St Jude quits AdvaMed over tax dispute
This article was originally published in RAJ Devices
Healthcare reform proposals in the US are causing divisions within the medtech industry. St Jude Medical has withdrawn its membership from AdvaMed, the biggest medical device trade industry association in the US, because it disagrees with the latter’s stance on the tax proposal included in proposed health care reform legislation1.
AdvaMed believes that tax rates should be based on product type to reflect the diversity of the industry. St Jude manufactures high-tech Class III devices such as defibrillators and other implants. Such devices are far more complex than disposable or low-tech products and, therefore, tend to be more expensive.
St Jude’s chairman and chief executive, Daniel Starks, wrote to AdvaMed on 2 November, declaring his resignation from the association’s board of directors and the withdrawal of the company’s membership. “We strongly believe that the philosophy of an industry trade association should be to advocate on issues where consensus can be reached and to maintain neutrality where there is not agreement,” Mr Starks wrote. “The structure of the medical device fee under discussion by Congress is an area where there is strong dissent and conflicting opinions within the AdvaMed membership,” he continued.
Mr Starks said that St Jude, as a large company, was the minority within AdvaMed and that it felt the trade organisation could no longer effectively represent its interests. “We feel it is inappropriate for AdvaMed to advocate for a specific policy that economically advantages a portion of its membership at the expense of other members.”
On 7 November, the US House of Representatives passed a healthcare reform bill proposing that companies be taxed 2.5% on all products sold in the US from 2013. This would impose a $20 billion tax bill on the industry over ten years, in contrast with the Senate’s proposed $4 billion annual flat fee that would start from 20102.
AdvaMed said in a statement following St Jude’s resignation3 that the principle about tax rates being based on product type was part of a set of principles that AdvaMed’s board of directors “voted overwhelmingly to approve” to help guide the association’s efforts to address the proposed tax. St Jude “disagreed with one element of those principles” and “regrettably… has withdrawn its membership from AdvaMed”.
However, there have been suggestions that, with St Jude missing its last two quarterly estimates by wide margins, the disagreement over tiered taxes might be “a red herring”. Tiered taxation principle was not in any of the proposed bills, an industry source said, adding that St Jude, in leaving AdvaMed at a critical juncture in the debate, was losing its voice in the most important health policy discussion of the last 60 years.
References
1. Daniel Starks letter to AdvaMed, 2 November 2009
2. The Regulatory Affairs Journal – Devices, 2009, 17(6), 463-464
3. AdvaMed statement, 17 November 2009