Medical-Device Makers Scramble to Avert New Fees in Health Bill

Story from the Wall Street Journal

WASHINGTON -- The $100 billion medical-device industry is scrambling to reverse billions of dollars in fees proposed by the Senate Finance Committee, but it faces trouble because its reluctance to offer concessions alienated some lawmakers.

A draft of a broad health-overhaul bill in the Finance Committee calls for device makers to pay $40 billion in fees over 10 years, with the specific amount based on each company's market share.

The relatively high fees resulted from a lobbying move that some senior congressional aides and industry officials say represented a strategic error on the device industry's part.

Device makers were among the health-related industries that went to the White House this spring to volunteer financial concessions as part of an overhaul. They were then asked to offer a dollar amount in savings, representatives of the device industry and congressional aides said. Instead, the companies suggested that the government levy a tax on their adversaries: hospital-purchasing groups that negotiate for lower prices on medical supplies and some devices.

Some senators, including Finance Committee Chairman Sen. Max Baucus (D., Mont.), were troubled that the device makers were "offering up other people's money," said a person close to the negotiations. This person cited a line that has come to represent the maneuvering among health-care industries, the White House and Congress: "You either come to the table early, or you end up part of the dinner."

Mr. Baucus is planning to make public his bill on Tuesday, and aides said the new fees on device makers' revenues are likely to remain part of it. According to a letter sent to Mr. Baucus by the Advanced Medical Technology Association or AdvaMed, the main device-industry group, the proposal would assess all manufacturers at a rate, based upon their U.S. sales, necessary to generate $4 billion annually beginning in 2010. Industry representatives are lobbying senators to trim the fees.

Michael Mussallem, president of heart-device maker Edwards Lifesciences Corp., said the $40 billion tax would cut into research and hurt companies' ability to add jobs. "We were working overtime to come up with ideas. When we learned about the tax over Labor Day, we were shocked," he said.

He said the tax details are too vague. "What is 'market share?' Whose market? What is the base year for comparison?" asked Mr. Mussallem. Senate Finance aides said those details are being worked out.

Device companies that make imaging and X-ray equipment are already upset at the health-overhaul legislation, because most versions include significant cuts in Medicare reimbursements for diagnostic imaging such as CT scans and MRIs. At General Electric Co., about $10 billion of the health-care division's $17 billion in revenue comes from imaging-related products and services.

A GE spokesman, Peter O'Toole, said the company is negotiating with senators and their staff. "We're optimistic," said Mr. O'Toole. "We want to ensure that patient access to these critical, life-saving technologies is maintained."

A person close to the negotiations argued that device makers will get "huge benefits" from an overhaul, because wider insurance coverage will bring them more customers. As a result, the White House wants savings commitments to help pay for the package.

After the White House and Senate Finance Committee sent requests for concessions this spring, the first group to step forward was the pharmaceutical industry. It proffered $80 billion in savings in June, including helping more seniors get prescription drugs. Hospitals offered concessions worth $155 billion a few weeks later.

But device makers didn't suggest a specific number. Lobbyists at AdvaMed urged the Senate to tax the group purchasers for hospital chains, telling negotiators that the purchasing co-ops could then "pass through" some or all of that tax to the device makers.

AdvaMed President Stephen Ubl, a former Senate Finance staffer, said his group did its part by suggesting ideas that would count as "scorable" by the Congressional Budget Office, meaning the agency could estimate their effect on federal spending. "We did not walk away from the table," said Mr. Ubl. "We put forward a policy that would have produced billions in scorable savings which the committee did not accept."

The Health Industry Group Purchasing Association, representing purchasers, reacted angrily in a letter in August to AdvaMed. "Advocating proposals that affect another industry to the benefit of your own...can not be considered real beneficial healthcare reform," its president, Curtis Rooney, wrote. He said AdvaMed didn't respond to the letter.

The savings would come from companies such as MedAssets Inc. of Atlanta, which negotiate bulk purchases of equipment for hospitals, lowering hospital costs.

In an interview, MedAssets Chief Executive John Bardis criticized device prices as "inflated" and added, "More importantly, their pricing is not transparent to buyers."

AdvaMed spokeswoman Wanda Moebius said a recent industry study showed that "price transparency would actually raise prices." She said device prices are highly competitive.