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Business

Goleta Companies Brace for New Federal Medical-Device Tax

Beginning Jan. 1, Affordable Care Act imposes new 2.3-percent tax on sales of medical devices

Local medical-device manufacturers will see an unwelcome change next month when a new tax on their products takes effect as part of the Patient Protection and Affordable Care Act.

A provision of the health-care law, also known as Obamacare, calls for a new 2.3-percent levy on the sale of certain medical devices by the manufacturer or importer. The tax will be imposed beginning Jan. 1.

Many large medical-device companies are publicly lobbying for a repeal of what they view as a “punitive” tax, and some local business officials say they are with them in spirit.

The tax, which is paid on gross sales, is expected to raise billions of dollars in government revenue to help fund health care.

Last week, a group Senate Democrats asked for a delay of the tax’s effective date.

For now, however, companies have been forced to consider the consequences of the new tax and make plans to absorb it under Internal Revenue Service guidelines that were only recently finalized for the law, which was signed by President Barack Obama in 2010.

Goleta has a thriving community of cutting-edge medical-device manufacturers, and many of them could be affected, including Allergan Inc., Inogen, InTouch Health, Karl Storz Veterinary Endoscopy America Inc. and TrueVision Systems.

Yulun Wang, founder and CEO of InTouch Health, said the tax would increase health-care costs overall, with consumers bearing much of the burden. InTouch develops and manufactures Class II telemedicine remote-presence medical devices that allow physicians to conduct reliable, real-time, remote consultations.

A demonstration room at InTouch Health in Goleta stands ready all hours of the day so doctors can remotely access robots and practice care on dummies. (Gina Potthoff / Noozhawk photo)
A demonstration room at InTouch Health in Goleta stands ready all hours of the day so doctors can remotely access robots and practice care on dummies. (Gina Potthoff / Noozhawk photo)

Wang said he’s hopeful the tax will be repealed, noting that about 800 companies have signed a petition to repeal it.

“We don’t like it,” he told Noozhawk this month. “The bottom line is that if you add an additional tax to a business, we have to figure out how to make our business successful as well. That largely is on the consumer.”

The tax would be much more than 2.3 percent, said Wang, noting that it’s closer to 20 percent when overall revenues are taken into account.

Goleta-based InTouch Health produces remote-control robotics that allow a remote clinician to see and interact with patients and staff while independently managing care delivery just as if they were physically present. (Gina Potthoff / Noozhawk photo)
Goleta-based InTouch Health produces remote-control robotics that allow a remote clinician to see and interact with patients and staff while independently managing care delivery just as if they were physically present. (Gina Potthoff / Noozhawk photo)

InTouch has not announced any layoffs because of the anticipated increase in business costs, Wang said.

“We’re constantly hiring and shifting people,” he said. “We constantly have to adjust to whatever our financial situation is. We’re just going to wait to see how it plays out. It won’t put us out of business.”

A spokeswoman for Allergan declined to comment on the impact to the company, whose flagship franchise is in eye care, neurosciences, medical dermatology and urologics. Representatives of Inogen, Karl Storz and TrueVision Systems could not be reached for comment.

Kristen Miller, president and CEO of the Goleta Valley Chamber of Commerce, said the tax and its restraints on business could send a mixed message to entrepreneurs developing new technologies.

“I’m sure nobody intended to hurt the small business in Goleta,” she said, “but that’s exactly what happened.”

Noozhawk staff writer Gina Potthoff can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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