Morgan Stanley: “Device tax likely won’t be repealed on this attempt”

Morgan Stanley analysts are slightly more confident this month that the medical device tax might be repealed, but they don’t see it happening this year.

The odds of repeal are up to 30% from just 10% last month, according to a report published by the financial services firm, but the measure isn’t likely to make it through the Democrat-led Senate. But the fight won’t end there.

"We believe the law has a strong chance of passing in the House, but are very skeptical of its chances in the Senate and do not expect the repeal to be enacted before 2013," analysts wrote. "Even if the repeal of the medical device tax fails, which we see as the most likely scenario, the possibility to remove or lessen the tax is not over."

The Supreme Court may strike down health care reform altogether, and tax repeal efforts still have a lot of support among Republicans since "they did not support healthcare reform like the pharma sector," which contributed offsets to reform "in exchange for coverage gains," according to the analysts.

Morgan Stanley published in its previous report that the medical device tax had a 90% likelihood of making it to enactment in January 2013, despite growing momentum for repeal. That figure was revised to a 70% likelihood following last month’s medical device summit, but it’s still not looking good for device makers.

The negative outlook, however, hasn’t slowed down industry efforts to garner support for Erik Paulsen’s (R-Minn.) tax repeal bill and its companion bill in the Senate.

Ahead of a House vote on the repeal bill, which may come as early as next week, industry lobby AdvaMed launched a print and online campaign urging lawmakers to lend their support.

"As Congress continues to move forward with this reform legislation, we urge them to consider how the life-changing technology produced by medical device manufacturers improves the quality of life of patients worldwide," AdvaMed president & CEO Stephen Ubl said in prepared remarks following news that the House Ways & Means Committee had affirmed passage of the vote to the House floor for a vote. "This tax must be repealed so that the medical technology industry can continue to grow and innovate."

NBA legend Bill Walton, now a spokesman for San Diego, Calif.-based NuVasive Inc.(NSDQ:NUVA) and evangelist for the med-tech industry in general, led device makers to Capitol Hill to lobby for repeal this week.

The Medical Device Manufacturers Assn. sent over 200 delegates to Washington D.C. this week to lobby their congressional representatives.

"Our members continue to oppose the tax because it creates strong headwinds against an important sector of the U.S. economy in difficult economic times," Medical Imaging & Technology Alliance executive director Gail Rodriguez said in prepared remarks earlier this week. "Repeal of the tax is critical to bolstering the economy as it will preserve thousands of jobs in a fast-growing industry and ensure that manufacturers can invest in developing breakthrough medical technologies that benefit patients."

Whether those efforts are successful will hinge largely on Democrats in the Senate, but not a single one has signed on to Sen. Orrin Hatch’s (R-Utah) Medical Device Access & Innovation Protection Act.

One recurrent barrier is the need to find funds to make up for the $30 billion the device tax is projected to raise over 10 years, and some Democrats aren’t willing to sign on until a pay-for is established.

Rep. Niki Tsongas (D-Mass.), who was earlier this month castigated by the National Republican Congressional Committee for failing to support repeal efforts, is "waiting to see what the pay-for is going to be for the tax before deciding her vote on the measure," Tsongas’ communications director John Noble told MassDevice.com today.

The lack of a pay-for was also a big concern at the House Ways & Means Committee markup meeting this week, where Democrats who expressed concern about how to make up for the lost revenues were outvoted with a 23-11 majority, with 2 of their own joining Republicans in supporting repeal.

"The pay-for was a big one," Cook Group federal affairs vice president Allison Giles told MassDevice.com. "There was a concern expressed by several Democrats that the bill was not paid for, and Chairman Camp said that the rules don’t require legislation be paid for in committee. He expected the legislation to be paid for as required when the bill goes through the House floor."

That didn’t stop Rep. Bill Owens (D-N.Y.) from signing his name on Paulsen’s bill this month, citing the need for tax reforms lessen tax expenditures.

"There are opportunities to reduce spending overall, there are also opportunities to increase revenue." Owens told MassDevice.com in an exclusive podcast interview. "We could very easily eliminate many of the current tax expenditures without having any significant impact on business."