GOP plays offense in medical device tax fight

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"It doesn't make any sense," Robert Town, professor of health care management at the University of Pennsylvania's Wharton School, said of such claims. He and other analysts said they believe the overall industry impact of the tax would be modest.

Though the industry is dominated by huge companies like Medtronic of Minneapolis and Boston Scientific of Natick, Mass., AdvaMed says most of its 300 members have 30 or fewer workers. The Medical Device Manufacturers Association, representing many small and medium-size companies, cites similar figures.

Industry officials say young companies could be especially hurt because the tax is levied on total sales, not profits. If a business sells $100 million worth of products and a $4 million profit, the $2.3 million it would owe would erode more than half its earnings — excluding federal and state corporate taxes.

"It's going to cost jobs in our industry," said AdvaMed lobbyist J.C. Scott. For companies breaking even, he said, the tax "can push them to a place where they just can't move their business forward."

Company executives said their industry was too competitive to pass their added costs to customers. Town and other analysts said they believed that eventually, as with most excise taxes, those costs would be built into manufacturers' prices.

Kem Hawkins, president of stent maker Cook Medical of Bloomington, Ind., said a 2.3 percent tax would cost his company around $20 million, erasing 15 percent of earnings.

Combined with federal and state taxes, he said he'd be paying a tax rate of 58 percent. Opening a new plant employing 300 workers can cost $13 million, he said.

"It's the tipping point," he said of the excise tax. While he said he would protect the company's 7,500 U.S. jobs, he added, "Our new manufacturing is going abroad, make no mistake about it."

Gregory Sorensen, CEO of Siemens Healthcare North America, a giant maker of scanning devices, said the tax would force him to consider savings from reduced investments or U.S. jobs. He said his company has about $2 billion in annual sales and $500 million in profits in the U.S. — meaning the tax could cost Siemens about $46 million a year.

"The money has to come from somewhere," he said.


Associated Press writer Ricardo Alonso-Zaldivar contributed to this report.

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