UPDATE: St. Jude Leaves Trade Group AdvaMed In Tax Dispute
(Adds comment from Medtronic)
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complex devices, has withdrawn its membership from the industry's main trade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's 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 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 is 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.
Industry heavyweight Medtronic Inc. (MDT), a close St. Jude competitor, also
doesn't support the tiered taxing scheme backed by AdvaMed. But spokesman Steve
Cragle said Medtronic doesn't have plans to change its status with the trade
group.
The industry, in general, has presented a unified front to oppose plans in
Congress to levy a tax aimed at helping cover the health-overhaul tab. The issue
erupted with a proposed fee of $40 billion over 10 years 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 Boston Scientific Corp.
(BSX) and Johnson & Johnson (JNJ), are all listed as AdvaMed members on the
group's Web site. 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
11-09-091910ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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