Photo courtesy of Smiths Medical
ST PAUL, Minn. -- Congressman Erik Paulsen's been criticizing the tax on medical devices more than three years, but he no longer has to use the future tense.
As of January, the 2.3 percent excise tax on those products is actually being collected. Med tech manufacturers, which are heavily concentrated in Minnesota, can see exactly how it will affect the bottom line.
"Now is not the time to have another tax from Washington that will hurt what is truly an American success story," Rep. Paulsen told reporters at the State Capitol Friday.
The 3rd District Republican said he's gaining more support for the idea among colleagues in Congress, from both sides of the aisle.
"This is an important fight to make sure we can ensure that our state continues to lead the way in creating dynamic new jobs and also innovating new technologies."
The tax was built into the Affordable Care Act, as a means for paying for the government subsidies that will allow millions of uninsured to afford health coverage.
But Paulsen and his bipartisan group of allies, includes both US Senators Amy Klobuchar and Al Franken, say it's the wrong approach to capture revenue from the industry.
The tax is based on revenue derived from the sales of certain devices, without regard to whether the company selling the product is making a profit from it.
To better illustrate that point Paulsen asked two presidents of medical technology companies to join him when he spoke to the Capitol press corps Friday.
"It is devastating for our cash flow. It sucked all of the Research and Development money out," Thomas Hoghaug, the president of Signus Medical, told reporters.
"Employees are obviously nervous, wondering whether they're going to get paid because the government needs to get paid before they do."
Signus sells spinal implants used by surgeons to treat a variety of conditions. Most of those products are imported from plants in Germany, but Signus -- as the US company that markets and services the devices -- is responsible for paying the tax.
Newer firms, he predicted, will find it much tougher to develop new products that may take years to break even, Hoghaug asserted.
"We can't afford to fund this tax and my employees and actually make a profit, which is why we're in the business."
Smiths Medical is a much larger, more established company in Arden Hills. But its president, Srini Seshadri, also joined Paulsen in St. Paul Friday to make a case for repeal.
"The tax hurts a job creating industry that manufactures products that not only makes a difference in people's lives but also provide the United States with significant and tangible technological innovative edge," Seshadri remarked.
Smiths makes a variety of supplies used in clinics, labs and hospitals. That includes the plastic devices that snap around hypodermic needles as soon as they're withdrawn to protect patients and medical providers from being stuck by needles.
"The medical device tax is a serious threat to U-S based companies ability to remain competitive in the global device market," he said.
One defense of the new tax is that these companies will see a boost in sales, as more uninsured Americans gain access to health coverage as a result of the Affordable Care Act.
And some in Washington, although sympathetic about the impact on Minnesota, have been hesitant to open up the health care law out of fear it would lead to other amendments that would derail the new system.
"Some of those who've agreed to support us in this effort voted for the reform act and still endorse it," Paulsen said.
The tax is expected to generate $30 billion over the next decade, and some in Congress will demand those dollars be replaced by another revenue stream.
But Paulsen argues cost of stunting the growth of life-saving technology could be much higher in the long run. He said the tax could cripple start-ups that have the potential of becoming major players such as St. Jude Medical, Medtronic or Boston Scientific.
"Back in 2009 we weren't successful in holding it back, but it was always was really a way to get new revenue without understanding the true impact of what the tax would be."
(Copyright 2013 by KARE. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)