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Trade group identifies medical device makers passing on federal tax

By Debra Sherman

(Reuters) - Some medical device manufacturers are trying to pass on the cost of the new federal tax on medical devices to hospitals, and a trade group on Thursday said it has launched a website to identify those companies publicly.

Congress imposed the 2.3 percent tax on the manufacturers as part of the Affordable Care Act. It is expected to collect more than $30 billion over the next decade to help extend healthcare coverage to millions of Americans who would otherwise be uninsured.

The Healthcare Supply Chain Association, which represents the biggest group purchasing organizations (GPO) used by hospitals, on Thursday said the new site, http://www.devicetaxwatch.com/ would help raise awareness of efforts by some manufacturers "to shift costs of the tax directly to hospitals, healthcare providers, patients and taxpayers."

Most of the companies on its list of "cost-shifting suppliers" are small and private, but there are some large ones, including Allergan Inc, Cerner Corp, Waters Corp, Alere Inc, Invacare Corp, Integra Lifescience and Staar Surgical Co, Cardica Inc, Iridex Corp and Misonix Inc.

Medtronic Inc, the world's largest standalone medical device maker, does not intend to pass on the costs of the tax to users, Chief Executive Omar Ishrak said in a recent interviews.

"We price according to the value of our products," Ishrak said.

Invacare in a statement said that based on its interpretation of the regulations, the company expects the impact of the tax to be less than $1.5 million, adding it intends to pass the cost on to the market.

Cerner, Integra, Staar Surgical and Waters Inc. declined to comment. The other companies did not return calls and emails.

"Virtually every public medical device company has guided 2013 earnings to include the full impact of the medtech tax, so any cost shift is now upside relative to that guidance," Amit Hazan, an analyst at SunTrust Robinson Humphrey, wrote in a research note.

"However, with GPOs aggressively getting behind the effort to thwart the cost-shift, it's too early to know how this will play out," he added. "In fact, since so few companies are listed thus far, it's not out of the question that their cost-shifting effort will backfire in terms of their relationships with GPOs and hospitals."

The American Hospital Association declined to comment on the issue.

Beverly Slate, director of supply chain operations at Memorial Health Care System in Chattanooga, Tennessee, and past president of American Hospital Association, said she has seen some manufacturers include the device tax as a line item on their invoice.

"This was not communicated to us in advance," she told Reuters. "We're not paying it."

She said the practice does not seem broad or widespread, but it is happening.

"Each company has made their own decision about how they're going to handle the device tax. And on the flip side, hospitals are looking at how they respond to it."

(Reporting By Debra Sherman; Additional reporting by Adam Kerlin; Editing by Jilian Mincer and Leslie Adler)

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