As a renewed effort to pass health care reform began in earnest last week in Washington D.C., the NVCA along with AdvaMed and MDMA sent the following letter to the White House, and the Senate and House Leadership regarding the proposal to tax the revenues of medical device companies:

Dear President Obama, Speaker Pelosi and Majority Leader Reid,

We applaud your efforts to reform the U.S. health care system to provide coverage to all Americans and improve the quality of care and health outcomes.

The below undersigned associations represent the vast majority of medical device and diagnostics companies in the United States. As you work towards a final health reform package, we request that the bill include the following features in any provision that creates a dedicated revenue stream based upon medical device sales.

The revenue mechanism should not collect more than $20 Billion in the 10-year Congressional budget window of 2010-2019. Both the House and Senate-passed bills, as well as the recently released White House proposal, are estimated to collect that amount. We ask that you reject any efforts to collect more than this amount, and work to ensure the final provision does not generate more than intended.

We believe the medical device tax should be graduated to assist smaller companies. To provide relief to those smaller companies that might demonstrate revenue but have limited or no profit, we suggest an appropriate model to be: no tax on sales between $0 and $100 million; and 50% of the applicable tax assessed on revenues between $100 million and $150 million. Revenues over $150 million would be subject to the full rate. This graduated structure would assist many small company entrepreneurs bringing technological innovation and creating jobs in the medical technology sector. Furthermore, it aligns with the increasing resource needs to commercialize a product and reach profitability. Companies and venture capitalists have stated that often a medical device company needs $100 million in annual revenues before the first dollar of profit is generated. A new tax or fee on these emerging companies could prevent them from raising the risk capital they need to bring innovative technologies to market and create or maintain jobs in the U.S. Furthermore, less than one-third of the public medical device companies with less than $150 million in annual revenue are profitable, and most of those are only recently profitable. The percentage of private companies is likely far smaller, since they are generally less profitable. The added burden of these industry payments will most certainly force firms to reduce R&D expenditures and eliminate jobs.

On behalf of hundreds of medical device small business innovators, we appreciate your consideration of this important issue and look forward to working with you.

Very truly yours,

Advanced Medical Technology Association (AdvaMed)

Medical Device Manufacturers Association

National Venture Capital Association

We believe Washington has come a long way towards understanding the burden this tax will place on small, venture-backed companies and are hopeful that health care reform language will reflect our recommendations.  We will be following this issue closely.

Questions or comments?  Please contact Kelly at kslone (at) nvca (dot) org.