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Minnesota Medical Device Companies Face Tax Hike

ST. PAUL (WCCO) -- While lawmakers in Washington are working around the clock to avoid going over the fiscal cliff, Minnesota's medical device manufacturers face a tax hike of their own.

Part of the new Affordable Care Act is a 2.3 percent excise tax on sales of medical devices that could raise $29 billion over 10 years to help pay for expanding health care to the uninsured.

However, medical device makers say the tax could dramatically affect Minnesota jobs -- and consumers.

Minnesota has the largest per capita medical technology industry in the United States, including names like Medtronic, St. Jude's, Boston Scientific, and dozens of smaller start-up companies.

LifeScience Alley, a trade group representing those companies, says a tax on the sale of devices will be a major setback.

"It puts on the table all of the 35,000 direct medical device jobs, and the over 100,000 indirect supporting jobs in Minnesota as they re-evaluate their business plans and how they are going to adjust to this," said Ryan Baird of LifeScience Alley.

President Barack Obama told WCCO-TV's Frank Vascellaro he's not willing to delay the tax.

"The healthcare bill is going to provide those medical device companies 30 million new customers. It's going to be great for business and they're doing really well right now and they're going to get 30 million more customers as a consequence," said Obama.

The IRS made public the device tax rules only two weeks ago: Minnesota Sen. Al Franken calls that "unconscionable."

Franken says the tax will have a major impact on Minnesota companies.

"We'd like to see it delayed for a year," said Franken. "We need to look for a way to get rid of this tax."

Eighteen Democratic senators and senators-elect, including Minnesota Senators Amy Klobuchar and Franken, have asked Majority Leader Harry Reid to include the tax in fiscal cliff talks.

Not all medical devices will be taxable in the Affordable Care Act, including over-the-counter medical devices.

A survey by a leading industry trade group says it will cost medical technology companies up to $667 million for training, consulting and system design. The survey added that 62 percent of the companies are planning layoffs or reduced hiring to offset the tax.

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