family members and neighbors live longer,
healthier lives.
I think the stories that we have heard today are compelling
stories. I have one at home in South Carolina where a lady
named Kim Neal, who was diagnosed and then was victorious over
breast cancer in 2006, decided to launch a small business, a
small medical device business. She started seeing profits come
in, she started doing pretty well. She thought--my words, not
hers--the revenues that were coming in were not always profits,
but they looked good when you were cashing the checks. You
realize very quickly that you have to pay all your expenses,
and you are left with what they call the bottom line. But
unfortunately, the 2.3-percent tax eviscerated the bottom line,
and it continues to do so.
So here you have a champion of champions, a breast cancer
survivor, starting a medical device company, doing what she is
passionate about doing, and the health care law starts, not to
chip away, but to eliminate her seed capital to reinvest in
such a way that she cannot innovate and create. This tax for
other companies in South Carolina, smaller companies that have
35 employees, is in the range of $200,000 off the bottom line.
Now, Ms. Neal pays--in addition to the onerous tax burdens
on the local level, the county level, the State level, the
Federal level, and now the tax on medical devices--her own
health care cost through Obamacare, which is $1,000 a month.
She finds herself a little disillusioned by our political
conversations about ``just a 2.3-percent tax.'' It is not a
2.3-percent tax, it is a 29 percent, on average, elimination of
resources to innovate, to create, and to extend the lives of
Americans.
Have I missed something here?
Mr. Heugel. You have not, Senator.
Senator Scott. Mr. Farrar?
Mr. Farrar. Very well said, sir.
Senator Scott. I think we should make this about what it
really is about: two people who are alive, who are experiencing
a higher quality of life, because of the innovation and the
creativity of an innovative sector of our economy.
We should also realize that, if we are going to do the
right thing--and Obamacare was supposed to cost $1.8 trillion;
the latest number is down to $1.3 trillion, which is a drop of
half a trillion dollars--I think we could figure out $29
billion.
Thank you, Mr. Chairman.
Senator Toomey. Thank you, Senator Scott.
I want to thank our witnesses for being very patient. We
have been here for over an hour now. But I do have just a
couple of quick follow-up questions, and I know Senator
Stabenow does as well, so I hope you will be patient for just a
little bit longer and be willing to share your time for a
little bit longer.
Senator Stabenow raised, I think, a completely valid and
important technical question about how this tax interacts with
other taxes, and specifically she raised the question of
whether the medical device tax is deductible from one's income
for the purpose of determining one's income tax. My
understanding is that, in fact it is deductible, and I think
Mr. Heugel confirmed that.
So I have two questions. Mr. Heugel, despite the fact that
the medical device tax is deductible for Federal income tax
purposes, is it still the case that the net effect of the
combination of the deductible medical device tax and the
ordinary income taxes is still a huge tax increase over where
taxes were prior to the imposition of the medical device act,
number one?
Number two, I know this does not apply to your company, but
you are an accountant and a CFO, and I am quite sure you know
the answer to this. If a company is operating on a very narrow
margin, say less than 2.3 percent, prior to the imposition of
the medical device tax, is it not the case that the imposition
of the tax could drive that company from a modestly profitable
to a loss-making company in time, the very survival of which
would be threatened? So those are my two follow-up questions
for Mr. Heugel.
Mr. Heugel. Thank you, Senator. Those are good questions.
On the first question, I would refer to some of the studies
that I referred to, because those are Big Four accounting
firms. They studied the entire industry, so I quote where they
said that, for the entire industry, the tax liability was
raised by 29 percent.
Then I will refer to the study, also by the same public
accounting firm, where they looked at all companies in the
United States, 458,800 employees. I can show you the documents
where they refer to what is the average industrial profit. That
is where the ROS comes in, so you can do the calculations. So,
the tax deductibility has already been factored into the last
study that I referred to.
As far as 2.3 percent wiping out some start-ups, yes, I
know of a couple of companies. We looked at them because they
never had it in their long-term business model. They never had
it in their long-term business model when they started their
R&D. They never had it in their long-term business model when
they tried to get FDA approval. They never had it in this
business model when they tried to build a plant.
Now they get this new tax of 2.3 percent on gross, and one
company I know is bankrupt. So it is a very devastating tax,
because it delays the break-even. As a financial advisor to
companies, I will say, ``Put your money in the stock market; do
not invest in this technology.''
We have some technologies where we have invested over $100
million, $150 million 9 years ago, and we have not sold one
because it takes so long. So, when you are paying tax on your
gross revenues, it just makes it not a good economic decision.
Thank you.
Senator Toomey. Senator Stabenow?
Senator Stabenow. Thanks very much.
I wanted to ask, Mr. Farrar, as an inventor and innovator
yourself, I know you look at a lot of different ways to try to
solve problems. That is really the business that you are in. I
wonder when we look at the best approach to take in terms of
the medical device tax or if there is a way--you talked a lot
about the structure of this.
Is there another way to approach this in terms of the
medical device industry being part of the Affordable Care Act,
or is there another structure that you suggest? I am just
curious if there is another approach.
Mr. Farrar. So, first of all, thank you for the question,
Senator. I am a mechanical engineer by training, and I have to
defer to others on tax policy. I do not even do my own income
taxes. So first of all, I think, as has been well discussed
here today, an excise tax on sales is not a good idea. I think
we all agree in a bipartisan way that discouraging innovation
in the medical device industry is not a good idea.
So in terms of alternatives, I am not in a position where I
can offer comprehensive tax advice to the Senate Finance
Committee. I wish I could.
Senator Stabenow. I appreciate that. Yes, I appreciate
that.
Mr. Heugel, as someone more in the tax realm, we are
looking broadly at tax reform. We are looking at a whole range
of things--of course, the R&D tax credit, which I believe needs
to be made permanent. I think we have bipartisan support for
that as well. I mean, I think it is important as we look at all
this, where are the pressure points, and how do we put this
together right?
But, in your perspective, is there any different way to
structure this or a way to do this that is not going to add to
the deficit so that as we are struggling--as a Budget Committee
person, I also am in many, many meetings right now where we are
trying to figure out how not to add to the national deficit.
So, any creative ideas?
Mr. Heugel. Thank you, Senator. That is a very good and
challenging question. I would look at it this way, since you
asked for my advice. One of the things about the Affordable
Care Act, as you have said, is it has provided people with more
care.
I would sleep at night knowing that if there is more care
out there, that those companies providing that care would
already be taxed at the highest corporate tax rate in the
world. So you can balance that by saying, if there is more
patient care, this is a good thing because we are going to get
more tax revenues.
In addition, I would look at it that the companies have two
options. They either can try to pass it on, and we were really
unsuccessful. We have long-term contracts. In fact, over 50
percent of our contracts are longer than 4 years. Over 15
percent are 7-year contracts. So we are unable to do that. But
either (1), companies can do that, or they have to lay off
people.
So I think I would rest at night peacefully knowing that I
will prevent some layoffs, and that preventing layoffs will
help the economy because it will mean jobs, and it will mean
paying payroll tax, income tax, and what have you. In addition,
I would recognize that if companies are successful in passing
the expense on, and some of them are, you know what that does?
That just increases the cost of health care, which is not what
I think our policy is all about. We do not want to increase the
of cost health care, so that is what I would say. Thank you.
Senator Stabenow. Thank you.
I would just ask, Mr. Heugel, do you support having more
coverage in the Affordable Care Act, just without the tax? Let
us say you take the tax away.
Mr. Heugel. I am a firm believer in health care coverage
for the American people.
Senator Stabenow. Thank you very much.
Mr. Farrar, how would you respond to that?
Mr. Farrar. Yes. So I think there are a lot of good things
in the Affordable Care Act. There has also been a lot of
discussion about things that could be improved upon. So I am
generally in favor of care for folks, but this bill has some
flaws that we already talked about, and I would like to see
those fixed, starting with the medical device tax, of course.
Senator Stabenow. Of course, yes. Let me just conclude by
saying the good news is, the ACA covers medical devices. So
regardless of what happens, we do have people here who are
covered now. I just want to thank, in conclusion, Ms.
Donisvitch. You have been suffering with Type I diabetes for
some 20-plus years now, and certainly Mr. Judge being diagnosed
with cancer in 2013, that has to be just a punch in the gut to
have to deal with all of this that is happening to you.
But I do want to say for the record that I am very proud of
the fact that you both have access to affordable health care
and that you are not being blocked because you have preexisting
conditions, which would have happened if in fact we did not
have the Affordable Care Act.
Ms. Donisvitch, as a woman in the marketplace, you probably
would have been paying more for insurance if we had not
guaranteed that that would not happen. And there would be
annual and lifetime limits on the treatments, Mr. Judge, that
you would have had, as well as the fact that, if we are not
careful, people in your situation on Medicaid are going to be
in a much, much more difficult situation.
So I appreciate everyone being here, and I appreciate the
need for us to address this. I also want to make sure that
folks can afford to buy what are very critical, life-saving
innovations and products. So, thank you to all of you.
Senator Toomey. I want to thank you, Senator Stabenow, for
your cooperation in joining us in this hearing. I am going to
put you down as someone who is in favor of the Affordable Care
Act, if I could.
Senator Stabenow. Yes.
Senator Toomey. That is an issue on which, broadly
speaking, we are not in agreement. I am very deeply concerned
about people losing the plans that they had and that they
liked, and losing the doctors that they had preferred, the
costs that have risen, and the general lack of freedom that
results.
But, I appreciate the fact that we were able to focus on an
area where I think there is a lot of agreement, and that is the
flaws inherent in a tax that is imposed on sales on one
industry that is such an important industry for our country and
for the patients who benefit from the products that they
develop.
I know you share the view that I have, that we want to
encourage more innovation, further development of these
wonderful, life-enhancing and life-saving and life-extending
products. I know we are going to work together to try to
achieve that.
I want to really thank our witnesses for taking the time to
be here. Mr. Judge, Ms. Donisvitch, Mr. Farrar, and Mr. Heugel,
your testimony was very, very helpful, and we are all very
grateful.
The hearing is adjourned.
[Whereupon, at 11:28 a.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Alyra Donisvitch,
Patient, Manchester, ME
Mr. Chairman, Senator Stabenow, and members of the Committee:
Thank you for inviting me to testify at this very important hearing
today. My name is Alyra Donisvitch, I am from Maine and I am absolutely
thrilled to share my experience of receiving a lifesaving medical
device by enrolling in an Affordable Care Act marketplace health
insurance plan.
I was diagnosed with Type 1 Diabetes when I was 15 months old. Type
1 Diabetes is an autoimmune condition. Having Type 1 Diabetes means
that my body killed my insulin producing islet cells thinking they were
foreign objects, so now my body no longer produces insulin on its own.
This means that I have to put insulin in my body and monitor my blood
glucose to stay alive. Without good blood sugar management, I am at
risk of damage to my heart, blood vessels, nerves, eyes, and kidneys.
Without insulin, I would not be able to live.
When I was growing up, I used insulin injections to treat my Type 1
Diabetes. When I was 10, my doctors transferred me to an insulin pump.
The pump changed my life--I no longer worried about the roller coaster
that came with being on insulin injections, as the insulin pump made
the control of my diabetes much more accurate and simple to maintain.
Being able to have such good control of my blood sugars has helped me
to prevent all of the side effects that normally come with this
disease.
Throughout my childhood, there were periods where my family did not
have insurance. Both of my parents are self-employed, and sometimes, we
couldn't afford coverage. Those times were scary for all of us.
Luckily, when I was a teenager, my family learned that I qualified for
Maine's version of Medicaid, MaineCare, and I was able to stay on the
program until I was 20.
When I no longer qualified for MaineCare, I struggled to pay for
the supplies I needed to keep myself alive. At that time, I was a full-
time college student, and I worked two jobs just to pay for my medical
supplies and living expenses. Even though I enrolled in programs to
help with the cost, they only helped with the cost of insulin, they
didn't cover other expenses related to managing my diabetes. I was
always worried that something was going to go wrong. There was no way I
could afford insurance.
I finally hit a breaking point when the insulin pump I had been
using for years began to fail and the warrantee ran out. I looked at
different options and found out that it would cost over $9,000 to get a
new insulin pump. I did everything I could to keep my insulin pump
running. A small crack began to appear near the reservoir cartridge. I
held it together with nail polish, knowing that if the crack opened all
the way, the entire pump would have died.
There were days where I worried that I would have to drop out of
college so I could work and save enough money to purchase a new pump.
The stress was constant and all-consuming.
When the Affordable Care Act's new health insurance marketplace
opened in Maine, I looked for a plan that would meet my needs. It was
important for me to find something that would cover my insulin, a new
pump, and my endocrinologist. I was fortunate to find a plan through
Maine Community Health Options that only cost $12 each month. I had a
$200 deductible and a $500 out of pocket maximum. Shortly after my plan
began on January 1, 2014, I used my new marketplace insurance to
replace my insulin pump. I only paid $500.
I cannot tell you how relieved I was to finally have coverage. For
the first time since I was on MaineCare, I felt like I was in control
of my diabetes. Thanks to the Affordable Care Act, I was able to finish
my undergraduate degree without worrying about what might happen. I put
the money I saved into buying a reliable car and towards paying off my
student loan debt. When I graduated, I was named one of two
Distinguished Students at my University--that would not have been
possible if I had been forced to leave school because of very high
medical expenses.
Today, even though I have coverage through an employer-sponsored
health insurance plan, I no longer worry about what will happen if my
insulin pump stops working or about how I'll pay for my medications.
Because of the Affordable Care Act, I take comfort in knowing that I
don't need to worry about health complications that come with not being
able to afford the care and medical device I need to survive. The
Affordable Care Act has truly been life changing for me.
Thank you again for allowing me the opportunity to testify today
and share my story.
______
Prepared Statement of Quinton J. Farrar, Principal Partner,
West Surry Strategies, LLC
Chairman Toomey, Ranking Member Stabenow, and members of the Senate
Finance Committee, thank you for the opportunity to discuss the medical
device excise tax's negative impact on innovation in the medical
technology ecosystem.
I started in Medical Device Research and Development when I was
still in college, working at a company called National Medical Care. It
began as a way to help pay my tuition as I studied Mechanical
Engineering.
Little did I know that it would be the first step of my life's work
dedicated to improving patient care and solving complex health-related
problems.
I started my career developing the first center delivery
biocarbonate based dialysis system. In those days Acetate was the
buffer solution used in dialysis. The patient's body has to convert
acetate, bicarbonate is the body's natural buffer, and in theory would
be better tolerated but it is not stable in solution for long periods.
Through hard work and determination, I am proud to report that we built
and installed the first central delivery bicarbonate system, in Senator
Toomey's hometown region of Allentown Pennsylvania. The results were
amazing,
At that moment, I was hooked. From this point forward, I knew I
wanted to spend the rest of my life researching and developing better
ways to treat patients and improve outcomes.
I had the good fortune of joining a company called Becton Dickson
and developed the self-contained insulin syringe. This device freed
diabetics from carry big bulky blister packaged devices. Anyone who has
a loved one who has diabetes knows just how important this was, and the
technology today is still utilized in the configuration we designed.
I then progressed to Pfizer's Hospital Products Group, where over
the course of 18 years I ran R&D, RA/QA, and Manufacturing Technology
for the Deknatel Division.
The first technology we developed was postoperative cardiac
autotranfusion. This cutting-edge technology allowed you to receive
your own blood following heart surgery. It was developed at the same
time HIV was discovered in the blood supply, and there was no screening
tests yet developed.
Imagine what this type of technology meant to patients and
providers at a very delicate time period when we were first learning
about HIV.
I always had the entrepreneurial bug, and as a result some
colleagues and I at this point invested in building a new company,
Deknatel Snowden-Pencer. Here we developed devices that allowed
surgeons to make bypass grafts on a beating heart. We also introduced a
minimally invasive surgical system to allow the harvest of the
saphenous vein eliminating the need to open fillet of the leg, one of
the most painful aspects of the recovery from heart surgery.
I've also spent some of my career creating biomaterials, surgical
implants to reduce painful adhesions following surgery for colon cancer
and hernia repair. We applied this technology to orthopedics to provide
lubrication to arthritic joints, reducing pain and improving mobility.
About 12 years ago, I joined Smiths Medical to help expand their
line of products and grow innovative platforms they are proudly known
for. The wide range of new products ran from needle stick prevention
devices to drug delivery pumps with advanced medication error
prevention systems. In fact, the last new product that I worked on for
Smiths Medical was the Medfusion system, a drug delivery device shown
in the recent 60 Minutes segment detailing the promising clinical study
at Duke of using Polio to treat brain cancer.
Unfortunately, the Medfusion syringe pump was my last new product
at that company.
While Smiths Medical was grappling with managing the costs of the
medical device tax, after more than 10 years at Smiths Medical, with 35
years of my life developing innovative lifesaving medical devices,
including obtaining more the 20 U.S. Patents, my position was
eliminated.
Of course, I cannot speak on behalf of Smiths Medical, but when the
tax went into effect, I saw first-hand the challenges the device tax
was placing on our business. I understand 200 other jobs across
multiple sites have also been eliminated and they have had to close
three manufacturing facilities thus far since the tax has been out in
place.
All of this comes on the heels of the implementation of the medical
device excise tax.
At the facility where I was headquartered, in Keene, New Hampshire,
they produced safety stick needle technology. Before I left the
company, we projected we would have to pay $3 million annually on the
medical device tax. With disposable technology like safety stick
needles, the business was struggling to make up that revenue.
As a person who has been on the front lines of making decisions on
how, where and when to make investments with precious R&D resources,
the single largest costs are compensation related.
Simply put, if a company has to save $15-$20M a year due to
additional expenses, the first thing you might define is discretionary
spending not directly related to the current product and operating
income.
All too often however, R&D is impacted.
I strongly believe this is why the largest source of lost jobs and
investments are due to the medical device tax.
Medical technology innovators have no choice but to shelve R&D
projects and move U.S. manufacturing to lower cost regions to address
this punitive tax.
The tax depletes resources that should be invested in new promising
cures or new manufacturing technologies. I can assure you firsthand
that R&D requires significant investment, and long periods of time in
the ecosystem before possibly ever seeing a return.
With my experience heading up R&D projects, sadly, I know that the
billions of dollars this excise tax is diverting from innovators is now
being taken largely out of compensation in the areas of R&D and U.S.
manufacturing jobs.
The medical device tax starts with the first dollar of product
sales and thus it reduces the incentive for growth investments. This
effect is the same for every new product investment.
New innovative products tend to initially lack scale and
efficiencies. This takes time, requiring cash investments at a higher
percentage of sales then existing products. There are differences in a
company's ability to offset the additional loses that the medical
device tax imposes by siphoning money from other product areas.
Start-ups and small medical device businesses are particularly at a
disadvantage as they lack the ability to redeploy operating income to
offset an excise tax on sales. Put another way, when a huge hurdle such
as the medical device tax is put before innovators, the net result is
what you are seeing--cuts to R&D and promising, next generation of
life-saving and life-changing technologies are now being shelved or
unnecessarily delayed.
As someone who has led countless teams that embarked on research
projects, I know just how critical it is to have the resources to take
these leaps of faith. Often, quite frankly, we did not know if we would
succeed. At times, we did not. But as innovators we charge forward with
the knowledge that our life's work is making monumental differences in
the lives of patients across the world. By Congress enacting policies
that drains billions of dollars from American high-tech manufacturing,
it is no surprise that these difficult choices are being made.
The medical device excise tax clearly increases the relative
attractiveness and absolute urgency of large cost reductions programs
for the base of existing products at the expense of investments in
growth programs.
No one can ever know the totality of the medical device programs
that are not getting funding because of this tax.
Regrettably, I can assure you that the impact on the future quality
of care as a result of the device tax is real.
We all treasure our loved ones, and surely many of us have also
faced our own health scares over the years. Would any of us want to
know that even $1 that was to be invested in treating the condition or
disease state that impacted our lives was diverted?
What future lifesaving device is not being developed today as a
result of this excise tax? These difficult investment decisions are
being made every day. I know we can all agree that reducing investments
in the U.S. medical device sector is not a good idea. There should be
no place for policies that reduce incentives for innovation in life
saving technologies.
My life's work has been medical device development. I recently
formed West Surry Strategies, LLC to help other medical device
companies drive innovation and improve competitiveness. From kidney
failure to diabetes to heart surgery and much more, I have been blessed
to play a role in improving outcomes.
I live in New Hampshire and have spoken with both Senator Ayotte
and Senator Shaheen and I am proud to say that New Hampshire enjoys bi-
partisan support for the repeal of the medical device tax.
I respectfully ask that Senate pass S. 149, the Medical Device
Access and Innovation Protection Act authored by Senators Hatch and
Klobuchar.
Thank You.
______
Prepared Statement of Hon. Orrin G. Hatch,
a U.S. Senator From Utah
Good morning. I first want to thank Senator Toomey for arranging
this important discussion and for your dedication and leadership in the
bipartisan effort to repeal the medical device tax. Senator Toomey has
been a long time partner and champion of fighting this ill-conceived
tax. I truly appreciate his leadership along with Senators Burr,
Portman, Coats, Crapo, Isakson, and Scott who have been key to building
support on this.
The people of Utah and others that I hear from agree that the
medical device tax harms American innovation, job growth, and the
ability to provide innovative medical technologies to patients. Earlier
this year, I re-introduced bi-partisan legislation to repeal the excise
tax with 35 co-sponsors. If passed, the Medical Device Access and
Innovation Protection Act will help ensure that Americans continue to
have access to innovative, life-saving medical devices.
A strong medical device industry in the United States is critical
to improve the health of Americans and the national economy. In the
U.S., the industry employs over 400,000 American workers and pays about
$25 billion in salaries. Medical device companies pay salaries that are
40% more than the national average. The technologies developed by these
companies increase life expectancy, decrease mortality rates, and
improve the quality of life for many Americans.
Although this industry is one of the engines of our economy and
critical to patient health, President Obama decided to target it by
implementing an excise tax on medical equipment and devices in
Obamacare. Like many other provisions in Obamacare, the excise tax will
ultimately increase the cost of health care for Americans. The Joint
Committee on Taxation estimates that it will collect about $24 billion
in taxes over the next 10 years. I have heard that the impact of the
tax is particularly burdensome on innovative companies whose new
products are not immediately profitable. As medical device companies
face increasingly higher costs, some of that cost will inevitably be
passed on to patients.
The tax is already having an adverse impact on job creation in the
United States and harming U.S. competitiveness. A study by the Advanced
Medical Technology Association (AdvaMed) found that the tax impacted
approximately 33,000 American jobs in its first year, either through
layoffs or forgone jobs that would have been created. The excise tax is
likely to shift jobs overseas because it weakens the playing field for
U.S. companies and gives their foreign competitors an unfair advantage
in the global marketplace for medical devices.
For these reasons, it is my strong belief that Congress should act
swiftly to repeal this excise tax to keep health care costs low for
American patients, protect innovation, and protect American businesses.
