Medical-Device Makers Launch a Lobbying Blitz

Medical Lobby

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By Chris Frates & Carrie Budoff Brown

The words “condoms” and “Q-tips” appear nowhere in the Senate Finance Committee’s preview of its bill being released as early as Tuesday. But they’re part of a fierce behind-the-scenes lobbying battle over the proposal already under way.

The medical-device industry is organizing companies that make everything from CT scans to contact lenses to fight a proposed $4 billion annual fee on device makers, arguing that companies across the board could get hit with the fees. And the industry is trying to rally companies that make even mundane items like condoms and Q-tips to fight the fee, as well.

After a summer of big debates over big ideas, like whether to include the public option, the legislative battle over health care is beginning to shift into the next phase, word-by-word fights over the legislation.

The emerging Senate Finance Committee plan, in particular, has touched off an increase in activity, because all sides view it as the most likely vehicle for compromise — perhaps the closest thing to what the final health care overhaul might look like.

Chairman Max Baucus (D-Mont.) raised alarms among industry insiders by asking companies to put up billions of dollars in annual fees to pay for his $900 billion plan. Along with device makers, clinical labs would pay $750 million and insurers are looking at a 35 percent tax on high-cost plans and an additional $6 billion in fees.

Industry officials argue that the fees are disproportionate to their share of the country’s health care spending. And they argue that the fees mean a bill designed to cut health care costs would have the opposite effect — by raising prices on consumers because the companies will be forced to pass the cost of the fees onto their customers.

Finance Committee aides argue that the fees are small in comparison with the payday the industry stands to make if reform goes through — a bonanza of new customers as millions of previously uninsured Americans could afford coverage.

Aides say the companies won’t raise prices to cover new fees because it will put them at a competitive disadvantage. They cite measures that would keep the companies honest, including new consumer-owned cooperatives that would force competition with private insurers and a new insurance marketplace called an exchange where consumers can shop for the best plan.

“Co-ops and the exchange are designed to pit plans against each other so the most competitive plan wins,” a senior Finance Committee aide said. “Plans that pass the fee don’t win.”

Still, health care lobbyists are busy looking for patrons on the Finance Committee who will push to strip the fees from Baucus’s proposal. Each industry’s individual effort to eliminate fees, when taken together, could shrink the bill’s $900 billion price tag by several hundred billion dollars and scale back how much it covers, one health care lobbyist predicts.

When it comes to the device makers’ $4 billion fee, Senate Finance Committee aides say the committee is aware of industry concerns about fees on even the smallest items and is trying to tailor the bill so it only covers “appropriate industry participants” — but didn’t specify what that means.

That isn’t stopping device industry trade group AdvaMed from working to organize a wide-ranging coalition — arguing that it’s not just companies that make big-ticket items like MRIs and pacemakers that will get hit with the fee, but any company that makes a medical product regulated by the Food and Drug Administration.

So everything in an emergency room, from the defibrillator to the bandages, and many of the things you’d find in a drugstore — home pregnancy tests to toothbrushes — are medical products that could come under the fee, said AdvaMed chief lobbyist Brett Loper.

That wide range of products represents a powerful opportunity to organize a coalition of consumers, manufacturers and purchasers to protest the new fee, Loper said.

“They’re going to get walloped upside the head with a new tax during a struggling economy,” he said. “Hopefully, we can convince enough people that a medical products tax will only increase the costs.”

Device makers also are worried that they’ll see decreased sales from another part of the proposal. The hospital industry agreed to pony up $155 billion to pay for reform, which device makers anticipate will leave it less cash to buy new equipment.

The insurance companies are making a similar economic pitch against the $6 billion annual fee and 35 percent tax on so-called Cadillac insurance plans.

“All these new costs are just going to drive up the cost of coverage for families and small business. The goal of health care reform is to make coverage more affordable and to put our health care system on a sustainable and fiscally responsible path. New taxes are going to have the opposite effect,” said Robert Zirkelbach, a spokesman for the insurance industry trade group America’s Health Insurance Plans.

Under the Baucus proposal, the industry estimates that over the next decade, insurers would see cuts to the Medicare Advantage program of about $130 billion, a tax on Cadillac plans costing about $150 billion, administrative reforms with a $15 billion price tag and $60 billion in fees. The changes could cost the industry more than $350 billion.

That number could go even higher. A Senate Finance aide said the tax on high-end plans will bring in about $200 billion.

Insurers are concerned that they could be paying for a third of the $900 billion bill when insurance costs only make up 7 percent of total health care expenditures. “It’s a disproportionate share,” Zirkelbach said.

Insurers are mobilizing the 11 million seniors who use Medicare Advantage plans, telling them that cuts could mean increased premiums, decreased benefits and, in some cases, loss of coverage. And they’re letting lawmakers know how many Medicare Advantage beneficiaries they have in their districts and states.

They’re also modeling what the new fees and taxes would mean for the system and consumers and are sharing that data with Finance Committee members, Zirkelbach said.

Clinical labs say the proposed $750 million in annual fees is more than their fair share. The industry feels a proposed Medicare funding adjustment that would cost $7 billion over the next decade is reasonable, but another $7.5 billion in fees is not, said Alan Mertz, president of the American Clinical Laboratory Association.

Finance Committee aides say reform will create new customers that will more than make up for the fees, especially for insurers who will lose current customers as the baby boom generation moves into Medicare.

“The health care industry has been very good to the device manufacturers, drug makers and insurance companies over the years. It is more reasonable to ask these companies to give back to the system that has been so good to them,” the senior Finance Committee aide said. On Thursday, Baucus’s top health care policy aide, Liz Fowler, as well as aides with the Senate Health, Education, Labor and Pensions Committee and the House health care committees met with U.S. Chamber of Commerce members, said Bruce Josten, the Chamber’s chief lobbyist. But the framework, with the new taxes, doesn’t give the Chamber much to cheer about, he said.

“Those costs are not just going to be absorbed by the industries,” Josten said. “Who do you think they are going to be passed on to? To my members.”

And, he said, the proposal will stick small businesses with burdensome administrative requirements.

In one bright spot for Baucus, Josten suggested the Chamber would be open to a provision requiring employers to cover the government’s costs to subsidize some workers’ health care.

The one industry not griping much so far is also one of the biggest — the drug makers. Industry officials cut a deal early on with Baucus and the White House to contribute $80 billion to the cost of reform and were “cautiously optimistic” about what they had seen so far, said a senior industry lobbyist. The lobbyist said drug makers are still waiting to see more details. The industry has signaled that it is ready to spend millions in favor of reform and a bill that gets the green light from the drug companies could mean that ads in support of it aren’t far behind.

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