With Special Tax Suspended, Medical Device Firms Reap Big Savings : Shots - Health News The medical device industry is enjoying a two-year moratorium on a tax that was created to support the Affordable Care Act. Are firms using their savings to create more jobs, as many claim?

With Special Tax Suspended, Medical Device Firms Reap Big Savings

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How would you spend a windfall? That's the question now facing American companies that make medical devices. A tax on their revenue has been suspended for two years. Minnesota is home to many of these companies and from there, Mark Zdechlik reports.

MARK ZDECHLIK, BYLINE: Device manufacturers say the tax hurt their businesses. The Congressional Research Service estimates companies paid out $2.4 billion in 2014.

GEORGE MONTAGUE: I remember when this tax went into place, it forced us to make cuts and sustain those cuts.

ZDECHLIK: George Montague is the chief financial officer of Smiths Medical. The Minnesota company takes in more than $1 billion a year selling specialty medical products. Montague says his company will no longer have to pay $10 million a year in medical device taxes.

MONTAGUE: So now we're getting that funding back and what this enables us to do is accelerate some of that investment.

ZDECHLIK: The med tech industry has branded the device tax a job-killer. Montague says Smiths Medical absolutely will be adding new jobs because of the suspension, but he doesn't know how many. Minnesota Republican congressman Erik Paulsen, a leading opponent of the tax, stopped by Smiths Medical on something of a victory tour.

ERIK PAULSEN: There are estimates that because of Minnesota's high concentration in this sector - essentially the largest in the world in a concentrated environment - that Minnesota would be paying approximately 25 percent of the tax. That's a big deal to our economy.

ZDECHLIK: Paulsen also stopped by another Minnesota device manufacturer called NxThera.

PAULSEN: Hi, nice to see you.

UNIDENTIFIED WOMAN: Nice to see you.

ZDECHLIK: NxThera makes a machine that shrinks enlarged prostates with blast of steam. CEO Bob Paulson says the tax made it harder to find financing because investors balk at putting money into an industry that's been singled out to pay a tax. Now he plans to add to his staff of about 40 in sales and research.

PAULSEN: It absolutely means additional money that we can invest in both of those areas.

ZDECHLIK: Paulson agrees the tax suspension will create thousands of new jobs in Minnesota. But there's no consensus among analysts on that. The Congressional Research Service concluded the tax was having fairly minor effects on employment, changing payrolls by no more than two-tenths of a percent. Bloomberg Intelligence senior analyst Jason McGorman says the suspension won't really change what big companies are doing. He says big, publicly traded firms also might return the money to shareholders.

JASON MCGORMAN: It's more likely that the larger firms would not make the hiring so much as the smaller firms.

ZDECHLIK: Industry analyst Brooks West of Piper Jaffray says device makers would be smart to reinvest the windfall.

BROOKS WEST: Politically, they better spend this money on R and D or the government could look at this and say, you know, look, if you just pass this on to the shareholders, we're going to reimpose this tax.

ZDECHLIK: But congressman Paulsen doubts the tax will return. He's optimistic the two-year suspension will become a permanent repeal. For NPR News, I'm Mark Zdechlik in St. Paul.

SIEGEL: That story is part of a reporting partnership of NPR, Minnesota Public Radio and Kaiser Health News.

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