I want to thank our witnesses for appearing today to help discuss
the impacts of the medical device tax, and I look forward to this
important discussion.
______
Prepared Statement of Bruce A. Heugel, Senior Vice President and Chief
Financial Officer, B. Braun of America
Good morning. Chairman Toomey and Ranking Member Stabenow and
members of the Senate Finance Committee, I am honored and I appreciate
the invitation to appear before you to discuss the medical device tax.
I am Bruce Heugel the CFO of B. Braun of America.
We are proud to manufacture and distribute safe, high quality,
innovative and life saving medical devices and Pharma solutions that
are used for the care of thousands of American patients every day.
In March 2013, 79 Senators voted to repeal the medical device tax.
In January 2015, bill S. 149 to repeal the tax was introduced by
Senator Hatch, Klobuchar, Toomey, Casey and many other bipartisan
members of the Senate.
On behalf of our 5,000 American manufacturing workers we thank you,
and we respectfully encourage you to pass the bill.
We are not alone, as 1,000 organizations, associations, companies,
patients, providers and venture capital firms representing hundreds of
thousands of medical technology jobs have respectfully requested a
repeal of the medical device excise tax.\1\
---------------------------------------------------------------------------
\1\ January 13, 2015--letter to Majority Leader Hon. Mitch
McConnell, Speaker of the House Hon. John Boehner, Minority Leader Hon.
Nancy Polosi and Minority Leader Hon. Harry Reid. Letter attached.
---------------------------------------------------------------------------
history of b. braun of america
In late 1970s Professor Braun took a chance on America. His 140
year old family medical company rescued a struggling company based in
Bethlehem, Pennsylvania. This was good news as thousands were laid off
due to the demise of the former industrial giant Bethlehem Steel. The
B. Braun focus on innovation, efficiency and sustainability, grew B.
Braun of America from $6 million in revenue and 300 employees to $1.5
billion in revenue and to 5,000 American employees. A true success
story.
Bethlehem Steel had over 300,000 employees. Our plant and office
looks over the former Bethlehem headquarters building, now an abandoned
20 story monument reminding us each day of the cruel realities of
global competition, job loss and the importance of sustainability.
Sustainability is key to B. Braun. We have responsibility to our
employees, shareholder and community not to end up like Bethlehem
Steel. So when the new medical device tax takes away $33,000,000
through 2015, we are forced to launch painful counter measures. As the
CFO we follow a simple rule: we balance our check book, and do not
spend money we do not have.
enormous tax
The tax is enormous for B. Braun. Our Federal Tax bill increased by
29%.
We are not alone. The federal tax liability for the entire industry
increased by 29%, per the study ``Effect of the Medical Device Excise
Tax on the Federal Tax Liability of the Medical Device Industry.'' \2\
---------------------------------------------------------------------------
\2\ Effect of the Medical Device Excise Tax on the Federal Tax
Liability of the Medical Device Industry by Ernst and Young November
2012, page 1, page 5.
Some start up product lines are not yet profitable, but we pay the
tax, because it is a gross receipts tax, not a tax on profits. A gross
---------------------------------------------------------------------------
receipts tax is bad tax policy.
The tax also wipes out 29% of the entire U.S. industry profit. Per
the ``Pulse of the Industry'' study the U.S. Public medical companies
employ 458,800 and had average profitability in 2013 of only 5.2%.\3\
In comparison the new tax is 2.3% or 1.5% after tax (using federal
statutory rate of 35%). As a result, the tax wipes out 29% of the
profit for the industry.\4\
---------------------------------------------------------------------------
\3\ Pulse of the Industry. Medical Technology Report 2015, by Ernst
and Young, page 35. United States Financial Performance calculated from
Data $11.4/218.5-5.2%.
\4\ Calculation: 1.5%/5.2% = 29%.
And for many companies those profits are typically reinvested into
developing new products.
no wind fall
Some justify the tax anticipating a windfall in new patients for
the industry. This has not been our experience. And studies document we
are not alone. In fact our operating margins are down in the last 2
years. The major driver of that decline is the tax.
But if there was a growth in new patients using our medical
technology, then new federal taxes would automatically be generated,
even without the new device tax. And the new federal tax generated is
at the highest corporate income tax rate in the world.\5\
---------------------------------------------------------------------------
\5\ March 17, 2015 Hatch Statement at Finance Hearing on Building a
Competitive U.S. International Tax System.
Please do not punish manufacturing jobs by double taxation.
painful counter measures
The industry is cutting back on jobs, on people costs, capital
spending, research, development and innovation. It has been well
documented.
The claims are real. At my company we have launched painful counter
measures to balance our checkbook.
First time in our history we did not provide raises to our workers.
And we did it twice. We are not proud of it.
We cut clinical trials.
We cut research and development.
We cut capital investment and product line expansion.
We cut building our new North American headquarters campus and
training center.
We cut important National sales meetings, trade shows and travel.
We cut our pension plan.
We cut peoples' pay through reductions in deferred compensation.
We cut company share of benefits forcing our employees to pay more.
We cut most budgets.
We are on a hiring freeze, and new jobs have not been created.
True, B. Braun has not launched a large workforce layoff. We are
hopeful the tax will be repealed. But our total American medical device
workforce is down by 200 through budget reductions.
The impact on our company is real.
Thank you Senators for listening. On behalf of our 5,000 American
manufacturing employees, and the hundreds of thousands of jobs in our
industry, please act to repeal the medical device tax.
CONTINUED TESTIMONY NOT SPOKEN
no price pass through
The market for most medical technology is characterized by close
competition. The highly price competitive nature of the market for
medical devices is well established. Our customers have market power.
As a result, raising prices is difficult even in the best
circumstances. Most contracts between manufacturer and purchaser
typically have terms of 5 to 7 years. There is no special mechanism to
immediately pass the medical device tax forward. And when prices are
negotiated during the bidding process for new contracts, the purchasers
hold enormous leverage.
Some studies argue that the tax will be eventually passed on to the
customer. But these studies assume a marketplace that is dominated by
demand at the level of the individual patient. Medical devices,
however, are not generally purchased by individual patients. Rather,
the buyers are institutions. For our company, the main purchasers are
GPOs and hospitals. In a highly competitive market such as the one for
medical devices, these purchasers have the ability to refuse to accept
price increases. In addition, they can delay or cancel large purchases
or substitute alternatives.
Even if you assume a future scenario where the purchasers lack the
market power discussed above, the end result would simply be to
increase the cost of medical products and the cost of health care,
which cannot be anyone's policy goal.
globally uncompetitive
Some say the tax does not unfairly treat U.S. companies as compared
to foreign companies. I disagree. For one reason, IRS form 720 for
paying the medical device excise tax can only be completed by U.S.
companies. Further, as a general notion, companies develop medical
devices for local markets first then export. U.S. manufacturers
typically sell a larger portion of their technology in the U.S.,
meaning they are paying more tax than a foreign company whose U.S.
sales may only represent a small percentage of their overall sales.
Therefore, the U.S. manufacturer is absorbing a more significant cost
on their sales.
I have spoken at numerous international economic development trade
missions and forums. I have worked in 17 countries and I work for a
global organization. I have first hand knowledge how the U.S. tax code
is viewed by the world. The world knows that U.S. corporate tax system
makes the U.S. uncompetitive. Let's not make it even worse by adding
another tax, especially on an innovative, important industry like ours.
Most countries have lowered corporate tax rates to attract business
and improve global competitiveness. Until recently, Canada, for
example, was at parity to the U.S. at 35%. Canada then slashed the tax
rate to 25%. It was so successful the tax was reduced a few years later
to 15%. The U.S. tax rate is 133% higher than Canada.\6\ Our goal
should be to make the U.S. more competitive, not less. The tax makes
the U.S. globally uncompetitive.
---------------------------------------------------------------------------
\6\ Calculation: 35% (USA)--15% (Canada)/15%.
---------------------------------------------------------------------------
about b. braun of america
B. Braun manufactures and distributes medical devices, surgical
instruments and Pharma IV solutions. Total revenues are $1.5 billion
and there are 6,500 employees including 5,000 American employees. Our
products are safe, high quality, innovative and FDA approved. We
manufacture 70% of our products in the U.S. for the U.S. We also import
and distribute, from the B. Braun Melsungen AG family of companies. B.
Braun Melsungen AG is a 176 year old private family company,
headquartered in Germany, and is our shareholder. The company's
continued survival and success is driven by the B. Braun culture of
innovation, efficiency and sustainability, under the Sharing Expertise
umbrella.
______
January 13, 2015
The Honorable Mitch McConnell The Honorable Harry Reid
Majority Leader Minority Leader
United States Senate United States Senate
The Honorable John Boehner The Honorable Nancy Pelosi
Speaker of the House Minority Leader
United States House of
Representatives United States House of
Representatives
Dear Majority Leader McConnell, Speaker Boehner, Minority Leader Reid
and Minority Leader Pelosi:
As the 114th Congress begins, we respectfully request that repeal of
the medical device excise tax be addressed as a top priority.
Implementation of this excise tax--now estimated to collect
approximately $25 billion in taxes--is adversely impacting patient care
and innovation, and will compromise patient access to cutting edge
medical technologies. The Senate and House have both previously passed
repeal legislation with strong bipartisan majorities. On behalf of the
almost 1,000 undersigned organizations, associations, companies,
patients, providers and venture capital firms representing hundreds of
thousands medical technology jobs, we ask that you act to repeal the
medical device tax during this session of Congress.
As you know, the medical device industry is a unique American success
story--both for patients and our economy. The United States is the
world leader in manufacturing life-saving and life-enhancing
treatments, and the industry is an important engine for economic
growth. The industry employs more than 400,000 workers nationwide;
generates approximately $25 billion in payroll; pays out salaries that
are 40 percent more than the national average ($58,000 vs. $42,000);
and invests nearly $10 billion in research and development (R&D)
annually. The industry is fueled by innovative companies, the majority
of which are small businesses with 80 percent of companies having fewer
than 50 employees and 98 percent with fewer than 500 employees.
Unfortunately, the health care law imposes tens of billions in new
excise taxes on medical technology companies, which are stifling
innovation and U.S. competitiveness. The tax is already having an
adverse impact on R&D investment and job creation, jeopardizing the
U.S. position as a global leader in medical device innovation. If this
tax is not repealed, it will continue to force affected companies to
cut manufacturing operations, research and development, and employment
levels to recoup the lost earnings due to the tax. It will also
adversely impact patient access to new and innovative medical
technologies.
In short, this tax on innovation should be repealed for the following
three important reasons:
The tax stifles innovation and has already costs thousands of
high-paying jobs. It has increased the effective tax rate for
medical technology companies, thereby reducing financial
resources that should be used for R&D, clinical trials and
investments in manufacturing. The impact is especially hard on
smaller companies whose innovations are not immediately
profitable.
The tax imposes an additional heavy burden on U.S. companies
already struggling with an uncompetitive tax system and gives
their competitors overseas an advantage in the global
marketplace for medical devices.
The tax is not being offset by increased demand for medical
devices. In fact, it is important to note that there is no
evidence suggesting a device industry ``windfall'' from
healthcare reform. Unlike other industries that may benefit
from expanded coverage, the majority of device-intensive
medical procedures are performed on patients that are older and
already have private insurance or Medicare coverage. Where
states have dramatically extended health coverage, such as in
Massachusetts where they added400,000 new covered lives, there
is no evidence of a device ``windfall.''
At a time when the federal government is working to promote investment
in U.S. industries of the future, it is inconsistent that a tax of this
magnitude is placed on the medical device industry. We must do all we
can to encourage and promote research, development, investment and
innovation. Instead, increased taxes, such as this one on the medical
device industry, coupled with the increased regulatory uncertainty the
industry also faces, is leading to further job losses, hindering the
development of breakthrough treatments and delaying patient access to
medical technology.
We respectfully request timely action on legislation to repeal this
over $25 billion excise tax.
.decimal Adept-Med International, Inc.
3D Medical Manufacturing, Inc. Adhezion Biomedical, LLC
3M Healthcare ADM Tronics
A-dec Adroit Medical
A.R. Hinkel Company Advanced Bionics
Abaxis Advanced Circulatory Systems, Inc.
Abbott Advanced Medical Technology
Association
Abiomed, Inc. Advanced Orthopaedic Solutions
(AOS)
Acacia Research Corporation Advanced Surgical Instruments
Academy of General Dentistry Advanced Technology Ventures
Accuitive Medical Ventures AdvanDx
Accuray Incorporated Aegis Surgical
Acelity Aerocrine, Inc.
Acertara Acoustic Laboratories, LLC Aesculap, Inc.
Aciont Inc. AescuLight
ACON Laboratories, Inc. AestheTec, Inc.
ActivaTek Inc. Aethlon Medical, Inc.
Active Implants AFC Tool
Actus Medical Affinity Capital
Acufocus Agamatrix, Inc.
Acumen Healthcare Solutions, LLC Agendia, Inc.
Adagio Medical, Inc. Alabama Dental Association
Albright Technologies ARC Medical, Inc.
Alcon, A Novartis Group Company Ardiem Medical, Inc.
Aleeva Medical Inc. Argenta Advisors
Align Technology, Inc. ARIBEX, Inc.
Alkaline Corporation Arizona BioIndustry Association
Allvivo Vascular, Inc. ArKal Medical, Inc.
ALPCO Diagnostics ARKRAY
Alphatec Spine, Inc. Arteriocyte
Alps South LLC ARTHROSURFACE, INCORPORATED
Alta Partners Articulinx
ALung Technologies, Inc. Asante Solutions, Inc.
AlvaMed Inc. Aso LLC
Ambio Health Aspen Medical Products
Ambu, Inc. Aspen Surgical
Amedica Analogic Corp Associated Industries of Florida
(AIF)
America's Blood Centers (ABC) Associated Industries of
Massachusetts
American Academy of Facial Plastic & (AIM)
Reconstructive Surgery Associates of Cape Cod, Inc.
American Academy of Pediatric Astute Medical
Dentistry
American Academy of Periodontology AtCor Medical Holdings, Ltd.
American Association of Endodontists Ativa Medical
American Association of Neurological ATL Technology Utah
Surgeons Atlanta BioMedical Corporation
(ABC)
American Association of Oral and Atlas Spine, Inc.
Maxillofacial Surgeons Atos Medical Inc.
American Association of AtriCure, Inc.
Orthodontists
American College of Prosthodontists Atrium Medical Corporation
American College of Radiology Aurident, Inc.
American Dental Association Aurora Spine
American IV Products, Inc. Autonomic Technologies, Inc.
American Society of Cataract and Auxogyn, Inc.
Refractive
Surgery Avacen MOD Corporation
American Society of Dentist Avantis Medical Systems, Inc.
Anesthesiologists Avedro
American Society of Plastic Surgeons Avinger
Amsino International, Inc. Axiobionics
Andersen Products Axiom Medical, Inc.
Andover Healthcare AxioMed Spine Corporation
Andrew Technologies B. Braun Medical, Inc.
Anesthetic Gas Reclamation, LLC Balchem Corporation
Angel Medical Systems Banyan Biomarkers
AngioDynamics BAROnova, Inc.
AngioScore Inc. BaroSense, Inc.
Anulex Technologies, Inc. Baxano Surgical, Inc.
AOTI Inc. Baxter Healthcare
Apollo Endosurgery BayBio
Applied Dexterity, Inc. BD
Applied Research & Photonics, Inc. BEACON (Biomedical Engineering
Alliance
Aptus Endosystems, Inc & Consortium)
Aqueduct Neurosciences, Inc. Beaver Visitec
Aqueous Biomedical, Inc. Beckman Coulter
AqueSys, Inc. Belmont Instrument Corporation
BeneChill, Inc. Cardia Access
Benvenue Medical, Inc. Cardiac Dimensions, Inc.
Berlin Heart, Inc. Cardiac Science
Berman Medical CardiacAssist, Inc.
Bio-Rad Laboratories CardiAQ Valve Technologies, Inc.
Bioanalytical Systems, Inc. Cardinal Health
BioBusiness Alliance of Minnesota Cardinal Scale Manufacturing
(BBAM) Company
BioCardia, Inc. CardioCommand, Inc.
BioCare Systems, Inc. CardioDx, Inc.
BIOCOM CardioFocus, Inc.
Biocompatibles Inc. CardioKinetix Inc.
Bioconnect Systems, Inc. CardioNexus Corporation
BioDerm, Inc. Cardiovascular Systems, Inc.
BioElectronics CareFusion Corporation
BioFlorida Carmell Therapeutics Corporation
BIOforward Carrot Medical
BioHouston Carticept Medical
BioMedical Life Systems Cartiva, Inc.
BioMedix Case Medical, Inc.
bioMerieux, Inc. Catheter Connections, Inc.
Biomet, Inc. Cayenne Medical
BioMimetic Therapeutics, Inc. CEA Medical Manufacturing
Bionix Development Corporation Celleration
BioOhio Center for Medical Device
Innovations
Biophan Technologies, Inc. Cepheid
BIOSAFE, Inc. CeQur
Bioscale Cerebrotech Medical Systems
Bioscience Association of Maine Cerephex Corporation
BioSET, Inc. Cerevast Therapeutics, Inc.
Biotest Laboratories, Inc. Ceterix Orthopaedics
bioTheranostics, Inc. Checkpoint Surgical
BIOTRONIK, Inc. HIP Solutions LLC
Bioventus LLC Christcot Medical Company
Birchwood Labatories Inc. Cianna medical
Blaze Medical Devices Circadiance
Boston Healthcare Associates, Inc. City Hill Ventures, LLC
Boston Scientific Corporation CivaTech Oncology
BrainScope Company, Inc. Claret Medical, Inc.
Breathe Technologies Clarity Medical Systems, Inc.
Breg Claro Scientific, LLC
BTE Technologies, Inc. Clarus Medical, LLC
Business Council of New York State ClarVista Medical
Busse Hospital Disposables Clear Ear Inc.
C.R. Bard, Inc. Cleveland Medical Devices Inc.
Cadence, Inc. Clinical Research Consultants,
Inc.
Caldera Medical, Inc. CoAxia, Inc.
California Healthcare Institute Cochlear
(CHI)
Canaan Partners Cohera Medical, Inc.
Cannuflow Inc. Coherex Medical
Cantel Medical Corp. Colorado Bioscience Association
(CBSA)
Cantimer, Inc. Colorado Dental Association (CDA)
Carbylan Biosurgery, Inc. Columbus Chamber of Commerce
Command Medical Products, Inc. Devicix
COMPASS International Innovations DFine, Inc.
Compression Therapy Concepts DG Medical
Concert Medical diaDexus
Congress of Neurological Surgeons Digirad
ConMed Corporation Direct Flow Medical
CONNECT Disposable Instrument Co., Inc.
Consensus Orthopedics, Inc. DJO Global, Inc.
ConvaTec Inc. Domain Associates, L.L.C.
Cook Medical Domain Surgical, Inc.
Coombs Medical Device Consulting, Dynatronics
Inc.
Core Medical Imaging E. Benson Hood Laboratories, Inc.
Corgenix Medical Corporation EarlySense Inc.
Corin USA Limited eCardio Diagnostics
Corindus Vascular Robotics Echelon Biosciences, Inc.
Corinthian Ophthalmic, Inc. Echo Therapeutics
Cormatrix Edwards Lifesciences
Corventis, Inc. EKOS Corporation
COTERA, Inc. Electrical Geodesics, Inc.
Council for Affordable Health Electromed, Inc.
Coverage
Covalent Medical, Inc. Elekta
Covidien Ellipse Technologies, Inc.
Coy Laboratory Products, Inc. Ellman International
Creatv MicroTech, Inc. Emerge Diagnostics, Inc.
Critech Research Emergent Medical Partners
Critical Diagnostics Emerson Consultants, Inc.
Cryothermic Systems Endo Health Solutions, Inc.
CSA Medical, Inc. Endo-Therapeutics, Inc.
CurveBeam EndoChoice, Inc.
CVRx, Inc. EndOclear, LLC
CyberHeart EndoGastric Solutions
Cyberonics EndoShape, Inc.
Cynosure eNeura Therapeutics
Cytori Therapeutics, Inc. Engineered Medical Systems/
Pulmodyne
CytoSorbents Corporation Entellus Medical
D & D Video Specialists, Inc. EnteroMedics, Inc.
D&D Medical, Inc. EPIC Research & Diagnostics
D&R Products Erchonia Corp.
Dallen Medical Essex Woodlands
dataCon Inc. eVent Medical
DataPhysics Research, Inc. Evergreen Medical Technologies
DaVinci Biomedical Research Prod., Exact Sciences
Inc.
De Novo Ventures Exactech
DEKA R&D Corp. Experien Group
Delcath Systems, Inc. ExploraMed Development, LLC
Dental Trade Alliance (DTA) ExThera Medical Corporation
Denterprise International, Inc. Eye Care and Cure, Inc.
DERMA SCiENCES, INC. Fallbrook Engineering, Inc.
DeRoyal FAST Diagnostics
Design Mentor FemCap Inc.
Desmoid Tumor Research Foundation Ferris Mfg. Corp.
Detroit Technical Equipment Company Fidia Pharma USA Inc.
Figure 8 Surgical Halyard Health
Fischer Medical Technologies, Inc. Harbert Venture Partners
Fisher Wallace Laboratories Hausmann Industries, Inc.
Fjord Ventures Health Industry Distributors
Association
Flexicath, Inc. (HIDA)
Flexuspine, Inc. Health IT Now Coalition
Flight Medical HealthCare Institute of New Jersey
Flocel Inc. Healthcare Leadership Council
Florida Manufacturing Extension HealthpointCapital
Partnership
(MEP) HeartFlow
Florida Medical Manufacturers' HeartWare International, Inc.
Consortium,
Inc. Heidelberg Engineering
ForSight Labs, LLC HEPCO MEDICAL LLC
ForSight VISION6, Inc. Hill-Rom
Fortimedix USA, Inc. Hispanic Dental Association (HDA)
FOUNDRY NEWCO XI HistoSonics, Inc.
Freedom Meditech, Inc. HITACHI MEDICAL SYSTEMS
Fresenius Medical Care NA AMERICA, INC.
Freshmedx Holaira
Frontier Scientific Inc. Hologic
FUJIFILM SonoSite Inc. Home Dialysis Plus
Fujirebio Diagnostics, Inc. Hospira Inc.
Functional Fluidics HoverTech International
Galil Medical HTG Molecular Diagnostics
Galt Medical Hull Associates
Gambro Hycor Biomedical, Inc.
Gamma Medica Inc. Hydrocision
GE Healthcare Hygieia, Inc.
Geistlich Pharma North America Inc. ibiliti
Genesis Plastics Welding iCAD, Inc.
GENICON ICAP Patent Brokerage
Gentis Inc. Ichor Medical Systems
Genway Biotech, Inc. ICONACY Orthopedic Implants, LLC
Georgia Bio ICU Medical, Inc.
