Medical Device Lobby Wins Lower Fee In House Bill

House lawmakers will propose a $20 billion fee on medical device makers--chopping in half a $40 billion fee approved earlier this month by the Senate Finance Committee as part of a plan to pay for health overhaul legislation.

Under the terms of House legislation that has not yet been released, the tax would wait until 2013 to kick in. The Finance panel version would have taken effect immediately, even though much of the broader bill does not go into force until 2013.

Senate Majority Leader Harry Reid, (D, Nev.), may also lower the fee to the level embraced by House lawmakers before final Senate legislation reaches the floor, according to people in the device industry. Reid's office declined to comment.

The lower fee comes as big device makers like Medtronic Inc. (MDT), St. Jude Medical Inc. (STJ), and Johnson & Johnson (JNJ) have lobbied furiously against the Senate proposal. Their congressional allies from Minnesota, California, Massachusetts and elsewhere have barraged Democratic leaders with calls and letters.

"They're in a complete panic," said one House aide. The new, House version of the fee doesn't remove the sting entirely, but it would whittle down and delay a financial hit the sector claims will hurt product innovation.

House Democrats may unveil their broad health-care proposal as early as this week, with a vote aimed for November. The medical device tax will help bring revenue that Democrats have sought, to ensure their proposals expanding coverage to the poor and to the uninsured won't add to the deficit.

The structure of the House tax, details of which were described to Dow Jones by House aides and industry officials, is also different than that approved by the Senate Finance Committee. The Finance Committee version would divide up the tax based on the prior year's market share--leading older, established companies to claim they were paying disproportionately with respect to start-ups.

The House version will be an excise tax imposed on the device at the point of sale. The tax would be set at a level that would yield a total of $20 billion between 2013 and 2019.

Because the tax is imposed at point of sale, it would be paid by wholesalers and distributors in the case of some cheaper medical devices--such as bedpans, tongue depressors and the like. High-end medical devices are sold directly to hospitals by the manufacturer, and so in the case of sophisticated technology, it is the manufacturer who would pay the tax directly.

Also, all retail products would be exempt from the tax under the House plan. The Senate Finance version would have exempted only retail products that sold for less than $100 per unit.

-By Martin Vaughan, Dow Jones Newswires; 202-862-9244; [e-mail]