Medical Device Makers Haggle With Sen. Baucus Over Fee

Medical device makers are negotiating with Senate Finance Committee Chairman Max Baucus, D-Mont., to shave billions off fees the industry would face under Baucus' health overhaul bill.

The Advanced Medical Technology Association, or AdvaMed, a leading trade group of device manufacturers, is asking Baucus to reduce the fee on the industry from $40 billion to $15 billion over 10 years, according to industry and congressional officials. Congressional aides say that offer is too low.

A deal might come within days, according to industry sources. The fees would affect makers of a wide range of products, from walkers and hearing aids to surgical stents and high-tech imaging equipment.

AdvaMed spokeswoman Wanda Moebius declined to comment on the $15 billion offer, calling it "rumors and speculation."

"AdvaMed continues to work with members of Congress to educate them of the onerous nature of this $4 billion tax - nearly half of the total of the industry's research and development investment in 2007," said Moebius.

Industry lobbyists have recruited a number of sympathetic lawmakers to their cause since Baucus unveiled his health-care legislation, including the medical device fee, in mid-September. Sens. John Kerry, D-Mass., Amy Klobuchar, D-Minn., and Evan Bayh, D-Ind., have all voiced objections to the tax.

AdvaMed's members include Boston Scientific (BSX), Minneapolis-based Medtronic, Inc. (MDT), and Indianapolis-based Eli Lilly and Co. (LLY).

Nevertheless, the Finance Committee rejected late Thursday night an attempt from Sen. Jon Kyl, R-Ariz., to strip the medical device fee from the Baucus bill, on a 13-10 vote.

Besides device makers, health insurers and drug manufacturers are also targeted for fees under the bill. But insurers and drug makers reached deals with the White House and Baucus to submit to the fees, on the grounds that the bill would bring them millions of new customers thanks to expanded government-subsidized health coverage. The device fee, by contrast, was not pre-negotiated with industry.

Device makers are arguing that they will already suffer under separate provisions of the bill that cut payments to hospitals. The great majority of medical devices are reimbursed through hospitals - not the case with insurance or prescription drugs, device industry sources note.

Under the Baucus bill, a $4 billion annual fee would be levied on manufacturers of Class II medical devices, apportioned by market share. Class I medical devices like tongue depressors and hand-held surgical tools, and devices sold at retail for less than $100, are exempt from the tax.

The Senate Finance Committee might vote on the health care package as early as Tuesday.

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

(Alicia Mundy contributed to this article.)