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Who’s ‘High-Fiving’ About the Device Tax?

Cook Medical's president, Kem Hawkins, talks candidly about who's happy about the tax and who wants it gone.

When I sat down with Kem Hawkins last week at Cook Medical’s headquarters in Bloomington, IN, the first question I had to raise was, of course, about the device tax. Hawkins, president of Cook Medical, has been outspoken about the detrimental effects of the tax from the very start and was more than happy to reveal who he thought was happy about the pending 2.3% excise tax on device sales and who will be driven out of the industry.
 
“Cook can pay it. But [for] the companies that are starting out [and] the companies that have a marginal profit, this will put them out of business,” said Hawkins. “And a lot of these companies are working on technology that is sorely needed by patients. People just think about the large companies. They don’t think about the ramifications of what this tax would mean to all these small companies trying to make life a little better [for patients].”
 
"People just think about the large companies. They don’t think about the ramifications of what this tax would mean to all these small companies trying to make life a little better [for patients].” --Kem Hawkins, president of Cook Medical.
Could it be that, with all the hubbub surrounding this innovation-killing tax, some companies are actually happy about it? Unfortunately, the answer is yes, at least from Hawkins’s perspective. “You have a couple of very big, powerful companies that were high-fiving in the hallways, because they [make] pharma and device [products], but they’re dominated by pharma [products]. So they really were going to get 30, 40, or 50 million new patients,” Hawkins said. “I don’t know how many prescriptions are going to be written, but I can guarantee you that they have it all figured out, so I think they were thrilled to death, and I’ve heard stories about how thrilled they were.”
 
One of the keys to being a successful device company is the ability to take profits and reinvest them within the business. The device tax will take away that ability for many companies. Even as the largest privately held device company, Cook Medical will also feel this sting. For example, the company’s technologies for peripheral vascular (PV) conditions have been very successful in reducing amputations and death, and ideally, the profits should be going into next-generation technology for PV or a different clinical area. “If you don’t have $20 million, or $2 billion, over ten years, and it goes up every year as you increase sales, where is the money going to come from to reinvest and to put into ideas, the clinical studies, and everything it takes [to develop a device]?” Hawkins asked. “This [tax] has put a complete and total freeze on any of our [Cook Medical’s] expansion in the United States.”
 
As this month’s anticipated Supreme Court ruling on the healthcare reform bill (ACA) looms, the device industry has been rallying its efforts against the tax. Momentum has snowballed over the last six months, pushing the recent 270–146 House vote to repeal the device tax. “I applaud the people who voted for this, because ultimately, they voted for jobs, they voted for innovation, and they voted for patients. We have every belief that through perseverance and being on the right side of this issue, ultimately we will do the right thing as a country,” said Hawkins. “I don’t believe that there’s a medical device company out there that doesn’t believe in health reform.”

Maria Fontanazza is managing editor of MD+DI. Follow her on Twitter: @MariaFontanazza.

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