Within days of the Republican Party regaining control of the Senate, a host of policy issues has quickly risen to the top of Washington's priorities list: trade, corporate tax reform, the Keystone pipeline. And then there's the medical device tax.
The tax, passed as part of the Affordable Care Act, plays a marginal role in the health-care overhaul, but the push to repeal it has attracted millions of dollars of lobbying, as well as high-profile supporters on the Hill, from Sen. Elizabeth Warren (D-Mass.) to Sen. Orrin Hatch (R-Utah).
The 2.3 percent sales tax on medical devices applies to everything from surgical gloves to defibrillators, all manufactured by companies dotted across the country that have hired an army of lobbyists.
With more than 7,000 device companies spread across the country, the industry has large concentrations of employers in California, Minnesota, Massachusetts and New York. The map below, which shows the location of companies and employees who have signed onto a letter opposing the tax, helps explain why the issue keeps resurfacing.
Medtronic, one of the country's biggest medical device companies, is based in Minnesota; both of the state's senators, Al Franken and Amy Kloubuchar, support repealing the tax. When the ACA was drafted, it was then-Sen. John Kerry from Massachusetts who helped negotiate down the tax from 4.6 percent to 2.3 percent. And in December 2012, Chuck Schumer of New York joined 17 other Senate Democrats in support of delaying the device tax.
How much does the tax matter to the law? It's not critical. The Joint Committee on Taxation estimates that the tax, which was added to the law to help pay for expanding coverage to an estimated 25 million people, will bring in $29 billion over a decade. That's much less than other the funding sources in the law, like the tax on health insurers ($101.7 billion) or the requirement on medium-sized and large employers to offer coverage ($130 billion).
Device makers say that the tax will eliminate tens of thousands of jobs and stifle innovation. For years, they've intensely lobbied the Hill, spending about $30 million each year since 2008, according to the Center for Responsive Politics. So far this year, the device sector has spent $25.8 million, according to the influence-tracking group.
As you can see in the chart below, overall lobbying by the industry never really abated after the passage of the health-care law.
There are 382 registered lobbyists this year who list working on the tax in their disclosure reports, according to an analysis by CRP. Former senator Trent Lott has lobbied on behalf of Medtronic. In 2012, former senator Evan Bayh wrote an op-ed in the Wall Street Journal on behalf of the industry arguing for the tax to be repealed.
The industry spreads its money widely among both parties. Medical device and supply companies in the most recent campaign cycle donated $5.7 million to candidates, according to CRP. The top two recipients of industry cash during the 2013-14 campaign cycle were Rep. Erik Paulsen (R-Minn.), sponsor of the House bill repealing the device tax, and Mitch McConnell, who will set the Senate agenda as Republican leader. But Democrats like Sen. Ed Markey and Kay Hagan are also big recipients. Here are the top 10 beneficiaries of industry cash in the most recent election cycle, according to CRP:
If this issue sounds familiar, it's because repeal of the device tax also became a major focal point in last year's government shutdown, when Republicans unsuccessfully tried to tie elimination of the tax to re-opening the government.
The Republican-controlled House has approved repeal of the device tax three separate times in the past two years, including most recently in September 2014 as part of a Republican jobs bill. The Senate also overwhelmingly backed repeal during a series of nonbinding votes on a 2013 budget resolution, with 34 Democrats joining every Republican to strike it down.
The White House opposed past efforts to repeal the device tax. But when asked about repeal of the medical device tax during his post-election press conference on Wednesday, Obama signaled he could entertain the idea, as he also drew a hard line against repealing the law's unpopular individual mandate.
Device makers are "cautiously optimistic" the conditions are finally right for repeal this time, said J.C. Scott, chief lobbyist for the Advanced Medical Technology Association, or AdvaMed, the industry's main lobbying group. "Obviously, we're encouraged to see the statements from Sen. McConnell and Speaker Boehner that they'd like to [repeal] the device tax early in the next Congress," Scott said.
An AdvaMed survey of its own members reported the first year of the tax resulted in an estimated 14,000 job cuts in the industry and prevented 19,000 jobs from being created. However, critics say the industry's claims — especially that the tax will shift jobs overseas — have been overblown and ignore economic pressures already faced by the industry.
"Any tax is obviously going to have some downside," said Paul Van de Water, a senior fellow at the left-leaning Center on Budget and Policy Priorities. "The people who have to pay it would probably prefer that they didn't. For this one, the problems are overstated."
A report from Ernst and Young last month found domestic revenues for medical technology firms grew 4 percent to $336 billion in 2013, the first year the tax went into effect — about the same rate from 2012. The 7 percent growth in research spending to $13.5 billion in 2013 is also a positive sign for the industry's health, according to the analysis.
And another analysis earlier this week from the nonpartisan Congressional Research Service concluded the tax is unlikely to hurt the profits of device companies, estimating it will reduce industry output and employment by no more than 0.2 percent. If anything, CRS writes, the tax will most affect customer prices and not company profits.
"The effect on the price of health care, however, will most likely be negligible because of the small size of the tax and small share of health care spending attributable to medical devices," according to the report. AdvaMed argues, however, the report is a misreading of the industry, whose primary customers are hospitals.
"It's a very price-competitive market in the device industry," said Scott of AdvaMed. "There's not a whole lot of ability to shift the cost of the tax onto the device company's customer."
If the tax does get repealed, it's not clear how the resulting budget shortfall will be made up. If Republicans look to cut funding from other parts of the law to pay for it, that could make Democrats balk. So the device tax is more likely to be part of a broader legislative package.
Repealing the device tax could get tricky for another reason. If successful, it could inspire a "me too" response from other parts of the health-care industry that made financial concessions in the health-care law.
When repeal of the device tax played a central role in last year's government shutdown, hospitals were concerned that medical devices companies were getting preferential treatment. And so they warned they would put pressure on Congress to reduce the estimated $155 billion in federal cuts they're facing under the ACA. Hospitals have been especially nervous about these cuts since the 2012 Supreme Court decision made the Medicaid expansion voluntary, meaning there are fewer insured patients than initially expected when the law was enacted.
"It is critical that should Congress reopen the ACA to reconsider the contributions of any one health care sector that benefits from ACA’s coverage expansion, it should simultaneously address the changed circumstances of hospitals and provide similar relief," wrote Federation of American Hospitals chief executive Chip Kahn at the time.
This post has been updated with the most current map of signatures supporting repeal of the device tax.