Georgia Dental Association Ikaria, Inc.
GI Dynamics, Inc. Illinois Biotechnology Industry
Gilero, LLC Organization--iBIO
Glaukos Corporation Illinois State Dental Society
Glenveigh Medical IlluminOss Medical, Inc.
Globe Composite Solutions, Ltd. ImaCor
Globus Medical IMARC Research
Goodmark Medical, LLC Immucor, Inc.
Gradient Technologies, LLC ImpediMed
Great Lakes NeuroTechnologies Inc. ImThera Medical, Inc.
Greatbatch, Inc. in2being, LLC--Your Medical Device
Gregory, Sharer & Stuart, CPAs Development Partner
Ground Zero Pharmaceuticals Incept LLC
GT Urological, LLC Indiana Chamber of Commerce
Gulden Opthalmics Indiana Dental Association
Haemonetics Corp. Indiana Health Industry Forum
Halo Healthcare Inc. Indiana Manufacturers Association
HALT Medical, Inc. Indiana Medical Device
Manufacturers Council
Infinium Medical Laurimed, LLC
InfoBionic Lead BioPharma Consulting, LLC
Infraredx, Inc. LeukoDx Ltd.
InfraScan, Inc. LFI Medical
InjectiMed, Inc. Life Science Tennessee
Inogen Life Spine, Inc.
inSite Medical Technologies Life Technologies
Instratek, Inc. Lifecore Biomedical, LLC
Insulet Corporation LifeScience Alley
Insurance Office of America LifeScience Plus, Inc.
Insurgical LLC LifeWave
Intact Medical Corporation Lightstone Ventures
Intact Vascular, Inc. Linde Healthcare
Integra LifeSciences LipoScience, Inc.
Integrated Sensing Systems LogicMark, LLC
Incorporated
(ISSYS) Logikos, Inc.
Integrity Digital Solutions Lonestar Heart, Inc.
INTER-LINGUA Louisiana Dental Association
International Franchise Association Luminex Corporation
International Medical Industries, LuxarCare
Inc.
International Sterilization Mack Medical
Laboratory LLC
Intersect ENT MacuCLEAR, Inc.
InterValve, Inc. Magellan Technologies, Inc.
Interventional Autonomics Magnolia Medical Technologies,
Corporation Inc.
Interventional Spine, Inc. Maine Standards Company, LLC
IntraPace Mammotome
IntriCon Manufacturers Association of Maine
Intrinsic Therapeutics Mardil Medical, Inc.
Intuitive Marketing Strategists MarketLab
Intuity Medical, Inc. Masimo
Ionix Medical, Inc. Massachusetts Dental Society
Iowa Dental Association Massachusetts Medical Device
Industry
iRhythm Technologies, Inc. Council MassMEDIC
Irvine Chamber of Commerce MassBio
iSonea, Limited Materna Medical
ISTO Technologies, Inc. Mauna Kea Technologies
Ivantis, Inc. MB Venture Partners, LLC
Ivenix MBio Diagnostics, Inc.
Ivivi Health Sciences LLC MBL International Corporation
iWalk Mectra Labs Inc.
J.H. Garver Consulting, LLC MED-EL Corporation
Jabil Medbio, Inc.
Jack Saladow & Associates MedDx Capital Advisors
Jerichons, LLC Medenovo, LLC
Keith & Associates LLC Medical Device Manufacturers
Association
KFx Medical Corporation (MDMA)
Kinamed Inc. Medical Engineering Innovations,
Inc.
KRONUS, Inc. Medical Imaging & Technology
Alliance
Kspine, Inc. Medical innovations Intl. Inc.
L. VAD Technology, Inc. Medical Polymers, Inc.
Laser Peripherals, LLC Mediclever
MediStim USA, Inc. Medigroup, Inc.
MedOne Surgical, Inc. Myomo, Inc.
MedShape MyoScience
MedTech Association of New York nanoMAG LLC
MedWaves, Inc. nanoMR
Megadyne Nasiff Associates Inc.
Menlo Park Associates National Association for the
Support of Long
Mercury Medical Term Care (NASL)
Merit Medical Systems, Inc. National Association of
Manufacturers
Metric Medical Devices, Inc. (NAM)
Metronom Health, Inc. National Federation of Independent
Business
Mettler Electronics Corp. (NFIB)
Mevion Medical Systems, Inc. Nativis, Inc.
MGC Diagnostics Natus Medical Incorporated
Micardia Corporation NaviMed Capital
Micell Technologies Naviscan, Inc.
MichBio NDH Medical
Michigan Dental Association Nebraska Dental Association
Michigan Life Ventures, LLC Nelson Laboratories, Inc.
MicroCube Neodyne Biosciences
Microline Surgical, Inc. Neograft Technologies, Inc.
Micronics, Inc. NeoMetrics, Inc.
MicroTransponder Inc. NeoTract, Inc.
Midmark Corporation Neuro Kinetics, Inc.
Mighty Oak Medical Neuronetics, Inc.
Millar Instruments, Inc. NeuroPace
MIM Software Inc. NeuroTherm
Minerva Medical NeuroTronik
Minnesota Dental Association NeuroVista Corporation
Minnetronix NeuroWave Systems Inc.
Mirabilis Medica, Inc. NeuWave Medical
Mirador Biomedical Nevada Dental Association
Miramar Labs Nevro
Mississippi Dental Association New Enterprise Associates
Missouri Biotechnology Association New Hampshire Dental Society
MitraGen New Jersey Life Sciences Vendors
Alliance
Mitralign, Inc. New Leaf Venture Partners
Modulated Imaging, Inc. NinePoint Medical
Molecular Detection, Inc. Niveus Medical
Monebo Technologies, Inc. Nocimed, LLC
Moog Medical Devices Non-Invasive Medical Systems
Morgenthaler Ventures Nonin Medical
Morris Innovative Norris Capital, Inc.
Mound Laser & Photonics Center North Carolina Biosciences
Organization
MOXI Enterprises, LLC North Carolina Dental Society
Moximed Nova Biomedical
MPI Research NovaSom
MPM Capital Novocor Medical Systems
MPR Product Development NRG
Mustang Medical NuMED, Inc.
Mustang Vacuum Systems NuOrtho Surgical, Inc.
MyoCardioCare, Inc. NuVasive
NVCA Nuvimedix LLC
nVision Medical Philips Electronics North America
NxStage Medical, Inc. Phillips Consulting Group, LLC
NxThera, Inc. Phlebotics, Inc.
Nypro Inc. PhotoMed Technologies, Inc.
O.E. Meyer Co. Physcient, Inc.
Obalon Therapeutics Pilgrim Software, Inc.
OBMedical Company Pittsburgh Life Sciences
Greenhouse
OCTANe Pittsburgh Technology Council
OcuSciences, Inc. Pivot Medical Inc.
Ohio Chamber of Commerce Plasma Technologies, Inc.
Ohio Manufacturers' Association PlasticsOne
OmniGuide Surgical Plexus Corp.
OMNIlife science, Inc. Portaero
On-X Life Technologies, Inc. Preceptis Medical, Inc.
Onciomed, Inc. Precise-Pak Inc.
OncoHealth Pressure Biosciences, Inc. (PBIO)
ONSET Ventures Presymtec Medical
Onyx Medical Corporation Prism Plus Consulting
OPHTEC USA, Inc. Prism VentureWorks
OptiScan Biomedical, Inc. Prizm Medical, Inc.
Orange County Business Council Pro2Med Inc.
OraSure Technologies, Inc. ProMedTek
Oraya Therapeutics Prosolia, Inc.
Orbital Research Inc. Prospect Venture Partners
Orchid Orthopedic Solutions Prospex Medical
Oregon Bioscience Association Proteus Biomedical, Inc.
Orlucent PuriCore
Ortho Kinematics QHeart Medical Inc.
OrthoCor Medical Qualcomm Life, Inc.
Orthodontic Manufacturers QualPro Consulting
Association
Orthofix International N.V. Quasar Bio-Tech Inc.
OrthoForge, Inc. Quidel Corporation
OrthogenRx, Inc. RBC Capital Markets
Orthopaedic Implant Company (OIC) Redpoint Corporation
OrthoPediatrics Corp Regenesis Biomedical, Inc.
OrthoSensor Regulatory & Quality Solutions LLC
OrthoWorx Reichert Technologies
OsteoMed Reimbursement Strategies, LLC
Ostial Corporation Relievant Medsystems, Inc.
Ottobock U.S. HealthCare Research!America
Owens & Minor ReShape Medical Inc.
Palo Alto Health Sciences, Inc. ResMed
Paradigm Spine, LLC Respicardia, Inc.
PARAGON MEDICAL, INC Respira Therapeutics, Inc.
Pathfinder Therapeutics, Inc. Respiratory Motion, Inc.
Patient Pocket, LLC Respiratory Research, Inc.
Penn-Century, Inc. Respiratory Technologies Inc.
Pennsylvania Bio Response Biomedical Corp.
Pennsylvania Dental Association ReVent Medical, Inc.
Penumbra, Inc. ReVision Optics, Inc.
Percutaneous Systems, Inc. (PercSys) Rhythmlink International, LLC
Rinovum Women's Health, Inc. Richmond Products Inc.
Robomedica, Inc. South Carolina Dental Association
(SCDA)
Roche Southeastern Medical Device
Association
Rochester Electro-Medical, Inc. (SEMDA)
Rodman Media Corp Southern California Biomedical
Council
RODO Medical, Inc. (SoCalBio)
RoundTable Healthcare Partners SPE Medical
ROX Medical SpectraScience, Inc
Royal Oak Medical Devices, LLC SpherIngenics, Inc.
RTI Surgical Spinal Kinetics
RxFunction, Inc. Spinal Modulation, Inc.
s2a molecular, Inc. Spinal Ventures, LLC
Safeguard Scientifics, Inc. Spine Wave, Inc.
SafeShower SpineAlign Medical, Inc.
Sakura Finetek USA, Inc. SpineGuard
Saladax Biomedical, Inc. Spineology Inc.
Salix Pharmaceuticals, Inc. Spinofix, Inc
San Diego Regional Chamber of Spiracur Inc.
Commerce
SandBox Medical LLC Spiration, Inc.
Sanofi SPIWay, LLC
SCBIO Split Rock Partners
Scientific Imaginetics St. Jude Medical
SDRS LLC STAAR Surgical Company
Sebacia Inc. Stanmore Implants
Second Sight Medical Products, Inc. STATKING Clinical Services
Sekisui Diagnostics STD Med, Inc.
Senseonics SteriPack USA, Ltd
Sequent Medical Inc. Steris Corporation
SI-BONE, Inc. Stimwave
Siemens Healthcare Strada Consulting
Sight Sciences Inc. Streamline, Inc.
SightLine Partners Streck, Inc.
SIGNUS Medical, LLC Strohl Medical
Silere Medical Technology, Inc. Stryker
Silicon Valley Leadership Group Sunshine Heart
Silver Bullet Therapeutics, Inc. Surface Solutions Labs, Inc.
Sirtex Medical Inc. SurModics, Inc.
Skyline Ventures Svelte Medical Systems, Inc.
Small Bone Innovations, Inc. Swan Valley Medical, Incorporated
Smart Perfusion, LLC Sylvan Fiberoptics
Smith & Nephew, Inc. Synapse Biomedical, Inc.
Smiths Medical Synarc, Inc.
Soft Tissue Regeneration, Inc. SynCardia Systems, Inc.
Solace Therapeutics Synecor, LLC
Solta Medical, Inc. Synergy Health plc
Solvonics Medical Synergy Life Science Partners
Sonacare Medical Syntermed, Inc.
Sonendo, Inc. Sysdyne Corporation
Sonitus Medical Inc. Sysmex America, Inc.
Sonoma Orthopedics Tactile Systems Technology, Inc.
Sorin Group USA, Inc. Tandem Diabetes
Sotera Wireless Targeson, Inc.
Tarsus Medical Inc. Target Discovery, Inc.
TearScience, Inc. Urovalve, Inc.
TEI Biosciences Inc. USGI Medical, Inc.
TEKNA Manufacturing, LLC Utah Dental Association
Teleflex Incorporated Utah Technology Council
Temptime Valeritas, Inc.
Teratech Corporation Validation & Compliance Institute
Terumo Cardiovascular Group Valley Ventures
Terumo Medical ValveXchange, Inc.
Tethys Bioscience, Inc. Vapotherm
Texas Healthcare and Bioscience Vascular Solutions, Inc.
Institute
The Eclipse Group Vector Resources
The Foundry Vector Surgical, LLC
The Innovation Factory VectraCor, Inc.
The Plastics Industry Trade Velico Medical, Inc.
Association (SPI)
The Spectranetics Corporation Ven-Tel Plastics Corporation
The Tech Council of Maryland VENITI, Inc.
The Vertical Group Venous Health
Theodosiou Consultants, Inc. Veracyte
Therapeutic Resources, Inc. Verax Biomedical Incorporated
TheraTogs, Inc. Veritomyx, Inc.
Thermo Fisher Scientific Versant Ventures
Therox VertiFlex, Inc.
Thoratec Corporation Vertos Medical Inc
Three Arch Partners Vesiflo/Personal Med
ThreeWire ViaDerm LLC
Thubrikar Aortic Valve, Inc. Viatronix
TIDI Products VIDA Diagnostics
Tissue Regenix USA Inc. Virginia Biotechnology Association
Titan Spine, LLC Virginia Dental Association
Toshiba America Medical Systems, VirtualScopics, Inc.
Inc.
Tosoh Bioscience Inc. Viscogliosi Bros., LLC
Trademark Medical Vision-Sciences, Inc.
Transcend Medical VisionCare Ophthalmic Technologies
Transcorp Spine Vital Images, Inc.
TransEnterix, Inc. Vital Therapies, Inc.
TransMedics, Inc. Vital/Med Systems Corporation
Transonic Systems, Inc. Vitalcor, Inc.
Trillium Diagnostics, LLC Viveve
Trillium Engineering Volcano Corporation
TriReme Medical, Inc. VQ OrthoCare
TriVascular, Inc. VueTek Scientific, LLC
Twin Star Medical W. L. Gore & Associates, Inc.
TYRX, Inc. Ware Disposal Inc.
U.S. Chamber of Commerce Warsaw-Kosciusko County Chamber of
Unilife Medical Solutions Commerce
Uptake Medical Corporation Washington Biotechnology &
Biomedical
Uresil Association
Urobiologics LLC Water Street Healthcare Partners
Urologix, Inc. Waters Corporation
Uromedica, Inc. WaveTec Vision
Uroplasty, Inc. Welch Allyn
Wescor Wenzel Spine, Inc.
White Pine Medical, Inc. Xlumena
Wilson Sonsini Goodrich & Rosati Yukon Medical
Wisconsin Dental Association ZELTIQ
Woolfson Eye Institute Zimmer, Inc.
Wright Medical Zoe Medical, Inc.
Wyoming Dental Association ZOLL Medical
X-Spine Zyga Technologies
Zynex
______
Prepared Statement of Mark Judge,
Patient Advocate, Pittsburgh, PA
Chairman Toomey, Ranking Member Stabenow, and members of the Senate
Finance Committee, thank you for the opportunity to discuss the medical
device excise tax's negative impact on patients who are suffering from
cancer.
My name is Mark Judge, I'm from Pittsburgh PA, and l have stage 4
terminal colon cancer.
I was first diagnosed with colon cancer in January 2013. I had
limited signs or issues as it related to cancer but I had gone in to be
pre-tested for rotator cuff surgery. My primary care doctor noted that
the iron level in my blood was unusually low. Since I had no family
history of cancer, and up to that point I had never been sick, she
suggested I get a colonoscopy. I was 46 at the time and colonoscopies
aren't usually done until you're at least 50. Thankfully, we agreed to
the test and they found a tumor in my colon that was defined as stage
3b.
I immediately began 6 weeks of chemotherapy and 6 weeks of
radiation. During this time I was admitted to the hospital on two
occasions with complications. One of these times I was put on a
fentanyl patch. After completing the 6 weeks of chemo/radiation I had
resection surgery to remove the tumor in my colon. When I awoke from
surgery, I was surprised to see that my intestines were sticking out of
my gut. I was to have a colostomy bag. I had the bag for approximately
3 months then I had reversal surgery in August of 2013. The recovery
from that is still ongoing. They call it a new normal, meaning you're
no longer able to go to the bathroom they way you used to go. There
were times that I would have to go 60-70 times a day. Basically I was a
prisoner of my bathroom for many months. During this time I was deemed
NED (``no evidence of disease''). I was scanned every 3 months and on
the second scan, the doctors discovered some nodules in my lungs. After
two biopsies it was discovered that my cancer had metastasized to my
lungs. The reality was I probably had stage 4 all along. The cancer was
always there. I fall into the 20% of cases where doctors cannot see the
cancer in my blood. This was March 2014 and the average life expectancy
I was given is 3 years.
In April 2014, after another lung surgery, I embarked on 6 months
of intense chemotherapy. I was on three different chemo drugs. I had
surgery to place a port in my upper chest so that they can administer
the chemo and take blood easier. In December of 2014 I had my sixth
surgery to remove the upper right lobe of my lung and to remove two
other nodules. In January of 2015, I again went on the three chemo
regimen. I have my seventh surgery scheduled this coming Monday to
remove two more nodules from my left lung. Obviously, I'm aware that
every time they go into my lungs they take more and more of my lungs
out and at some point I'll need oxygen to breath. I'll probably be on
chemo the rest of my life.
I've accepted my situation for what it is. I'm very thankful for
the scans that have prolonged my life to this point. If not for them I
wouldn't be here today. I am a success story from that standpoint.
Unfortunately, many of my friends on the cancer forums and advocacy
groups have not been as lucky. Many of them haven't had access to scans
and for others it was too late.
I'm going to continue to fight for my life. I have an 11 year old
daughter Elly who is my co-pilot in this journey and I will not let her
down. I need to see her grow up. I need to see her graduate and go on
to college. I need to see her become a woman. These are not things that
she or any child deserves to do alone.
The imaging devices that found this disease cost millions of
dollars to develop. The additional taxation on these devices could
prevent many health care providers from purchasing them. It also
reduces the incentive for companies to invest in improving them so
cancer is detected earlier. The trickle-down effect is that this stops
the innovation of new technologies. I can only ask the question: What
new technologies are there--that could save my life and the lives of
millions of others--that are not being produced because of this tax?
That is why I am here today. I cannot see the rationale for
imposing a tax that will reduce investment in the very life-saving
technologies that I, and millions of others, rely upon, and hope to see
in the future. With that, I respectfully ask the Senate to pass S. 149,
the Medical Device Access and Innovation Protection Act, authored by
Senators Hatch and Klobuchar. Thank You.
______
Prepared Statement of Hon. Patrick J. Toomey,
a U.S. Senator From Pennsylvania
Welcome, Ladies and Gentlemen; the Senate Finance Subcommittee on
Health Care will now come to order.
First of all I want to thank Senator Hatch for encouraging us to
begin this process of exploring the Medical Device Tax with this
hearing. I want to thank Ranking Member Stabenow for all of her
leadership on healthcare issues generally and her interest in exploring
this topic as well. And I am very grateful to our witnesses for taking
the time and in some cases traveling a considerable distance to be with
us to share their expertise and their perspective on a really important
issue.
So, I will make no bones about it. My strong preference would be to
have a full and permanent and complete repeal of the medical device
tax, because it's my view that this tax is doing considerable harm--
economic harm. I am concerned about the impact that is has on
innovation in the medical device industry. And I am really concerned
about the impact it has on individual patients--current patients and
future patients. So we'll discuss this.
I want to start with just a little illustration of some of the
absolutely wondrous things that are being invented and develop in this
space. I have in my hand, if you can see this, a ventricular assist
device. This is a mechanical heart pump for those with congestive heart
failure. This has kept 7,000 Americans alive while they await a
transplant. 300,000 people die every year in our country from heart
failure. It took 5 years to get the FDA approval for this. The company,
HeartWare, that developed this product spent $200 million on research
and development over the first 5 years of their existence as an
American company and they racked up $112 million of losses before they
ever were able to begin to turn a profit, but think of the of lives
that were saved by virtue of this remarkable invention. Here we have a
spinal implant--for those who aren't close enough to see, it looks
remarkably like a vertebrae, but it clearly is not--it's used to mend
bone fractures, this material is, this is an alternative for over
400,000 people annually who have spinal fusion surgery to deal with
severe and chronic pain in the lower back. It's made by a company
called Synthes. The company employs hundreds of people in my state of
Pennsylvania, in West Chester. And last, this is a vagal nerve
stimulator. This is implanted in the chest, surgically implanted, this
very device. And it sends an electrical current to the patient's brain
and it treats epilepsy. And it treats treatment resistant depression.
Millions of Americans suffer from each of those maladies. And the
company that makes this also experienced, as so many startup companies
in the medical device space do, losses for years as they were in the
stages of developing the product and bringing it to market and getting
the approvals. In fact, they incurred $250 million in losses before
they were able to turn around and sadly the CEO has announced that, in
part to offset the costs of the medical device tax, they're going to
build their next factory in Cost Rica rather than the United States.
And this is one of the big concerns; one of the big concerns is that
this tax on sales is going to threaten America's global leadership in
this space.
The medical device industry is a huge economic contributor, not
just in my state of Pennsylvania, but across the country. The range of
products is stunning, from pacemakers to orthodontics, hearing
implants, surgical tools, knee braces, joint replacements. The industry
employs over 400,000 people directly. There are another 2 million
people that are indirectly employed because they vendors are supplier
companies to the medical device industry.
And interestingly--you know we had a big debate yesterday about
trade policy as Ranking Member Stabenow knows very well--the medical
device industry for the last 5 years has run a substantial trade
surplus. Because we are the leaders in the world, we make the best
products, and we sell them all around the world, we've had a trade
surplus on average over the last 5 years. And so it's a big, it's an
innovative, it's a dynamic industry. It pays good wages, above the
averages. It improves the quality of our lives through the products
that it makes. And so, it's really important, I think, to all of us
that this industry thrives.
My view is that the tax, the Medical Device Tax, is not only
onerous on its scale, but it's bad in its design. It is a tax on sales,
not on a tax on profits. And so these companies that I alluded to that
spent large sums of money making these product and bringing them to
market, they were losing money years, even when they started to have
sales. The initial sales those years were not enough to be profitable.
To impose a tax on those sales prior to there even being a profit, it
just adds to the debt load that these companies have to carry. And
there is only so much debt that can be financed. This is one of the
concerns that I have. The design of this tax is very very unfortunate.
I think we're going to here from some of the witnesses that this
has cost us jobs across the country already. Some companies have had to
cancel plans to expand. Others are looking to move to other places. I
want to read an excerpt from a letter from Carmel Therapeutics, which
is a Pittsburgh-based company. The President and CEO is Alan West and
he sent me a letter last month in which he states that:
It has also been (this ``it'' he's referring to is the Medical
Device Tax) a strong factor in discouraging venture capital
from even considering medical device and early stage deals.
