The medical device industry came damn close to getting the medical device tax knocked out of existence in this latest round of budget brinksmanship in Washington.
Close may only count with horseshoes and hand grenades, but there’s still room for optimism for supporters of repealing the 2.3% medtech levy – however disappointing it may be to members of the medical device community that no repeal or delay was included in the bipartisan Senate deal to re-open the federal government and raise the debt ceiling.
1. Significant movement in the White House’s position
For the past 2 years, the Obama administration has repeatedly said that medical device tax repeal is a non-starter, maintaining that the levy represents the medtech industry’s fair burden in helping to fund healthcare reforms that will bring them more customers. President Obama promised to veto any bill that includes a repeal of the tax.
"The healthcare bill is going to provide those medical device companies 30 million new customers," Obama told a reporter for The Weekly Standard. "It’s going to be great for business, and they’re doing really well right now."
But the budget impasse brought out some softer rhetoric from Pennsylvania Ave. when it comes to the device tax. The White House said for the 1st time during the protracted fight that it would consider a compromise on the levy, as long as lawmakers could make up for the lost revenue. The tax is forecast to raise about $30 billion over 10 years.
Long-time device tax repeal advocate Sen. Orrin Hatch (R-Utah) told reporters that the president conceded that the levy, a 2.3% excise tax on U.S. sales of prescribed medical devices, is "not part of the core program" of the Affordable Care Act after a face-to-face meeting with Obama last week.
And just yesterday, the White House reaffirmed a willingness to talk about changing the device tax.
"What we have always said is, [regarding] discussions of the medical device tax or ACA that lawmakers want to talk about, is that we are willing to have those discussions, but not as ransom to fund the government effort or to buy votes," White House spokesman Jay Carney said. "The issue of the medical device tax has been in the air for the last several weeks. … We would be willing to talk about [the tax] with lawmakers who wanted to address that provision."
But Carney’s exchange with reporters didn’t come without a jab at GOP lawmakers who want to repeal the tax.
"When it comes to the device tax, it’s important to note those who portray themselves as paragons of fiscal discipline never acknowledge that repealing it would raise the federal debt," he said.
2. The backlash against the industry was minimal… at least compared to the rest of the combatants
The government shutdown exacted plenty of flesh from the hides of our political leaders in Washington:
- Americans’ satisfaction with how the government is being run dropped to a historic low of just 18%, the lowest point in the 42 years that Gallup has been asking the survey question;
- Favorability ratings for the GOP hit a historic low of 28%, according to Gallup;
- Favorability ratings for the Democratic party dropped to 43%, with 6 in 10 Americans now believing that a 3rd party is needed.
- Obama also saw his favorability ratings drop slightly, to 43%
Interestingly, the Affordable Care Act seems to have survived the public mudslinging, according to Gallup.
The polling organization found that although ½ of all Americans want the law repealed or scaled back, the overall number of people who want the law spiked or changed has actually dropped since the summer of 2011.
While there are no comparable public opinion polls on the medical device industry or the medical device tax, a look at the editorial pages shows a relatively even split on repealing versus keeping the tax.
In favor of repeal:
- Debt deal should kill medical device tax – Orange County Register
- The medical device tax solution – Detroit News
- Strange political devices – Wall Street Journal
Opposed to repeal:
- Medical device tax repeal is an idea full of holes – Washington Post
- Excise tax on medical devices should not be repealed – Center on Budget and Policy Priorities
- Oppose the medical device tax repeal – RedState
3. The Senate deal will allow for another round of negotiations over repealing the tax
Should the Senate deal pass the House, a provision in the agreement sets up a conference committee to resolve broader budget issues. In essence, that’s another chance for repeal proponents to argue for doing away with the levy.
Now that Obama has shown some flexibility on the medical device tax, the political coalition opposed to repealing the tax basically comes down to a group of very strange bedfellows.
In 1 corner sits the entrenched power base in Senate leadership, led by Finance Committee chairman Sen. Max Baucus (D-Mont.), who fathered the tax and still believes “a deal is a deal” when it comes to the medical device industry. (Majority leader Sen. Harry Reid (D-Nev.) seems to be rather sick of the discussion, as evidenced by recent “stupid” comments.) Reid himself yanked language delaying the medical device tax out of the final Senate deal this past weekend and remains a major hurdle to the industry getting its way on the issue.
In the other corner are legislators like Hatch and Sen. Susan Collins (R-Maine), who has proposed using "pension smoothing" to pay for the revenue that would be lost if the tax is killed. Pension smoothing basically lets companies "pay below-actuarial rates to pension funds now, while raising future rate promises as a make-weight," according to ABC News. The provision isn’t popular, but it’s been used by the Upper Chamber before. Add to that the 37 senators who’ve signed Hatch’s repeal bid (including 6 Democrats from device-heavy states).
Then there’s the Tea Party and other radical hard-liners, who don’t want anything that would make the Affordable Care Act palatable.
But the device industry and its allies on Capitol Hill have to find a viable offset to replace the $30 billion the tax would raise over the next decade. Collins herself told reporters after a meeting at the White House last week that the president listened to her proposal and didn’t outright reject the plan.
"The president, I should be clear, did not say, ‘What a great idea!’" Collins told reporters.
Other lawmakers have proposed cutting back certain subsidies contained in the ACA as a "pay-for," but there’s still no clear solution. For its part, the medical device industry is keeping pretty quiet on any ideas it has to offset the cost of the tax to itself.
AdvaMed president & CEO Stephen Ubl told MassDevice.com in September that the industry council was "involved with those discussions at a certain level, but we’ve been deferential. "
"The reality is that there are a number of us who have worked on The Hill before, and when you’re putting together a bill like this there are a number of factors you’re weighing, offsets inside healthcare and some outside healthcare," Ubl told us. "The discussion becomes broad, and that puts the people who are involved in putting those packages together in a position to make those judgements. We’re watching it closely, we’re involved, but I think appropriately deferential."