, Newburyport, MA

June 18, 2012

Tierney, Tisei differ on medical device tax

By Jesse Roman, Staff Writer
The Salem News

The Salem News — Congressman John Tierney found himself in a tough spot last week when House Speaker John Boehner brought to the floor a bill aiming to repeal a 2.3 percent excise tax on medical devices.

As a result, Tierney and his fellow Massachusetts Democrats had to choose between dismantling a key funding mechanism in President Barack Obama’s health care reform legislation and upholding a tax on an industry that is vital to the state economy, and especially to the tech-savvy North Shore.

The tax would apply to manufacturers or importers of medical devices such as pacemakers, X-ray machines and defibrillators. It is expected to raise $29 billion over the next 10 years to help subsidize health insurance for low-income families under the Affordable Care Act.

Opponents say the tax will cause companies on the North Shore to cut jobs, enact wage and hiring freezes, and cut back on research and development.

To make up for the $29 billion in lost revenue, Republicans proposed to recoup some of the subsidies to be given to low- and middle-income individuals to help them buy insurance. If their incomes should increase, they would be required to pay back any overpayment they received.

The Joint Committee on Taxation said the GOP plan would result in 350,000 fewer people being insured under Obama’s health reform. That was Tierney’s main motivation for voting down the repeal effort, he said in an interview Friday.

“If I hadn’t voted the way I voted, 350,000 people would have lost insurance,” he said. “Every time the Republicans have the chance, they try and undermine the health care bill, but they can’t do it that way.

“You’ve got to find a way to fill the ($29 billion) hole, and I don’t think you can fill that hole by knocking 350,000 off of health insurance.”

Tierney said the Massachusetts delegation fought during the initial health bill debate to get a proposed 5 percent medical device tax cut to the current 2.3 percent.

He also noted the bill has some provisions to protect companies. For instance, sales overseas are exempt from the tax, but foreign companies selling in the U.S. would be subject to the tax to even the playing field, he said. What’s more, the medical device industry supported the legislation, including the tax, he said, under the theory that with more citizens on insurance plans, there would be more demand for medical care and medical devices.

So why are such gloomy predictions coming from the industry now?

“You’re listening to the lobbyists when you hear that, not the people here,” Tierney said. “A tax is a tax, and they would like to avoid it if they could, but they made the calculation (during the health care debate) and concluded it was a fair result in the end.”

The congressman said he didn’t hear much, if any, lobbying from the North Shore’s several large medical device firms.

“Without naming names, we have some larger companies in the district that understood this completely,” he said. “They understood the deal and were quite satisfied with it. They would have 30 million new customers ... and in their own calculation they would make more in the end than they would lose in the tax.”

Doug Clibourn, president and CEO of Velico Medical, a small startup in the Cummings Center in Beverly, said he, however, is concerned about the impact of the tax. Velico is in the process of winning federal approval for an innovative way of turning liquid blood plasma to powder for easier storage. Tierney visited the small firm of about a dozen employees last summer.

“Initially, it’s not going to affect a company like us that is still in product development,” Clibourn said, “but looking ahead, it’s really going to be an impediment. It’s really disappointing because we’re launching a new product. We’re a little company with no revenue and operating at a net loss for a period of time, and this makes life more difficult.”

Calls to local Analogic in Peabody and Abiomed Inc. in Danvers, two of the area’s largest medical device firms, were not returned Friday.

Richard Tisei, Tierney’s Republican opponent in the upcoming election, jumped at the chance to use Tierney’s vote to paint a contrast between the candidates.

“At a time when the economy is not creating any new jobs, one of the few bright spots is the medical device industry,” Tisei said in an interview. “Now we’ll probably see layoffs as we go along. You’d expect the congressman in this district to fight for those jobs and not be an ideologue.”

Tisei said getting the tax repealed would be “one of my top priorities as a congressman.”

Tierney said he would be willing to repeal the tax if Republicans would agree to a different method for making up the lost revenue, such as closing unnecessary tax subsidies.

Paul Van de Water, a fellow at the nonpartisan Center on Budget and Policy Priorities in Washington, argues that the industry’s worries “are a vast exaggeration.”

Van de Water, who has a doctorate in economics from MIT, said the 2.3 percent tax is too small to have much of an impact on jobs or demand.

“Demand for medical devices is relatively inelastic, so a big chunk of the excise tax will be passed forward to the consumers and will not affect the net revenue of the companies very much,” Van de Water said.

The issue divided the state’s all-Democratic House delegation.

Tierney and seven other Massachusetts House members voted against repealing the tax. Bill Keating and Niki Tsongas, the two most junior members of the Massachusetts delegation, joined 35 other Democrats and voted with Republicans to repeal the tax. Massachusetts Rep. Michael Capuano was originally a co-sponsor of the House bill, but ultimately voted against it.

Democratic Senate candidate Elizabeth Warren, portrayed by Republicans as a liberal darling, said that repealing the tax was “essential” for sparking innovation.

The Republican-led House passed the bill 270-146, but it isn’t expected to go anywhere in the Democratically controlled Senate, and the White House has threatened a veto.