Medical device makers failed in their attempts to repeal a tax on devices that helps pay for the health care law, but they continue to fight to kill the tax.
WASHINGTON — As the federal government shutdown showdown neared an end this month, it appeared that the one change that would be made to the Affordable Care Act would be a repeal of the law's tax on medical devices.
That didn't happen, but opponents of the tax say the fight isn't over.
"This is something that leaders of both parties know is a high priority for a number of members, both Democrat and Republican," said Sen. Joe Donnelly, D-Ind.
More than any of the industry fees or taxes imposed by the law to help pay for extending health insurance to millions more Americans, the medical device tax continues to be hotly debated. Bipartisan majorities voted in the House last year and in the Senate this year to repeal it.
That's in large part because repeal is the top goal of an industry that fought the tax from its inception and that has companies spread throughout all states, including a large presence in states such as Massachusetts, Minnesota and Indiana where Democratic lawmakers have championed the cause.
"The medical device industry is clearly both very aggressive and very effective in its lobbying efforts," said Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities who argues the tax should not be repealed. "They've succeeded in mobilizing lots of people from device companies around the country. They've just done much more than any other industry has been doing."
The industry still faces major obstacles. Opponents need to find a way to replace the approximately $30 billion in revenue that the 2.3% tax on device purchases is supposed to raise over the next decade. If the tax is repealed, insurance companies, drugmakers and hospitals will clamor for repeal of the fees and reduction in reimbursements they face.
"If the device tax gets addressed, then there will be many others wanting their issues to be addressed," said Phillip Swagel, a professor at the School of Public Policy at the University of Maryland who said the device tax has little policy rationale. "So it's hard for any one measure to have smooth sailing. And, of course, getting anything through is difficult in general."
The longer the tax — which began this year — stays on the books, the more evidence there will be of whether its effects are as onerous as opponents have charged.
Factcheck.org, a project of the Annenberg Public Policy Center at the University of Pennsylvania, concluded this month that charges that the law is costing tens of thousands of jobs that are moving overseas are exaggerated.
An April analysis by Wells Fargo called the law's expansion of people who will have health insurance a "shot in the arm" for the industry that will generate enough business to offset the tax.
The analysis cited artificial joint maker Zimmer Holdings — one of the cluster of device makers in Warsaw,Ind. — as one of the companies that could benefit more than others.
Warsaw has trademarked itself the "Orthopedic Capital of the World," and Indiana is home to more than 300 medical device companies, including Bloomington-based Cook Medical, one of the world's largest privately held medical device firms.
Cook has said it halted plans to build plants in the Midwest because of the tax and will focus growth overseas. Zimmer announced last year that it would cut jobs in part because of the tax.
"Ultimately, this tax threatens patient access to new advances in medical technology," said Zimmer spokeswoman Monica Kendrick. "There is a broad, bipartisan groundswell of support in the U.S. House of Representatives and Senate for a full and immediate repeal of the tax, to protect an important economic growth engine for Indiana and the country and to ensure that medical technology represents a vibrant, U.S.-led industry in the future."
The idea behind the tax — as well as new fees on drugmakers, health insurers and cuts in federal payments to hospitals — was that the cost would be more than offset by the new revenue the industries would collect after more Americans gained coverage through the law's expansion of Medicaid and through federal tax credits to help low-to-moderate income people buy private insurance.
The medical device industry fought the bill, and continued to oppose it even after its cost was scaled back to about half of the original proposal. The law imposes an excise tax on the sale of certain medical devices. For example, the tax is imposed on CAT scan machines, pacemakers and artificial hips, but not on over-the-counter products such as wheelchairs, hearing devices and glasses.
The industry argues that the tax will curtail research and development because the law won't generate enough revenue to offset the tax. That's because its products are primarily used by elderly patients already covered by Medicare.
The Wells Fargo analysis agreed that most medical device procedures among the categories it examined are done on the elderly, but the analysts said a substantial portion are done on non-elderly patients. The analysts projected that use of orthopedic devices, such as artificial hips and knees, would see a greater uptick than cardiovascular devices such as stents and pacemakers, because cardio care is often done in emergency settings in which people are already being treated regardless of whether they have insurance.
The analysts said publicly traded large medical device companies have performed better than the S&P 500 for the past few years and that should continue.
Opponents of the tax often cite an industry paper written in 2011 by senior fellows at the conservative Manhattan Institute and at the Hudson Institute that projected the tax would cost more than 43,000 jobs nationally — including more than 1,000 in Indiana. That's because demand would decline as prices increased, and firms might move some production overseas.
Because the tax is imposed only when a device is sold in the USA, not when it is made, it doesn't directly encourage companies to make artificial hips in India instead of Indiana.
It can have an indirect effect, Factcheck.org noted, because companies may want to expand the share of their sales overseas so a smaller portion of total revenue is subject to the tax. But companies were already putting a large focus on such emerging markets as China, India, Brazil and Russia, "so it's hard to separate the impact of the tax from the impact of natural market forces," Factcheck.org concluded.
Factcheck.org also reviewed the announcements of job cuts compiled by the industry and Republicans and found they added up to far less then the tens of thousands of losses opponents claimed. Those several thousand positions that were lost were not all because of the tax and were not all in the USA.
Sen. Amy Klobuchar, D-Minn., whose state is home to many medical device makers, said along with Donnelly that repealing the tax will be part of negotiations to forge a larger budget agreement and part of the debate over how to restructure the tax code.
"It is something that we have assurances will continue to be looked at and get done," Donnelly said.
Paul Heldman, a senior health policy analyst for the Potomac Research Group, said the medical device industry's legislative agenda is more targeted than that of the other health industries. The pharmaceutical industry also has to worry about the administration's proposal to get the same discounts for Medicare drugs that are required for Medicaid purchases. Health insurers face a multitude of Affordable Care Act implementation issues, not to mention fighting against any additional cuts to Medicare Advantage programs, Heldman said.
If the medical device industry gets its way, other industries will put repeal of their parts of the Affordable Care Act high on the agenda.
Chip Kahn, president and CEO of the Federation of American Hospitals, issued that warning during the budget stalemate debate, pointing out that hospitals are not going to gain as much new revenue as expected because about half the states have decided not to expand Medicaid, reducing the number of new patients with insurance.
"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," Kahn wrote in a blog post. "Our communities are counting on it."