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VOL. 41 | NO. 32 | Friday, August 11, 2017

Health care divide leaves tax on path to reinstatement

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BOSTON (AP) — The industry that makes medical devices from artificial hips to miniature pumps for IV drips is looking for a fallback plan to repeal a widely reviled sales tax that almost met its end in GOP health care legislation.

The 2.3 percent excise, one of several taxes and fees in the Affordable Care Act that pay for expanded insurance coverage, has been the subject of ferocious lobbying by manufacturers seeking its permanent death. Yet for now it's on track to be reinstated on Jan. 1 after a two-year hiatus, leaving industry leaders worried it will hurt employment and stifle development of innovative, even lifesaving products.

"We know it resulted in job loss when it was in effect and we also know it resulted in decreased investment and development," said Patrick Hope, executive director of the Medical Imaging & Technology Alliance, one of several trade groups fighting reinstatement of the tax.

The tax covers a range of medical equipment sold to hospitals and physicians but excludes consumer items such as eyeglasses, hearing aids and diabetes kits.

Various failed versions of Republican bills to repeal and replace the Obama health care law would have killed the tax that is also unpopular with many Democrats in Congress, some representing states with thriving clusters of medical device firms.

The U.S. medical device market was valued at nearly $148 billion in 2016 with projections it will increase to $173 billion by 2019, according to Emergo, a leading industry consultant.

Companies shed 29,000 jobs from 2013-2015 when the tax was in effect, according to government data cited by the Advanced Medical Technology Association, or AdvaMed. No corresponding employment data exists yet for 2016-2017 when the tax was suspended though another trade group, the Medical Device Manufacturers Association, said a member survey found 70 percent added jobs while R&D spending increased by 19 percent on average.

Skeptics argue it's impossible to draw a straight line from the tax to overall performance by the industry and point to a variety of other factors, from consolidation to global competition, that influence trends in employment and R&D commitment.

John McDonough, a professor of public health policy at Harvard University, said he doubted the tax seriously harmed most firms while it was in effect, or that it would wreak much havoc if reinstated next year.

"The medical device industry stands out in its determination to be the one industry to get off the hook," said McDonough, noting that insurers, drugmakers and hospitals were also assessed higher taxes and fees under the ACA.

Proponents of the tax, originally estimated to raise $29 billion in net revenue over 10 years, contend industry sales can only benefit from more Americans having access to health insurance. Still, the tax has long been targeted for repeal, not only by congressional Republicans but also many Democrats who strongly back the health care law and the other taxes that go with it.

Critics have cited a 2015 analysis by the Congressional Research Service that declared the levy "challenging to justify" in terms of traditional economic and tax policy. That same report, however, also projected "fairly minor" impacts on production and employment in the medical device industry.

Boston Scientific Corp., a leading maker of heart stents and other devices, said the two-year suspension allowed for a doubling of its collaboration with Mayo Clinic on projects to help cardiovascular patients.

Clinical Innovations, a privately-held medical device company in Salt Lake City, said tax savings of about $500,000 a year helped it speed up the redesign and launch of a balloon-like device that helps doctors manage potentially fatal occurrences of postpartum hemorrhaging in women.

"For a company like us, that's a significant savings, and frankly where we tend to cut if we have to pay a tax like that is on the development side," said Ken Reali, the firm's chief executive.

In 2015, 46 Democrats joined Republicans in approving a House bill to repeal the tax. That effort ultimately fell short, but Congress later added the two-year suspension of the tax to a budget bill.

Minnesota has about 27,000 people working in the sector with an average salary of $63,567, while in Massachusetts nearly 24,000 are employed in the industry and earn $66,787 on average, according to AdvaMed. Those states rank second and third behind California in medical device employment.

Minnesota's Democratic U.S. Sens. Al Franken and Amy Klobuchar have both voiced support for repealing the tax, as have Democratic Sens. Elizabeth Warren and Edward Markey of Massachusetts.

Yet many Democrats, Warren included, insist they would only vote to eliminate the tax if another revenue source for the ACA was available to replace it.

So how to halt the tax before January, absent a full repeal of the health care law?

Several possibilities exist. One option would be to include in an overhaul of the U.S. tax code sought by President Donald Trump. It could also be tied to efforts to stabilize insurance markets, or attached to other vehicles such as an appropriations bill or the pending reauthorization of a separate health insurance program for children. All come with procedural challenges and uncertainties.

"It's a full court press," said Greg Crist, a spokesman for AdvaMed.

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