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Medical device makers see an opening in budget impasse

They've fought hard against a tax that's part of the new healthcare law, and Congress' support for the levy is waning.

October 16, 2013|By Joseph Tanfani
  • A tax collected from makers of medical devices, such as artificial hips like this one, is expected to raise more than $30 billion over 10 years to help pay for the expansion of health insurance coverage under Obamacare.
A tax collected from makers of medical devices, such as artificial hips… (Terrence Antonio James,…)

WASHINGTON — Leaders from the medical device industry listened when President Obama vowed in 2009 that there would be shared sacrifice and "no sacred cows" to help pay for his healthcare law.

But unlike the pharmaceutical industry, insurers and others at that healthcare summit, the device makers never shook hands on a deal. Instead, after a 2.3% tax on their revenue was included in the 2010 Affordable Care Act, they started a drive to repeal it. Now, with Washington paralyzed in a government shutdown and a fight over the debt limit, the device makers have seized on the impasse as a chance for victory.

Whether the tax will be delayed or repealed is still uncertain amid the roiling negotiations. But its prospects for longevity as part of Obamacare appear to be diminishing.

The industry has waged a relentless campaign, powered by millions of dollars spent on lobbying, campaign contributions and appeals by manufacturers targeted to their representatives in Congress. The industry has also financed studies that claimed the tax would cost more than 43,000 jobs, though critics say those figures are inflated.

Democrats in the House and Senate, saying the levy is hurting businesses in their states, have already joined with Republicans to call for delaying it, or quashing it outright.

"The medical device industry is very aggressive and efficient in their lobbying, and they smell blood at this point," said Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities, a left-leaning think tank based in Washington. "It's clearly in jeopardy."

The tax, which took effect in January, covers a broad array of medical equipment, such as hip implants, cardiac stents and defibrillators. (Most items bought directly by consumers, such as eyeglasses and hearing aids, are exempt.) The tax collected from device firms, both domestic and foreign, is expected to raise more than $30 billion over 10 years to help pay for the expansion of health insurance coverage under Obamacare.

Like other industry players, the Advanced Medical Technology Assn., the lead advocacy organization for medical device makers, was asked to help come up with ideas to raise money as the law was drafted. The association pitched its idea: a levy not on device makers, but on purchasing organizations that bargain with hospitals. The approach won no friends.

"I think we were just shocked," said a Democratic aide who was involved in the talks and asked not to be identified to discuss the negotiations.

Hit with a proposed tax, the industry succeeded in cutting it in half after the intervention of then-Sen. Evan Bayh, whose state of Indiana is home to such device manufacturers as Zimmer and DePuy Orthopaedics. Bayh, a Democrat, is now a partner with the K Street law firm of McGuireWoods, which lobbies for device makers.

But the industry never accepted the tax. Since 2008, it has spent about $30 million a year on lobbying, and ramped up contributions to federal campaigns, from $6.4 million in 2010 to $10.4 million last year, according to data analyzed by the Center for Responsive Politics.

Most of the money went to Republicans, but the industry also has been generous to key Democrats who have opposed the tax, including Sens. Edward J. Markey of Massachusetts and Amy Klobuchar and Al Franken of Minnesota. Both states are also home to device manufacturers.

The industry argues that the tax discourages research on new products and drives jobs overseas.

"Our argument was, in effect, it was a tax on innovation," said David Gollaher, president and chief executive of the California Healthcare Institute, an industry research and advocacy group based in La Jolla. He said the case has been an easy one to make, even with Democratic supporters of healthcare reform, who are eager to support any industry that can promise high-paying manufacturing jobs.

Whether the tax is harming the industry is a matter of debate. Some studies have found the industry will benefit as more people get access to better healthcare; industry representatives, though, say they don't expect to sell many new hips or heart valves to young people newly insured under Obamacare.

Steve Ferguson, chairman of Cook Medical in Bloomington, Ind., said device manufacturers will have a hard time passing the costs along: "The hospitals say they've got their own problems," he said, adding that one hospital canceled a contract with his company rather than pay more.

Another reason the device tax is a tempting target for Congress: It's easier to make up the lost $30 billion than to take on some of the other more expensive ways of raising money for Obamacare. But if the tax is repealed, other industries may seek similar treatment.

"I think it's Pandora's box," said Jeff Cohen, executive vice president of the Federation of American Hospitals. "If they open this up and it succeeds, I think it says to everybody out there they are going to be revisiting all of these policies."

If so, Cohen's group will be at the head of the line. He says the hospital industry is facing more than $300 billion in cuts because of provisions related to the healthcare act.

"If there's going to be any revision of the law, hospitals should be No. 1," he said.

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