Medical device industry pushes back against new tax

Plymouth, MN -- It's the type of quote political reporters don't often hear at congressional field hearing, but it's one that got their attention. Coming from a man who easily walked in and out of the room on his own power it was more remarkable.

"As a result of the impact I lost both of my legs above the knees," Aaron Holm told the audience at Plymouth City Hall.

Holm was pinned by a fast moving car as he changed a co-worker's flat tire in January of 2007. He learned to walk again with the aid of space age prothetic limbs known C-legs, and now runs the non-profit Wiggle Your Toes Foundation to help others struggling to pay for such devices.

"Insurance often doesn't pay for these, and they can run more than $30,000 each," Holm told reporters, "I was fortunate because mine was considered job related and Workers Comp paid for it all."

Holm was among Minnesota Congressman Erik Paulsen gathered for the hearing, designed to call attention to the impact of a proposed federal tax on medical devices. Holm moved beyond catastrophic injuries with the help of technology, but he says he worries a tax could slow the scientific process at companies like Otto Bock in Plymouth where his new legs were made.

"I realize every day as I age, as I get older I need the products to get better," Holm told reporters as he lifted his pant leg to reveal the highly sophisticated computer-assisted device, "I need them to support me more and more."

The version of the health care reform bill that passed the Senate Finance Committee October 13th would impose raise a total of $40 billion over 10 years through a tax on medical devices. And while the 3rd District Republican is generally against the health care package in its current form, Paulsen is joined by Democratic members of the state's Capitol delegation in his opposition to the device tax.

"Most of the research and development they do on these products is literally investment in people," Rep. Paulsen said, "These are highly educated people we want to attract here to Minnesota. We are one of the few states with medical alleys and we want to keep it here."

If the medical device industry were a human body, the heart would be in Minnesota where implantable pacemakers were born and grew into a $130 billion dollar industry worldwide. Companies such as Medtronic, St. Jude Medical, Boston Scientific, Guidant and others employ nearly 30,000 people in Minnesota.

Historically high profits make the sector an easy target for lawmakers looking for ways to pay for the overhaul of the federal system. But opponents, including Dave Stassen of the venture capital firm Split Rock Partners, warned the tax will hamper research and scare away already wary investors.

"Possibly, for investors, this could be the final nail in the coffin," Stassen said, "Four billion dollars a year coming out of the industry."

He said many who want to invest in new innovations are already unhappy with the expense and time of gaining approval from the Food and Drug Administration.

"Who does that affect? It affects the people who invest in those companies. Pension funds, profit-sharing, insurance companies and so forth."

Howard Root's company, Vascular Solutions, sells over 50 medical devices directly to hospitals. He pointed out it took years for his start-up to become profitable. He argued a tax on sales could be crippling to those fledgling companies still looking to break even.

"The sales tax would not be deductible on our income tax," he explained, "So we would have to pay an income tax on the amount of the sales tax. That's right, a tax on a tax."

Another panelist, Chris Chaimes, heads the Sudden Cardiac Arrest Association, a group made up of survivors and loved ones of that often deadly heart rhythm ailment. He praised the medical device industry for a variety of implantable life saving marvels, as well as external defibrillators.

"The Sudden Cardiac Arrest Association applauds the noble effort to reform a broken health care system," Chaimes asserted, "But I am at a complete loss as to how taxing technology and innovation in the health care sector is supposed to improve our nation's health care system."

So far there's no medical device tax in the U.S. House versions of the health bill, but Paulsen told reporters there are rumors such a fee is under consideration.

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