Health Care Reform Plan Could Cost Hoosier Jobs

10/29/2009

An issue life sciences leaders describe as "white hot" is causing great concern in Indiana's medical device industry. The U.S. health care reform legislation that recently emerged from the Senate Finance Committee proposes a $4 billion annual income tax on medical device manufacturers. Collected over the next ten years, the amount totals $40 billion from the industry. Considering Indiana's prominence in medical device manufacturing, many are concerned the proposed tax could take a heavy toll on the state.

The proposal would include orthopedic manufacturers in Warsaw such as Zimmer, DePuy and Biomet and device manufacturers like Bloomington-based Cook Group Incorporated and Boston Scientific in Spencer. Concerns about the proposal were examined during a panel at the Burrill Life Sciences Conference held in Indianapolis October 20.

"None of the device companies are saying they don't want to pay their fair share [for health care reform]," says David Johnson, president of BioCrossroads, the state's life sciences initiative. "They do feel, however, that this proposal has them paying a disproportionate share." Listen

Leaders at medical device manufacturers argue they'd be "paying twice" for the cost of health care reform. In addition to facing the cost of the proposed income tax, the companies say their bottom line will be hit a second time, because they're paid by hospitals, which will be looking to cut costs as they also shoulder the financial burden of health care reform.

"If you look at [the $4 billion annual income tax] in the context of what the deals are with the other [health care sectors], it really looks to be out of whack and out of proportion," says Dan Peterson, vice president of industry and government affairs at Cook Group Incorporated. "That $4 billion represents as much as 50 percent of the annual total spending on research and development for the entire industry and as much as 100 percent of the amount of venture capital that goes into this industry on an annual basis. It's an exorbitant number and would cause lot of money to come out of the system." Listen

While leaders at device companies are hoping the size of the tax is whittled down, if it's approved at the current amount, Johnson says Hoosiers would suffer in two significant ways: loss of jobs and a decrease in innovation. Listen

According to the Herald Times newspaper in Bloomington, leaders at Boston Scientific say the tax would force the company to drastically reduce spending on research and development (R&D) and shed between 1,000 and 2,000 jobs. Cook echoes the same concerns; Founder Bill Cook says the tax could threaten 1,000 manufacturing jobs at Cook Medical in Bloomington and lead the company to make deep cuts in R&D.

"[The tax] could have the unintended consequence of stifling innovation," says Peterson. "Medical devices have been remarkably important in improving the treatment of disease, in many cases, in a very cost effective manner�solutions that have been tremendous for the outcomes of patients. To stifle that innovation could limit the amount of devices [on the market]�devices that actually create a higher value of healthcare. [The devices] lower costs and produce higher quality." Listen

Because of Indiana's strength in medical device manufacturing, Johnson believes the tax would cause the state to bear a heavier burden than others. A report conducted by the Milken Institute, a nonprofit, nonpartisan and publicly supported economic think tank, ranked the top U.S. metros in medical equipment and supplies manufacturing. Bloomington ranked fifth nationally and Indianapolis came in tenth.

In a letter to the Senate Finance Committee, Indiana Senator Evan Bayh, along with New York and Massachusetts senators, expressed concerns that the proposed tax could threaten jobs, reduce investment in research, and "ultimately diminish access to life-saving medical devices."

"I'm encouraged that Indiana has some very articulate advocates on this issue," says Johnson. "They're voicing our concerns that this tax would really hit us hard, hit our workforce, and injure some of the best things we do and the best things we have as a state. At a time we're trying to build jobs, we shouldn't be taking them away." Listen

Leaders at Hoosier medical device manufacturers say they're eager to play a role in health care reform�and help foot the bill�but contend the current proposal is nothing short of "unfair."

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