Devicemakers step up lobbying to kill ACA tax

While most healthcare stakeholders have slowed their spending on Washington lobbying, one sector has cranked up the pressure—the medical-device industry.

Device manufacturers and their trade group, fervently seeking to repeal the Affordable Care Act's medical-device tax, spent nearly $33 million last year on Washington lobbying, more than any other year going back to 1998, according to the nonpartisan Center for Responsive Politics.

That growing outlay is notable because spending on overall healthcare lobbying has waned since the 2010 passage of the healthcare reform law. The devicemakers hope to persuade Congress to repeal the ACA's 2.3% excise tax on medical devices. The tax is projected to raise $26 billion over 10 years to help pay for the law's coverage expansions. In the past five years, medical-device companies have spent more than $150 million on lobbying efforts in Washington, according to the CRP, a not-for-profit that focuses on increasing government transparency.

The device industry has been an outlier among healthcare interests in fighting against the ACA. While hospitals, drugmakers and insurers all negotiated a financial contribution in terms of taxes or reduced payments, device manufacturers never agreed to the excise tax.

It's widely expected that even if the device industry succeeds in pushing the repeal through Congress, which is iffy, President Barack Obama would veto a standalone repeal bill. That means any successful repeal most likely will have to be part of a broader spending deal between the White House and congressional Republicans. Or it could be part of negotiations over restoring or extending the Obamacare premium subsidies if the U.S. Supreme Court strikes them down in June.

“Our strategy is to continue to bang the drum about the harm that this tax is imposing on U.S. companies,” said Katie Mahoney, executive director for health policy at the U.S. Chamber of Commerce. “I think passage will happen. I think enactment is going to require horse trading.”

Medtronic, which recently moved its corporate headquarters to Ireland to take advantage of lower corporate tax rates, was the biggest spender last year among medical-device companies, with more than $5 million in lobbying expenses, including nearly $1 million spent on contract lobbyists. Baxter International spent the second-largest amount last year on lobbying, nearly $3 million. Roughly 40% of that money was spent to hire lobbying firms to help push the company's agenda on Capitol Hill.

Trailing just behind was the medical- device trade group seeking repeal of the excise tax, the Advanced Medical Technology Association. AdvaMed spent nearly $2.4 million last year, with just over $1 million going toward contract lobbyists.

At the end of 2014, there were more than 80 entities registered specifically to lobby on the medical- device tax, according to the Senate's lobbying database. Those entities included major manufacturers 3M, Medtronic and Johnson & Johnson. The database also included more than two dozen lobbying firms, including major healthcare players Tarplin, Downs & Young and the Nickles Group.

In contrast, healthcare interest groups overall spent less on Washington lobbying in 2014 than they had in each of the previous five years. Last year, healthcare groups spent just under $485 million on lobbying, according to the CRP. The biggest healthcare lobbying spending came in 2009, during the height of the battle over healthcare reform legislation, when healthcare groups spent more than $550 million.

The device industry argues that the tax—which applies to domestically produced and imported devices but not to exported products—is stifling innovation and killing jobs. A study released by AdvaMed said the tax was responsible for the loss of 39,000 jobs since its implementation in 2013.

But independent experts say the tax has had little economic impact on the industry. An analysis by the nonpartisan Congressional Research Service released in November estimated that the employment drop could range from 47 to 1,200 workers—or no more than 0.2% of jobs.

There's no conclusive evidence that profits at medical-device manufacturers have suffered from the tax. Medtronic saw earnings rise 28.2% during the most recent financial quarter. Profits at St. Jude Medical nearly doubled in the fourth quarter of 2014, compared to the prior year. But profits at Boston Scientific were down nearly 20% during the last three months of 2014.

Bob Kirby, a director with Fitch Ratings who tracks the industry, said companies have adjusted by reducing costs, in part through personnel cuts or finding greater manufacturing efficiencies. “I do believe it has adversely affected the industry,” he said.

If evidence of the tax's economic impact is so mixed, why does its repeal remain such a high-profile issue on Capitol Hill? “It is a bit of a mystery,” said Paul Van de Water, a senior fellow at the left-leaning Center on Budget and Policy Priorities, who opposes repealing the tax. “There's no evidence it's causing serious problems.”

