Medical device tax repeal bill gains some ground

May 30, 2012

Makers of medical devices are gaining some momentum in a vigorous campaign to persuade Congress to scrap a tax imposed on their industry by the 2010 health-care law.

A bill to void the tax sponsored by Rep. Erik Paulsen (R-Minn.) will be marked up in the House Ways and Means Committee Thursday. Republican House leaders say a floor vote could be scheduled as soon as next week.

Congress already has scotched other segments of the law through bipartisan votes — including a provision that would have expanded the range of purchases that businesses must report to the Internal Revenue Service and a “glitch” that would have allowed up to three million middle-class Americans to enroll in Medicaid.

It is still unclear if the medical device tax will prove the next example. Republicans have seized on the issue as a political weapon, pointing to it as the latest evidence that President Obama’s signature health-care initiative is a jobs killer. But the repeal bill’s 239 co-sponsors include 11 Democrats. Also expressing support are the two Democratic senators from Minnesota, one of at least eight states where the industry is strong.

Whether the bill ultimately succeeds could depend on how House Republicans choose to pay for it.

Congressional budget scorers estimate the tax — which takes effect Jan. 1 and was intended to help pay for the health-care law — will raise nearly $30 billion in revenue from 2013 through 2022.

The method Republicans choose to replace those funds, which must be announced before the House vote, could make the difference between passing the bill largely along party lines, or with a level of bipartisan support that could give the proposal a boost in the Democratic-majority Senate.

(The issue could also be moot if the health-care law does not survive Supreme Court review. A decision from the court is expected late next month.)

The provision will impose a 2.3 percent excise tax on gross sales receipts in excess of $5 million for manufacturers and importers of medical devices ranging from artificial hips, to MRI scanners, to cardiac defibrillators.

Representatives of the roughly $140 billion industry say that is a particularly heavy burden for a sector where innovation is often driven by start-ups.

“This is a highly competitive industry with fairly thin margins,” said Wanda Moebius, spokeswoman for the Advanced Medical Technology Association, or AdvaMed, the main industry trade group. “This is a tax that can’t simply be absorbed without consequence.”

Some companies will be forced to raise prices on customers such as hospitals and physicians, she predicted. Others, for whom boosting prices is not an option, will have to cut back on research and development and eliminate some of the industry’s roughly 400,000 jobs.

At least three firms have already announced layoffs in anticipation of the tax, including Michigan-based Stryker Corp, a maker of hip and knee replacements that said it will cut its work force by 5 percent, losing 1,000 jobs.

“This tax is a ticking time bomb that we need to dismantle before it’s too late,” said Paulsen, the repeal bill’s sponsor.

Presumptive Republican nominee Mitt Romney has attacked the excise tax on the campaign trail, deriding the fact that lawmakers chose to exempt from the tax any device that the Treasury Department determines is generally purchased by the public at retail — such as eyeglasses, contact lenses and hearing aids.

Obama “said, ‘oh, we’re not going to tax individuals, we’re just going to tax those companies that provide the medical devices to individuals,” Romney said at a February town hall meeting in Maine. “It’s just disingenuous and deceptive.”

John McDonough, a former Senate staffer who helped craft the health-care law countered that it would also bring plenty of new customers to the medical device industry by expanding coverage to tens of millions of uninsured Americans. An administration official echoed that point Wednesday.

McDonough said that staffers on the Senate Finance Committee “did some pretty extensive analysis and came to the conclusion that the device industry would be significantly advantaged financially by the major coverage expansion in terms of demand for their product.

“And just like everybody else in the health-care industry,” added McDonough, now a professor at the Harvard University School of Public Health, “they would be expected to make some contribution to supporting the financing of the law.”

But while representatives of pharmaceuticals companies, hospitals, and even health insurers agreed with that underlying logic as it applied to them during negotiations over the health-care law, device makers adamantly opposed it.

Though they failed to stave off the excise tax altogether, sympathetic Democratic lawmakers in both the House and Senate succeeded in substantially reducing its size. Now several of those Democrats are among those pushing hardest for repeal.

That hasn’t necessarily shielded them from partisan attack.

Rep. Jim Matheson (D-Utah) is one of at least five co-sponsors of the House repeal bill who have been targeted by the National Republican Congressional Committee. It recently distributed a press release in his district headlined “Matheson’s medical device tax is sending jobs overseas.”

Matheson said he was unfazed. “There’s a long history of the NRCC misrepresenting my record. What’s really gratifying is everyone in Utah has already figured that out,” he said.

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