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ObamaCare’s Crippling Taxes

Posted By Tait Trussell On October 21, 2010 @ 12:07 am In FrontPage | 4 Comments

An excise tax on medical equipment, embodied in the ObamaCare law, is risking hundreds of thousands of Americans’ lives. It will reduce vital research in cutting-edge technologies and may well drive some companies out of business. The tax will fall on medical devices ranging from equipment to treat heart attacks to prosthetic limbs and wheelchairs for wounded veterans. The tax will result in job layoffs, as well, health industry officials predict.

Innumerable patients can be served by medical devices and new technologies if the medical device industry can bear the new tax. One large equipment maker, for example, who may be taxed out of business, explains why, according to an Oct. 14 report. The company makes equipment that could reduce our leading cause of death–heart disease–which killed more than 600,000 people last year. The company, Zoll Medical, makes electric paddles, called automated external defibrillators (AEDs). They can shock to life a stopped heart and restore its rhythm. A few years ago, these medical devices could be used only by trained professionals. A spokesperson for Zoll Medical said the 2.3 percent tax on medical devices will increase the company’s tax bill by an amount which could eliminate 80 percent of its profits. This would leave little resources to invest in future research and development.

Today, bright boxes with these electric paddles can be found at airports, doctors’ offices, even on the battlefield. Research has made the equipment easy enough to use by an untrained layperson, merely by following voice instructions that come with the AEDs, according to a report by Grace-Marie Turner, president of the health research organization, the Galen Institute. Her report was published in The Washington Times.

The tax targets revenues, not profits, meaning device makers will have to pay the tax even if they’re not making a profit, pointed out Christophe (cq) Sevrain, owner of CJPS Enterprises, a medical device consulting firm in Troy, MI, according to a Sept. 6 Detroit News story. The tax could force some smaller businesses with low profits into the red. About 90 device companies are located in Michigan. Nearly all are small, with revenues under $10 million, Sevrain said. Some are on the brink of discoveries that could relieve chronic conditions or other medical handicaps.

Wounded veterans, along with many other Americans made the grievous mistake of believing Obama when he said repeatedly, “If you make less than $250,000 a year, you will not see your taxes increased by a single dime. The tax will be imposed on prosthetic limbs to replace those lost in battle and wheelchairs that make the injured more mobile. The tax contains no exemption for the country’s 22 million veterans. In fact, Senate Democrats specifically refused to exempt veterans from the tax, according to the non-partisan Americans for Tax Reform. On March 24, 2010, Senate Democrats rejected an amendment offered by Sen. Orrin Hatch (R-Utah) to the health care bill. The amendment would have prevented the medical device tax from charging veterans covered by the Veterans Healthcare Program.

During the ObamaCare debate when the Senate Finance Committee was scouring for more money, it put a “fee” on medical devices, The Wall Street Journal wrote that “the device makers made a ‘strategic mistake’ by not offering Mr. Baucus (D-Mont and chairman of the Senate Finance Committee) more protection money,”  (in other words, political contributions). Baucus’s committee wrote the final Senate version of ObamaCare.

Sept. 8, Senate candidate Pat Toomey, running against Democrat Joe Sestak in the Nov. 2 election, charged that the ObamaCare medical device tax poses a threat to high-tech medical manufacturers. He was meeting with a number of medical technology executives. It included Pete DeComo, the CEO of ALung Technologies, who warned that when the tax takes affect in 2013 it would inhibit investment in research. ALung is a pioneer in the development of respiratory assist technologies, as an alternative to invasive respiratory support. DeComo said, “In an environment with onerous taxation and a complex business environment it has been shown that investor money goes elsewhere.” It is already happening in the United States with more and more venture capital being invested overseas where taxes are lower.

Thousands of products that are necessities of modern medicine, from MRIs and CT scanners to surgical equipment, will be taxed. Even safe sex will get more expensive, because Congress levied the tax on condoms. A spokesman for the Medical Device Manufacturers Association, which represents about 300 small and mid-size makers of medical devices, explained that many of the companies have new devices “that have not yet brought in enough money from sales to make a profit. But they still will have to pay the tax.” He said that 80 percent of the member companies have 50 or fewer employees, as an indication of size.

Tom Sommer, president of Massachusetts Medical Device Industry Council, “blasted the tax, saying it would stifle growth and put innovation in peril….In addition to job cuts and rollbacks on expansion plans, you’re going to see a reduction in R&D spending, innovation in this industry is definitely in jeopardy, which is shameful,” he told MassDevice, an online publication. Dr. James Muller is founder and CEO of InfraReDx, which is developing a spectroscopy catheter to detect the intracoronary composition of plaque. He said, “If you’re successful, they’re going to tax you. It’s wrong and not in the best interest of the U.S. We hear about China and India overtaking us. We’re swimming upstream here.”

In California and Minnesota, legislators have introduced bills to repeal the tax, reported Mark Leahy, CEO of the Medical Device Manufacturers Association. He said the industry would like to see the law modified to give smaller companies relief. This would allow startup companies to ramp up before they’re hit by the tax.

Money aside, the medical device surtax discourages innovations that could improve our health and save our lives, enabling us to help preserve our reputation as the “medicine chest for the world.”


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