Still, the campaign against the tax has garnered some congressional Democratic support along with broad Republican support. It's won backing particularly from Democrats in states with significant medical-device industries such as Massachusetts and Minnesota. Legislation introduced this year in the House has more than 270 co-sponsors, including roughly three dozen Democrats. The Senate version of the bill has garnered more than 30 co-sponsors, including five Democrats.

“We view this as a common sense, bipartisan-backed measure,” said Kevin O'Neill, a partner at Squire Patton Boggs, a Washington law and lobbying firm that's seeking to repeal the tax. “The question is not if it gets done. The question is how quickly Congress moves to correct this problem.”

In addition to their lobbying outlays, medical-device companies opened their wallets in 2014 to support congressional candidates, most of whom were Republicans. The companies made $6.5 million in political contributions during the 2014 election cycle, according to the CRP. That was down from $10.4 million in the previous election cycle, and roughly equivalent to contributions made during the 2010 biennium.

Just over half of that $6.5 million came from political action committees affiliated with the device industry. Another 42% were contributions from individuals working in the device sector. About two-thirds of the device industry's $6.5 million in contributions went to GOP congressional candidates during the 2014 election cycle.

The top recipient of device manufacturers' largesse during the 2014 campaign cycle was Rep. Erik Paulsen (R-Minn.), the chief House sponsor of legislation to repeal the device tax. He received just over $93,000 in contributions from individuals and PACs affiliated with the medical-device industry.

Senate Majority Leader Mitch McConnell (R-Ky.) was close behind, with roughly $86,000 in contributions from the device sector. Other key members of Congress among the top 10 beneficiaries were House Speaker John Boehner (R-Ohio), Sen. Lamar Alexander (R-Tenn.), chairman of the Health, Education, Labor & Pensions Committee, and Sen. Ron Wyden (D-Ore.), the ranking member of the Finance Committee.

Novo Nordisk was the top spender among device manufacturers in the 2014 election cycle, according to the CRP. The manufacturer contributed almost $500,000 to campaigns, split evenly between Republicans and Democrats.

Boston Scientific Corp. ($377,150), Starkey Laboratories ($341,800) and Direct Supply ($321,971) were the next most generous contributors. These companies each directed more than two-thirds of their contributions to Republicans.

Despite the device industry's lobbying offensive and political contributions, repeal of the excise tax remains far from a done deal. Democratic support is likely to break down when it comes to actually passing legislation. That's in part because Republicans aren't expected to offer a way to cover the $26 billion in lost revenue for Obamacare's insurance expansions. And most Democrats aren't likely to go along with legislation that cuts a significant piece of funding for the ACA unless there's a plan to replace it. That disconnect over whether to offset the loss of revenue could lead to a legislative standoff.

Even if a repeal bill passes the House and the Senate, Obama is expected to veto it. That's in part because repealing the device tax likely would embolden other healthcare interest groups to seek relief from other tax provisions of the ACA, most notably the premium tax on insurers.

“I don't think Obama wants to set the precedent that offsets used to pay for the Affordable Care Act can start being rolled back without finding alternative savings,” said Loren Adler, research director for the Committee for a Responsible Federal Budget, a nonpartisan group focused on reducing the federal deficit.

That means the only likely path to enactment is a broader deal between congressional Republicans and Obama. Most healthcare policy observers point to a budget pact or an overhaul of the tax code as two areas that could incorporate a repeal of the device tax.

The other wild card is the King v. Burwell case, in which the U.S. Supreme Court is considering whether to eliminate ACA premium subsidies in up to 37 states that are using the federal insurance exchange. If the court rules against the Obama administration, the device tax could become a negotiating point in extending or restoring the premium tax credits.

Despite the odds facing repeal, the array of well-funded business and lobbying interests pushing for elimination of the tax guarantees it will not die soon. “The congressional forces who support it and the downtown forces that support it are never giving up on it,” said one lobbyist working on repeal efforts who did not want to be identified. “This is not going away.”

Follow Paul Demko on Twitter: @MHpdemko