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Utah medical device manufacturer says Affordable Care Act tax will hurt innovation

Published: Wednesday, Jan. 22 2014 3:30 p.m. MST

Sen. Orrin Hatch, R-Utah, greets Gary Shearer, vice president of manufacturing for BD Medical, before a tour of BD Medical in Sandy, Wednesday, Jan. 22, 2014.

Ravell Call, Deseret News

SANDY — Will a federally mandated tax on medical devices have a negative impact on future innovation? Critics of the measure say the answer is a resounding “yes.”

Speaking Wednesday at BD Medical's production facility at 9450 S. State, the company's vice president said a recently enacted provision of the Affordable Care Act will cost his firm about $55 million per year, forcing it to cut back on new research and potential technology breakthroughs that could benefit patients worldwide.

“Our customers are hospitals, nursing homes and research institutions,” Gary Shearer said. “We have to be very cost-conscious (and) be very leading-edge with our technology, especially against foreign countries that don’t have the tax.”

As of Jan. 1, the Affordable Care Act mandated that manufacturers and importers pay a 2.3 percent medical device excise tax on sales of certain products. Revenue from the tax is designed to help pay for the law’s expansion of Medicaid coverage and financial assistance for people purchasing health coverage through the open marketplace.

The device tax only applies to clinical medical devices such as stents, catheters and defibrillators that are sold to U.S. health care providers. Devices manufactured abroad and in the U.S. are subject to the tax.

However, consumer devices such as hearing aids, wheelchairs, thermometers and contact lenses are not subject to the tax. The medical device tax is expected to raise $30 billion over the next decade.

Shearer said the federal tax creates a financial challenge that negatively affects BD Medical’s ability to compete in the global market. While the company supports efforts to expand access of health coverage and disease prevention to more people, he said, the tax will hinder the BD's ability to produce more innovative products.

“The costs associated with the device tax has slowed our investment in research and development, and U.S. manufacturing capacity,” Shearer said.

When expenses such as the Affordable Care Act tax are imposed, companies typically cut back in research and development rather than other areas of their business, Shearer said.

Becton, Dickinson and Co. is a global medical technology company headquartered in Franklin Lakes, N.J. The company has a regional facility in Sandy and employs about 1,000 people in Utah.

On Tuesday, BD Medical hosted Sen. Orrin Hatch, R-Utah, for a tour of its facility and manufacturing operations.

According to BD business marketing director Richard Scott, the company faces stiff competition from other large device makers in Germany and the United Kingdom. Because BD generates 40 percent of its business in the U.S., having to pay millions of dollars in additional taxes is creating a financial obstacle, he said.

“Every (company) has to play by the tax rules in their individual country,” Scott said. “But with BD being the largest in this segment and having a predominance of our business in the U.S., (we are) going to be disproportionately disadvantaged.”

Late last year, another Utah medical device maker raised similar criticism.

In October 2013, Merit Medical CEO Fred Lampropolous said the medical device excise tax was “clearly without any comparison the most difficult situation we've had to face in 34 years.”

At the time, Lampropolous estimated the tax would cost his company as much as $7 million a year. To mitigate the losses, the company no longer matches employees' retirement contributions, and it cut donations to some local charities.

For BD, the expense is on a larger scale, and the impacts will be felt in different areas of its business, Shearer said.

“Where that hurts us is future growth,” he said.

Email: jlee@deseretnews.com

Twitter: JasenLee1

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