US Senate Bill Includes Lower $2 Billion Medical Device Tax
By Jared A. Favole and Jon Kamp, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The key health-care overhaul issue now facing
medical-device companies is when they may have to start paying a collective $2
billion-per-year tax proposed in Congress.
The amount itself now seems set and has been halved from an earlier Senate
proposal. A bill unveiled Wednesday by Senate Majority Leader Harry Reid, (D.,
Nev.) would impose the same amount of tax each year--$2 billion--as the health-
care bill passed by the House of Representatives. A key difference, however, is
timing. The Senate would impose the tax starting in 2010, while the House bill
wouldn't require companies to make payments until 2013.
The earlier implementation date could hurt because it could take awhile for
device makers such as Medtronic Inc. (MDT), Boston Scientific Corp. (BSX) and
Johnson & Johnson (JNJ) to start seeing benefits from expanded insurance
coverage under health-care proposals.
Bernstein Research analyst Derrick Sung estimated the proposed tax would hurt
industry earnings by 3% to 4%, but he said the impact looks "manageable" because
of the potential for offsetting sales linked to expanded coverage.
The Advanced Medical Technology Association, the main trade group for the
sector, said in a statement it appreciated the fee's reduction but added: "We
will work collaboratively with the Senate and the House on the details of the
policy."
Industry lobbyists had pushed aggressively to get the tax slashed from the
original $4 billion proposal.
Medtronic Chief Executive Bill Hawkins, in a statement, praised the progress
made in reducing the fee but said, "this tax, though reduced, will invariably
impact our investment decisions on new therapy development, jobs and global
competitiveness."
AdvaMed's stance on how the tax should be calibrated has created tension
within the industry. One major medical device company, St. Jude Medical Inc. (
STJ), withdrew its membership from AdvaMed over the issue. The company said it
disagrees with the group's push to have the tax based on product complexity.
The Senate bill will won't tax Class I devices, such as tongue depressors, or
Class II devices that retail for less than $100. The House bill excludes all
devices sold at retail stores.
The Senate bill also divides how the tax would be imposed based on a firm's
annual sales. Companies with annual sales below $5 million won't be required to
pay a fee, while those with annual sales above $5 million would have to some
sort of fee.
J.P. Morgan analysts said in a research note this would hurt companies with
thin profit margins but a high level of annual sales.
-By Jared A. Favole and Jon Kamp, Dow Jones Newswires; (202) 862-9207;
jared.favole@dowjones.com
(END) Dow Jones Newswires
11-19-091635ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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