Medical-device makers: Tax hurts innovation

A new corporate tax affecting several local companies became a player in last week’s Congressional drama over the new health care law.

While debate centered on completely defunding the Affordable Care Act, two Republican senators suggested a more effective path would be for Congress to renew efforts to get rid of the medical device tax imposed to help pay for health care reform.

“This egregious $30 billion tax hike has increased health costs to consumers and takes direct aim at American innovation by punishing the researchers and manufacturers of things like hearing aids, pacemakers, patient monitors, X-ray machines and artificial hearts,” said Senators John McCain, R-Ariz, and Lindsey Graham, R-S.C., in a joint statement.

A Reno medical-equipment executive agreed.

“It stifles innovation at large companies by pulling revenue from the process,” says Itai Nemovicher, president and chief executive officer, The Orthopaedic Implant Co., a Reno-based supplier of medical implants to hospitals. “We can’t hire and we can’t offer benefits to current employees.”

Three-year old OIC employs five people. Nemovicher says the company would like to hire two more employees but can’t afford to since it started paying the quarterly tax.

OIC competes against much larger companies, including Johnson & Johnson and Medtronic Inc., by offering lower-priced versions of devices such as spinal implants. Nemovicher says the company’s competitors charge a premium for what have become commodity products and OIC is disrupting the marketplace by selling what is akin to a generic directly to hospitals. OIC’s revenue grew 700 percent in its second year and the company is on track to grow another 200 percent this year.

“Our market is monopolized by five major players and the tax makes it harder for us to compete,” he says.

The tax regulation prohibits passing along the levy via line item on a customer’s bill, says Nemovicher.

The Medical Device Manufacturers Association, the Washington, D.C. lobbyist for the industry, has been fighting since 2010 to eliminate the tax.