Medical device tax opponents envision victory in spring

Minnesota's medical device makers are well-positioned to score a big win next month if lawmakers follow through on a promise to repeal a tax on their industry.

The tax, which is estimated to raise about $3 billion annually, is part of the Affordable Care Act and helps fund the expansion of health insurance to the previously uninsured. The health insurance and pharmaceutical industries also pay special levies as part of the health care law on the theory that those industries stand to gain the most from millions of new customers.

Minnesota companies such as Medtronic and St. Jude Medical stand to keep millions of dollars more of their profits if the tax is repealed.

Members of Congress have listened for nearly six years to a long and sophisticated lobbying campaign behind the movement to undo the tax.

"This is a great case study of how you lobby, how you have a clear strategy, theme and message that's focused on a very narrow area," said James Thurber, a political science professor at American University who studies the lobbying industry. "And I think they'll win."

The medical device industry has spent an estimated $30 million a year since 2008 on lobbying and has nearly 400 lobbyists tackling the issue, according to the Center for Responsive Politics.

The industry has long complained that the tax is poorly designed — and has aggressively made that case to lawmakers.

With Republicans set to control both chambers of Congress, and key Democrats on their side — among them U.S. Sens. Amy Klobuchar and Al Frankens — opponents of the tax say a repeal bill could reach the president's desk by spring.

"I will say that the level of emphasis that you see placed by our organization and others in the medical device space is just an indicator of how much a priority it is to address this issue," said J.C. Scott, the top lobbyist for the industry trade group AdvaMed. "And that's a result of the really severe impact that the policy is having on the industry."

Scott is "cautiously optimistic" the industry will prevail next year — and if it doesn't, history suggests the device companies will keep trying until they do.

Thurber notes that medical device companies have sought to reframe the debate about the tax — away from big firms such as Medtronic and Boston Scientific, the largest and most profitable companies in the industry, who pay most of the tax, to a discussion about the tax's impact on startups, which account for very little of the industry's revenues.

"In a reframe, you show that it really hits America generally, [that] it hits a lot of small businesses," Thurber said of the bid to boost sympathy for the industry.

Industry-sponsored research suggests the tax may have been responsible for 30,000 lost jobs in 2013. But a recent study by the nonpartisan Congressional Research Service, Congress' in-house think tank, concluded that in the very worst-case scenario, the tax may have cost the industry 1,200 jobs nationwide.

U.S. Rep. Erik Paulsen, who represents Minnesota's 3rd District, dismissed the CRS report's findings.

"CRS does these academic reports, but when you talk to someone who lost their job in North Carolina, that's a real job lost that impacts that family," said Paulsen, who has led the push to repeal the tax in the House.

By dismissing critical data and focusing on people who have lost jobs, the industry has convinced politicians to focus on the debate about the tax on its own terms, Thurber said.

"Anecdotes and stories are more effective than statistics," when it comes to persuading members of Congress, he said.

Those anecdotes shift attention away from empirical studies and the kind of empirical and nonpartisan economic analysis that the Congressional Research Service specializes in, Thurber said.

But any repeal of the tax would have to tackle a big problem. Under congressional budget rules, new spending or tax cuts must be offset with new revenue or spending cuts elsewhere.

That means the opponents of the tax will need to come up with the $30 billion the tax is expected to bring in over the next decade.

Scott, the lobbyist, said his group has no plans to offer any suggestions.

"We look at that as a problem that the Congress has to wrestle with, and that it's not necessarily appropriate for us on the industry side to solve that pay-for dynamic," he said.

It's likely the industry has made a deliberate decision to avoid suggesting spending cuts to avoid picking a fight with other industries and interest groups that could be affected by those cuts, Thurber said.

However, he said the approach ignores the reality that fiscal trade-offs are an inherent component of the political process.

"It's a wise strategy, though it's not very honest in my opinion," he said.