Currently the majority, 55%, of clinical trials are now being
conducted overseas. And most novel medical devices are now
launched outside the U.S. 4 to 5 years before they are
available in the United States, according to the U.S.
Department of Commerce. This is the complete opposite of the
situation only a few years ago when the U.S. was taking the
lead. As a case in point, my company Carmel Therapeutics
conducted a clinical trial in South Africa and is planning to
launch our first product next year in Europe.
As I said earlier, I'm concerned that of course if we slow down the
pace of new development of new medical devices, we will harm the
patients who would benefit from these. And so for these and other
reasons I am very hopeful that we will, in this Congress, be able to
repeal the Medical Device Tax. I am pleased that we have had bipartisan
support for this concept. We had 79 United States Senators, obviously
big majorities in both parties, every republican, a large majority of
democrats voting in favor of an amendment to the budget resolution in
2013. I'm delighted that we have bipartisan support for the bill to
repeal it entirely. Again, I want to thank Chairman Hatch for his
cooperation in this effort. I want to thank the members of the
Committee who are here and the witnesses. And at this time I would
yield to our Ranking Member, Debbie Stabenow. Again I want to mention
how grateful I am for her leadership on healthcare issues in general,
her leadership in this Committee, and at this time I recognize her for
an opening statement.
______
Communications
----------
Advanced Medical Technology Association (AdvaMed)
701 Pennsylvania Avenue, NW
Suite 800
Washington, DC 20004-2654
Tel: 202-783-8700
Fax: 202-783-8750
www.AdvaMed.org
April 22, 2015
The Honorable Patrick J. Toomey
Chairman, Senate Finance Subcommittee on Health
248 Russell Senate Office Building
Washington, D.C. 20510
The Honorable Debbie Stabenow
Ranking Member, Senate Finance Subcommittee on Health
731 Hart Senate Office Building
Washington, D.C. 20510
Dear Chairman Toomey and Ranking Member Stabenow,
I am pleased to submit this statement for the record on behalf of the
Advanced Medical Technology Association (AdvaMed), representing over
300 medical device, imaging, and diagnostic technology manufacturers. I
want to thank both of you for holding this important hearing
highlighting the negative impact the medical device tax is having on
American jobs, innovation and patients.
The medical technology industry is central to the development of
medical devices and diagnostics that will provide the life-saving and
life-enhancing treatments of the future. Patient access to advanced
medical technology generates efficiencies and cost savings for the
health care system, and improves the quality of patient care. Between
1980 and 2010, advanced medical technology helped cut the number of
days people spent in hospitals by more than half and add five years to
U.S. life expectancy while reducing fatalities from heart disease and
stroke by more than half.
The industry is also an engine of economic growth for the U.S.,
generating high wage manufacturing jobs and a favorable balance of
payments. More notably, the impact of medical technology on economic
growth and competitiveness goes well beyond the jobs and economic
activity associated with industry R&D and manufacturing. A recent study
by the Milken Foundation examined four diseases and a limited number of
technologies used to treat those diseases. It found significant
increases in labor force participation and productivity directly
attributable to the technologies' contribution to reducing the burden
of illness.
Evidence continues to mount how the medical device tax is a drag on a
high-technology, research-based manufacturing sector that provides
life-saving, life-enhancing innovations. A recent survey of AdvaMed's
membership underscores the need to repeal this tax as companies are
forced to curtail R&D and other capital investments--cuts that may
chill medical progress for decades to come. More than half of survey
respondents (53 percent) said they had reduced R&D as a result of the
tax, and 58 percent said they would consider further or first-time
reductions in R&D if the tax stays in effect.
We commend the Committee for its interest in these issues and
appreciate the opportunity to discuss the impact of this tax on the
industry in more detail. We look forward to a substantive discussion
today and to advancing legislation in the House and Senate to repeal
the tax. There is strong bipartisan support in both houses of Congress
for repeal, and AdvaMed looks forward to working with our industry
colleagues, patients, providers, research organizations, and members of
Congress to achieve this goal.
Thank you again for the opportunity to submit our comments for the
record.
Sincerely,
Steve Ubl
President and CEO, AdvaMed
______
Alcon Research, Ltd.
714 Columbia Avenue
Sinking Spring, PA, 19608-1405
T: 610-670-3600
www.alcon.com
April 30, 2015
The Honorable Orrin G. Hatch The Honorable Ron Wyden
Chairman Ranking Member
Finance Committee Finance Committee
United States Senate United States Senate
Washington, DC 20510 Washington, DC 20510
The Honorable Patrick J. Toomey The Honorable Debbie Stabenow
Chairman Ranking Member
Subcommittee on Health Care Subcommittee on Health Care
Finance Committee Finance Committee
United States Senate United States Senate
Washington, DC 20510 Washington, DC 20510
Dear Chairman Hatch, Ranking Member Wyden, Chairman Toomey, and Ranking
Member Stabenow:
Alcon is the leading global manufacturer and marketer of products for
vision care and treatment of eye disorders. Our comprehensive portfolio
includes medical devices used by surgeons to treat eye diseases such as
cataracts, glaucoma, and diseases of the retina.
Alcon Research, Ltd. has a manufacturing facility in Sinking Spring, PA
for the production of disposable single-use medical devices for
cataract and vitreoretinal surgeries. The Sinking Spring facility
employs approximately 700 associates.
We have become aware that you will be holding a hearing on Thursday,
April 23, 2015 to consider repealing the device tax.
The device tax went into effect on January 1, 2013 resulting in a
daily, real world impact on medical device companies and patients. It
threatens innovation and jobs across the nation. According to an
industry survey, forgone hiring and layoffs have cost 33,000 industry
jobs and as many as 165,000 jobs overall. As many as one-third of
device manufactures have reduced their budgets as a result of the tax,
hampering medical innovation and slowing medical progress.
The knowledge that Alcon has gained over decades of research,
manufacturing, and experience with highly-skilled eye surgeons has
guided us so that we meet the needs of patients with the most
innovative technologies available today. Our work enables excellent
outcomes of eye surgery, and it is only through continued investment
and innovation that we will enable surgeons to offer even better
outcomes in the future.
We urge senate members to act to repeal the medical device tax and
engage in a full discussion of tax reform and the right tax structure
for Innovative manufacturing Industries like the medical device
industry.
Sincerely,
Richard L. Patterson
Vice President, General Manager
Sinking Spring Operations
______
Alliance for Aging Research
1700 K Street, NW., Suite 740
Washington, DC 20006
T 202-293-2856
United States Senate Committee on Finance, Subcommittee on Health Care
``A Fresh Look at the Impact of the Medical Device Tax on Jobs,
Innovation, and Patients''
April 23, 2015
The Alliance for Aging Research submits for the record the following
statement by its President and Chief Executive Officer Sue Peschin,
MHS:
``The Alliance for Aging Research believes that advances in research
help people live longer, happier, more productive lives and reduce
health care costs over the long term. We support policies that advance
medical research and innovation and address the needs of aging
patients.
``For this reason, the Alliance for Aging Research is unwavering in our
support of efforts to repeal the medical device tax. We believe the tax
drains critical resources away from research and development of
technologies that can improve detection and treatment of age-related
diseases and conditions, as well as the way we provide care for the
aging population.
``The unmet health challenges of older adults are an enormous financial
and human burden. More resources--not less--are needed to address these
challenges.''
______
American Association of Neurological Surgeons
UPDATE
neurosurgery
FOR IMMEDIATE RELEASE Contact: Katie Orrico
April 23, 2015 (202) 446-2024
[email protected]
Senate Finance Health Subcommittee Holds Critical Hearing on
the Medical Device Tax
Neurosurgeons Urge Congress to Repeal the Device Tax
Washington, DC--The American Association of Neurological Surgeons
(AANS) and Congress of Neurological Surgeons (CNS) commend the Health
Subcommittee of the U.S. Senate Committee on Finance for holding a
hearing on the impact of the medical device tax on jobs, innovation and
patients. This is a critical step to repealing this detrimental tax.
Created by the Affordable Care Act, the medical device tax is a 2.3
percent excise tax that applies to the gross sales of medical device
products. This tax imposes over $30 billion in new taxes and is
adversely affecting medical innovation and patient care.
AANS president, Robert E. Harbaugh, MD, noted, ``Repealing the medical
device tax is among neurosurgery's top legislative priorities and we
applaud the bipartisan efforts of Congress to abolish this arbitrary
tax, which is ill-advised and ultimately will negatively impact our
patients.''
According to a recent study published by the Advanced Medical
Technology Association (AdvaMed), as many as 195,000 jobs may be lost
due to the tax, either through layoffs or forgone jobs that would have
been created.
``Our health care system needs innovation to improve patient care and
save lives. Instead, this tax stifles innovation and reduces patient
access to new lifesaving technologies,'' said CNS president, Nathan R.
Selden, MD.
The AANS and CNS have endorsed both S. 149, the ``Medical Device Access
and Innovation Protection Act,'' and H.R. 160, the ``Protect Medical
Innovation Act,'' and look forward to working with the members of the
Senate Finance Committee to develop policy solutions to better support
medical innovation and increase treatment options for our patients.
###
The American Association of Neurological Surgeons (AANS), founded in
1931, and the Congress of Neurological Surgeons (CNS), founded in 1951,
are the two largest scientific and educational associations for
neurosurgical professionals in the world. These groups represent over
8,000 neurosurgeons worldwide. Neurological surgery is the medical
specialty concerned with the prevention, diagnosis, treatment and
rehabilitation of disorders that affect the entire nervous system,
including the spinal column, spinal cord, brain and peripheral nerves.
For more information, please visit www.aans.org or www.cns.org or
www.neurosurgeryblog.org.
______
American Dental Association' (ADA)
America's leading advocate for oral health
1111 14th Street, NW., Suite 1200
Washington, DC 20005
T 202-898-2400
F 202-898-2437
www.ada.org
April 22, 2015
The Honorable Orrin G. Hatch The Honorable Ron Wyden
Chairman Ranking Member
Committee on Finance Committee on Finance
United States Senate United States Senate
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, D.C. 20510 Washington, D.C. 20510
Dear Chairman Hatch and Ranking Member Wyden:
The American Dental Association (ADA), the nation's oldest and largest
dental association, representing more than 157,000 dentist members,
strongly supports the repeal of the medical device excise tax. The
dental manufacturing industry estimates that the medical device excise
tax will increase the cost of dental care by over $160 million annually
resulting in harm to our patients and an increase in the overall cost
of healthcare.
Good oral health is an essential part of an individual's overall health
and well-being. An increase in the cost of oral health care as a result
of the excise tax on medical devices--including restorative materials,
instruments, impression materials and equipment--could make healthcare
less affordable and act as a deterrent to patients seeking dental care.
As you know, health care professionals who operate solo or small group
practices are economic engines for their communities. In 2010, the most
recent year for which we have survey data, 96.2 percent of the dentists
surveyed reported that they work in practices comprising five or fewer
dentists. The nature of dental insurance plans means that a dentist's
reimbursements may not keep pace with this tax and many offices will
have to absorb most of the increased cost. Operating costs for dental
practices, particularly specialties, are significant, and the ability
to sustain or grow small businesses like dental practices will be
further constrained under this new excise tax.
Again, we strongly urge you to repeal the burdensome excise tax on
medical devices. If you have any questions regarding the impact of the
tax on a dental practice or our patients, please contact Margo
Klosterman at [email protected] or 202-898-2437.
Sincerely,
Maxine Feinberg, D.D.S. Kathleen T. O'Loughlin, D.M.D.,
M.P.H.
President Executive Director and Chief
Operating Officer
______
ARC Medical, Inc.
Anesthesia/Respiratory Care
4296 Cowan Road Tucker, GA 30084
Phone (404) 373-8311 Fax (404) 373-8385
800-950-ARC1
Wednesday, April 22, 2015
Brad Grantz
Senate Finance Committee
Washington, DC
Ladies and Gentlemen,
The Medical Device Tax has severely limited the ability of my company
to add jobs and the additional cost imposed by the tax has limited our
ability to provide better pricing for new customers.
One additional result of the tax is the impact on the profit sharing
plan of our company.
As the tax affects directly the bottom line of the company, there has
been less profit to distribute to our employees for their future. This
has caused considerable harm to the employees.
For the good of the cost of healthcare and the betterment of company
employees, please repeal this onerous tax.
Best regards,
Hal Norris, President
ARC Medical, Inc.
Direct: 800-950-2720 ext. 210
Outside USA: 404-373-8300 ext. 210
Fax: 404-373-8385
www.arcmedical.com
______
Biocom
accelerating life science success
April 22, 2015
The Honorable Orrin G. Hatch The Honorable Ron Wyden
Chairman Ranking Member
Finance Committee Finance Committee
United States Senate United States Senate
Washington, DC 20510 Washington, DC 20510
The Honorable Patrick J. Toomey The Honorable Debbie Stabenow
Chairman Ranking Member
Subcommittee on Health Care Subcommittee on Health Care
Finance Committee Finance Committee
United States Senate United States Senate
Washington, DC 20510 Washington, DC 20510
Dear Chairman Hatch, Ranking Member Wyden, Chairman Toomey, and Ranking
Member Stabenow:
Biocom represents the Southern California life science industry and
leads advocacy efforts to positively influence the region's life
science community in the development and delivery of innovative
products. Biocom and our medical device member companies, who are
dedicated to developing life-enhancing and life-saving technologies for
patients in need, are opposed to the medical device excise tax and
support its full repeal.
Over the past decades, the American medical device industry has given
patients access to cutting edge, life-saving technologies, from insulin
pumps and heart valves to pacemakers and artificial limbs. Such
products have helped increase life expectancy while reducing the burden
of chronic diseases, which represent more than 70 percent of health
care costs. Today, over 8,000 medical device manufacturers in the
United States invest nearly $10 billion in research and development
(R&D) annually, and employ more than 420,000 Americans. In California,
the medical device industry generates $50 billion in economic activity
annually and supports over 80,000 jobs.
The tax, which took effect in January 2013, is expected to cost medical
device manufacturers $30 billion over the next 10 years. Similar excise
taxes are levied by the federal government on products such as alcohol
and tobacco to discourage their use. In addition, the tax is assessed
on revenue and, therefore, is particularly burdensome for innovative
start-ups and small companies that are not yet profitable. Contrary to
some assertions, the tax is not being offset by increased demand for
medical devices as a result of health care reform because the majority
of device-intensive medical procedures are performed on patients that
are older and already had private insurance or Medicare coverage.
Since its implementation, the medical device tax has effectively
stifled R&D investments and medical innovation, hampered economic
growth and job creation, and jeopardized patient access to breakthrough
devices and therapies. According to an industry survey,\1\ 14,000
industry jobs have been lost in the tax's first year, along with the
forgone hiring of 19,000, resulting in a total direct industry
employment impact of approximately 33,000 jobs. In addition, companies
have had to reduce R&D investments and/or relocate or expand
manufacturing outside of the U.S. as the result of the tax.
---------------------------------------------------------------------------
\1\ Impact of the Medical Device Excise Tax--A Status Report from
AdvaMed.
The negative impact of the tax on medical innovation and the U.S.
economy has been widely recognized and a repeal of the device tax has
broad bipartisan support in both the House and the Senate. Biocom
strongly supports a repeal of the medical device tax and stands ready
to work with you to ensure that patients continue to have access to the
---------------------------------------------------------------------------
most innovative technologies in the world.
Thank you for your consideration of our concerns.
Sincerely,
Joe Panetta
President and CEO
Biocom
______
Carmell Therapeutics Corporation
3636 Boulevard of the Allies, Pittsburgh, PA 15213
www.carmellrx.com
April 22, 2015
The Honorable Patrick J. Toomey
Chairman
Senate Finance Subcommittee on Health Care
248 Russell Senate Office Building
Washington, DC 20510
The Honorable Debbie Stabenow
Ranking Member
Senate Finance Subcommittee on Health Care
731 Hart Senate Office Building
Washington, DC 20510
Re: Statement for the Record:
Senate Finance Subcommittee on Health Care
Hearing on the Impact of the Medical Device Tax
Dear Chairman Toomey and Ranking Member Stabenow:
I have been involved in start-ups and small companies in the life
sciences industry for over 35 years. Advances in technology during my
career have enabled the development of important medical products that
not only save lives and preserve a quality of life for patients, but
also reduce the costs of treatment. But I have never experienced a more
difficult time to start a company and raise working capital. The
Medical Device Tax, while appearing on the surface to sound innocuous,
has contributed much to this already difficult situation. Because
venture capital in the U.S. has all but abandoned investments in pre-
revenue life sciences companies, it is now imperative for such
companies to achieve early revenues to demonstrate market acceptance
and attract investment, even if those early revenues will not by
themselves get the company to cash flow positive. This misguided tax
makes that process even more tenuous. It has also been a strong factor
in discouraging venture capital from even considering medical device
and early stage deals. Currently the majority (55%) of clinical trials
is now being conducted overseas (NIH), and most novel medical devices
are now launched outside the U.S. 4-5 years before they are available
in the U.S. (U.S. Department of Commerce). This is the complete
opposite of the situation of only a few years ago when the U.S. was
taking the lead. As a case in point, my company, Carmell
Therapeutics,conducted a clinical trial in South Africa and is planning
to launch our first product next year in Europe.
Senator Stabenow--you and I met a few years ago when I was CEO of the
Michigan Tech SmartZone, a great program that has become a model not
only for other Michigan SmartZones but other states as well. Senator
Toomey--you and I met last year at Carnegie Mellon University, from
where Carmell was spawned. I hope you both agree that this tax, instead
of creating meaningful tax revenues as was its original purpose, has
had the unintended consequence of dissuading institutional investment
and discouraging entrepreneurship in a vital industry already under
significant pressures. In my opinion, the Medical Device Tax is the
proverbial straw that is breaking the backs of the medical device
industry by dissuading innovation. Thank you for the opportunity to
present my views.
Sincerely,
Alan I. West
President & CEO
______
COOK GROUP INCORPORATED
750 DANIELS WAY,
P.O. BOX 1608
BLOOMINGTON, IN 47402-1608 U.S.A.
PHONE: 812-331-1025 FAX: 812-331-8990
www.cookgroup.com
April 22, 2015
Senate Committee on Finance
Attn: Editorial and Document Section
Rm. SD-219
Dirksen Senate Office Building
Washington, DC 20510-6200
Re: Written Testimony for the Record before the Finance Subcommittee
on Health Care Submitted by the Cook Group, Inc., for the April 23,
2015 Hearing Entitled, ``A Fresh Look at the Impact of the Medical
Device Tax on Jobs, Innovation, and Patients.''
Dear Chairman Toomey and Ranking Member Stabenow:
Thank you for the opportunity to submit written testimony for the
record to the Senate Finance Health Care Subcommittee's hearing
entitled, ``A Fresh Look at the Impact of the Medical Device Tax on
Jobs, Innovation, and Patients.'' We are pleased to provide our
thoughts on the impact of the medical device tax on jobs, innovation,
and patients. This is a tax that affects not only U.S. manufacturing
jobs, but also patient access to the latest in medical technology.
I submit these comments as the Chairman of Cook. It has been my
privilege to be associated with Cook for nearly 50 years.
History of Cook
Since 1963, the company has grown from its birth in a spare bedroom
in Bill and Gayle Cook's apartment to a world leader in advancing
medical care for patients worldwide. There were many setbacks and
countless challenges that threatened the success of Cook as our
founder, Bill Cook, sought to build an innovative American company that
would improve patient care. But Bill was resilient and had the same
entrepreneurial spirit that makes this country so unique. These traits,
combined with his focus on the patient, are the foundation of Cook's
success.
Today, Cook is the largest, family-owned medical device
manufacturer in the world. We are best known as a pioneer in the field
of interventional medicine. Our products benefit patients by providing
doctors with a means of diagnosis and intervention using minimally
invasive techniques, as well as by providing innovative products for
surgical applications. Cook sells more than 14,000 different product
variations with 13,600 of these products serving markets of $1 million
or less worldwide. The other 400 are large market technologies. These
devices are used by physicians in the more than 40 medical disciplines
and range from simple wire guides, needles and catheters, to grafts,
drug-eluting stents and tissue engineering.
Cook is headquartered in Bloomington, Indiana with its U.S.
manufacturing plants in Indiana, Pennsylvania, North Carolina, Illinois
and California. I should note, Mr. Chairman, we have two Pennsylvania
facilities just outside Pittsburgh: Cook Vascular and Cook Myosite.
Between the two we employ more than 200 employees who are involved in
pacemaker lead extraction technology, vascular access ports and flow
probe monitoring technology, accessory tools for in vitro
fertilization, and research involving the use of adult skeletal muscle-
derived cells to treat patients with a variety of muscle-related
disorders, such as female urinary incontinence, among other areas. Cook
also has manufacturing facilities in Ireland, Denmark and Australia and
has direct sales in most of the world where the health care system is
developed.
Our company employs nearly 12,000 people around the world with
approximately 8,500 of these employees based in the United States. In
the U.S., women comprise approximately 76 percent of our device
production.
Like many others in the device industry, Cook is a net-exporter.
While 60 percent of our sales are outside the United States, we
manufacture more than 75 percent of our devices in this country. We
want to be able to continue doing this.
The Medical Device Excise Tax
The most significant barrier to our future U.S. job growth is the
medical device excise tax. The Affordable Care Act of 2010 (ACA)
contained a revenue provision that placed an excise tax of 2.3 percent
on the sale of medical devices in the U.S. beginning January 1, 2013.
While that does not sound like much, it is a tax on gross revenue. It
comes off the top and not on earnings, and it is huge. Further, whether
a manufacturer makes a profit or not, the excise tax applies. For a
company like ours, which pays about 31 percent of our U.S. earnings in
federal and state corporate income taxes, the excise tax will increase
our effective rate on those U.S. earnings to 41 percent--a 32 percent
increase. It is true that imported goods are subject to the excise tax
when sold in the U.S.; however, corporate tax rates on manufacturing
income earned outside the U.S. are much lower. It is also important to
note that there is not a state corporate tax on top of the federal
corporate tax in countries such as Ireland (at 12.5 percent). Everyone
agrees we need to increase U.S. competitiveness by lowering the U.S.
corporate tax rate. So, how can folks believe that an additional 30
percent increase in this industry's effective rate makes the U.S. more
competitive?
