Orange County’s biggest drug maker is following local medical device makers in the fight against a proposed tax in emerging healthcare reform legislation.
Irvine-based Allergan Inc., maker of wrinkle-removing Botox Cosmetic, breast implants and other medical cosmetics, is leading an effort to kill a proposed 5% tax on elective cosmetic procedures, such as face lifts, liposuction and Botox injections.
What’s been dubbed the “Botax” is written into a 10-year, nearly $1 trillion health reform proposal introduced last month by Senate Majority Leader Harry Reid, D-Nev.
If the bill becomes law, the cosmetic tax would raise about $6 billion to help pay for healthcare reform.
Not all procedures would be taxed. Ex-emptions would in-clude procedures to correct birth defects, disfiguring diseases or injuries.
Earlier this year, local medical device bosses including Mike Mussallem, chief executive of Irvine heart valve maker Edwards Lifesciences Corp., and Joe Kiani, chief executive of Irvine-based Masimo Corp., a maker of patient monitoring devices, worked through trade groups to get a proposed $40 billion, 10-year tax on their sales cut in half by lawmakers.
Allergan is taking a different approach.
Instead of working through a trade group, the drug maker is “unabashedly the company leading a grass-roots campaign to try to stir up such a storm of opposition,” Chief Executive David Pyott said. “As the market leader, I think it’s our job and duty to look after the community, which means the physicians.”
The proposal puts the burden on doctors to collect the tax when a procedure’s done.
Allergan’s sales—which are expected to reach $4.4 billion this year—won’t take a major hit if the proposed tax becomes law, according to Pyott.
But the company is fighting the proposal because “it’s a dangerous precedent. This is the first federal tax on healthcare,” Pyott said.
Some states, such as New Jersey, tax cosmetic procedures.
Uphill Battle
Allergan and its allies may face an uphill battle in getting the tax cut because they were relatively slow to organize opposition and may not have a lot of community support, according to some healthcare consultants.
Allergan has a Web site where doctors and patients can fill out letters to send to lawmakers. It also has information about lobbying efforts to lawmakers and various media interviews.
The company’s efforts already have paid off somewhat—an article on the Minyan-ville investor Web site in November quoted lobbyists and Senate aides familiar with the proposal as saying that lawmakers have been persuaded to cut it down to 5% from 10%.
Pyott is optimistic that the tax could be scrapped altogether because of its relatively small size.
“I’ve written a lot of letters to members of the Senate, and if this survives the debate on the Senate floor, then the next move would be to write letters to the members of the House of Representatives, once the 2,000-odd-pages goes to conference,” Pyott said.
Allergan’s main arguing point is that the tax will go against the reform’s stated intent of making healthcare affordable for all patients. Since 86% of cosmetic surgery patients are women—and traditionally not all super wealthy—this tax could hit women who earn $30,000 to $90,000 a year.
“I kind of refer to it as the ‘hockey mom or the soccer mom tax,’ and I’m sure that’s not really what the authors considered,” Pyott said.
But Pyott doesn’t think adding a 5% increase on Botox’s average $440 injection cost will dissuade too many people from getting the procedure.
“The 5% tax on that is irritating, but is it really going to change behavior? I don’t think so,” Pyott said.
