U.S. Medical Device Backers Face Tough Health Care Vote

Senate Democrats from states including Minnesota and Pennsylvania are caught between their support for medical-device industries and their party’s reluctance to make major changes to the 2010 health-care law.

The U.S. House of Representatives is scheduled to vote this week to repeal a 2.3 percent excise tax for medical devices. To Senate Majority Leader Harry Reid, a Nevada Democrat, the vote is part of a Republican attack on the health law. To Senator Amy Klobuchar, a Minnesota Democrat seeking a second term, the repeal is necessary to prevent harm to an industry that provides jobs in her state.

“Senator Klobuchar is faced with a difficult choice between voting the kind of narrow particularistic interest of industry in her state versus voting her personal and partisan platform,” said Lawrence Jacobs, a political scientist at the University of Minnesota.

Klobuchar, first elected in 2006, has been a “knight in shining armor” for a home-state industry that includes St. Jude Medical Inc. (STJ) and Medtronic Inc. (MDT), Jacobs said. Medtronic’s employees have been the seventh-largest contributors to Klobuchar’s campaign this election cycle, according to the Center for Responsive Politics.

Device companies have been lobbying to kill the tax, and the House repeal bill sponsored by Minnesota Republican Erik Paulsen is co-sponsored by more than 55 percent of the House.

Excise Tax

Congress included the tax in the 2010 health-care law as a way to help pay for expansion of health insurance coverage. The 2.3 percent excise tax will be levied on devices such as coronary stents and hip implants that aren’t sold directly to consumers.

Similar fees and taxes were levied on health insurers, pharmaceutical companies and the indoor tanning industry. The law passed without a single Republican vote, and the party has been trying to unravel it since, even as the Supreme Court considers its constitutionality.

Efforts to pick apart the health-care legislation are finding favor with some Democrats who agreed to the measure despite misgivings about individual provisions.

Senator Orrin Hatch, a Utah Republican, said he’s looking for ways to force a vote on the issue.

“I think there are Democrats who are willing to work with us on it,” he said. “It would be a smart thing for everybody to do it.”

Administration Opposed

The Obama administration announced its opposition to the bill today, saying that device companies are benefitting from additional customers because of the coverage expansion in the health care law.

“Instead of working together to reduce health care costs,” the administration wrote, the bill “chooses to refight old political battles over health care.” President Barack Obama’s advisers would recommend that he veto the legislation, according to the statement.

Senator Bob Casey, a Pennsylvania Democrat who is seeking a second term this year, said he has had “a lot of discussions” with manufacturers and others in Pennsylvania that raised concern about the tax. The state’s device industry includes Synthes Inc. (SYST) in West Chester, which manufactures and sells products used in orthopedic trauma surgery, and Dentsply International Inc. (XRAY) in York, which makes dental equipment.

Based on those discussions, Casey said he wanted to revisit and perhaps do away with the tax before it is implemented.

‘Middle Ground’

“We’ve been trying to do our best to come up with some middle ground, another approach that maybe hasn’t been examined yet, to get as much support as possible,” Casey said in an interview, adding that the Senate probably would vote on the issue before the November election.

Adam Jentleson, a spokesman for Reid, said conversations were continuing about whether to hold a vote on some form of device tax repeal.

J.C. Scott, senior executive vice president of government affairs at AdvaMed, an industry trade group, said such a middle ground short of repeal would be tough to support.

“We are focused on full repeal,” he said. “The tax is going to hurt every company in the medical-device space. Anything short of full repeal is going to leave something on the table that is going to be problematic.”

Device Industry

Industry groups agreed to the tax during health-care negotiations, said Senator John Kerry, a Massachusetts Democrat.

“We worked out a compromise with them, and people signed onto the compromise,” said Kerry, whose state is home to Boston Scientific Corp. (BSX)

Senator Scott Brown, a Massachusetts Republican, supports repeal, as does Elizabeth Warren, a Democrat who is challenging Brown.

Scott, of the device makers’ group, said the industry worked with lawmakers who helped reduce the tax’s bite though didn’t endorse the idea.

“We never agreed to this tax in any form or fashion,” he said.

As a percentage of total employment, Minnesota, Utah, Delaware and Massachusetts have the largest concentrations of medical technology jobs, according to AdvaMed. The top 10 states, including New Jersey and California, have 12 Democratic senators.

The House bill would repeal a portion of the health-care law that requires taxpayers to obtain prescriptions if they want to use their tax-advantaged accounts to purchase over-the- counter medication.

Spending Accounts

It would allow people with such flexible spending accounts to get as much as $500 back if they don’t spend all of their money. That would overturn a “use it or lose it” provision that existed before the health-care law.

The House bill would cover the estimated $29 billion, 10- year cost of repealing the device tax by changing rules governing what happens when taxpayers qualify for insurance subsidies under a prior year’s lower income and then make more money than expected.

As written, the health-care law limited what those people would have to repay. The House bill would make them return all overpayments, and most Democrats oppose that change, saying it would penalize taxpayers for getting bonuses or raises.

The addition of that language could limit the number of Democratic votes for the repeal bill. Two Democrats, Nevada’s Shelley Berkley and Wisconsin’s Ron Kind, supported the repeal proposal in the House Ways and Means Committee, without the flexible spending or repayment provisions attached.

’Many Options’

Klobuchar, 52, said there are “many options” for addressing the device tax.

“We’ve always been working on repeal and we’re going to continue to do that,” she said in a brief interview yesterday.

Al Franken, Minnesota’s other Democratic senator, said in an e-mailed statement that he had “serious concerns about the impact this tax will have on Minnesota’s medical device businesses and their more than 30,000 employees.”

“I still think we need to eliminate the tax,” Franken said. “But any plan to do so must be offset in a responsible and fiscally sound way.”

Franken, a former talk-radio host known for his views on an expansive role for government, doesn’t face the same skepticism from Democratic activists as Klobuchar does, Jacobs said. The former prosecutor isn’t trying to be a senator who is known for delivering federal benefits to the state or as a pure partisan, he said.

“She’s trying to walk a tightrope that delivers both,” Jacobs said.

The House bill is H.R. 436.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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