Speaker Pelosi's Plan to Tax Medical Companies Bitter Pill for Southeastern PA Employers

MALVERN

By GRETCHEN METZ, Staff Writer

Emerging medical device companies are strongly opposed to a 2.5 percent tax on the wholesale price of U.S.-made medical devices, a measure proposed in the Affordable Health Care for America Act.

On Tuesday, Paul Touhey, chief executive at oncology diagnostic products company Fujirebio Diagnostics, invited other Malvern-area biotechnology companies, who also specialize in medical device development, to weigh in on the subject.

The discussion was led by U.S. Rep. Jim Gerlach, whose concerns are for the commonwealth's 600 medical device companies that employ 20,000 people.

The measure, House Resolution 3962, was introduced in late October by Speaker of the House Nancy Pelosi, D-Calif.

It is nearly 2,000 pages in length, 9 inches high and weighs in at a hefty 19 pounds.

The excise tax on medical devices — defined in the bill as devices used by a doctor, hospital or other health care providers — is found on page 339. Over-the-counter or retail purchases, such as a leg brace bought at the corner drug store, would not fall under the tax.

"It started as House Bill 3200 but there have been a lot of changes," said Gerlach, R-6th, of West Pikeland, who represents about three dozen municipalities in central and northern Chester County. "It has gone from 1,017 pages to 2,000 but what struck me was the medical device tax."

The massive bill calls for billions in new taxes to pay for a $1 trillion government-run health care plan, said Gerlach, who is curently seeking the Republican nomination to run for governor. "It is a bad bill that has gotten worse."

There was no response to a request for an interview left with press staff at Pelosi's Washington, D.C. office Tuesday.

Nationwide, the industry is responsible for 2 million U.S jobs.

"The U.S. medical device industry is one of the few (domestic industries) that dominate the world," said Bruce T. Bosch, chief executive at Neuronetics of Malvern. "It is a value generator for the country."

But the business is capital intensive, Bosch pointed out. The only way to grow for start-up companies is by venture capital. Neuronetics secured $127 million from investors in California, New York, Massachusetts and Minnesota.

"That money was spent here on software development and manufacturing," said Bosch, whose company develops non-invasive therapies for psychiatric and neurological disorders using MRI-strength magnetic field pulses.

The company worked for six years to develop a product to treat depression and gain Food and Drug Administration approval.

"It was a long process," Bosch said, noting that the company has grown to 75 employees. Bosch said he expects that number to double in the next 18 months.

Those are good jobs, Bosch pointed out. Nobody has a minimum-wage job at Neuronetics. Annual salaries are in the $50,000-plus range.

The proposed tax would cost the young company $3 million over the next couple of years, he said.

"Where would we get the money — cut research and development or raise prices?" Bosch asked.

Maarten Persenaire, chief medical officer at Orthovita, said his company has just reached the break-even point.

"We agonize over the gross margins," said Persenaire, whose company develops and makes medical implants.

Persenaire said it is the products developed by his company and other companies like his that enable people in their 70s and 80s to age at home and not end up in continuing care, thus reducing health care costs.

But such technology does not come cheap. It cost the company $100 million to get the products to market, he said.

"I don't see what this tax does but bring us more hardship," Persenaire said. "The 2.5 percent would set us back two years."

Mickey Flynn of PA BIO, a statewide association representing Pennsylvania's biosciences based in Malvern, said the proposed tax means that medical device companies that would have become profitable in five years will be pushed back another two to five years.

That will put a damper on innovation, Flynn said. The proposed tax will especially hurt places like Pittsburgh, which is coming on strong in the medical device industry.

"Health care companies are growing," Flynn said. "It doesn't make sense to slow that growth. The only person it hurts is the patient."

Fujirebio's Touhey said he could understand a tax on a company's profits, but not one on the top-line revenues.

Competitors in Europe are watching, Touhey said. The tax would be a handicap for American companies.

Orthovita's Persenaire, originally of the Netherlands, said in Europe, there would be no tax. Instead, medical device companies that developed a breakthrough product would get a government subsidy.

Gerlach told the group there will be a House vote, a Senate vote and a committee vote. The congressman said it is too early to say who will serve on the committee.

The House Republicans can add an amendment to the measure, but Gerlach said the Democrats have enough votes to defeat that amendment.

"We don't have the votes," Gerlach said. "We don't hold out much hope our version will survive."

Gerlach, however, encouraged the medical device CEOs to contact other federal lawmakers and "keep stirring the pot."

# # #