Since its enactment, there have been frequent announcements about
device companies freezing capital expenditures, reducing research and
development, expanding overseas rather than in the U.S., and/or in many
instances, laying off employees due to the excise tax. It makes no
sense to encourage manufacturing in the U.S. and at the same time
impose an excise tax on one of the few industries that exports more
products than it imports. Start-ups that have not yet turned a profit
still must pay the excise tax and over time this will serve to threaten
investment in and the future of this innovative industry, which is the
envy of the world. Why would we want to impose an excise tax on one of
our fastest growing and most innovative industries--medical
technology--that increases the federal tax burden on medical device
manufacturers by 29 percent? (Ernst and Young, Effect of the Medical
Device Excise Tax on the Federal Tax Liability of the Medical Device
Industry, November 2012).
Myths About the Device Excise Tax
1) Device manufacturers will pass along the amount of the tax--
False.
Some say that a new 2.3 percent tax will only lead device
manufacturers to pass on the cost of the new excise tax to purchasers
(generally hospitals). That simply is not true for most companies.
Hospitals are under tremendous cost pressure today with 40 percent of
hospitals operating in the red. The hospitals and group purchasing
organizations are saying no. This is a very competitive industry and
customers have many suppliers.
Furthermore, our company, like most in our industry, has
experienced significant increases in operational costs: health care
costs for employees, salaries and wages, utilities, raw materials,
regulatory costs, etc. We have seen the unemployment insurance tax
increase along with other state, local and property taxes. Companies
simply cannot pass all those costs on, let alone a 2.3 percent tax on
gross sales.
2) Device manufacturers will have an increased market of new
patients as the uninsured now become insured and therefore seek out new
treatments--False.
Many believe that the ACA will add more patients and device
companies will make more money as a result. This, too, is a myth for
the vast majority of device companies. According to The U.S. Department
of Health and Human Services (HHS), 71 percent of the ``new insured''
are younger than 45 years, a great majority of whom will not need our
technologies. I have seen no credible studies that indicate an increase
in sales, and our research and other studies demonstrate that there
will not be an increase in the sales of medical devices and there will
be no windfall profits.
I must also point out that a 2012 Roth Capital survey of companies
showed that their experience in Massachusetts after universal health
care was enacted showed no increase in the rate of growth compared to
the increase in growth of rest of the nation. Indeed, Cook's growth
rate in Massachusetts trends slightly behind the national growth.
Impact of the Device Excise Tax on Cook
In order to offset a big expense like the excise tax, a company can
only look to employees, research and development or capital. Cook has
never had to lay-off an employee in our 50+ years of business, and we
will not start now. However, we must make hard choices.
Cook has made the difficult decision that without repeal, we will
move important new, device-related product lines outside of the U.S.
Our previous plans to open up five new device manufacturing facilities
in American towns continue to be on hold as we use capital intended for
these projects to pay the excise tax.
The direct impact of this tax is squarely on U.S. jobs and because
device manufacturing is performed mainly by a female workforce in many
sectors, it will hit these workers hardest. Cook will adjust, but those
that will be most affected by the device excise tax will be the
potential future employees and patients who seek access in this country
to innovative medical technologies. Make no mistake about it: we want
to develop and manufacture our devices in the U.S., but this tax is
preventing this growth in this country. It is a shame that potential
employees in Indiana, Illinois, Pennsylvania, California, North
Carolina and in other states who can compete with workers any place in
the world based on their productivity, are going to be denied the
chance by government. I emphasize that for Cook this is not about labor
costs. Our industry needs an educated, skilled labor force and we have
the best workers in the world here in the U.S.
This migration of manufacturing, coupled with the fact that most
clinical studies are now being conducted outside the U.S., will result
in new, self-sustaining medical technology clusters that will threaten
the United States' global leadership position in medical technology,
innovation and manufacturing. This migration will result in delays and
in some cases barriers for American patients and their providers who
need innovative technology to ensure quality care.
Senate Legislation to Repeal the Medical Device Excise Tax--S. 149
But before this happens Congress can act to repeal this onerous
excise tax. We are grateful to the 35 sponsors of S. 149, a bill
introduced by Senators Hatch and Klobuchar, as well as our home-state
Senators Burr, Casey, Coats, Donnelly, Kirk, Tillis and Chairman
Toomey, to repeal the medical device excise tax. In fact, many
additional Senators serving on the Finance Committee have cosponsored
this legislation or expressed support for repeal of this tax, and we
are grateful for your acknowledgment that this excise tax will have
serious, unintended consequences. We hope as you deliberate further
about the impact of the device excise tax on jobs, innovation and
patients, you will consider advancing the repeal legislation.
I should note there have been a few recent reports looking at the
impact of the device tax. But I urge caution: examining stock prices to
determine the impact of the device tax is a highly inaccurate measure.
Companies responsible to shareholders are going to do what it takes to
make their stock prices and profits healthy. Those steps include
eliminating and/or moving U.S. jobs off-shore and not expanding
manufacturing in the U.S. A better way to accurately measure the impact
of the device tax is to hear from a statistically significant sample of
companies that reflect the U.S. device industry and ask about the
direct impact on jobs, medical innovation and patients.
Mr. Chairman, we are very grateful for your leadership and ongoing
efforts to repeal the medical device excise tax. This issue is very
important to American jobs, medical innovation, and more importantly to
patients. I congratulate you and Ranking Member Stabenow for taking
this important step today, but please know more work is urgently
needed. The country needs your leadership to once and for all repeal
this medical device excise tax before it is too late.
Respectfully submitted,
Stephen L. Ferguson
Chairman of the Board
______
CryoLife', Inc.
Life Restoring TechnologiesSM
1655 Roberts Boulevard NW
Kennesaw, Georgia 30144
T (770) 419-3355
T (800) 438-8285 In the USA and Canada
F (770) 426-0031
www.CryoLife.com
April 23, 2015
The Honorable Orrin G. Hatch
Chair, Senate Finance Committee
The Honorable Ron Wyden
Ranking Member
The Honorable Johnny Isakson
Committee Member, Georgia Senator
RE: Impact of the Medical Device Tax
Dear Senators Hatch, Wyden and Isakson:
In anticipation of this week's upcoming Senate Finance Committee
hearing regarding ``A Fresh Look at the Impact of the Medical Device
Tax on Jobs, Innovation, and Patients,'' I am writing, as the Chairman,
President and CEO of Georgia-based CryoLife, Inc., and a long-time
senior executive in the medical device industry at Medtronic, Genzyme
and Deknatel/Snowden-Pencer, Inc., to respectfully request repeal of
the medical device excise tax (the ``Tax''). Based on my long-term
experience in the medical device industry, I firmly believe that the
Tax, now estimated to generate approximately $25 billion, has and will
continue to adversely impact patient care, innovation and patient
access to innovative medical technologies and therapies.
In January 2015, over 1,000 organizations jointly submitted a letter to
Majority and Minority leaders of the Senate and House. In that letter,
those organizations detailed the significant adverse impact the Tax is
having on the U.S. medical device industry in terms of research and
development (``R&D''), jobs, above-market wages and cutting-edge
innovation leading to more and better device therapy and treatment for
patients. That letter also described how the hardships associated with
the Tax are not, as Congress originally anticipated when it passed the
Tax, being offset by increased demand for medical devices.
To bring these adverse impacts into sharper focus for you, I would like
to share our experience at CryoLife and the particularly harsh impact
the Tax imposes on smaller companies, such as ours, whose annual
revenues are less than $200M.
CryoLife, headquartered in Kennesaw, Georgia, is a leader in the
manufacturing, processing, and distribution of implantable living
tissues and medical devices used in cardiac and vascular surgical
procedures. We generate approximately $150M in annual revenues, and we
employ approximately 500 people in the U.S. in higher-wage, technology-
driven jobs. For 2014, our average hourly wage for hourly U.S.
employees was approximately $18.50, and our average annual salary for
salaried U.S. employees was approximately $90,000.
CryoLife is a leader in innovation in implantable preserved human
cardiac and vascular tissues and medical devices:
Among our most significant innovations is our
SynerGraft' Technology, a patented decellularization
process that virtually eliminates the presence of allogenic
donor cells, while maintaining the structural integrity of the
tissue. This process serves as the foundation for the next
generation of implantable biological tissues, which have saved
or dramatically improved the quality of life for more than
12,000 patients globally since it was launched in 2000.
We manufacture and distribute BioGlue' Surgical
Adhesive, an FDA-approved protein hydrogel technology, which is
indicated as an adjunct to sutures and staples for use in adult
patients in open surgical repair of large vessels. We estimate
that BioGlue has been used in more than 1,000,000 patients
globally since its launch in 1998.
We manufacture and distribute the CardioGenesis cardiac laser
therapy system for the treatment of coronary artery disease in
patients with severe angina and typically no other options.
We market the Hemodialysis Reliable Outflow Graft, a solution for
end-stage renal disease in certain hemodialysis patients.
In 2014, 69% of CryoLife's worldwide product revenues were from
``devices,'' within the meaning of the Tax, and 67% of its device
revenues were from U.S.-based sales subject to the Tax. As a result,
CryoLife paid approximately $1.1M in Tax for 2014. Further, CryoLife
estimates that its costs to date for administrative and auditor support
to ensure appropriate accounting for and payment of the Tax have been
approximately $27,000. We estimate that the adverse impact of the Tax
on our 2014 net income was in excess of $1.1M.
In 2014, due in part to the Tax, CryoLife was able to spend only
approximately 6% of its revenues (or approximately $8.7M) on R&D, and
it was not able to increase the size of its workforce, which would have
better enabled CryoLife to deliver more of its life-enhancing and life-
saving technologies to more patients. CryoLife also had to defer
significant investments in capital and start-up companies, all of which
would have furthered innovation, as well as delay investment in
clinical trials to support product approvals.
The Tax has not produced the primary benefit--enhanced patient access
to medical device technology--which was the purported basis for its
passage. To the contrary, it has largely resulted in reduced
innovation, jobs, pay and access to care.
I respectfully request and thank you in advance for your timely action
on legislation to repeal the Tax.
Sincerely,
J. Patrick Mackin
Chairman, President and CEO
CryoLife, Inc.
______
ELITechGroup, Inc.
dba Wescor, Inc.
370 W 1700 S
Logan, UT 84321 USA
Tel: +1 435-512-3650
www.elitechgroup.com
21 April 2015
Senate Finance Committee
Washington, D.C.
c/o Brad Grantz
[email protected]
Dear Senate Finance Committee,
I am a president of a relatively small medical device company based in
Logan, Utah. Our company has about 100 employees here and another 80
employees in other states. I would like to describe the effect of the
Medical Device Tax on our company.
A tax of 2.3% probably doesn't sound like a lot to the average
American. But this is not a tax on how much we earn; it is on how much
we sell. When our company is healthy, we allocate about 10% of our
sales revenue to research and development, to improve our existing
technology and to create new products that make health care safer,
cheaper, and more effective. Repeal of the 2.3% device tax could
increase our R&D budget by 23%! The majority of that budget is used for
engineering salaries, so it represents the salary of several highly
skilled professionals.
My business unit remains profitable, although at a lower level, with
the device tax. But another business unit of our company has not
achieved profitability in the U.S. market. It may be at risk of being
shut down. With the device tax, it's not enough to reach a breakeven
point--in order to justify continued operation, it has to achieve an
additional 2.3% of margin.
Even the activities funded by the revenue from the device tax will
eventually suffer when overall medical device development declines,
followed by overall sales.
Please give the immediate repeal of this unwise and burdensome tax a
very high priority.
Best regards,
Dennis R. Briscoe
President, Biomedical Systems
Division of ELITechGroup Inc.
______
Exactech'
2320 NW 66TH COURT
GAINESVILLE, FL 32653
352-377-7140
FAX 352-378-2677
April 21, 2015
The Honorable Patrick J. Toomey
Chairman
Senate Finance Subcommittee on Health Care
248 Russell Senate Office Building
Washington, DC 20510
The Honorable Debbie Stabenow
Ranking Member
Senate Finance Subcommittee on Health Care
731 Hart Senate Office Building
Washington, DC 20510
Dear Chairman Toomey and Ranking Member Stabenow:
The medical device tax is damaging to our country. Forget that it is
unfair to single out a single industry. Let's think back to the
``Yacht'' excise tax. It's cost was 50,000 lost jobs and a permanent
loss of a major portion of the U.S. boat industry to Europe (mainly
Italy) and to Asia. We see the beginning of the same for medical
devices. This tax combined with the dysfunctionality of the FDA
depresses jobs, innovation, health care breakthroughs, and business in
general. In addition, it can only increase health costs. This tax never
should have been enacted and needs to go.
Respectfully,
BILL PETTY, M.D.
Executive Chairman
A Great Day in the O.R.
EXACTECH exists to improve the quality of life for individuals by
maintaining their activity and independence. We do this through
innovative ideas, high-quality products, education and commitment to
service.
______
Florida Economic Development Council
Educate. Advocate. Connect.
United States Senate Committee on Finance
Subcommittee on Health Care
A Fresh Look at the Impact of the Medical Device Tax on Jobs,
Innovation, and Patients
Thursday, April 23, 2015
Amy Evancho, President & CEO
Florida Economic Development Council
3802 Spectrum Boulevard, Suite 141
Tampa, FL 33612
Dear Chairman Toomey and Ranking Member Stabenow:
I write to you on behalf of the Florida Economic Development Council in
support of repeal of the medical device excise tax. This burdensome and
harmful tax negatively impacts job growth, innovation, and patient
care. We are pleased that the committee is holding a hearing to examine
the negative impact of the tax and urge you to continue advancing this
important legislative initiative.
The Florida Economic Development Council is the professional
association of economic, workforce, and community developers who work
in Florida's 67 counties, over 400 cities, 24 workforce regions, 28
colleges, 12 universities, as well as utilities, ports, airports, and
industrial authorities. We support job-creating innovation that
bolsters our states' and nation's economy. The medical device tax
directly and negatively impacts our members ability to grow jobs,
limits resource allocation to innovation and research and development,
and stalls development of technologies that saves lives.
Across the country and in Florida, the medical technology industry is a
unique American success story--both for patients and the economy. The
United States is the world leader in manufacturing life-saving and
life-enhancing treatments, and the industry is an important engine for
economic growth. According to surveys conducted by AdvaMed, the medical
technology industry employs more than 400,000 workers nationwide;
generates approximately $25 billion in payroll; pays out salaries that
are 40 percent more than the national average ($58,000 vs. $42,000);
and invests nearly $10 billion in research and development (R&D)
annually. The industry is fueled by innovative companies, many of which
are small businesses with 80 percent of companies having fewer than 50
employees and 98 percent with fewer than 500 employees.
Unfortunately, the medical device tax stifles innovation and has
already cost thousands of high-paying jobs. The tax resulted in
employment reductions of 14,000 industry workers in 2013, with
approximately 4,500 additional jobs lost in 2014, according to a
January 2015 AdvaMed survey. It has caused companies large and small to
reduce financial resources that could otherwise be used for R&D.
The medical device tax is particularly problematic for Florida--a state
that is rich in medical technology manufacturers. Florida is home to
one of our nation's largest medical device economies--encompassing 662
device manufacturers employing nearly 21,000 Floridians, paying an
average annual wage of more than $60,000. Florida is one of the top
five med-tech job producers in the country; and the vast majority of
Florida medical device manufacturers (80%+) are small, entrepreneurial
firms, employing fewer than 25 people. These are the companies that
have been driving Florida's job creation and innovation in patient care
in the medical technology sector.
This bad tax is adversely impacting innovation, R&D investment and job
expansion in our state, and is disproportionately impacting small-to-
midsize companies--the lifeblood of Florida's medical device industry.
We respectfully request timely action on legislation to repeal this
burdensome tax. Repeal will create jobs and spur economic growth in
Florida and around the country by freeing up resources to pay for
additional research and development and the manufacturing of new
innovations.
Respectfully,
Amy Evancho,
President & CEO
Florida Economic Development Council, Inc.
______
Florida Medical Manufacturers Consortium (FMMC)
United States Senate Committee on Finance
Subcommittee on Health Care
A Fresh Look at the Impact of the Medical Device Tax on Jobs,
Innovation, and Patients
Thursday, April 23, 2015
Statement by:
John B. Ray, Executive Director
Florida Medical Manufacturers Consortium
310 W. College Ave, Suite 212
Tallahassee, FL 32301
Dear Chairman Toomey and Ranking Member Stabenow:
The Florida Medical Manufacturers Consortium (FMMC) strongly supports
the immediate repeal of the medical device excise tax. Thank you for
holding this important hearing to examine the negative impacts of this
harmful tax--a tax on innovation and job growth that, unfortunately,
has been in place for more than two years now.
By way of background, the Florida Medical Manufacturers Consortium
(FMMC) is a statewide association of over 100 medical technology firms.
The FMMC exists to further the interests of Florida's medical
manufacturers by providing networking and education opportunities for
industry members, facilitating connections with academic institutions,
and promoting the interests of the industry to the general public and
governmental organizations. In essence, the FMMC exists to unite,
promote, and grow the Florida medical device industry, and to enhance
the business success of its member companies.
Florida is a leader in the medical technology industry. Florida is home
to one of our nation's largest medical device economies--encompassing
662 medical device manufacturers, employing nearly 21,000 Floridians
and paying an average annual wage of more than $60,000. Florida ranks
3rd nationally in the number of FDA-registered medical device
establishments. The vast majority of Florida medical device
manufacturers (80%+) are small, entrepreneurial firms, employing fewer
than 25 people. These are the companies driving Florida's job creation
and innovation in patient care in the medical technology sector.
Contrary to some recent studies on the topic, the medical device excise
tax is eroding our international dominance and competitiveness in the
medical technology sector. It is costing our country jobs and siphoning
off precious resources from research and development. Recent, competent
industry surveys reveal the medical device tax resulted in national
employment reductions of 14,000 industry workers in 2013, with
approximately 4,500 additional jobs lost in 2014 (AdvaMed); and 72% of
companies slowed or halted job creation in the United States to pay the
medical device tax (MDMA).
Incredibly, this bad tax is based on sales, not profit, and is doing
the most harm to small to midsize medical device companies--the
lifeblood of Florida's medical device industry, responsible for the
lion's share of innovation, scientific discovery and job growth in our
state. The tax extracts 2.3% on every sale of medical devices, and
cares not if the company is large or small, or actually making any
profit at all. Medical device companies are typically not profitable
for many years, even after winning FDA approval to sell a device.
Removing precious resources from the top line of these innovative
manufacturers is devastating their ability to develop new life-saving
and life-improving devices, and create great jobs for Floridians.
America's medical device industry is one of the few where we still are
the global leader, and where we actually export more than we import. We
should be supporting these 21st century innovators, not punishing them.
Thank you again for your dedicated efforts to repeal the medical device
excise tax.
Respectfully,
John B. Ray
Executive Director
______
Gradient Technologies LLC
April 23, 2015
The Honorable Patrick J. Toomey The Honorable Debbie Stabenow
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
Subcommittee on Health Care Subcommittee on Health Care
248 Russell Senate Office Building 731 Hart Senate Office Building
Washington, DC 20510 Washington, DC 20510
Subject: Imposition of the Medical Device Tax
Dear Chairman Toomey and Ranking Member Stabenow,
I am a private investor who for 20 years has been engaged in scientific
research and product development intended for the commercialization of
an innovative transcutaneous (noninvasive) neuromodulation technology
to substitute electrophysiological alternatives for opioids and
nonsteroidal inflammatory drugs in managing both acute and chronic
musculoskeletal pain.
In terms of the information available to members of the Senate Finance
Committee regarding the consequences of this new medical device tax, I
offer the following:
The availability of startup and early-stage investment funds
practically evaporated with the Lehman Brothers collapse. Risk
capital was initially diverted to either existing late stage
``follow on'' investments or early market launch priorities.
Until very recently, the medical device segment of this risk
capital marketplace had been refocused to opportunities in
other segments of the technology space.
The U.S. regulatory regime (FDA) continues to be a remarkable
challenge; FDA's new proposal for a new device classification,
``wellness'' (a perfunctory exemption from the FDA &C '76 Act
medical device regulation for low risk devices, without
ascertaining efficacy) simply devalues technology by
incentivizing innovations with the vigorish of FDA regulatory
avoidance. These FDA challenges transcend to both CMS and
private pay for reimbursement issues. In this healthcare
transition both medical device companies and healthcare
professionals are being inequitably and unfairly squeezed into
the economic penalty box as scapegoats in this obvious
governmentally enforced transition to an eventual single-payer
system.
Since the Simpson and Bowles ``term paper'' re the looming national
financial crisis, the only strong governmental measure to resolve this
now unaffordable national debt situation has been Obamacare. This
stutter stepped healthcare tsunami continues to produce substantial
uncertainty, economic turmoil, and as a result, significant unavoidable
headwinds (in the healthcare market; 17% of GDP) for innovation. This
medical device tax proposal is simply a ``bridge too far.''
The consolidation among hospitals, the acquisition by these same
major hospitals of private medical practices, the restriction
of competition by expanding rulemaking in favor of group
purchasing organizations, the merger trend among the major
corporations in both the medical device arena as well as
pharmaceuticals, all severely handicap and thus dis-incent
individual (and small company) entrepreneurship and innovation.
An investment banker, in addressing these very same (industry
consolidation) marketing points to my board yesterday, offered
three questions which define his life experience in financing
new healthcare product investments: ``Can you actually make a
[commercial, functioning] product, can you sell the product,
and if you can't sell the product, then why make it? ''
Otherwise, the new product remains simply a science project.
With these headwinds, why single out medical devices which account
for only 5% of the cost of U.S. healthcare system from all of
the other for-profit constituents?
The only conceivable notion for this new medical device tax proposition
could be that the collective majority judgment by this Congress of a
likely adverse reaction to this revenue loss burden is that the
practical repercussions would produce only a negligible political
fallout. Wrong.
The stakeholders, i.e. investors, patients, healthcare practitioners,
etc., all recognize the tremendous potential benefit generated by new
therapies, especially given today's horrific addiction revelations
associated with regular opioid and NSAID usage. Congress's proposition
unfairly focuses this medical device tax exclusively on only 5% of the
total healthcare cost system.
For we entrepreneurs, this medical device tax is certainly a material
financial burden (i.e. reduced profitability so critical during the
intense cash burn [before positive flow] in the startup phase).
Entrepreneurs are the personal risk takers who are currently incubating
the technological changes so fundamental to the realization of the cost
reduction and quality of care improvements anticipated in the
Affordable Care Act. The forecasted decline in NIH funding portends the
significant need for additional (not less) private ``risk capital.''
I would be pleased to elaborate on this subject, to give my testimony,
and/or to engage in personal discourse with any Member curious to learn
what it is like to spend 20 years and $20 million inventing and
commercializing a scientific concept, only to be bombarded by the now
ever-increasing adversarial forces of this U.S. government.
