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Medical device tax under fire

  • Article by: KEVIN DIAZ and JANET MOORE
  • Star Tribune staff writers
  • October 22, 2009 - 9:28 PM

As congressional leaders struggle to bring a landmark health care bill to the Senate floor, an unlikely coalition of Minnesota Democrats and Republicans seems poised to score a victory for the medical technology industry by scaling back a proposed $40 billion tax on medical devices.

While it's unlikely that one of Minnesota's leading industries will escape unscathed, congressional and industry sources expressed confidence in recent days that they can trim the tax on device-makers' revenues from the $40 billion over 10 years first proposed to a number closer to $20 billion.

The tax proposal, which emerged abruptly in the Senate Finance Committee last month, has prompted a furious counterattack in Minnesota, where Medtronic Inc., St. Jude Medical Inc. and other top medical device makers employ some 20,000 people.

Two big players in health care -- drugmakers and hospitals -- have already offered concessions to the Obama administration to help pay for the $829 billion legislation, allowing them to position themselves as allies of reform.

But some Senate Democrats say they have yet to see a significant contribution from the $140 billion-a-year medical technology industry.

Stephen Ubl, a Minnesota native who leads the med-tech lobbying association AdvaMed in Washington, says his industry doesn't stand to gain the windfall that other industries might if Congress extends health insurance to millions of new patients.

Instead, Ubl said, med-tech could lose twice: because of the tax and because payment cuts already in the Senate bill will be passed on to med-tech companies, which sell products directly to hospitals.

Still, many observers say the industry will have to pony up something.

"The situation all comes down to shared responsibility," Sen. Max Baucus, the Montana Democrat who crafted the Finance Committee's bill, said at a press conference Monday. "We're all in this together as Americans. That means individuals, providers, hospitals, the pharmaceutical industry -- and medical device manufacturers."

Ubl wouldn't comment on specific discussions. "We have had an open line of communication with the White House and the Congress since the beginning of this year and we continue to do so," he said.

Republican critics of the bill, such as Gov. Tim Pawlenty, have been joined by Democratic supporters, including both Sens. Amy Klobuchar and Al Franken of Minnesota. All told, five governors, 14 senators and more than 20 members of the House have publicly opposed the tax.

"I'm hopeful we'll get some reduction before [it] comes to the floor," said Klobuchar, who has lobbied Obama and other White House officials personally. "It may not be exactly where we want it, but we need to start bringing it down."

Saying he's "hopeful we can reach a compromise," Franken has proposed raising the needed revenue by ending tax breaks for drug company ads and marketing campaigns.

Minnesota Republican Erik Paulsen, co-chairman of the House Medical Technology Caucus, has met with industry officials, held a field hearing and written letters opposing the tax. Paulsen said that while there have been rumors that the Senate may scale back the tax, he also has heard of efforts to add it to the House companion bill.

A deal cutting the tax in half would represent a big victory for both the industry and a state congressional delegation that has been under considerable pressure to protect Minnesota's economy in hard times -- though they are hardly alone in trying to influence details of the sprawling bill.

"All of the constituencies are lobbying for their unique financial interests," said Ron Pollack, executive director of Families USA, one of the leading organizations in a broad alliance to promote health care reform. "The medical device people are not alone in this."

One difference, he added, is that other industry players have recognized the value of a greater volume of business as more people become insured. "It's not simply an altruistic position," he said.

But Ubl points out that many of the newly insured will be young and healthy. Most recipients of medical devices are already covered by Medicare, or have suffered from an "acute episode" such as a heart attack, where patients are treated whether or not they're insured. "Our increased revenue will be small," he said.

The industry's cause has been taken up by lawmakers from other med-tech states, notably California, Indiana and Massachusetts, headquarters of Boston Scientific Corp., which employs about 5,000 people in the Twin Cities. So far, a dozen other senators have joined Klobuchar and Franken, including Dianne Feinstein of California and John Kerry of Massachusetts.

"It's a major problem when you have 14 senators saying it's a problem," Klobuchar said.

The dispute comes as no surprise to those who went through the historic health care debates of the Clinton era.

"On any bill of this kind, accommodations are made for regional interests," said former Clinton official Sara Rosenbaum, chair of the Department of Health Policy at George Washington University. "We can all decry [them], but those accommodations are the lifeblood of politics."

kdiaz@startribune.com • 202-408-2753 jmmoore@startribune.com • 612-673-7752

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