Why A Medical Device Tax Became Part Of The Fiscal Fight

By Peter Overby

Published October 15, 2013 at 5:56 PM EDT

Among the bargaining chips in the budget crisis on Capitol Hill, there's the small but persistent issue of taxing medical device manufacturers.

The 2.3 percent sales tax covers everything from MRI machines to replacement hips and maybe even surgical gloves. The tax was imposed to help pay for the Affordable Care Act. It didn't attract much attention at first — at least, not outside the world of medical device manufacturers.

But they have waged a persistent campaign to undo the tax, and right now is the closest they have come to succeeding.

House Republicans have made repeated efforts to kill the tax, but Democrats had opposed any changes to the health care law.

Senate Finance Committee Chairman Max Baucus, D-Mont., last month dismissed changes in the medical devices tax. He told Politico that the industry had agreed to it when the bill was being written and "a deal's a deal."

But even Democrats have started softening that hard line.

Illinois Sen. Richard Durbin, the Senate's second-ranking Democrat, told CNN recently: "We can work out something, I believe, on the medical device tax — that was one of the proposals from the Republicans — as long as we replace the revenue."

Last week, a bipartisan compromise in the Senate included the idea of delaying the tax for two years.

Maine Republican Sen. Susan Collins spearheaded the proposal. She cited the lobbying campaign's work when she said the tax "will cause the loss of as many as 43,000 domestic jobs, according to industry estimates."

Those estimates are crucial to the lobbying effort.

The CEO of one of the industry's giants, Medtronic, said last fall that the company likes to "focus on things we can control." Medtronic, which is based in Minnesota, did not respond to an interview request Tuesday.

But one of Minnesota's senators is a leader of the anti-tax campaign.

Democrat Amy Klobuchar gave industry advocates some advice this summer.

"I think that at the beginning of this battle, people didn't understand in Congress how many medical device manufacturers they had," she said. "I think just making the case at home and also back in Washington makes a difference."

And that is what the medical device industry has been doing, quietly but assiduously.

Cook Group, the largest privately owned maker of medical devices, boosted its lobbying outlays significantly in the past two years. It's also working with an industry consultant, Joe Hage, on a website called no2point3.com.

The website collects stories of anger and anguish from the small-business people who run a lot of the companies. It also has a petition to repeal with 11,000 signatures. It's all fueled by a LinkedIn group that Hage runs.

"The medical devices group is not in league with Washington lobbyists directly," Hage says, but he quickly adds: "We like to think that this effort complements their effort by giving them another bow in their quiver."

Still, it's hardly clear whether those efforts will move votes or whether the whole tax question will be just a pawn in the much larger debate over the budget and the debt limit.