Reduced Tax Still Splits Medical Device Makers

Posted December 15, 2009 at 6:25pm

Earlier this fall, Congressional Democrats writing health care legislation and manufacturers of medical devices were at loggerheads.

The lawmakers proposed slapping $40 billion in new taxes over 10 years on the medical device companies, claiming they had refused to offer concessions on their own — in contrast to the drug companies and hospitals — to help pay for health care reform.

Industry officials complained they were already taking a hit because of likely hospital cuts that would affect device makers’ bottom lines. They warned new taxes would mean steep job losses.

But as the Senate enters the final stretch of its consideration of the massive health bill, some in the medical device industry appear closer to reaching a truce, willing to accept half of a loaf. Both the Senate and House versions include $20 billion in new taxes on the industry.

At the same time, the negotiations have exposed a rift within the medical device community between larger companies and smaller firms, which are more adamantly opposed to any new levies.

When Senate Majority Leader Harry Reid (D-Nev.) unveiled his health care bill in November that included the $20 billion medical device tax, Bill Hawkins, the CEO of Medtronic Inc., one of the largest medical device companies, issued a statement saying, “We are encouraged by progress in this area.—

He also praised Minnesota Democratic Sens. Amy Klobuchar and Al Franken for pushing the reduction of the medical device tax. “Their efforts will serve to protect innovation and jobs while advancing meaningful healthcare reform,— he said.

But Mark Leahey, president of the Medical Device Manufacturers Association, which represents smaller firms, said his group still opposed the new tax even though “other groups have waved the white flag.—

“I wouldn’t characterize our companies as happy or relieved. The $20 billion hike is still a big number,— Leahey added. Nevertheless, Leahey said that if there is going to be a tax in the final legislation, his group wants to mitigate harmful effects.

“We’re trying to become pragmatic in the structure— of the tax, Leahey said.

To offer some relief for smaller companies, some Senators are seeking last-minute changes. They are pushing an amendment that would roll back the date the tax would go into effect by three years, to 2013, as well as exempt a company’s first $100 million in revenue from the tax. Income of $100 million to $150 million would be taxed at half the rate. The amendment would also make the medical device tax-deductible.

However, the bottom-line revenue figure would still be $20 billion, meaning companies would pay a higher rate on income of over $150 million.

The key co-sponsors of the amendment, which was introduced this week, are Sens. Evan Bayh (D-Ind.) and Klobuchar.

The Senators are from states with major medical device operations.

The Advanced Medical Technology Association, which represents some of the major medical device companies including Medtronic, issued a statement praising the amendment and its sponsors.

In the statement, Stephen J. Ubl, president of AdvaMed, lauded the sponsors for their “tremendous leadership in moderating the size of this tax and their ongoing efforts to improve the proposed medical device tax by offering sound implementation policies to ensure that the execution of the tax is practical and fair.—

It is unclear what chances the amendment has in the Senate. But several of the provisions are already in the House version and could be incorporated into the final version during the conference negotiations.

In recent years, medical device companies have increased their lobbying presence in Washington, D.C., as well as their financial support for Democrats who now control Congress.

The industry spent a record $30 million on lobbying in 2008 and is on pace to exceed that figure this year, according to Dave Levinthal, a spokesman for the Center for Responsive Politics. In the first three quarters of this year, the industry had already shelled out $23 million.

Medtronic, a Minneapolis-based firm that pioneered the development of the cardiac pacemaker, had never spent more than $1 million annually on lobbying before 2005. By 2008, the company had forked out $5 million to influence Capitol Hill.

In the first nine months of this year, Medtronic, which has 50 facilities in 11 states, spent $3.23 million on lobbying, according to disclosure reports.

A Medtronic spokesman did not respond to questions about the company’s lobbying strategy.

As with many other sectors, the industry has dramatically altered its campaign giving to reflect the political changes in Washington. In the 2006 election cycle, 67 percent of its campaign giving, both from political action committees and individuals, went to Republicans. So far in the current election cycle, 62 percent of the contributions have been made to Democrats, according to a Center for Responsive Politics analysis.

“Clearly what the industry is trying to do is influence the lawmakers most in power,— Levinthal said.

Since 1989, the top recipients of contributions from medical device employees and PACs have included some of the most influential Members of Congress, including Senate Finance Chairman Max Baucus (D-Mont.), who has received $254,016, and House Ways and Means Chairman Charlie Rangel (D-N.Y.), who took in $170,202.

Klobuchar, who was elected to the Senate in 2006, has received $50,850 in contributions from industry employees and PACs, according to the CRP.

Bayh, who was elected to the Senate in 1998 and ranks among the top 10 recipients of medical device money, raked in $168,451. The Indiana Democrat has been unabashed in his support for the medical device companies, saying he is protecting jobs in his state.

In a news release posted on his official Web site, Bayh took credit for fighting to slash the proposed $40 billion tax that was initially included in the health care bill approved by the Senate Finance Committee.

“I told them it was crazy at a time when the economy was bad,— he said in the statement. “When a proposal like this threatens an important Hoosier industry and thousands of jobs across our state, I’m not going to stand idly and let that happen.—