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Shutdown splits foes of medical device tax

WASHINGTON — Members of the Massachusetts congressional delegation have campaigned against the new federal tax on medical devices, agreeing with industry executives that it hurts the Bay State economy by costing device manufacturers hundreds of millions of dollars a year.

Some Republicans also are demanding repeal of the tax — but they are making it a condition of ending the government shutdown.

And therein lies the problem. Despite having the ingredients for a bipartisan deal on a pet cause, Massachusetts lawmakers are not interested. To join ranks with Republicans would mean breaking ranks with President Obama, who has repeatedly opposed tying the funding of government to any other legislation.


The conundrum is one more example of how the sharply drawn battle lines in the shutdown debate are blocking the sort of Washington compromise and deal-making that previously got things done.

Senator Susan Collins, a moderate Maine Republican, has proposed legislation to reopen the government, funding it for six months while permanently repealing the 2.3 percent tax, which helps fund Obama’s health law. Collins said she is modeling her bill after a similar House proposal that has received support from 35 members on both sides of the aisle – none of which, so far, come from Massachusetts.

In an interview with the Globe, Collins issued a challenge to Massachusetts Democrats, who represent a state with the second largest concentration of medical device companies. Senators Edward Markey and Elizabeth Warren have vocally opposed the tax in the past. Warren voted in the spring to repeal it under a non-binding Senate resolution.

“That was symbolic. This is real,” Collins said. “It would be interesting to see whether those senators who cast this symbolic vote would be willing to play with real legislation.”

The tax went into effect in January and is estimated to raise $3 billion a year over the next decade to help subsidize insurance under the health law.


Proponents of the tax to help pay for the health care law say it makes sense because medical device companies stand to rack up big gains under the insurance expansion; more people will have health coverage that will pay for their products. Also, surges in the use of some medical devices help drive overall health care inflation.

“These companies will be some of the beneficiaries of having more consumers have health insurance,” said Amy Whitcomb Slemmer, executive director of Health Care For All, a Boston-based advocacy group. “It was important and continues to be important that we stand by the law as it has been enacted.”

The industry has argued that the tax on devices such as cardiac pacemakers and artificial hips will cause companies to slow hiring, reduce their research and development budgets, and ultimately raise the costs for hospitals and consumers. With 24,000 people employed in the industry, Massachusetts has the second-largest cluster of medical device companies, behind California.

In separate statements to the Globe, Warren and Markey said they would support repealing the tax only after the shutdown ends and the debt ceiling is lifted, as long as the lost revenues are replaced.

“We should not attach conditions such as repeal of the health care law or the medical device tax to a budget resolution that would end the shutdown and reopen the federal government,” Markey said.

Under the current, partisan-driven budget impasse, repealing the medical device tax is one of the few ideas that significant numbers of Democrats and Republicans agree on. But many Democrats have stuck with the president in his insistence that any bills to reopen government and raise the debt ceiling be unencumbered by other legislation. The White House has called efforts to tie renewed government funding to a device tax repeal ``blatant extortion.’’


As the shutdown wears on and pressure on lawmakers to resolve the crisis builds, industry groups sense this may be their best shot. They are doubling down on their lobbying efforts to repeal the tax, running advertisements in publications that cater to the Capitol Hill audience, meeting with lawmakers and their staffs, and sending letters. It is part of a four-year lobbying crusade.

“Grasp the time right now,” Rick Packer, CEO of ZOLL Medical Corp., a medical device firm based in Chelmsford, said in an interview, urging lawmakers to use any vehicle at their disposal to repeal the tax. “There’s bipartisan support for repealing this tax. Find a way to get it done.”

Packer flies down to Washington every six months to press lawmakers to repeal the tax, citing the damage it has already wrought on jobs and innovation. For the first time in recent years the company is not hiring in Massachusetts and is spending less on research and development.

Packer has focused his lobbying efforts on Warren and Markey, as well as Representative Niki Tsongas, all of whom he said has been sympathetic.


“They’re all in that same political place where they know what the right answer is, they just haven’t figured out the right vehicle,” Packer said. “I’m optimistic that the majority of them will do the right thing when the occasion arises when they can do that politically.”

Tsongas has voted in the past for repealing the medical device tax, but she said Congress needs a straightforward plan to reopen the government and raise the debt limit, with “no strings attached.”

Representative Richard Neal, who serves on the House Ways and Means Committee, also does not support tying the device tax repeal to a deal to reopen the government, saying through a spokesman that any repeal should only be discussed in the context of comprehensive tax reform.

Neither does Representative Jim McGovern. He said the proposal to repeal and replace the tax with another revenue source for the health law relies on “a gimmicky short-term replacement” that will cost more in the long run.

“Why would we agree to a major change to the Affordable Care Act in return for a short-term [deal to fund the government]?” McGovern said. “Legislating at the last minute by picking random things out of the air is a lousy way to run a Congress.”

Representative Charlie Dent, a Pennsylvania Republican, and Representative Ron Kind, a Wisconsin Democrat, proposed their plan last week, the day after the shutdown. They want to break the impasse and fund the government through March while repealing the medical device tax.


Many Democrats have said they would not repeal the tax without a replacement, so Collins, Dent, and Kind have proposed that the lost revenue be replaced by temporarily reducing the amount companies must contribute to their employees’ pension funds. Since pension contributions are tax-deductible, the provision would lower employers’ tax deductions and thereby raise overall federal tax revenues.

But the proposal has drawn criticism from the liberal-leaning Center on Budget and Policy Priorities, which agreed that the pension “smoothing” provision would bring in revenue within the 10-year budget window but argued it would lose money in later years and swell deficits and debt.

“The far left is not going to like that proposal because it does make a change to the health care law,” Dent said on CNN on Monday. “The far right is not going to like it because at the end of the day, it does not defund the health care law. But I believe there’s a lot of space there for folks to get behind a compromise like that.”

Collins has tried to enlist the support of several Democratic colleagues, speaking with them on the Senate floor about her proposal. “They expressed interest but everyone is sort of holding back to see what the leadership will do,” Collins said.

“This does not attack the heart of Obamacare, so it should be acceptable to Democrats,” Collins said.

A spokesman for Senator Jeanne Shaheen, a New Hampshire Democrat whom Collins recently contacted, said that she is willing to consider Collins’s plan in the context of figuring out how to reopen the government.

Senator John McCain, a key deal-maker who has spoken out against his caucus’ Tea Party faction that is holding firm to dismantling “Obama-care,” noted that the Senate had already passed a symbolic 79-to-20 vote in March to repeal the tax.

“Do my colleagues want to renounce that vote they took on the budget?” McCain asked on the Senate floor Tuesday. “Why don’t we use that as one of the areas where we could reach agreement?”

Steve LaPierre, vice president of government affairs at Boston Scientific, based in Natick, said the key now is shoring up Democratic support in the Senate. He said he’s been in touch with Warren’s office and Markey’s office, and neither has committed.

“Everyone’s kind of in bunker mentality,” said LaPierre, who last spoke with the Massachusetts delegation just before last week’s shutdown. “We’ve been urging them to support whatever opportunity emerges in a grand bargain between the House, the Senate, and the White House.”

Tracy Jan can be reached at tjan@globe.com. Follow her on Twitter @GlobeTracyJan.