The medical device industry is 2 weeks away from a much-abhorred 2.3% tax on U.S. sales, but lobbyists remain ever hopeful that they’ll win a stay of execution as Congress continues to spar over the fiscal cliff negotiations.
Although Beltway insiders doubt the repeal measure will make it into House speaker John Boehner’s (R-Ohio) so-called "Plan B" for avoiding the fiscal cliff, the industry has made "remarkable" progress in raising awareness and spurring action toward repealing the medical device tax, Medical Imaging & Technology Alliance executive director Gail Rodriguez told MassDevice.com.
Asked if she’s still confident that Congress will act on the tax before it hits in January, Rodriguez was cautious but resolute.
"Absolutely. We certainly hope so," she said. "We should have that expectation of our leaders."
MITA has "combined forces" with the Medical Device Manufacturers Assn. and AdvaMed to spread their influence on Capital Hill, organizing fly-ins, showering the Beltway with ads and cultivating Democratic backing for the cause, which already has broad support from the GOP.
With the tax taking effect at the start of the year, MITA isn’t ready to reflect too analytically on the past year and any potential missteps that may have been taken along the road to repeal.
"Right now, honestly, we’re focused on how do we make this happen in the next 2 weeks," MITA state & federal government relations director Brian Connell told MassDevice.com. "The time for 2nd-guessing can be when we’re all done."
Last week former AdvaMed board chairman James Mazzo, who is president of Abbott Medical Optics, told an audience at MassDevice’s Big 100 Roundtable West in Newport Beach, Calif., that delaying the medical device tax is possible, but total repeal is unrealistic.
"Obviously, we think he’s wrong," Rodriguez told us. "We disagree."
"We would point to the growing bipartisan consensus in Congress," Connell added. "We’re focused on communicating with and emphasizing the consequences of this tax to the policy-makers that are going to be making the decision before Jan. 1."
Time is running short, but MITA and the other members of the "device tax repeal coalition" aren’t ready to stand down yet. There aren’t specific roadblocks to overcome in challenging the tax, MITA told us, but educating lawmakers about the needs and concerns of the industry is an ongoing battle.
"There’s just a constant need for our industry and its employees to educate their policy makers on the real-world economic consequences," Connell said. "As we get closer to Jan. 1, the consequences are becoming clear, and it’s our job as industry to communicate that to policy-markers, as to just how destructive this tax is so they can make the proper decisions before Jan. 1."
Among the industry’s most recent triumphs was the letter a group of 18 Democratic and independent senators sent this month to Senate majority leader Harry Reid (D-Nev.) asking for a delay to the levy, which will take a 2.3% cut from every applicable medical device sale in the U.S. The measure aims to raise about $30 billion over 10 years to support healthcare reform.
The groups have also managed to spur "several thousand" medtech executives, employees, suppliers and other stakeholders to reach out to their state senators and representatives to ask for action on the medical device tax, Rodriguez told us.
"We have been very successful in raising awareness of this issue, analyzing the issue, analyzing the potential costs of the issue and then galvanizing activities to repeal it and to delay it," she said. "It’s been quite remarkable how this industry has come together to note the importance of this, especially in this terribly slow, slow economic recovery."
Given that the industry has just 2 weeks left to make its mark in Washington, grassroots support may be critical.
"We think the most important thing right now is for the people who are going to be affected by this tax to communicate to their officials just what those effects will be and then I think the decision will be in their hands," Connell said. "When policy-makers hear that from their constituents, it has a real effect."
Device makers are pursuing wholesale repeal of the tax, or at least a delay that will give them more time to barter for wholesale repeal. So far none of the 3 lobbying groups has put forth a proposal for modifying the tax, although some groups, such as makers of orthotics and prosthetics, managed to win exemption from the tax.
The levy will hit much harder for small companies that are pre-profitability or in danger of slipping into the red by paying out the top-line fee, but industry groups maintain that modifying the tax to protect small or pre-profit companies isn’t in line with their message.
"We are absolutely united in our message that this is a destructive tax and there’s no way to mitigate the effects of innovation on patients," Connell told us. "We’re all on the same page. Our unified message is that we need repeal."
That "device tax repeal coalition" includes the trio of industry lobbying groups, the Venture Capital Assn. and "a whole host of industry groups, companies, etcetera," Connell added.
Although no one is ready to cry victory, the industry groups continue to note a "cautious optimism" that the tax, which some have labeled a jobs- and innovation-killer, at the very least won’t take effect as planned on January 1.
"Optimistic, yes. We need to be," Rodriquez said. "This is a very damaging tax. The economy is still fragile, we don’t want to lose these jobs."
If Congress fails to act on the tax before the end of the year, or decides to leave it intact and on-schedule, the industry may be left scrambling to figure out how to comply. Device makers must start tallying applicable sales on January 1st and the initial tax payments are due mid-January.
"Two weeks is not a lot of time," Rodriguez remarked. "I think we’ve got 3½ weeks total to figure out how these companies are going to comply with this."
Given that Congress doesn’t have much time to debate the tax, device makers are hoping to win a stay of execution to push back the tax’s start date and give industry more time to make its case.
"I do think delay is what we’ll be seeing in the short term, hopefully, and then followed by a broader conversation that will happen in terms of tax reform," Connell told us. "Within corporate tax reform we can talk about how to repeal this law in 2013."
"The key date is really January 1st," he added. "In the mean time a lot of action on the device tax and every other issue is going to depend in part on negotiations that are happening between [House Speaker John Boehner (R-Ohio)] and the President."
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