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Medical Device Industry Needs Miracle Cure

BOSTON (MainStreet) -- Talk of health care costs usually revolves around prescription drugs, doctor visits, hospital stays and medical tests.

A growing debate, however, focuses on medical devices -- the physical equipment added to the body to alleviate symptoms, from contact lenses to prosthetic limbs, pacemakers to insulin pumps.

While the cost of life-saving medical devices can be astronomical in the U.S., a tax on them could drive away investment in them and punish small inventors. Is there a cure for this syndrome?

Among the industry leaders in this space are Johnson & Johnson (JNJ), Abbot Laboratories (ABT), Allergan (AGN), Covidien (COV), Becton, Dickinson and Co. (BDX), St. Jude Medical (STJ), Quest Diagnostics (DGX), Boston Scientific (BSX) and Smith & Nephew (SNN).

The companies that make medical devices blame health care reform and shrinking venture capital pools for higher costs and a potential decrease in innovation.

A tax on medical devices is included in last year's health care reform package known as the Affordable Care Act, a 2.3% excise tax that will be levied on the total revenues of a company (regardless of whether it generates a profit) starting in 2013. It is anticipated that the tax will generate $20 billion in revenue over the course of a decade.

That tax has not surprisingly drawn fire from the medical device industry, and there has been another full-court press in recent days to remove it.

The Medical Device Manufacturers Association claims "many companies will owe more in taxes than they generate from their operations," and the result will be "devastating to innovation, patient care and job creation."

"The overwhelming majority of innovation from the medical device industry comes from smaller manufacturers who work closely with clinicians and engineers to develop the therapies and treatments of tomorrow," the group says in a policy statement. "If it is not repealed, this tax will stifle innovation, harm patient care and weaken the position of the United States as the global leader in medical device innovation."

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