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“Keeping the government shut unless you bail out the medical device industry is not necessarily good news for the industry,” Ornstein said.
With the Affordable Care Act still in the cross hairs of many Republicans, Kettl believes it will be increasingly difficult for Democrats to embrace a repeal of the device tax, because it undermines health care reform and makes the effort seem partisan.
Associating the device tax repeal with the government shutdown or potential default “was not a savvy move,” said Democratic Rep. Keith Ellison, who represents Minneapolis. “The industry should have actually discouraged that.”
At a minimum, Ellison said, proponents of the tax’s repeal will have to offer a clear alternative for the $30 billion that will be lost over 10 years if the device tax is eliminated. A new proposal to replace the device tax by recalculating pensions may be too confusing, he added.
Paul Van de Water, an economist who studies health issues at the Center on Budget and Policy Priorities, says the device industry has exaggerated the effects of the tax.
The tax applies to foreign-made medical devices imported to the U.S., as well as to American-made devices sold in this country, Van de Water said, but it does not apply to American-made devices sold abroad. An AdvaMed-sponsored study “assumed that the tax would reduce the competitiveness of U.S. firms with foreign firms. That’s absolutely false.”
Most analysts, including Van de Water, agree that paying the tax could be a challenge for some smaller companies with narrow profit margins, but not for major corporations. Fridley-based Medtronic Inc., the country’s largest devicemaker, believes the tax will cost the company $120 million in fiscal 2014, which is less than one percent of its $16.6 billion in net sales in fiscal 2013.
Studies by two investment firms reached opposite conclusions about devicemakers’ ability to pay for the tax with increased sales to new patients getting health insurance from Obamacare.
A 2012 report by Roth Capital Partners said the new patient market would be small because most medical device recipients are in their 60s or 70s and already receive devices paid for by Medicare. Only 2 percent of the uninsured Americans covered by Obamacare are over 65, Roth’s researchers said.
However, from 2000 to 2010, knee, hip and pacemaker implants grew at far greater percentages for patients ages 18 to 64 than for those over 65, according to data from the U.S. Agency for Health Care Quality and Research.
In an April 2013 report titled “Health Care Coverage Expansion a Shot in the Arm for Med Tech,” Wells Fargo Securities predicted an industrywide sales increase of 3.6 percent from 2012 to 2022. “We believe this will be sufficient to offset the 2.3 percent med-tech tax,” the authors concluded.
Sign-ups for expanded health insurance under the Affordable Care Act began Oct. 1, and the effort to register people online has been beset with website problems. Determining their economic impact on medical device makers will be little more than speculation for months, if not years, experts say.
In the meantime, Kettl offered a political observation that he believes will be a major factor as Congress debates the tax’s future.
“The longer the medical device tax remains on the books,” he said, “the harder it is to repeal.”
Jim Spencer • 202-383-6123