Minnesota argues for repealing the device tax

So here's a question for the season: Should the U.S. revoke the 2.3% device tax before it rolls into effect next year as part of the national health reform law?

It shouldn't be surprising that, for the most part, the medical device industry offers a resounding "Yes." But the arguments are now getting more hard-core as to why. The latest: Minnesota, one of the country's most important device clusters, is struggling as an industry haven. The tax would hurt the industry's effort to sustain and grow there even more, or so the argument goes.

Howard Root, CEO of Minnesota's Vascular Solutions, makes his case in a broad opinion piece the Minneapolis Star Tribune ran over the weekend, focused, ostensibly, on "Practical steps to help the device industry."

Root argues the device industry is already suffering in Minnesota--home of Medtronic ($MDT), St. Jude Medical ($STJ) and others--after years of layoffs and stagnant sales. For example, he notes there are now only 14 public medical device companies in the state, versus 36 in 2000, when his own company launched its IPO. Only three device companies in the state have successfully launched an IPO since 2009, he says. Adding to the perfect storm, startups, which have fueled device company growth in the state for years, are waning as venture capital financing plunges. Twenty-eight device companies received $284 million in venture cash in 2007, but just $141 million went out to 18 companies in 2011, more than three years after the economic crash.

Investors are generally more cautious, and companies are struggling with additional costs brought on by "increased testing requirements and longer FDA approval timelines," Root adds. Furthermore, FDA user fees, needed to adequately fund those approval timelines, will double by this fall.

In his piece, Root advocates additional engineering degree programs at local universities to train manufacturing employees to reduce and eventually eliminate errors in device testing and verification. But he also subtly zeroes in on the tax, noting that it would be "helpful" if Congress repeals it because "putting a sales tax on a product increases its price and reduces its availability." Not to be forgotten, Root adds another push to make "the FDA process more predictable" and efficient.

- read the Star Tribune piece

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