Klobuchar and Franken fight planned tax on medical devices

WASHINGTON - Minnesota's two senators sought Monday to delay a tax on medical devices that was expected to add $28 billion over the next decade to help pay for health care reform.

Democratic Senators Amy Klobuchar and Al Franken pointed to thousands of high-paying jobs that device companies support in Minnesota, headquarters to such giant devicemakers as Medtronic and St. Jude Medical. The industry has painted the tax as a job killer that would hurt innovation.

"The delay would give us the opportunity to repeal or reduce that tax," said Klobuchar, co-author of a letter sent to Senate Majority Leader Harry Reid seeking the delay.

Repeal is the ultimate goal of the letter's 18 signers, including Klobuchar, Franken and all the heavy hitters in the Senate Democratic leadership. But politically that would be virtually impossible before Jan. 1, said Norman Ornstein, a congressional expert with the American Enterprise Institute.

"Because of the fiscal cliff, everybody has to sacrifice," Ornstein said. "To say repeal the tax at this point is a nonstarter."

Franken agreed. "I don't think we're going to be able to kill the tax by the end of the year," he said.

But delaying the tax would give opponents more time to find a different source of federal income or new budget cuts to offset lost device tax revenues. The industry has been skeptical of the argument behind the tax -- that devicemakers will benefit from the health care law through increased demand for their products.

Postponing collection of the tax would require Senate action by year's end, an action made more likely by the letter's signers, who include Senate Majority Whip Dick Durbin and Charles Schumer, the Senate's third-ranking Democrat, experts said.

Postponing collection "is a predictable strategy from the perspective of the industry," Ornstein said.

Med-tech leaders have also criticized last-minute issuance of Internal Revenue Service rules that explained how the tax will be collected. The latest rules did not come out until last week. Franken called the notice "unconscionably late."

"The medical device industry has received little guidance about how to comply with the tax -- causing significant uncertainty and confusion for businesses," the letter to Reid stated.

The device industry had succeeded in having the amount of the tax cut in half before Congress approved the national health reform known as the Affordable Care Act in 2010.

Now, the industry is going after the rest of the tax with a multimillion-dollar lobbying campaign that has included political donations and face-to-face meetings with many senators. Dale Wahlstrom, president of LifeScience Alley, Minnesota's leading medical technology trade group, was among 50 executives nationwide who visited Washington in November as part of the battle to stop the tax.

The House has already voted to kill the tax, approving a bill offered by Minnesota Republican Rep. Erik Paulsen.

Press offices for Sens. Klobuchar and Kay Hagan, D-N.C., circulated the letter sent to Reid among reporters early Monday afternoon. Less than half an hour later the Advanced Medical Technology Association (AdvaMed), a national trade group representing many of Minnesota's medical technology companies, issued its endorsement, making clear that it wants the tax killed, not just delayed.

Urging 'repeal or reduce'

"Delay of the tax is an important step, but Congress must fully address the device tax as it works to develop a long-term solution to help our economy more forward, reduce our debt and reform our tax code," AdvaMed senior executive vice president J.C. Scott said in a statement.

Businesses, including many in Minnesota, have complained that the government is unclear about how to figure the amount of tax companies must pay. They also complain that paying the tax on gross revenue rather than profits is unfair and burdensome to small companies just getting started.

Supporters of the tax believe health care reform will add millions of new patients, bringing medical device companies millions of new users and thus new income.

Franken countered that the majority of medical device users are over 65 and are already covered by Medicare. The patients added under health care reform won't increase the devicemakers' market shares significantly, he said.

Klobuchar said she believes device tax opponents "have a strong argument to make about the burdens of this tax." But she stopped short of predicting a complete repeal. Rather, she used the phrase "repeal or reduce."

Her wording acknowledged the difficulty of finding new revenue sources in the face of austerity measures necessary to tame the budget. Klobuchar said she supports the offset Paulsen proposed in his House bill, which would cut some parts of health care reform to recoup the loss of device tax revenue. But Klobuchar acknowledged that "not everyone on that letter would."

Franken is among the letter's signers who would not support Paulsen's plan. "I felt the offset in the Paulsen bill would have undermined the architecture of the Affordable Care Act," Franken said.

As an alternative, Franken proposed a plan that lets Medicare negotiate drug prices with private pharmaceutical companies. The savings achieved by such bulk pricing could offset most of the device tax, Franken said.

Jim Spencer • 202-383-6123