Sincerely
John C. Townsend
Chairman
Gradient Technologies LLC
6070 Poplar Ave., Suite 600
Memphis, TN 38119
901-767-2384
[email protected]
______
Healthcare Leadership Council
April 22, 2015
United States Senate
Committee on Finance Subcommittee on Health Care
219 Dirksen Senate Office Building
Washington, D.C. 20510
Re: Statement for the Record for the Hearing, ``A Fresh Look at the
Impact of the Medical Device Tax on Jobs, Innovation, and Patients''
Dear Chairman Toomey and Ranking Member Stabenow:
On behalf of the Healthcare Leadership Council (HLC), thank you for
your leadership on the Senate Finance Health Care Subcommittee and for
your interest in examining the impact of the medical device tax on
jobs, innovation, and patients.
HLC is a not-for-profit membership organization comprised of chief
executives of the nation's leading healthcare companies and
organizations. HLC is committed to advancing a consumer-centered
healthcare system that values innovation and provides affordable,
accessible, high-quality healthcare to all Americans. As the only CEO-
level organization spanning all health sectors, HLC has a unique
ability to speak on the policy implications of proposals for healthcare
decision-makers. As such, we write to express our concerns about the
impact the medical device tax has on both patient access to treatment
and vital sectors of healthcare.
Medical innovation is essential to healthcare value and progress. The
U.S. has led the global medical device and pharmaceutical industries
for decades and this leadership has brought hundreds of thousands of
high-paying jobs to our country and life-saving, life-improving
technologies to patients. However, taxes and fees imposed on these
industries through the Affordable Care Act, combined with the lack of
regulatory consistency, predictability and transparency, hinders
innovation, hampers job growth, and adversely impacts patient access.
We believe by virtue of our high-level leadership, cross-sector
collaboration, and real-world experience, HLC and its members can prove
a valuable resource. We look forward to working with you on this and
other critical healthcare issues.
Sincerely,
Mary R. Grealy
President
______
HoverTech International
513 S. Clewell Street
Bethlehem, PA 18015
Phone 800-471 2776
Fax 610-694-9601
www.HoverMatt.com
[email protected]
May 13, 2015
The Honorable Patrick J. Toomey
Chairman, Senate Finance Subcommittee on Health Care
248 Russell Senate Office Building
Washington, D.C. 20510
The Honorable Debbie Stabenow
Ranking Member, Senate Finance Subcommittee on Health Care
731 Hart Senate Office Building
Washington, D.C. 20510
Dear Chairman Toomey and Ranking Member Stabenow,
I am pleased to submit this statement for the record on behalf of
HoverTech International.
I want to call your attention to the first article link below. I own
HoverTech International, a small company that employs 23 in Bethlehem.
We manufacture a product called the HoverMatt, that is used in
hospitals to help nurses move patients without injuring their backs or
hurting the patient. We have saved hospitals millions of dollars in
workers' comp costs, including many VA facilities. Last year my small
company paid more than $900,000 due to the Medical Device Tax. Part of
the initial reasoning to have device companies fund the ACA was that we
would have many more customers. Our product is strictly used in
hospitals, and as the article states, they are reducing their number of
beds due to decreased patient census. So, how is this helping HTI? I am
paying $1M to reduce my potential customer pool! I would welcome
testifying in front of a Senate committee, just like the CFO of B.
Braun did. We have delayed building a new facility for over 2 years
because of the onerous tax.
Respectfully,
David T. Davis
President/Owner
HoverTech International
http://www.modernhealthcare.com/article/20150221/MAGAZINE/
302219988?utm_
source=modernhealthcare&utm_medium=email&utm_content=externalURL&utm_
campaign=mostreq
______
LifeScience Alley'
April 23, 2014
Chair Toomey and Members of the Senate Finance Subcommittee on Health
Care:
Thank you for your leadership in convening this hearing, titled ``A
Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation,
and Patients.'' LifeScience Alley appreciates the opportunity to be on
the record in support of repealing the medical device tax.
LifeScience Alley represents the most densely concentrated medical
technology cluster in the world and is home to some of history's
greatest health technology and care innovations. As the birthplace of
medical devices, Minnesota's economy has long benefitted from strong
research-based companies such as 3M, Medtronic, Boston Scientific, St.
Jude Medical and hundreds of small startups that will bring new
innovation to the healthcare marketplace.
Supporting the industry's economic strength is critical to Minnesota's
economy, creating high-paying, knowledge-based jobs. The medical device
industry in Minnesota accounts for 38,000 direct jobs, with an
additional 120,000 in indirect jobs, all of which have an average
salary of $97,500 per employee. Many of these individuals are employed
at companies that have fewer than 50 employees, which account for about
80% of the industry, and of these companies, roughly 95% employ 25 or
fewer people. Small venture capital-backed companies typically spend
$500,000 to $2 million per month to operate and need at least $100
million in investments to bring a product to market.
We thank the committee for addressing the medical device tax repeal, a
critical issue for not only Minnesota, but for the entire industry. The
federal medical device excise tax continues to stifle innovation in
Minnesota. In fact, our state pays roughly 25% of the entire medical
device tax. This is money that could be re-invested in research and
development or devoted to hiring more Minnesotans into high-paying
jobs. The medical device tax increases the risk of investment to
investors, and it is this uncertainty that impedes our companies from
bringing critical, life-saving therapies to patients worldwide.
Congress must act this year to repeal this egregious tax which is
stifling innovation not only in Minnesota's Medical Alley but across
the entire industry nationwide.
Thank you, Mr. Chair, for the opportunity to voice our concern.
Sincerely,
Shaye Mandle
LifeScience Alley, President & CEO
______
Medical Device Manufacturers Association (MDMA)
1333 H Street, NW, Suite 400W
Washington, DC 20005
Phone (202) 354-7171
Fax (202) 354-7176
www.medicaldevices.org
April 23, 2015
The Honorable Patrick J. Toomey The Honorable Debbie Stabenow
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
Subcommittee on Health Care Subcommittee on Health Care
248 Russell Senate Office Building 731 Hart Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Toomey and Ranking Member Stabenow,
I write to you today on behalf of the hundreds of companies represented
by the Medical Device Manufacturers Association (MDMA) offering our
strong support of
S. 149, the ``Medical Device Access and Innovation Protection Act.''
The medical device excise tax has been a devastating policy for
patients, innovators and providers for years, and we thank you for
holding the hearing ``A Fresh Look at the Impact of the Medical Device
Tax on Jobs, Innovation, and Patients'' to examine how to repeal it
once and for all.
MDMA represents nearly 300 medical technology companies, and our
mission is to ensure that patients have access to the latest
advancements in medical technology, most of which are developed by
small, research-driven medical device companies.
Since the medical device tax was first proposed in 2009, we shared our
grave concerns with Congress about what this policy would mean to job
creation, R&D and patient care. Sadly, much of what we predicted has
come true.
We have surveyed our members since the device tax became law in 2010,
and it is clear that this punitive policy has thwarted the ability of
innovators to deliver on the promises of improved patient care.
In our most recent survey, we asked medical technology executives what
they would do if the medical device tax was actually repealed. The
message was loud and clear. The overwhelming majority of medical
technology innovators would make new investments in R&D and increase
hiring. The survey consisted of over 100 responses from medical
technology executives, and the top findings included:
80% of respondents noted that they would increase R&D investments
in the cures and therapies of tomorrow
When asked how much they would increase their R&D budget, the
average increase was 14%
72% of companies slowed or halted job creation in the United
States to pay the medical device tax
85% of respondents said that if the device tax was repealed, they
would hire newemployees in the U.S.
Since enacted in 2010, the medical device excise tax has eliminated
thousands of good paying jobs, led to drastic cuts to R&D and harmed
patient care in the United States. According to Ernst and Young, the
2.3% medical device tax on average increases the effective tax rate for
America's medical technology innovators by 29 percent.
MDMA strongly believes that the reason for such broad, bipartisan
support for repealing the medical device tax is the recognition that we
need to protect and support this proud American success story. At a
time where we need more high tech manufacturing and solutions to the
challenges facing the health care system, it is critical that we have
policies in place that will support innovation, and empower
entrepreneurs. Repealing the medical device tax will do just that.
MDMA is dedicated to working with Congress and the diverse coalition of
stakeholders to get repeal of the device tax across the finish line,
and we thank you for your leadership on this important policy goal.
Sincerely,
Mark B. Leahey
President & CEO, MDMA
______
Medical Imaging and Technology Alliance (MITA)
1300 North 17th Street, Suite 900
Arlington, Virginia 22209
Tel: 703-841-3200
Fax: 703-841-3392
www.medicalimaging.org
To the Committee on Finance Subcommittee on Health Care, United States
Senate
Re: A Fresh Look at the Impact of the Medical Device Tax on Jobs,
Innovation, and Patients
April 23, 2015
On behalf of our 56 member companies, the Medical Imaging and
Technology Alliance (MITA) commend the Senate Finance Committee and
Health Care subcommittee for conducting today's hearing, ``A Fresh Look
at the Impact of the Medical Device Tax on Jobs, Innovation, and
Patients.''
Across the country, the medical device industry is a unique American
success story--both for patients and our economy. The United States is
the world leader in manufacturing life-saving and life-enhancing
treatments, and the industry is an important engine for economic
growth. MITA believes the medical device tax harms job creation and the
economy, cannot help but influence heath care innovation decisions,
negatively impacts the medical imaging industry and therefore should be
repealed.
The Device Tax Harms Jobs and the Economy
The American medical technology industry provides jobs for over 400,000
people,\1\ creating a growing trade surplus, and developing the
technology essential to advancing patient care in the U.S. and around
the world. The industry generates approximately $25 billion in payroll;
pays out salaries that are 40 percent more than the national average
($58,000 vs. $42,000); and invests nearly $10 billion in R&D annually
by innovative companies, many of which are small businesses (80 percent
of companies having fewer than 50 employees and 98 percent with fewer
than 500 employees).\2\ In addition many companies that in the past
routinely partnered with small start-ups without adequate financial
resources have slowed or stopped this type of investing. Not only does
this damage economic development, but it also hinders getting
innovative diagnostic and therapeutic technologies into the hands of
physicians to help their patients.
---------------------------------------------------------------------------
\1\ http://no2point3.com/media/AdvaMed-the-New-Medical-Device-Tax-
Must-Be-Repealed.pdf.
\2\ http://advamed.org/page/44.
Additionally, global competition has amplified the incentives to
outsource research and development and move manufacturing abroad.
Despite these options, many firms have largely resisted the trends seen
in other manufacturing sectors and maintained successful research
centers and manufacturing plants in the United States. A $29 billion
tax burden on these companies amplifies these negative pressures and
has already forced companies to consider finding savings in their U.S.
operations to offset this cost.
This Device Tax Stifles Health Care Innovation
The medical imaging industry is in a state of constant innovation that
each year brings exciting new advances in both reducing radiation dose
and improving imaging fidelity. These developments have given
physicians new tools to achieve accurate and early diagnoses that
improves patient care by likely lessening the intensity of intervention
and reducing downstream costs to the health care system. Unfortunately,
this tax impacts the resource decisions that the industry makes
regarding funding research and development and investing in
manufacturing. Less investment in R&D slows the pace of innovation and
postpones patient access to the next generation of care.
The Device Tax Negatively Affects the Medical Imaging Industry
Advocates of the device tax argued that the device tax would complement
an increase in demand for medical devices due to the Affordable Care
Act's insurance coverage expansions. In addition, the majority of
device-intensive medical procedures are performed on older patients
with existing private insurance or Medicare coverage. Added insurance
coverage may enable more primary and preventive care. This is good. But
when Massachusetts instituted universal insurance in 2007, sales of
medical imaging equipment in the state dropped more than in any other
state.\3\
---------------------------------------------------------------------------
\3\ Sorensen, G. (2013). The Medical Device Excise Tax--Over before
It Begins? New England Journal of Medicine, 369(10), 982-983.
Unlike other devices, imaging equipment is considered infrastructure,
based in hospitals and physician offices. While many elements of health
care are intended for use one time for one patient, imaging equipment
is designed to be used multiple times, on many patients, for multiple
years. As a result, even if a hospital or doctor's office experiences
an increase in patients, they will not necessarily purchase additional
equipment. Despite this key difference, firms manufacturing imaging
equipment--and other multi-patient devices--are required to pay this
2.3% tax without a substantial increase in demand for their products.
This Tax Taxes Sales, Not Net Income
As a result, even companies making no profit will pay the tax, which
makes it harder for entrepreneurs to attract investment required to
support innovative new companies.
Conclusion
Device tax repeal has received broad bipartisan support because
Democrats and Republicans both understand the deleterious impact the
tax is having on job creation, innovation, and research and
development. That's why a resolution supporting repeal of the tax
passed the Senate with 79 votes in 2013.
Our collective opposition to the medical device tax is not a commentary
on broader health reform. The reality is that increased investment in
medical innovation is a national priority and imposing an excise tax on
one of the most prolific medical technology industries is counter-
strategic. We respectfully request timely action on legislation to
repeal this burdensome tax and let us do what we do best: develop
innovative cutting-edge imaging systems for the good of the millions of
Americans who need them every year. We thank the committee for
highlighting this important issue.
______
NeoTract, Inc.
4473 Willow Road, Suite 100
Pleasanton, CA 94588 USA
Main: 925-401-0700
Customer Service: 877-408-9628
Fax: 925-401-0696
www.neotract.com
The Honorable Orrin G. Hatch The Honorable Ron Wyden
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
Dear Chairman Hatch, Ranking Member Wyden, and Finance Committee
Members:
On April 23, 2015, you have scheduled a hearing on ``A Fresh Look at
the Impact of the Medical Device Tax on Jobs, Innovation, and
Patients.'' I write to explain the impact of the medical device excise
tax on our company.
NeoTract, Inc. is a small company dedicated to developing innovative
and effective devices that address unmet needs in the field of urology.
Our first product the--UroLift System--addresses Benign Prostatic
Hyperplasia (BPH), a condition affecting approximately 37 million men
in the United States alone. Symptoms of BPH can cause depression, loss
of productivity, and decreased quality of life. We employ over 70
people in California and more than 30 people in other U.S. locations
and abroad.
NeoTract is at a critical inflection point in the company's life: we
have recently been cleared by the FDA to sell the UroLift System
commercially, and our expenses still exceed our revenue. The medical
device excise tax is already having an adverse impact on our R&D
investment and our ability to develop a sales force and distribution
network capable of providing this device to millions of patients in
need.
The excise tax we will pay in 2015 alone could create as many as 5
full-time jobs at NeoTract: high-quality U.S. manufacturing jobs,
engineering jobs, administration jobs, and sales jobs. That is a 5%
expansion in our work force that we cannot make because of just one
year's worth of this tax.
Please act quickly to repeal the medical device excise tax.
Respectfully,
Dave Amerson
President and CEO
NeoTract, Inc.
______
OptiScan Biomedical Corporation
April 22, 2015
Members of the Finance Committee
U.S. Senate
Washington, DC
Dear Senators of the Committee:
My name is Peter Rule, and I have been an entrepreneur leading Medical
Device companies since 1985. In all, I have led five such companies,
which today aggregate $2.5 Billion in annual revenues, much of that
outside of the United States, yet creating high value jobs within the
U.S. These companies have all pioneered innovating, life saving, and
cost effective therapies, including:
external insulin pumps, self blood glucose monitoring, and
continuous glucose monitoring systems for the treatment of
diabetes,
embolic protection devices, saving lives in those with diseased
Saphenous Vein Bypass Grafts following Coronary Artery Bypass
Grafting,
Clot dissolution devices, treating occlusive clot in the leg and
lungs, and
A Real time diagnostics system for usage in hospitalized ICU
patients.
My fifth company (the real time diagnostics company), which I am
currently leading, is being harmed by the medical device tax, even
though we are in the midst of a U.S. approval trial, and not yet
generating revenues. This will likely surprise you.
Medical Device companies in today's financial climate need to achieve a
minimum of $40M in a calendar year of revenues to be eligible for an
Initial Public Offering. Achieving $50M in annual revenues is
preferred. In general, medical device companies are not profitable
until reaching $50M in annual revenues, with some needing more than
$100M in yearly revenues to achieve profitability. So, the medical
device tax's unintended consequence is that one has to raise more money
while private, at a time when capital is the hardest to gain.
A medical device company located in the U.S. can really raise money
only in the U.S., with rare exception. The reason is that investors in
other countries wish to support employment in their country, and, in
many cases, actually have a restriction on investing outside of their
country or ``circle.'' Thus, for a U.S. innovative medical device
company, U.S. investors become the ``gate keeper'' for the funds
necessary for innovation.
U.S. investors gauge an innovative medical device company largely on
the underlying medical need, its effectiveness, nearness to U.S.
approval, and the cash required to become profitable, as the assumption
is that the IPO market itself is not presently available much earlier
than that. They heavily discount the potential for OUS approval and
revenue generation. They do not assume that a company will be acquired
prior to being eligible for an IPO, as historically this is the case.
Other countries are providing incentive and subsidies for the creation
of innovative medical device companies . This is common in Israel, S.
Korea, and China, to name just three. If one looks at tax advantages,
one easily adds several countries to the list, for example Switzerland.
So, today's U.S. innovative medical device companies are at a strategic
cross road. We face competitors who have in effect a lower cost of
capital thru government intervention at a time when we face higher
costs of innovation through such actions as the medical device tax. It
is awfully hard to compete under such circumstances.
We need relief from this tax in order to even approach a ``level
playing field'' for the creation of innovative medical device
companies.
Thank you for your time and consideration.
Peter Rule
President, CEO, Chairman
OptiScan Biomedical Corporation
24590 Clawitter Road
Hayward, CA 94545
Email: [email protected]
Cell: 650-279-5261
______
Pennsylvania Biotechnology Association
The Voice of Advancement for the Life Sciences Industry
650 East Swedesford Road, Suite 190
Wayne, PA 19087
p. 610-947-6800
f. 610-947-6801
www.pabio.org
Submitted to the United States Senate Committee on Finance Subcommittee
on Health Care
Hearing on ``A Fresh Look at the Impact of the Medical Device Tax on
Jobs, Innovation, and Patients''
April 23, 2015
The Pennsylvania Biotechnology Association (Pennsylvania Bio), the
statewide trade association for the biotechnology, pharmaceutical,
medical device and diagnostic manufacturers in Pennsylvania is pleased
to have this opportunity to share its views on the repeal of the
medical device excise tax. The life sciences community of Pennsylvania
includes more than 2,300 individual businesses with $7.2 billion in
annual wages in the Commonwealth.
Pennsylvania Bio has been on record opposing this excise tax since its
implementation in January of 2013. This misguided tax, on an industry
that employs more than 31,000 in Pennsylvania, stifles innovation and
prohibits further investment in research and development. At a time
when Congress is working on a bi-partisan, bi-cameral effort to speed
the development of therapies and medical devices for patients, this tax
continues to undermine the effort. We thank the 14 Members of Congress
and both Senators from the Pennsylvania delegation for co-sponsoring
legislation that would repeal this tax and put job growth back on track
in Pennsylvania.
A January 2015 nationwide survey of medical device manufacturers by the
Advanced Medical Technology Association (AdvaMed) found a substantial
negative impact on jobs and R&D, and identified companies that deferred
or canceled capital investments, deferred or canceled plans to open new
facilities, and a reduction in investment in start-up companies. The
tax resulted in employment reductions of 14,000 industry workers in
2013, with approximately an additional 4,500 jobs lost in 2014.
Furthermore, the industry will forgo the hiring of more than 20,000
employees over the next five years. Considering both jobs lost and jobs
not created, the tax will result in 39,000 fewer industry jobs.
Pennsylvania Bio appreciates the attention the subcommittee on Health
Care is bringing to this important issue under the leadership of
Chairman Pat Toomey and Ranking Member Debbie Stabenow. We are pleased
with the bi-partisan work in both chambers of Congress and remain
hopeful this job killing tax policy will be repealed for good. Thank
you for this opportunity to present our views.
______
PhotoMed Technologies', Inc.
65 Franciscan Way, Kensington, CA 94707
ph: 510-526-7373
fax: 510-526-2764
www.photomedtech.com
[email protected]
April 21, 2015
To the Senate Finance Committee,
RE: Hearing 4/23/2015 on Medical Device Tax on Jobs, Innovations, and
Patients
This letter supports repeal of the medical device tax to avoid
unintended consequences for innovators of non-invasive therapies that
promote healing and relief from disorders having no current solution.
The confiscatory ACA tax extracts its toll from pre-profit companies by
requiring additional borrowed or invested funds and up to 100% of
profit in addition to accounting costs.
Why you should care about success for small companies
Do you, your loved ones, or your constituents endure chronic pain or
impairment of the central or peripheral nervous system? With typical
maintenance costs to ACA payers of $20K to $50K+ per year for life!
For example, PhotoMed Technologies (currently 5 part-time employees)
has developed a non-invasive solution for disorders and impairments,
such as diabetic neuropathy, complex regional pain syndrome (CRPS or
RSD), stroke or spinal cord spasm or paralysis, an non-healing wounds.
Specifically, solutions for disorders having NO current solution.
Healing effects are easily documented because relief persists or
improves after therapy ends. Interventions that must be present to
maintain effect do not heal.
Since 2000, I personally funded the technical risks for PhotoMed's
discoveries. Now, our experimental therapy is sufficiently robust for
the next steps toward commercialization.
Unfortunately, the ACA tax, billing code acquisition, and escalating
regulatory risks add challenges to fund the next steps. Outside funders
are considering entirely skipping America. That saddens me because I
took on this project especially to help my friends and military people
having NO solution for their pain.
I hope that you and your family never suffer disorders resolved by our
experimental therapy.
Please end or revise the ACA tax to reduce challenges to the success of
small stakeholders who offer the hope of healing for future
generations.
Sincerely,
Allan Gardiner
______
Statement of Mary Woolley, President and CEO, Research!America
1101 King Street, Suite 520, Alexandria, VA 22314
Before the United States Senate Committee on Finance
Subcommittee on Health Care
A Fresh Look at the Impact of the Medical Device Tax on Jobs,
Innovation, and Patients
April 23, 2015
Chairman Hatch, Ranking Member Wyden, and distinguished members of the
Senate Finance Committee:
On behalf of Research!America, the nation's largest non-profit alliance
committed to making medical progress a top national priority, I
appreciate this opportunity to comment on the medical device excise
tax.
The more than 350 members of the Research!America alliance include
patient advocacy organizations, foundations, research universities,
academic medical centers, independent research institutes, scientific
societies, and large and small businesses within the bioscience
industry. What brings this diversity of organizations together is the
conviction that faster medical progress should be treated as a national
strategic imperative. Whether the objective is to advance the
longevity, productivity, independence and well-being of individual
Americans, protect our nation from pandemics, bioterrorism and other
destabilizing population health threats, or foster a strong, globally
competitive economy, medical progress is pivotal to America's progress.
We believe it is in the nation's best interests to assure that federal
policies are aligned with the objective of speeding medical progress.
By dis-incentivizing investment in medical device research and
development, the medical device excise tax contravenes this basic
principle. We hope Congress will take bipartisan action as soon as
possible this year to repeal the medical device tax.
