Device companies push back in health care debate

Sunday, October 18, 2009 | 12:01 a.m. CDT

WASHINGTON — Sens. Amy Klobuchar and Al Franken of Minnesota are blue-state Democrats strongly supportive of President Obama's health care reform efforts. Minnesota Gov. Tim Pawlenty is a Republican presidential contender who has loudly criticized Obama's plans.

But the two camps have come together to defend a powerful home-state industry in the political doghouse: medical-device firms.

The companies, whose products range from $3,000 heart stents to $30,000 implantable defibrillators, refused to offer direct financial concessions earlier this year to help pay for health care reform, unlike drugmakers, hospitals and other health care players.

The move angered Democrats on the Senate Finance Committee, who view the industry as a key contributor to soaring health care costs, and led the panel to approve a $40 billion fee on device makers over the next 10 years. Backers of the levy note that profit margins top 20 percent for many popular medical devices and that spending on such technology is far higher in the United States than in other countries with better health outcomes.

The companies' leaders say they are not making unfair profits, and they are pushing back with an aggressive lobbying campaign featuring an unlikely alliance of liberals and conservatives, including lawmakers who have received generous campaign contributions from the industry and its employees. Their aim is to reduce or eliminate the tax.

"They've been very stubborn," said Richard Kirsch, national campaign manager at Health Care for America Now, a pro-reform group. "They don't accept any responsibility for their role in driving up health care costs. ... That's why folks are going after them."

The fight over medical devices is one of several little-noticed obstacles that could pose serious problems for health care negotiators in coming weeks, as Democratic leaders strive to hold together a precarious coalition of interest groups and industries that have agreed to help pay for reform through reimbursement cuts or other sacrifices. As always, hometown economic concerns are playing a significant role in swaying lawmakers, particularly as high unemployment and other financial woes continue.

Democrats and Republicans from Minnesota, Indiana, New Jersey and other states with prominent medical-device operations are rallying to oppose the proposed fee, which would collect $4 billion annually from the $130-billion-a-year industry. Fourteen Democratic senators sent a letter to Senate Majority Leader Harry Reid, D-Nev., and other top Democrats last week, urging them to "moderate" the levy, which they said will "threaten the existence of some manufacturers" and cause "significant job reductions" for those that remain. Five GOP governors have also weighed in with objections.

"The issue here is that these are very good jobs in our state and in our country," Klobuchar said in an interview, acknowledging that she is among a group of "strange bedfellows" rallying around the industry. "You want to be very careful when you start assessing taxes on an industry like this."

The proposal has prompted a last-minute scramble by the devicemakers, including industry leaders such as Medtronic Inc. and St. Jude Medical in Minnesota and Boston Scientific Corp. in Massachusetts, who failed to reach an agreement with the White House and Senate leaders on targeted cuts. The companies and their main trade group, the Advanced Medical Technology Association (AdvaMed), are locked in negotiations with Democratic leaders in hopes of shaping the final legislation to their advantage.

The industry's efforts are made more difficult by evidence that the push to sell pricey medical devices, from artificial joints to magnetic resonance imaging (MRI) machines, has been a significant contributor to skyrocketing health care costs in the United States. One manufacturer, New Jersey-based ReGen Biologics, has also come under fire for aggressively lobbying the Food and Drug Administration to gain approval for a knee-surgery device. A recent FDA review concluded that the Bush administration was swayed by outside political pressures in clearing the product, despite its risks and dubious effectiveness.

Steven Nissen, chief of cardiovascular medicine at the Cleveland Clinic, called devicemakers "a Wild, Wild West" industry that uses aggressive marketing, including confidential payments to doctors, to drive up demand for its products. "Given the way they have encouraged overutilization, it makes sense that some of that should be given back to help bend the cost curve," he said.

Industry leaders defend the effectiveness of their products and argue that financially they are largely at the mercy of their biggest customers — particularly hospitals. Boston Scientific CEO Ray Elliott said the industry's profit margins might "sound nice," but device makers take "significant risks" in researching and marketing products.

"We kiss a lot of frogs before we get to the prince," Elliott said, adding: "If we didn't fix people's hips and knees, we'd all be in wheelchairs."

The U.S. medical technology business totaled 6.2 percent of total national health expenditures in 2006 and has been growing faster than overall health care costs for more than a decade, according to industry-backed studies. Net profit margins for the device sector range from 7 to 10 percent for basic items such as hospital beds to more than 20 percent for artificial joints and other high-end technologies, according to Wall Street analysts.

Increased political focus on the industry has prompted a surge in lobbying and campaign contributions for Washington. The medical-supply sector, which over the past 20 years has given more than $10 million to the current members of Congress, spent $15.7 million on lobbying during the first six months of 2009, according to data from the Center for Responsive Politics.

The biggest spender so far this year has been Medtronic, the world's largest device maker, which reported $2.3 million in lobbying expenditures through June. The Fridley, Minn.-based firm and its employees have also given generously to their congressional delegation, including more than $30,000 to Klobuchar, records show.

At the heart of a Senate Finance Committee bill drafted by Sen. Max Baucus, D-Mont., and the White House are deals struck with industries essentially to sacrifice a portion of future growth in return for tens of millions of new customers. Democratic aides said that with anticipated revenue of $2 trillion over the next decade, the device sector can afford to chip in $40 billion.

The device makers argue that they are less likely to reap a windfall from reform because they expect most of the newly insured will be younger, healthier people, while most patients using their products are older and are often covered by Medicare. The industry also asserts that other spending reductions in the legislation, such as lower Medicare payments for lab services or imaging, will effectively be passed on to them.

Jeffrey Binder, president and CEO of Indiana-based Biomet Inc., said it is difficult for the industry to produce "scorable" savings for budget analysts because most payments go through a hospital or clinic before reaching them. This summer, device industry lobbyists suggested to Finance Committee staff members that the bill should collect $15 billion in fees over 10 years from group purchasing organizations, which are the middlemen companies that buy equipment for hospitals, according to industry and congressional sources. The proposal was viewed as a clumsy attempt at cost-shifting, and led to the direct levy on the device industry, legislative aides said.

Brett Loper, head of government affairs at AdvaMed, said the industry hopes to "raise enough consternation over it that, at the end of the day, it can be reduced."

The key to that strategy, it appears, is staying in regular contact with home-state Democrats. Elliott, the Boston Scientific executive, has had two telephone calls with Sen. Evan Bayh, D-Ind., whose state is a major center for medical device firms such as Biomet and Roche Diagnostics Corp.

"I'm for cutting costs where it makes sense," Bayh said in an interview. "If the net effect is destroying thousands of good-paying jobs, then that's a different story. Cut the fat, yes, but when it gets to the bone, that's something else."


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