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Why A Medical Device Tax Became Part Of The Fiscal Fight

Oct 15, 2013

Among the bargaining chips in the budget crisis on Capitol Hill, there's the small but persistent issue of taxing medical device manufacturers.

The 2.3 percent sales tax covers everything from MRI machines to replacement hips and maybe even surgical gloves. The tax was imposed to help pay for the Affordable Care Act. It didn't attract much attention at first — at least, not outside the world of medical device manufacturers.

But they have waged a persistent campaign to undo the tax, and right now is the closest they have come to succeeding.

House Republicans have made repeated efforts to kill the tax, but Democrats had opposed any changes to the health care law.

Senate Finance Committee Chairman Max Baucus, D-Mont., last month dismissed changes in the medical devices tax. He told Politico that the industry had agreed to it when the bill was being written and "a deal's a deal."

But even Democrats have started softening that hard line.

Illinois Sen. Richard Durbin, the Senate's second-ranking Democrat, told CNN recently: "We can work out something, I believe, on the medical device tax — that was one of the proposals from the Republicans — as long as we replace the revenue."

Last week, a bipartisan compromise in the Senate included the idea of delaying the tax for two years.

Maine Republican Sen. Susan Collins spearheaded the proposal. She cited the lobbying campaign's work when she said the tax "will cause the loss of as many as 43,000 domestic jobs, according to industry estimates."

Those estimates are crucial to the lobbying effort.

The CEO of one of the industry's giants, Medtronic, said last fall that the company likes to "focus on things we can control." Medtronic, which is based in Minnesota, did not respond to an interview request Tuesday.

But one of Minnesota's senators is a leader of the anti-tax campaign.

Democrat Amy Klobuchar gave industry advocates some advice this summer.

"I think that at the beginning of this battle, people didn't understand in Congress how many medical device manufacturers they had," she said. "I think just making the case at home and also back in Washington makes a difference."

And that is what the medical device industry has been doing, quietly but assiduously.

Cook Group, the largest privately owned maker of medical devices, boosted its lobbying outlays significantly in the past two years. It's also working with an industry consultant, Joe Hage, on a website called no2point3.com.

The website collects stories of anger and anguish from the small-business people who run a lot of the companies. It also has a petition to repeal with 11,000 signatures. It's all fueled by a LinkedIn group that Hage runs.

"The medical devices group is not in league with Washington lobbyists directly," Hage says, but he quickly adds: "We like to think that this effort complements their effort by giving them another bow in their quiver."

Still, it's hardly clear whether those efforts will move votes or whether the whole tax question will be just a pawn in the much larger debate over the budget and the debt limit.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

ROBERT SIEGEL, HOST:

We're going to focus now one of the many bargaining chips in this ongoing budget crisis and that is the tax on medical devices. The 2.3 percent sales tax covers everything from MRI machines to replacement hips, possibly even surgical gloves. The tax was imposed to help pay for the Affordable Care Act. It didn't attract much attention at first, at least not outside the medical world, but as NPR's Peter Overby reports, device manufacturers have been lobbying hard to undo that tax.

PETER OVERBY, BYLINE: House Republicans have made repeated efforts to kill the tax. Last month, Minnesota Congressman Erik Paulson introduced an amendment to do that. He cited a petition with signatures from 975 groups.

REPRESENTATIVE ERIK PAULSON: Nine hundred and seventy-five. The signers include the Chamber of Commerce, the National Association of Manufacturers, numerous doctors and physicians and healthcare groups.

OVERBY: Democrats had opposed any changes to the healthcare law. Senate Finance Committee Chairman Max Baucus, last month, dismissed changes in the medical devices tax. He told Politico the industry had agreed to it when the bill was being written and, quote, "a deal's a deal." But even Democrats have started softening that hard line. Here's Illinois Senator Richard Durbin, the chamber's second ranking Democrat, in a recent CNN interview.

SENATOR RICHARD DURBIN: We can work out something, I believe, on the medical device tax that was one of the proposals from the Republicans, as long as we replace the revenue.

OVERBY: And late last week, a bipartisan compromise in the Senate included the idea of delaying the tax for two years. Maine Republican Susan Collins spearheaded the proposal. She cited the lobbying campaign's work as she said the tax...

SENATOR SUSAN COLLINS: Will cause the loss of as many as 43,000 domestic jobs, according to industry estimates.

OVERBY: Estimates that are crucial to the lobbying. Minnesota is the home to the Medtronic, one of the industry's giants. The company's CEO said last fall that Medtronic likes to, quote, "focus on things we can control." Medtronic did not respond to an interview request today.

But one of Minnesota's senators is a leader of the anti-tax campaign. Democrat Amy Klobuchar gave industry advocates some advice this summer.

SENATOR AMY KLOBUCHAR DEMOCRAT, MINNESOTA: I think that at the beginning of this battle, people didn't understand in Congress how many medical device manufacturers they had.

OVERBY: Making things like surgical gloves, which may or may not be covered under the IRS rules.

MINNESOTA: I think just making the case at home and also back in Washington makes a difference.

OVERBY: And that is what the medical device industry has been doing, quietly but assiduously. Cook Group, the largest privately owned maker of medical devices, boosted its lobbying outlays significantly in the past two years. It's also working with an industry consultant, Joe Hage, on a website called no2point3.com.

The website collects stories of anger and anguish from the small-business people who run a lot of the companies. It also has a petition to repeal with 11,000 signatures. It's all fueled by a LinkedIn group that Hage runs.

JOE HAGE: The medical devices group is not in league with Washington lobbyists directly.

OVERBY: But he quickly adds...

HAGE: We like to think that this effort complements their effort by giving them another bow in their quiver.

OVERBY: Still, it's hardly clear whether those efforts will move votes or whether the whole tax question will be just a pawn in the much larger debate over the budget and the debt limit. Peter Overby, NPR News, Washington. Transcript provided by NPR, Copyright NPR.