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Awash in Lawsuits, Medical Device Manufacturers Protest New Tax

puzzle with missing piece that reveals the word "tax"

The Supreme Court last month upheld a new tax on medical devices that is planned as a measure to fund health care reform. The 2.3 percent tax is applicable to most devices for humans, with certain exceptions, and will go into effect on Jan. 1, 2013.

Specific products that will be exempted from the industry tax include eyeglasses, contact lenses and hearing aids. In addition, individuals will not be required to pay the tax on devices they purchase for personal use. In other words, this medical excise tax is one that primarily affects manufacturers, though they could pass the expense on to consumers.

Because the tax will increase operating expenses next year, some large health care companies are warning investors of their slimmer potential profit margins in 2013. Johnson & Johnson estimated the new law will add $200 million to $250 million to its costs next year.

Transvaginal Mesh Costs

This tax comes at a time when Johnson & Johnson already is taking on large debts because of lawsuits over its defective and dangerous transvaginal mesh products and hip replacement implants.

The second-largest manufacturer of health care products in the world halted the sale of four of its mesh devices this summer. The Gynecare TVM line, which includes the TVT Secur, Prosima, Prolift and Prolift+M systems, was sold by Ethicon, a subsidiary of Johnson & Johnson. The Gynecare Prolift recently was in the news when it was discovered that Ethicon marketed the device for three years without U.S. Food and Drug Administration (FDA) approval.

TVM has been linked to a host of serious complications, including erosion and perforation of nearby organs, both of which cause unrelenting pain and are difficult to treat. Even multiple corrective surgeries cannot always ensure the mesh can be removed because the pieces become embedded in the patient’s own tissues. Thousands of women have filed lawsuits over the life-altering medical devices.

Hip Implant Costs

Johnson & Johnson also still is dealing with the fallout over its recall of 93,000 DePuy ASR hip implants in August 2010. These all-metal devices were found to have early failure rates. The metal parts grind against each other, causing the devices to break down and shed metal shavings. Metal poisoning, or metallosis, can be the result. British researchers say the shavings could lead to an increased risk of cancer of the kidneys and bladder.

In addition, similar claims have been made against the DePuy Pinnacle hip-replacement system, which was the predecessor to the ASR hip-replacement system. The Pinnacle has not yet been recalled permanently, although it was taken off the market for a short period of time. Both artificial hips have spurred thousands of lawsuits against Johnson & Johnson, the parent company of DePuy.

Johnson & Johnson is not alone in its opposition to the new medical devices tax. The Advanced Medical Technology Association, which represents a collection of medical-device manufacturers, has vigorously sought to repeal the tax.

“AdvaMed supported goals of health care reform consistent with our long-held principles,” AdvaMed President and CEO Stephen Ubl has been quoted as saying. “We have consistently opposed the $29 billion medical device tax because of its damaging effects on economic competitiveness, jobs and the research and development needed to find tomorrow’s treatments and cures.”

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