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The medical-devices sector has come out swinging against a U.S. Senate proposal that could tap $40 billion from device makers over 10 years to help cover health-care reform.

Condemnation of the plan, included in a proposal from Senate Finance Committee Chairman Max Baucus, D-Mont., came even as stocks in the sector were lifted by hopes the government won't take as big a bite from device makers as feared. The sector doesn't appear ready to give up $4 billion a year too easily amid signs it could damage financial results.

Bernstein Research analyst Derrick Sung estimated, for example, the proposal represents about 3% of U.S. sales for medical devices and that device companies could see per-share earnings hit by 5% to 10% per year.

"It's nonsensical to me," Ray Elliott, president and chief executive of big devices firm Boston Scientific Corp. (BSX), said of the Baucus proposal during a Thomas Weisel health-care conference on Wednesday.

Elliott called it an inappropriate tax and joked that he planned to throw tea bags into nearby Boston Harbor. He also warned the proposal could trigger job cuts and reduce research and development within the industry while potentially causing some companies to move their registration offshore.

On Tuesday, after the proposal came to light, the device industry's Washington-based trade group also made its position clear. The Advanced Medical Technology Association, or AdvaMed, said it will "vigorously oppose" the move.

Paul Blair, vice president of investor relations at orthopedics firm Zimmer Holdings Inc. (ZMH), said Wednesday that "Zimmer shares AdvaMed's view." He also spoke at the Thomas Weisel conference.

The sector still seemed to benefit on Wednesday from some relief about a lighter-than-feared government hit, with shares of many big device firms moving higher. Medtronic Inc. (MDT) rose 1.4% to close at $39.06, for example, while Boston Scientific shares climbed 2.1% to $11.46 and Zimmer improved by 1.2% to $49.55.

Orthopedics firm Stryker Corp. (SYK), which was also helped by an analyst upgrade, rose 4.3% to $45.20.

Tim Nelson, a senior health-care analyst with FAF Advisors in Minnesota, which owns shares of device companies, noted there were worries about a tab for the sector rising as high as $60 billion. But investors may not realize that $40 billion "is on top of whatever other givebacks" will more indirectly affect device companies, Nelson said.

Those include a squeeze on hospitals that could flow downhill to device makers, which are generally paid by hospitals and have argued they are already facing pressure due to this effect. Also, a potential move to bundle payments to hospitals and doctors could align their interests in reducing device prices, Nelson said.

It remains to be seen whether the Baucus proposal winds up in an eventual reform bill, or whether it's changed along the way. The proposal was described as a $4 billion-per-year fee on device manufacturers allocated by market share, but without explanation of how that gets determined. "It's just too early to tell" who might pay what and how, Zimmer's Blair said.

But the mechanism for how devices companies might pay matters more than what they pay, according to Morgan Stanley analyst David Lewis. "A 'flat tax' is preferable, in our view, to targeted industry fees as our larger concern is the creation of more infrastructure intended to catalyze pricing transparency," he said.

-By Jon Kamp, Dow Jones Newswires; 617-654-6728; jon.kamp@dowjones.com