Senate Finance Committee Hears Industry Testimony On Impact Of Medical Device Tax

A top executive of medical device manufacturer B. Braun Medical Inc. recently told U.S. senators that the medical device tax should be repealed, citing the negative impact the tax has made on the company, and the medical device industry in general.

Bruce A. Heugel, senior VP and CFO, B. Braun of America, said during a Senate Finance Committee (Subcommittee on Health Care) hearing that, due to the medical device tax, the company’s federal tax bill increased by 29%. As a result, the company has lost 33 million since the tax was enacted, requiring major cutbacks, according to a report from The Morning Call. Moreover, B. Braun’s operating margins have also declined in the last two years.

“So when the new medical device tax takes away $33,000,000 through 2015, we are forced to launch painful counter measures,” Heugel told senators in the hearing, “A Fresh Look at the Impact of the Medical Device Tax on Jobs, Innovation, and Patients.” He said that the tax has forced B. Braun to lay off 200 workers from their medical device workforce, cut pension plans, decrease R&D spending, and cancel plans to build a new headquarters.

Citing a study, Heugel testified that the medical device tax wipes out 29% of the profit for the industry, which significantly lessen manufacturers’ ability to develop new products. He called on members of Congress to hasten the passage of pending bills that would repeal the tax.

A proponent of one of those bills is Republican Sen. Pat Toomey, who sat as a member of the subcommittee and heard testimonies from Heugel and three other stakeholders. He reiterated his support of a repeal of the tax.

“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,” Sen. Toomey said in his opening statement. “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.”

He went on to cite some of the recent innovative medical devices that have helped patients, including HeartWare’s ventricular assist device, Synthes’ spinal implant, and Cyberonics’s vagus nerve stimulator.

“My view is that the tax, the Medical Device Tax, is not only onerous on its scale, but it’s bad in its design.” Sen. Toomey said in his statement. “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.”

AdvaMed resident and CEO Stephen J. Ubl thanked Heugel for sharing the experience of B. Braun as an example of how medical device companies have been affected by the tax.

“Evidence continues to mount on how this tax is a drag on a high-technology, research-based manufacturing sector that provides life-saving, life-enhancing innovations,” Ubl said in a recent statement. “Every cent paid toward this onerous tax is one that would be better spent on research and development, hiring and capital expansion, a theme that was made clear at the hearing by Bruce Heugel, senior vice president and chief financial officer of B. Braun Medical.”

Ubl cited a recent AdvaMed survey indicating that 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.

AdvaMed also stated previously that as much as 33,000 jobs had been lost since the implementation of the device tax in 2013, according to a Med Device Online story. However, a Congressional Research Service (CRS) report said that the impact to industry jobs is minimal. The Joint Committee on Taxation (JCT) also previously claimed that the device tax affects less than half of the industry’s output and projected that employment would fall by less than two-tenths of 1 percent.