Medical device makers fear tax

— -- WASHINGTON -- Even as the new health care law adds millions of insured customers to the paying pool, medical device manufacturers say a tax on their product could cost them billions.

The tax came as the government looked for ways to fund the new law. Insurers agreed to pay a tax beginning in 2013 because they would gain new customers.

Hospitals agreed to lower Medicare payments because they would have fewer uninsured customers and therefore, would not be left with the bill.

And the government looked to higher-earning citizens â?? those who make more than $200,000 a year â?? to also contribute. In industry, the government focused on the $130 billion-a-year medical device manufacturing industry.

But the manufacturers say the tax will force money away from research, send jobs overseas and stop them from expanding in the U.S.

Analysts say the industry will easily make the money back in profits from overseas sales â?? where there's a growing market of individuals with diabetes and heart disease â?? and that more insured customers mean more devices.

An increase in older Baby Boomers means more Americans who need medical care.

"There's a lot of political posturing over a tax that hasn't gone into effect," said Michael Sparer, health policy department chair at Columbia University. "Nobody likes new taxes."

Medical device manufacturing includes everything from tongue depressors to hip replacements to heart stents.

The tax has played out in millions of dollars of lobbying from the industry, as well as a House bill passed to kill it. The Senate did not take up the issue.

"Lobbying is going to be a constant issue with these guys," said Kenneth Thorpe, who co-directs Emory University's Center on Health Outcomes and Quality. "Now, we're moving into an entitlement reform debate, so the lobbyists are all gearing up for that."

Steve Ubl, CEO of AdvaMed, the trade organization that represents the industry, said the tax would force companies to cut 43,000 jobs and will cost the industry $30 billion in the next 10 years.

"It's very concerning to us," he said. "It's a tax on revenue, and it translates to a very deep cut in the bottom line."

Ubl said the companies won't look for more efficient products, contrary to what advocates of the law say.

Instead, they'll cut jobs and reduce investment in research and development. Or, he said, they'll pass the tax on to their customers.

Steve Ferguson, chairman of Cook Group, said the tax has caused the company to stop plans on a $15 million factory that would employ 300 people â?? and that four more planned after that have also been stopped.

The company would be paying more than 50% in taxes, he said, and it would push innovation to "foreign shores."

The Urban Institute, a non-partisan economic and social policy think tank, found the tax won't hurt innovation or discovery of new technologies, because revenues "from expanded coverage would considerably exceed the new taxes."

Sparer argued that the industry is "clearly overstating the effect of that tax."

Jobs won't go overseas because the tax applies to imports, too, Sparer said, and with more people insured through the health law, "you'll have more demand for devices."

Udl argued that Medicare-age patients are already insured, or that people who weren't insured before were already receiving technology they needed.