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St. Jude Leaves Trade Group AdvaMed In Tax Disagreement

By Jon Kamp, Of DOW JONES NEWSWIRES

St. Jude Medical Inc. (STJ), which makes heart-rhythm implants and other complex devices, has withdrawn its membership from the industry's main trade group in a disagreement over the group's approach to managing a government tax proposal.

While a rare move, St. Jude's exit from the Advanced Medical Technology Association highlights the tension facing medical industries as Congress debates health-care changes. The group, known as AdvaMed, and St. Jude each confirmed Monday that the company had recently left.

St. Jude also suggested that a larger fracture has occurred within the industry, which features companies making products ranging from gauze pads to implantable defibrillators. AdvaMed thinks taxes should be paid based on product complexity, but such a move would hurt companies like St. Jude, which specializes in high-tech implants like defibrillators and pacemakers.

"We feel it is inappropriate for AdvaMed to advocate for a specific policy that economically advantages a portion of its membership at the expense of other members," Daniel J. Starks, St. Jude's chairman and chief executive, said in a Nov. 2 letter to Stephen J. Ubl, AdvaMed's president and chief executive.

Starks said the letter was formal notification that he was resigning from AdvaMed's board of directors, and that St. Jude was leaving the trade group as well. St. Jude provided Starks' letter to Dow Jones Newswires.

"AdvaMed's Board of Directors voted overwhelmingly to approve a set of principles that would guide the association's efforts to address the proposed medical device tax," AdvaMed said in its own statement. "St. Jude disagreed with one element of those principles and resigned its membership."

The principles including basing how much device makers pay on the complexity of their products, since complex "Class III" devices, as the Food and Drug Administration classifies them, usually generate bigger profit margins than cheap, disposable items. Legislative proposals haven't included such a tax structure, but St. Jude indicated it's a point of contention within the devices sector.

"The structure of the medical device fee under discussion by Congress is an area where there is strong dissent and conflicting opinions within the AdvaMed membership," Starks wrote in his letter. He said that as a big company, St. Jude no longer feels AdvaMed can effectively represent its interests.

The industry in general has presented a unified front of staunch opposition to plans in Congress to levy a tax aimed at helping cover the health-overhaul tab. The issue erupted with a proposed $40 billion-over-10-years fee in reform legislation passed by the Senate Finance Committee, although Senate Majority Leader Harry Reid is expected to reduce the amount to around $20 billion under pressure from many senators.

The bill just passed by the House of Representatives already included a smaller $20 billion tax that wouldn't be implemented until 2013, which is three years behind the Senate Finance Committee's plan.

AdvaMed said it appreciated House leaders delaying and limiting the tax while making it transparent and deductible.

St. Jude's big peers in the devices sector, including Medtronic Inc. (MDT), Boston Scientific Corp. (BSX) and Johnson & Johnson (JNJ), are all listed as AdvaMed members. The trade group represents companies that produce nearly 90% of health-care technology purchased each year in the U.S.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com

  (END) Dow Jones Newswires
  11-09-091820ET
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