The Role of Medical Devices in Advancing the Health and Well-Being of
Americans
The term ``medical device'' refers to technologies engineered to
advance and restore health. From stents to wheelchairs to artificial
organs, devices save lives and work to mitigate the effects of physical
disabilities. While far from exhaustive, the following examples help
convey the significance of past--and future--research and development
in the medical device arena.
According to a study initiated by the Christopher & Dana Reeve
Foundation, nearly 1 in 50 people live with paralysis--
approximately 6 million people. That's the same number of
people as the combined populations of Los Angeles,
Philadelphia, and Washington, D.C. Medical devices are the
tools used to provide mobility, restore the ability to
communicate, and in other fundamental ways enhance autonomy and
quality of life for these men, women and children.\1\
---------------------------------------------------------------------------
\1\ Christopher & Dana Reeve Foundation, Paralysis Resource Center,
Paralysis Facts & Figures
http://www.christopherreeve.org/site/c.mtKZKgMWKwG/b.5184189/
k.5587/Paralysis_Facts
__Figures.htm.
Between 1993 and 2009, 2.9 million patients received permanent
pacemakers in the United States. These implanted medical
devices, which have been refined significantly over time to
dramatically increase safety, efficacy, and patient
satisfaction, address disabling and sometimes life threatening
irregularities in heart rhythm.\2\
---------------------------------------------------------------------------
\2\ Arnold J. Greenspon, et al, Trends in Permanent Pacemaker
Implantation in the United States from 1993 to 2009: Increasing
Complexity of Patients and Procedures, Journal of the American College
of Cardiology, Vol. 60, Issue 16 (2012)
http://www.sciencedirect.com/science/article/pii/S0735109712028100.
A total of 30 million blood transfusions occur each year in the
U.S. Transfusion devices enable these life-saving
procedures.\3\
---------------------------------------------------------------------------
\3\ American Red Cross, Blood Facts and Statistics http://
www.redcrossblood.org/learn-about-blood/blood-facts-and-statistics.
As of March, 2012, nearly 1,300 service members lost a limb as a
result of combat in Operation Enduring Freedom, Operation Iraqi
Freedom, or Operation New Dawn; of that number, 359 lost more
than one limb. Increasingly sophisticated prosthetic devices
play a crucial role in enabling wounded warriors to achieve
their personal and professional goals, as do devices that aid
in breathing, communication and external mobility. According to
a 2014 survey conducted by The Wounded Warrior Project, 7% of
wounded warriors are permanently housebound as a result of
their injuries. Our nation must continue to research and deploy
advanced medical technologies to reduce this alarming and
tragic statistic.\4\
---------------------------------------------------------------------------
\4\ Wounded Warrior Project, 2014 Wounded Warrior Project Survey
http://www.wounded warriorproject.org/media/691673/2014-wwp-alumni-
survey-report.pdf.
---------------------------------------------------------------------------
The Economic Impact
According to the Advanced Medical Technology Association, the medical
device industry generates approximately $25 billion in payroll, with
median salaries 40 percent above the national average, and invests
nearly $10 billion in R&D annually.\5\ But that is only part of the
story. As the global economy evolves, export potential in the medical
device arena will grow. And as the examples above illustrate, medical
devices play a particularly important role in helping individuals
overcome physical disabilities that rob them of independence and
compromise productive capacity. Medical devices can reduce the need for
caregiver support and empower Americans to return to, or stay in, the
workforce and maintain healthy, active lifestyles. These tangible and
intangible economic benefits convey to individuals and society as a
whole, empowering wounded warriors to provide for their young families
and older Americans to choose when to retire from the workforce instead
of being forced by physical limitations to do so.
---------------------------------------------------------------------------
\5\ Advanced Medical Technology Association (AdvaMed), http://
advamed.org/.
---------------------------------------------------------------------------
The Case for Repealing the Medical Device Excise Tax
The reasoning that underlies our support for repealing the excise tax
is straightforward: Because the excise tax reduces the return on
investment in new medical devices, it decreases the capital available
for medical device R&D and tilts investment decisions within the device
arena toward lower risk, higher return R&D. Given the enduring value of
breakthrough medical devices, neither outcome is a desirable one.
Concerns have been raised that repealing the medical device tax would
jeopardize continued implementation of the Affordable Care Act (ACA).
However, revenues generated from the medical device tax are not
earmarked for a specific purpose; they flow into the federal treasury
and are fungible. The future of the ACA is a critically important
issue, but it should be de-linked from decisions regarding the future
of the medical device tax.
Conclusion
Medical device R&D drives medical progress in profoundly important
ways. By increasing the attractiveness of investment in medical
devices, repealing the medical device excise tax is a pragmatic means
of putting more medical innovation to work for Americans.
Research!America is grateful to the Committee for holding today's
hearing, and hope that your deliberations help lay the groundwork for
bipartisan action to repeal the tax as soon as possible this year.
______
RoundTable Healthcare Partners
272 East Deerpath Road, Suite 350, Lake Forest, IL 60045
Phone: (847) 739-3200 Fax: (847) 482-9215
www.roundtablehp.com
April 21, 2015
The Honorable Patrick J. Toomey
Chairman
U.S. Senate
Committee on Finance
Subcommittee on Health Care
248 Russell Senate Office Building
Washington, DC 20510
The Honorable Debbie Stabenow
Ranking Member
U.S. Senate
Committee on Finance
Subcommittee on Health Care
731 Hart Senate Office Building
Washington, DC 20510
Dear Chairman Toomey and Ranking Member Stabenow,
The medical device tax is having a series of unintended consequences on
small to medium-sized medical device companies. A 2.3% tax on revenue
is devastating for a number of reasons. First off, it can mean an
effective tax rate for smaller companies of well over 50% when one
considers federal, state and device taxes. This increase of ``cash
out'' to pay taxes is costing our industry and our country jobs and
innovation. The jobs issue is obvious, as we have begun to move real
``over minimum wage'' jobs out of Waltham Mass. to the Dominican
Republic. The cost is a fraction of the U.S. costs and the labor force
is more than adequate. We have also added a new plant in Juarez, Mexico
taking jobs from northern California just to give you two real life
examples affecting almost 500 U.S. jobs. This is being done in large
part to cover the increased costs the tax has created. If we don't stay
competitive, there won't be any jobs for our company, regardless of the
location.
Let me briefly speak about innovation. A large portion of true medical
device innovation comes from the small companies that ultimately sell
or license their new technology to big medical companies. This
incremental tax many times equates to the cost of an engineer,
researcher, or lab tech which would have to be let go or simply not
hired to pay for this tax. Many people think of the large multi-
national companies when they think of the medical device industry. They
do play a significant role but the real bread and butter of the
industry are the thousands of small device companies that have been the
heart and soul of our industry for decades. This tax is
disproportionally affecting the small to medium sized companies
struggling to stay afloat in this time of increased regulation and
taxation.
I still want to believe that all branches of our government want to do
the ``right'' thing for our country as a whole, but it is past time to
admit a mistake, fix it and move on. We do this in our company
frequently, it is not a sign of weakness to acknowledge that something
didn't work out as originally planned, but rather it is a sign of
strength to do something about it in a timely manner.
It is time to REPEAL the medical device tax regardless if there is a
corresponding offset or not. Congress (both parties) and the President
need to stand up do the right thing for the right reason not just what
is politically expedient and fix this problem NOW. Obviously this is a
great industry in an even greater country, let's not let there be any
more governmental incentives to move jobs or innovation dollars off of
our shores.
Respectfully submitted,
Joseph F. Damico
Founding Partner and Co-Chairman
______
Submitted by Siemens Healthcare
From the New England Journal of Medicine, September 5, 2013
The Medical Device Excise Tax--Over before It Begins?
TO THE EDITOR: The Perspective article by Kramer and Kesselheim (May 9
issue) \1\ contains factual errors about the medical device tax that
could lead to critical policy blunders.
---------------------------------------------------------------------------
\1\ Kramer DB, Kesselheim AS. The medical device excise tax--over
before it begins? N Engl J Med 2013;368:1767-1769.
First, the claim that ``purchases by government agencies and
nonprofit institutions'' are exempted from the tax is incorrect.
Section 2 of the law specifically excludes some typical exemptions
(e.g., sales to governmental and nonprofit agencies) from the tax.
---------------------------------------------------------------------------
Therefore, those sales are taxable.
Second, the claim that broadening insurance coverage, ``including
appropriate use of medical imaging and other diagnostic tools, would
translate to enhanced sales for many device companies,'' is incorrect.
The opposite is true: added coverage should enable more primary and
preventive care, leading to reductions in utilization of imaging. The
implementation of ``Romneycare'' in Massachusetts in 2007 has shown
this to be the case. Sales of medical-imaging equipment in that state
have dropped more than they have in the rest of the country and have
not recovered (Fig. 1). Medical device manufacturers will already be
paying dearly for the Affordable Care Act (ACA) through reduced sales,
even without the tax.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Third, the claim that job reductions cannot be traced to this tax
is incorrect. As an executive responsible for such decisions, I can
assure readers that this tax has led to a decrease of hundreds of
research-and-development jobs at my company. I have already been forced
to lay off workers as a result of the tax. Furthermore, the math that
is laid out by the authors belies their assertion: If 7 to 8% of sales
are spent on research and development, as the article states, then the
2.3% tax on sales represents more than a quarter of research-and-
development budgets.
Fourth, claims that repealing the medical device tax would have an
effect on the health insurance provisions of the ACA are incorrect. The
added revenue merely helped offset the cost of the bill, very much as
occurred with the Community Living Assistance Services and Supports
(CLASS) Act, an original provision of the ACA that was repealed earlier
this year after it was determined to be unworkable. Repeal of the
device tax would not impede the ACA, and 79 senators, including staunch
supporters of the ACA, recently voted for repeal.
And finally, recent data highlight that diagnostic errors are the
most common, most deadly, and most costly of medical
errors.\2\, \3\ Yet, the tax discourages accurate diagnosis.
In some ways, taxing the very devices that can facilitate discovery is
similar to establishing a tax on supercomputers while attempting to
sequence the human genome. Policies should be aimed at encouraging, not
discouraging, society to put resources into improved diagnosis.
---------------------------------------------------------------------------
\2\ Saber Tehrani AS, Lee H, Mathews SC, et al. 25-Year summary of
U.S. malpractice claims for diagnostic errors 1986-2010: an analysis
from the National Practitioner Data Bank. BMJ Qual Saf 2013;22:672-680.
\3\ Misdiagnosis is more common than drug errors or wrong-site
surgery. Washington Post. May 3, 2013
(http://www.washingtonpost.com/national/health-science/
misdiagnosis-is-more-common-than
-drug-errors-or-wrong-site-surgery/2013/05/03/5d71a374-9af4-11e2-a941-
a19bce7af755_story_2.
html).
---------------------------------------------------------------------------
A. Gregory Sorensen, M.D.
Siemens Healthcare
Malvern, PA
[email protected]
_______________________________________________________________________
TO THE EDITOR: Regarding the Perspective article on the medical device
excise tax, three additional points deserve attention. First, since the
expanded coverage in the ACA is skewed toward younger patients who are
less likely to require medical devices for their care, the promise of
enhanced device sales may be overstated.\1\ For example, similar
legislation that was passed in Massachusetts in 2006 has not resulted
in a convincing spike in device sales.\2\ Second, since the tax is
levied on sales rather than profits, it could have a disproportionate
effect on startup companies that are trying to bring new products to
the market, which could affect treatment options for
patients.\3\, \4\ Third, the cost of medical devices to
hospitals is based on negotiated contracts; companies will probably not
be able to completely pass on the tax to consumers. Funding the ACA is
vital, but arbitrary approaches to revenue generation could have
unintended consequences. Therefore, the true costs of the medical
device excise tax to device companies and patients remain uncertain.
---------------------------------------------------------------------------
\1\ Dolan M. Innovation 101--technology and innovation in the
medical device industry. Newport Beach, CA: ROTH Capital Partners,
September 13, 2012
(http://www.roth.com/files/marketing/email_blasts/
Roth%20Capital%20CONNECT.pdf).
\2\ Torres C. U.S. health reform burden falls on medical devices.
Nat Med 2010;16:500-500.
\3\ Medical device tax would mostly hit the biggest firms. MedCity
News. March 24, 2010 (http://medcitynews.com/2010/03/medical-device-
tax-would-mostly-target-the-biggest-compan
ies).
\4\ Weaver C. Excise tax remains for medical device makers. Wall
Street Journal. June 28, 2012 (http://online.wsj.com/article/
SB10001424052702304441404577480972664688712.html).
Anand M. Prabhakar, M.D.
H. Benjamin Harvey, M.D., J.D.
Rahmi Oklu, M.D., Ph.D.
Massachusetts General Hospital
Boston, MA
[email protected]
No potential conflict of interest relevant to this letter was
reported.
_______________________________________________________________________
TO THE EDITOR: Contrary to the views of Kramer and Kesselheim, repeal
of the medical device excise tax has nothing to do with health policy,
and the negative effects of the tax are not merely ``unproven
assumptions.'' When enacted, the tax was used in a bookkeeping sense to
offset some of the costs of the ACA, but it is now simply part of U.S.
general revenue.\1\ Repealing it will have zero effect on programs
authorized by the ACA. The tax makes the already uncompetitive U.S. tax
system even more uncompetitive by raising the industry's tax burden by
29%.\2\ Thousands of workers have already been laid off because of the
tax, and two separate studies have estimated potential job losses of
40,000 or more.\3\, \4\ Moreover, the tax will cut research-
and-development investment by an estimated $2 billion per year, meaning
less medical progress for patients.\5\ The bottom line is that repeal
of the tax is not a retreat from health reform but is essential to
America's continued leadership in medical technology.
---------------------------------------------------------------------------
\1\ Health Care and Education Reconciliation Act of 2010 Sec. 1405,
26 U.S.C. Sec. 4191 (2010).
\2\ Effect of the medical device excise tax on the federal tax
liability of the medical device industry. Ernst & Young, November 2012
(http://advamed.org/res/14/effect-of-the-medical-device-excise-tax-on-
the-federal-tax-liability-of-the-medical-device-industry).
\3\ Furchtgott-Roth D, Furchtgott-Roth H. Employment effects of the
new excise tax on the medical device industry. California Healthcare
Institute, September 2011 (http://www.chi.org/uploadedFiles/
Industry_at_a_glance/090711EmploymentEffectofTaxonMedicalDeviceIndustry
FINAL.pdf).
\4\ The economic impact of the U.S. advanced medical technology
industry. Battelle Technology Partnership Practice, March 2012 (http://
www.chi.org/uploadedFiles/Industry_at_a_glance/
BattelleFinalAdvaMedEconomicImpactReportMarch2012.pdf).
\5\ Zycher B. ObamaCare's tax on medical devices: cuts R&D by $2
billion a year. Pacific Research Institute, May 2012.
Stephen J. Ubl
Advanced Medical Technology Association (AdvaMed), Washington, DC
Mr. Ubl reports being an employee of Advanced Medical Technology
Association. No other potential conflict of interest relevant to this
letter was reported.
_______________________________________________________________________
THE AUTHORS REPLY: Sorensen and Ubl repeat common rhetoric surrounding
the medical device excise tax. Despite their references to anecdotal
claims and industry reports, we remain skeptical that this tax will
have the effects they claim on personnel decisions, the international
competitiveness of the U.S. device industry, or innovation. Indeed, we
agree with Prabhakar and colleagues that the true effects of the
medical device excise tax on patients and industry remain to be seen,
and we look forward to independent, rigorous research in this area.
Sorensen's points regarding the use of imaging in Massachusetts do
not support his conclusions. First, imaging is only one component of
the entire medical device sector. Second, other changes in the health
care market in Massachusetts and elsewhere during recent years may have
influenced the utilization of imaging, including payment reform \1\ and
uptake of strict conflict-of-interest policies at Massachusetts
academic medical centers, which insulate physicians from industry-
related marketing of services,\2\ both of which are unrelated either to
excise taxes or insurance coverage. Third, regional differences in
health care utilization in general and in utilization of high-cost
elements in particular challenge extrapolations from Massachusetts
alone.\3\ Sorensen's prediction about the effects of the ACA is also
undermined by evidence from an ongoing randomized natural experiment in
Oregon, which showed that expanding insurance coverage led to enhanced
utilization of at least one type of imaging, since the use of
mammography in women who were 50 years of age or older increased by
nearly 30%.\4\
---------------------------------------------------------------------------
\1\ Ginsburg PB. Achieving health care cost containment through
provider payment reform that engages patients and providers. Health Aff
(Millwood) 2013;32:929-934.
\2\ Kesselheim AS, Robertson CT, Siri K, Batra P, Franklin JM.
Distributions of industry payments to Massachusetts physicians. N Engl
J Med 2013;368:2049-2052.
\3\ Report to the Congress: regional variation in Medicare service
use. Washington, DC: Medicare Payment Advisory Commission, 2011 (http:/
/www.medpac.gov/documents/Jan11K_ RegionalVariationK_report.pdf).
\4\ Baicker K, Taubman SL, Allen HL, et al. The Oregon experiment--
effects of Medicaid on clinical outcomes. N Engl J Med 2013;368:1713-
1722.
We appreciate Sorensen's clarification that sales to government and
nonprofit entities, which ordinarily are exempt from taxation, are not
exempt from this specific excise tax. This point has been clarified in
---------------------------------------------------------------------------
the online version of our article.
Daniel B. Kramer, M.D.
Beth Israel Deaconess Medical Center
Boston, MA
Aaron S. Kesselheim, M.D., J.D.
Brigham and Women's Hospital
Boston, MA
Since publication of their article, the authors report no further
potential conflict of interest.
______
The Spectranetics' Corporation
April 23, 2015
The Honorable Patrick J. Toomey The Honorable Debbie Stabenow
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
Subcommittee on Health Care Subcommittee on Health Care
248 Russell Senate Office Building 731 Hart Senate Office Building
Washington, DC 20510 Washington, DC 20510
Dear Chairman Toomey and Ranking Member Stabenow:
The Medical Device Tax is much larger than a ``profits bill'' before
Congress--it's about realizing our potential as a world power,
economically and through medical advancement. The debate is grounded in
fierce conversations that impact jobs, innovation, education, health
care and building on America's leadership position globally.
Spectranetics, a Colorado-based clinical solutions company, is
committed to saving lives and limbs by developing, manufacturing and
marketing medical devices that address the most challenging
cardiovascular conditions of our time. We employ 830 globally and serve
65 countries worldwide. In the last 2 years, we received 140 regulatory
approvals in 18 countries across four continents. We live for the next
discovery and the next life saved.
We, our industry and our health care system, share a common goal--
better care, lower costs and improved access.
I applaud the Senate Finance Committee for hosting a hearing on the
impact of the Medical Device Tax on patients, innovation and jobs. We
understand that the Committee is currently reviewing the repeal of the
Medical Device Tax, a part of the Affordable Care Act, which levies a
2.3% tax on gross sales of all medical equipment sold in the United
States. On behalf of Spectranetics, I urge you to take direct action
and vote for the repeal.
In Colorado alone, the medical technology sector employs roughly 10,000
individuals. The average yearly wage of medical technology sector
employees is $74,000 with an annual payroll impact of $732 million.
Bioscience products, Colorado's leading export, accounted for 17% of
2013 exports. Bottom line, the industry is vital to Colorado's economy.
I want to thank Colorado Senators Michael Bennet and Cory Gardner, who
have expressed support for the repeal. At a time when it seems as if no
one agrees on anything, I'm pleased to speak on behalf of a state that
is working together to maintain the United States' global foothold as a
leader in biosciences and medical technology.
Increasingly, bioscience companies are shipping manufacturing and
clinical jobs overseas. It is imperative that the United States
preserve and enhance an industry that is clean, sustainable and leads
to better and longer lives for millions of patients. It exemplifies
what American health care reform is all about and is, indeed, critical
to maintaining our leadership position as a country and our commitment
to accessible, affordable care for all.
The Medical Device Tax is levied on gross sales, not on profits. This
means a business can actually owe taxes before ever earning a dollar in
profit. The tax will effectively consume 65% of the average device
maker's already-narrow 3.4% average profit margin. Over the next
decade, the cost to manufacturers is estimated at $20 billion.
At Spectranetics, we anticipate that the Medical Device Tax will result
in a payment of about $4 million in 2015. Ironically, we will be forced
to redirect funds destined to reduce the cost of health care through
research and development, clinical trials and business expansion to pay
the tax. The tax, as well as other roadblocks to innovation within the
Colorado bioscience community, was highlighted by the Denver Business
Journal recently and noted as a threat to our regional and national
economy.
According to the Medical Device Manufacturers Association (MDMA), there
are no data or studies to suggest that the cost of this ``innovation
tax'' will be offset by a larger pool of insured people receiving
treatment, particularly for companies producing acute care products.
The medical device ecosystem is noteworthy for the volume of start-up
activity it produces. Eighty percent of medical device makers have
fewer than 50 employees--they are the entrepreneurs and innovators
responsible for the lion's share of the health care breakthroughs that
keep America on the leading edge of the medical device field. The
results of the tax are devastating to small business and patient care;
a decrease in dollars going to venture capital-backed medical device
companies, the lifeblood of innovation, is more severe than any time in
the last 30 years. Now is not the time to stifle the industry with
misplaced tax burden.
The medical device industry is a unique American success story--both
for patients and our economy. The United States is the world leader in
manufacturing lifesaving and life-enhancing health care solutions, and
the industry is an important engine for economic growth. It is critical
that we work together to fuel its future.
Sincerely,
Scott Drake
President & CEO
The Spectranetics Corporation
______
3D Medical Manufacturing, Inc.
April 21, 2015
The Honorable Patrick J. Toomey
Chairman
U.S. Senate
Committee on Finance
Subcommittee on Health Care
248 Russell Senate Office Building
Washington, DC 20510
The Honorable Debbie Stabenow
Ranking Member
U.S. Senate
Committee on Finance
Subcommittee on Health Care
731 Hart Senate Office Building
Washington, DC 20510
Dear Chairman Toomey and Ranking Member Stabenow
Re: Repeal of Medical Device Tax
Please communicate to the committee that I support the repeal of the
medical device tax. Here is what the device tax does for America:
It motivates device companies to purchase their products in China
and LCC as opposed to being manufacturing in America, so they
can save or recoup the money they are paying out in additional
device taxes; this puts small companies out of business.
It motivates them to move corporate headquarters out of America to
save on other taxes.
We need American manufacturing jobs, additional taxes kill
American jobs.
With more manufacturing jobs we are not so dependent on a consumer
economy.
If you need to pay for healthcare put the tax on fast food,
alcohol, and tobacco companies that sell the products that make
people unhealthy.
We need to preserve the few manufacturing sectors we have left in
America.
It baffles me why this logic is hard for some educated people in
government to understand.
Thank you for your support to repeal this tax.
Joe Davis
3D Medical Manufacturing, Inc.
