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House passes repeal on device tax

Posted: June 10, 2012 4:00 a.m.
Updated: June 10, 2012 4:00 a.m.

Medical device companies, like Valencia-based Advanced Bionics, would benefit from a bill passed to repeal the medical device tax intended to help pay for President Barack Obama’s health care reform law.

The House passed on Thursday a bill to repeal a medical device tax, a move that biomedical company officials said would save jobs and keep manufacturing in the U.S.

House Resolution 436, the Protect Medical Innovation Act seeks to strike a provision of the Patient Protection and Affordable Care Act, frequently referred to as “Obamacare.”

The bill, which still needs to pass the Senate, would repeal the tax imposed on the sale of medical devices.

“That was a very important move for Neotech and our whole industry of medical devices,” said Tom Thornbury of Valencia-based Neotech Products Inc. “The 2.3 percent tax was going to be off the top line.”

Jobs and manufacturing

Taxing gross revenue on medical devices before expenses are deducted for research, development and production greatly affects the bottom line for a company, said Thornbury, whose firm produces devices for innovative respiratory products for neonatal and pediatric infants.

“A lot of industry groups were expecting the provision to eliminate jobs by tens of thousands, move manufacturing overseas and to have companies cut back on their R & D to save money,” he said.

All of Neotech’s products are assembled in the U.S., and 90 percent of them are made in California, Thornbury said. The company doesn’t want to move its products to Asia, but is concerned the tax may force them to do so.

The taxation in the health care act was a mistake, and repealing the tax would help all medical device companies locally and nationally, he said.

Still, H.R. 436 could be stopped by the president. In a memo issued Wednesday, the Executive Office of the President said if President Barack Obama is presented with HR 436, his senior advisers will recommend he veto the bill.

The argument given in favor of vetoing the bill is that the medical-device tax is meant to help pay for health care reform, and eliminating the tax would raise taxes on middle-class and low-income families, advisers said.

Santa Clarita Valley

The Santa Clarita Valley is home to a growing cluster of more than 100 firms engaged in the research, testing of medical devices and diagnostic equipment, said Jonas Peterson, president and CEO of the SCV Economic Development Corp.

Many of the local companies, such as Advanced Bionics, MannKind Corp., Boston Scientific, Bioness, Quest Diagnostics and Amerisource Bergen, are recognized nationally for their achievements in discovery and engineering, Peterson said. And that entire cluster is expected to grow significantly over the next five to 10 years, he said.

“We should do everything possible to help this high wage industry succeed and I believe removal of the medical device tax is a step in the right direction,” Peterson said.

In a statement issued shortly after passage of H.R. 436, Congressman Howard “Buck” McKeon, R-Santa Clarita, said the tax is a threat to tech manufacturers across the nation, encouraging layoffs, slashed salaries and more companies to flee overseas.

Also on the heels of its passage, Boston Scientific issued a statement supporting the bill, calling the original provision in the health care act an “onerous $29 billion innovation tax.”

“This innovation-killing tax will have a significant negative effect on our ability to invest in new therapies for the patients we serve,” said Hank Kucheman, CEO of Boston Scientific.

During this time of economic uncertainty, policymakers should be doing everything possible to create and nurture jobs like these, Kucheman said.

The SCVEDC works to attract businesses to the Santa Clarita Valley. One of the industry clusters the nonprofit economic organization focuses on is biomedical.

“Research activity, local workforce quality and quality of place are a few of the key factors that influence where biomed companies locate,” Peterson said. “In each of these areas, Santa Clarita Valley stacks up very well.”


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