October 20, 2009 / 4:59 PM / 10 years ago

RPT-UPDATE 2-Health tax could hurt business-Boston Scientific

* Proposed tax in health reform could lead to job cuts-CEO

* Company’s tax burden would double annually-CEO

* Shares down 17 percent day after earnings miss (Adds analyst comments, details from conference call, byline)

By Susan Kelly

CHICAGO, Oct 20 (Reuters) - Boston Scientific Corp (BSX.N) warned on Tuesday that a proposed tax in the U.S. health care reform bill that cleared the Senate Finance Committee last week could have serious consequences for the company, including job losses.

“The bill that came out of the committee last week makes absolutely no sense and would be very damaging to Boston Scientific, and the medical device industry as a whole,” Boston Scientific Chief Executive Ray Elliott said during a post-earnings conference call.

“In a nutshell, it would raise costs and lead to significant job losses. It does not address the quality of care but the political scorecard of savings.”

Elliott said that the company’s tax liability would be doubled, adding $150 million to $200 million a year, and it would be forced to make substantial cuts in research and development spending, which could result in 1,000 to 2,000 jobs being lost at Boston Scientific.

Shares of Boston Scientific were down $1.73 or 17 percent at $8.43 in afternoon trading on the New York Stock Exchange. Late Monday after the NYSE closed, the company reported third-quarter earnings that missed expectations and cut its full-year forecast.

“There are heightened fears right now thanks to health care reform, because we don’t know where that’s going to end up yet. Any bit of bad news can cause folks to pull out,” said Morningstar analyst Debbie Wang.

The Senate bill in its current form contains $4 billion in annual fees on medical device makers beginning in 2010 to pay for health care reform. The device industry is fighting to remove or reduce the fees.

“Part of what’s still not clear is the whole issue of the tax,” Wang said. “The odds are it’s going to be whittled down to something; we just don’t know what it’s going to be yet. They are going to get hit, but how big the hit will be is just not clear.”

In addition to direct fees on device makers, the industry faces a double tax because hospitals, which have agreed to accept $155 billion in cuts in government payments over 10 years, will pass on part of that burden to device makers, said Elliott.

Natick, Massachusetts-based Boston Scientific cited decelerating growth in the market for devices that manage irregular heart rhythms in reducing its full-year profit outlook.

The company said the overall cardiac rhythm management device market is growing at about 4 percent, with U.S. growth at 2 percent. That’s below the company’s prior expectations for market growth of 5 percent to 6 percent, and U.S. defibrillator growth of 3 percent, Elliott said.

The U.S. drug-eluting stent market, in which Boston Scientific also participates, is stable, with U.S. procedures up about 1 percent, Elliott said. (Reporting by Susan Kelly, editing by Gerald E. McCormick)

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