1006 W. 15th Street
Riviera Beach, FL 33404
[email protected]
______
U.S. Chamber of Commerce
_______________________________________________________________________
ON: A Fresh Look at the Impact of the Medical Device Tax on Jobs,
Innovation, and Patients
TO: U.S. Senate Committee on Finance Health Care Subcommittee
DATE: May 1, 2015
*Q04___________________________________________________________________
1615 H Street, NW, Washington DC 20062
The Chamber's mission is to advance human progress through an economic,
political and social system based on individual freedom,
incentive, initiative, opportunity and responsibility.
The U.S. Chamber of Commerce, the world's largest business federation
representing the interests of more than three million businesses and
organizations of every size, sector, and region, appreciates this
opportunity to provide a statement for the record as part of the
Committee on Finance Health Care Subcommittee's April 23, 2015, hearing
titled ``A Fresh Look at the Impact of the Medical Device Tax on Jobs,
Innovation, and Patients.'' The Chamber and its members continue to
strongly support repeal of the medical device tax and we have
summarized our concerns, and the concerns of the employer community,
below for the record.
The Chamber is dedicated to promoting, protecting, and defending
America's free enterprise system. More than 96% of Chamber member
companies have fewer than 100 employees, and many of the nation's
largest companies are also active members. We are therefore cognizant
not only of the challenges facing smaller businesses, but also those
facing the business community at large. Besides representing a cross-
section of the American business community with respect to the number
of employees, major classifications of American business--e.g.,
manufacturing, retailing, services, construction, wholesalers, and
finance--are represented.
The Medical Device Tax Undermines Health Care Reform
Since the legislative debates before the passage of the Affordable Care
Act (ACA), the Chamber has testified \1\ on the myriad of challenges
the ACA poses to the business community through its mandated benefits,
the imposition of taxes and penalties, and other burdensome
requirements. Instead of controlling costs, the law decreases the
flexibility employers and their workers have to access affordable and
quality coverage. As the Chamber has reiterated in both testimony and
letters to Congress, this new 2.3 percent tax on the sale of almost all
medical devices will harm the ability of American companies to
compete.\2\ The tax will undermine America's global leadership position
in product innovation, clinical research, and patient care. This tax
weakens the medical device industry's ability to create and maintain
well-paying jobs in the United States and hinders the development of
breakthrough treatments.
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\1\ See ``Health Reform in the 21st Century: Proposals to Reform
the Health System,'' The House Committee on Ways and Means, June 24,
2009; ``Roundtable Discussion--Health Care Reform Legislative
Options,'' The Senate Health, Education, Labor and Pensions Committee,
June 11, 2009.
\2\ See, e.g., ``The Challenges Facing America's Businesses under
the Patient Protection and Affordable Care Act,'' The House Energy and
Commerce Committee Subcommittee on Oversight and Investigation, June
26, 2013, available at:https://www.uschamber.com/sites/default/files/
documents/files/
Katie%2520Mahoney%2520Testimony%25206%252026%252013%2520Challenge
s%2520Facing%2520America%2527s%2520Businesses%2520under%2520the%2520PPAC
A.pdf; Josten, R. Bruce (Letter to Representatives Erik Paulsen and Ron
Kind), ``H.R. 523--Protect Medical Innovation Act,'' Feb. 8, 2013,
available at:
https://www.uschamber.com/sites/default/files/documents/files/
130208_HR523_ProtectMed
icalInnovationAct_Paulsen_Kind.pdf.
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The Medical Device Tax is Already Costing Jobs and Stifling Innovation
The medical device industry, which adds over $23 billion to the
American economy annually, has already felt the impact of the medical
device tax on jobs and innovation since its January 1, 2013,
implementation.\3\ According to a recent survey by the Advanced Medical
Technology Association (AdvaMed), two-thirds of the companies surveyed
reported that they have had to ``slow or halt U.S. job creation as a
result of the tax.'' \4\ A recent survey by the Medical Device
Manufacturers Association (MDMA) of 100 industry executives found that
72 percent ``slowed or halted job creation'' to pay for the tax, and 85
percent would hire more workers if the tax were repealed.\5\ The
AdvaMed survey also found that the medical device tax has resulted in:
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\3\ Mary Kate Hays, Medical Technology Adds $23.6 Billion Annually
to Economy, U.S. Chamber of Commerce Blog, July 18, 2014,
https://www.uschamber.com/blog/medical-technology-adds-236-billion-
annually-economy.
\4\ AdvaMed, Impact of the Medical Device Tax: A Status Report from
AdvaMed (Jan. 2015), available at http://advamed.org/res.download/835.
\5\ Sean Hackbarth, New York Times Avoids Mentioning the Damage
Caused by the Medical Device Tax, U.S. Chamber of Commerce Blog, Feb.
2, 2015,
https://www.uschamber.com/blog/new-york-times-avoids-mentioning-
damage-caused-medical-device-tax.
Employment reductions of 14,000 industry workers in 2013 and years
prior to implementation of the tax;
An estimated 4,500 jobs lost in 2014;
Almost 20,500 employees that will not be hired over the next five
years;
About 39,000 fewer industry jobs (considering both jobs lost and
jobs not created); and
Up to 156,000 jobs lost in indirect employment, leading to a total
job loss of 195,000 jobs.\6\
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\6\ AdvaMed, supra note 4.
Similarly, the effect of the medical device tax on current and future
innovation has been equally as alarming. The AdvaMed survey found that
53 percent of respondents have reduced research and development as a
---------------------------------------------------------------------------
result of the tax and 75 percent said they have:
Deferred or cancelled capital investments and plans to open new
facilities;
Reduced investment in start-up companies;
Found it more difficult to raise capital (among start-up
companies); and
Reduced or deferred increases in employee compensation.\7\
---------------------------------------------------------------------------
\7\ Id.
While studies and survey results have shown the aggregate effects of
the medical device tax, many companies have voiced the unique
challenges they have dealt with because of this onerous tax. As Dr.
Gregory Sorensen, President and CEO of Siemens Healthcare North
America, recently explained, businesses often have no choice but to lay
off employees and reduce research and development when dealing with
such a heavy tax: \8\
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\8\ Michael Bassett, Siemens' Sorensen describes impact of the
medical device tax, RadiologyBusiness.com, Feb. 10, 2015,
http://www.radiologybusiness.com/topics/policy/siemens-sorensen-
describes-impact-medical-device-tax?page=0%2C0.
I personally have had to let people go as we have had to
eliminate jobs. For example, we have a factory in Walpole,
Mass., where we make point-of-care devices, such as those to
manage conditions like diabetes. . . . In Walpole, when this
tax hit, we had to cancel projects, and we laid people off. And
that's just one factory. At dozens of our other factories
around the world we have similar stories, whether it is MRI
scanner advances that are delayed, or new types of diagnostic
devices for testing, or developments to reduce X-ray dose. When
this heavy of a tax hits us, we have very little recourse other
than to reduce our spending. Some of that involves cutting back
on research and development, and some of that is reducing
employees. It's a very painful process for us and is something
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that our country neither needs nor wants.
In his statement for the record, Christopher Cerone, Vice President of
Global Government Affairs for Zimmer, an orthopedic medical device
company based in Indiana, described how the medical device tax is
affecting Zimmer's operations worldwide:
Medical device companies, such as Zimmer, continue to take
significant steps to offset the bottom-line impact of the tax,
including restructuring global operations and diverting capital
away from key projects and investments. For instance, as a
recent AdvaMed survey noted, many medical device companies are
scaling back R&D initiatives. Passing on the cost of the tax is
simply not an option, given the tight reimbursement environment
for our consumers.
Cook Group, Inc., the largest family-owned medical device manufacturer
in the world, detailed in its written testimony for the record similar
challenges as they deal with how to continue product innovation in this
tax environment:
Cook has made the difficult decision that without repeal, we
will move important new, device-related product lines outside
of the U.S. Our previous plans to open up five new device
manufacturing facilities in American towns continue to be on
hold as we use capital intended for these projects to pay the
excise tax. The direct impact of this tax is squarely on U.S.
jobs and because device manufacturing is performed mainly by a
female workforce in many sectors, it will hit these workers the
hardest.
OrthoPediatrics, the world's only company specializing in making
orthopedic equipment for children, has had to slow hiring and
development as a result of the medical device tax. As CEO Mark Throdahl
explained: \9\
---------------------------------------------------------------------------
\9\ Patrick Howley, Company that makes medical equipment for kids
hit hard by Obamacare, The Daily Caller, Feb. 25, 2014, available at
http://dailycaller.com/2014/02/25/company-that-makes-medical-equipment-
for-kids-hit-hard-by-obamacare/.
We are a company that is not yet profitable. We've only been in
the market for 5 years. This is a very burdensome tax because
it is based on sales, not profits, and the only way we can pay
a tax like this is to cut expenses. . . . In terms of
magnitude, [the tax] is about the size of our entire product
development budget. We have had to reduce our development
budget. We're developing less products than we otherwise would.
It has cut into our development expenses. The only way we can
---------------------------------------------------------------------------
trump up the money to pay this tax is to reduce expenses.
According to M&S Technologies Inc., a company that develops and
manufactures computerized vision testing products, the medical device
tax has even hurt their ability to donate resources to children in need
of specialized care:
Prior to the medical device tax, M&S Technologies actively
participated in donating technology and other resources to
assist in vision screening for children who may not have access
to vision care. Our sponsorship of the Special Olympics,
Children's Calendar fundraisers and other events have all been
eliminated due to the medical device tax of which we paid over
$100,000 in 2014. The tragedy of all of this is that those kids
who were at least getting some form vision testing are no
longer receiving that service due to our cuts in our
philanthropic activities due to the medical device tax,
especially knowing that 80 percent of all eye problems in
children are solvable before the age of 8-10.
The Medical Device Tax Needs to be Repealed
As we continue to see the destructive effects of the medical device
tax hit employers, employees, and the U.S. economy at large, the
Chamber urges swift bipartisan and bicameral action to repeal this tax
before further damage is done. Legislation in both the House and the
Senate has been introduced to repeal the medical device tax \10\ and we
encourage you and your colleagues to support these bills. The Chamber
thanks you for taking the time to hold this important hearing on the
ongoing impacts of the medical device tax on jobs, innovation, and
patients. We look forward to working with you as you continue to
examine this important issue. Please do not hesitate to contact us if
we may be of assistance in this matter.
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\10\ Protect Medical Innovation Act of 2015, H.R. 160, 114th Cong.
(2015); Medical Device Access and Innovation Protection Act, S. 149,
114th Cong. (2015).
______
Vapotherm
22 Industrial Drive, Exeter, New Hampshire 03833
T 603-658-0011 F 603-658-0181
www.vtherm.com
April 22, 2015
To Whom It May Concern:
Our Company, based in Exeter, NH, manufactures an advanced respiratory
support technology that offers substantial clinical and economic
benefits to patients, caregivers and payors. To achieve our guiding
principle of Total Customer and Patient Focus, we must invest in
attracting, developing and retaining the Very Best People in the
Medical Device Industry. We make investments in our People through the
development programs that are accessible to them, the projects they
work on to advance their experiences and careers and the product they
develop, assemble and sell to improve the care and quality of life for
patients across the country. We currently employ 122 people, up from 46
people 3 years ago and have grown our revenues by 28% over the past 2
years.
We are a privately held, venture backed Company poised for rapid
growth. Our latest fundraising round was completed last month. Not yet
being profitable means accessibility to capital is critical to our
success. Once we become profitable, which will now take longer due to
the medical device excise tax, we will reinvest back into our business
to fund innovation thereby leading to job creation and an expanded
portfolio of products to serve patients in respiratory distress. Since
the adoption of the medical device tax, we have seen a reduction in the
number of venture capital firms investing in the medical device space
as the excise tax has squeezed the industry's profit margins and hence
better returns can be found elsewhere, including overseas. Reduced
access to capital will severely limit medical device innovation in this
country.
Since adoption of the tax, we've made medical device excise tax
payments amounting to $514,555, excluding compliance related costs.
That money would have been used to accelerate new product development
to stay ahead of foreign based competition, expand our sales presence
and augment the benefits package we offer to our employees. I
consistently share with our team that they do ``work that matters'' and
I share this brief background to express how the Medical Device Tax has
hindered the growth that is so critical to our people and the work that
they do.
As part of the medical device community, we work diligently to improve
the lives of others, and to do so within our great country is an honor.
We are proud of the work we do, the Company we are building and the
country we are doing it within. We hope to see the medical device
excise tax repealed to allow us to innovate, enterprise and compete on
a global playing field.
Great People + Total Customer Focus + Great Technology = Success
Sincerely,
Joseph F. Army
President & CEO
______
Welch Allyn Inc.
Senate Finance Committee Subcommittee on Health
``A Fresh Look at the Impact of the Medical Device Tax on Jobs,
Innovation, andPatients''
Thursday, April 23, 2015
Welch Allyn applauds the Senate Finance Committee for taking a
renewed look at the impact of the medical device excise tax on device
manufacturers, innovation, and patients. Repeal of the medical device
tax remains a top priority for Welch Allyn, a privately-held
manufacturer of innovative medical devices, products and solutions used
by caregivers in doctors' offices, hospitals, and emergency response
settings around the world. Headquartered in Skaneateles Falls, New
York, Welch Allyn celebrates 100 years of family ownership in 2015 with
over 2,400 employees working in 17 different countries.
The tax--on revenues, not profits--raises the total amount of
federal taxes paid by medical device manufacturers by almost 30
percent. The industry is fueled by innovative companies, the majority
of which are small businesses, with 80 percent of medical device
companies having fewer than 50 employees and 98 percent having fewer
than 500 employees. Industry growth--once expansive--has slowed
considerably. The tax unequivocally hinders job expansion, economic
growth, innovation, and global competiveness for American medical
devices sold at home and abroad.
As an Upstate, New York company for our entire 100 year existence,
we note the special threat the device tax poses to the New York State
economy. New York State's vibrant med-tech industry is the eighth
largest medical device presence in the nation, employing over 13,000
people with a net economic impact of $4.6 billion. The medical device
industry plays a vital role particularly in the struggling Upstate New
York economy, employing over 8,400 individuals. Already in decline
since 2001, the tax places significant additional burdens on device
makers statewide.
Proponents of the device tax claim that any burden it creates for
companies will be offset by an increase in sales due to the growth of
the insured population under the Affordable Care Act (ACA), or that
device makers can and will pass the cost of the tax on to their
customers. However, in reality, this premise is erroneous. No such
offsetting or positive factors or windfall has arisen, or is expected
to; moreover, not only have the average sales prices for many medical
devices not increased, they have eroded. Most Americans who need the
most expensive medical devices already were covered under Medicare, so
the ACA has had no impact, other than a negative one.
It should be clear that strong bipartisan Congressional support
exists for repeal of the device tax. Currently, the House Bill, The
Protect Medical Innovation Act (H.R. 160) has garnered 277 co-sponsors,
including 36 Democrats. The Senate companion legislation has 35
cosponsors. Both the House and Senate have shown support since
enactment of the ACA for repeal of the medical device tax. Welch Allyn
urges Congress to act now and repeal this tax for good. Again, we thank
the Senate Finance Committee for your willingness to address such an
important issue, and we urge you to move beyond this hearing to a
timely full Committee markup and passage of the device tax repeal
legislation.
______
Wenzel Spine, Inc.
Simple. Dependable. Proven.
206 Wild Basin Road, Building A, Suite 203, Austin, TX 78746
P: 512-469-0600 F: 512-469-0604
E: [email protected]
April 21, 2015
U.S. Senate Committee on Finance
219 Dirksen Senate Office Building
Washington, D.C. 20510
RE: IMPACT OF THE MEDICAL DEVICE TAX
Senate Finance Committee Members,
I am writing on behalf of our team at Wenzel Spine to relay the real
world impact the Medical Device Tax, imposed by the Affordable Care
Act, has had on our company in the last 16 months, since the tax was
implemented in January 2014.
Wenzel Spine is an early stage medical device company. We are currently
bringing to market a unique minimally invasive implant for use in spine
procedures. This device shortens surgery time, shortens patient
recovery time, and reduces overall cost of implant and use of
healthcare services by patients. The exact technology desperately
needed in our current system of high costs, and overutilization of
services.
We operate in one of the most regulated industries in the world. In
addition to normal business start-up costs, we content with enormous
regulatory costs associated with the FDA, and reimbursement costs to
gain approval from HHS all while prices are declining in the
marketplace. The Medical Device tax is an incredibly regressive tax on
an industry that is already under tremendous cost and pricing
pressure--especially to small, start-up companies with limited
resources.
The following are several examples of the direct impact the Medical
Device Tax has had on our company:
We have delayed the hiring of 3 management positions, each with
over $100,000+ basecompensation.
We have downsized our engineering team, eliminating two $100,000
engineering positions.
Our headcount budget for 2015 will remain neutral (i.e. we will
not increase our total number of employees).
We have delayed the launch of a new product.
The Medical Device Tax has a real negative impact on job creation,
innovation of new products, and ability for new ventures (the engine of
U.S. job growth) to gain new funding and launch new products.
Even though we are an early stage, pre-profit company, we are subject
to the same 2.3% excise tax on gross revenue that billion dollar multi-
national corporations are subject to. No other industry in the U.S. has
to contend with the costs that the Medical Device Industry now faces.
While I support the immediate repeal of this tax for the entire
industry, if that is not possible, surely they is across the board
support to eliminate the tax for small Medical Device Companies who are
in early stages and cannot execute on their growth plans with this
onerous tax.
I appreciate your continued attention and leadership on this matter.
Thank you.
Chad G. Neely
CEO
Wenzel Spine, Inc.
[email protected]
direct: (512) 501-4016
______
Zimmer
April 22, 2015
The Honorable Patrick J. Toomey
Chairman
Subcommittee on Health Care
Committee on Finance
U.S. Senate
Washington, D.C. 20510
Dear Senator Toomey:
On behalf of Zimmer and its approximately 150 employees in Pennsylvania
and over 5,000 employees in the United States, I am writing in support
of your efforts in the U.S. Senate to examine the impact of the medical
device excise tax. The Health Care Subcommittee's hearing, titled ``A
Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation,
and Patients,'' is important and timely.
Zimmer is a leading orthopaedic medical device company based in Warsaw,
Indiana. The Company has opposed the medical device tax from the start
and continues to work with AdvaMed and other stakeholders to repeal the
tax. As AdvaMed notes in its testimony submitted for the record as part
of this Subcommittee hearing, the device tax continues to impose a
significant cost burden on a vibrant medical device industry that
contributes positively to the U.S. economy through advanced R&D and
manufacturing, high-paying jobs and exports.
Medical device companies, such as Zimmer, continue to take significant
steps to offset the bottom-line impact of the tax, including
restructuring global operations and diverting capital away from key
projects and investments. For instance, as a recent AdvaMed survey
noted, many medical device companies are scaling back R&D initiatives.
Passing on the cost of the tax is simply not an option, given the tight
reimbursement environment for our customers.
The device tax also worsens a corporate tax code that is already
globally uncompetitive, thus undermining the competitiveness of a U.S.-
led medical device industry, which supports hundreds of thousands of
jobs in this country. Most importantly, the device tax will continue to
adversely impact the development and introduction of new and improved
medical devices, a natural consequence of tough decisions being made to
offset the cost of the tax through reduced spending on R&D. This will
ultimately jeopardize patient access to medical innovation and harm
health care quality.
Zimmer appreciates the opportunity to provide input into the
Subcommittee hearing. The Company joins AdvaMed and its other member
companies in commending you and your Subcommittee colleagues for
holding this hearing on the medical device tax. Zimmer looks forward to
working with its industry colleagues, other stakeholders and a growing
number of members of Congress who support repealing the device tax.
Thank you.
Sincerely,
Christopher A. Cerone
Vice President
Global Government Affairs
______
ZOLL' LifeVest'
121 Gamma Drive, Pittsburgh, Pennsylvania 15238
800-543-3267 (main) 866-567-7615 (fax)
www.zoll.com
May 6, 2015
The Honorable Patrick J. Toomey
Chairman
U.S. Senate
Committee on Finance
Subcommittee on Health Care
248 Russell Senate Office Building
Washington, DC 20510
The Honorable Debbie Stabenow
Ranking Member
U.S. Senate
Committee on Finance
Subcommittee on Health Care
731 Hart Senate Office Building
Washington, DC 20510
Dear Senators Toomey and Stabenow,
Western Pennsylvania is fortunate to be a leader in one of the most
innovative and dynamic industries in the world: medical device
manufacturing. The local companies that participate in this high-tech
industry provide the good paying jobs that our nation needs and enable
health care providers to give the best possible patient care.
As the leader of a rapidly growing local medical technology company
based in Pittsburgh, I know firsthand the ingenuity and skills of
western Pennsylvania's workforce. Every day, some of the brightest
entrepreneurs, engineers and physician-inventors are developing and
improving cutting-edge medical devices. We have a superior skilled
manufacturing base that produces them and provides the best possible
service and support.
I strongly believe that the medical device tax has inhibited
innovation, slowed job creation and harmed patient care. It takes years
of substantial investment to introduce a new or improved device, and I
know firsthand that companies are often not profitable while growing
and creating jobs. Amazingly, the tax is applied to the sales, not
profits, of medical device companies. This means that these companies
would actually still owe the government a hefty tax bill, despite not
having a penny in profits. Advocates of the tax argue that the cost of
the tax can simply be absorbed by medical device companies or passed
along to the customer; however, it is far more complicated than that.
Passing along cost as a price increase to the health care system
directly contradicts many of the goals of health care legislation, and,
in a system with fixed reimbursement, additional costs directly impact
the ability to create jobs. In response to the tax, companies have been
forced to lay off employees, cut back on research and development, or
both. If the medical device tax is not repealed soon, the impact of the
necessary operational and executional decisions companies are being
forced to make in response to the tax will permanently harm the
leadership position of the United States in the medical device
industry.
The medical device industry is responsible for more than 400,000
American jobs--and is indirectly responsible for almost 2 million jobs
that supply and support this highly-skilled workforce. Here in
Pennsylvania, it is responsible for over 22,000 jobs, and the medical
device manufacturing job pays 25% more than the average manufacturing
position. In fact, Pennsylvania has the highest job-multiplier in the
country, meaning that for every medical device job, 3\1/2\ jobs were
created to support and supply this vibrant industry. While
congressional leaders urge us to increase exports, the medical device
industry is one of the only net-trade exporters in the United States,
with a trade surplus of $5.4 billion in 2007.
America's medical device industry is widely recognized as the global
leader in this field, though a recent PwC report stated that we could
lose this leadership position in the next decade if we do not continue
to grow and innovate. We simply can't let this happen--we need to
repeal the medical device tax to allow America's medical device
innovators to drive leadership in the future.
Sincerely,
Marshal Linder
President and COO
ZOLL LifeVest
[all]