AdvaMed Says Sequestration Troubling, But Device Tax Repeal of Greater Concern

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The Advanced Medical Technology Association (AdvaMed) Feb. 26 said it will focus the brunt of its lobbying efforts on repealing the 2.3 percent medical device tax--even as across-the-board sequestration spending cuts are looming.

During a briefing with reporters, AdvaMed President and Chief Executive Officer Stephen J. Ubl said the politics behind sequestration were complicated. Although its effects are concerning, he said, AdvaMed is more concerned with the immediate negative impact of the device tax.

“We're going to double down” on efforts to repeal the device tax, Ubl said. He also praised recent bipartisan legislation in the House and Senate calling for repeal.

AdvaMed Chairman David C. Dvorak, president and chief executive officer of Zimmer Inc., said support in Congress for repealing the tax is “stronger than ever.” A House bill to repeal the tax was introduced Feb. 6, and a Senate version was introduced Feb. 7 (26 HCDR, 2/7/13).

The tax took effect Jan. 1, and Ubl said AdvaMed has been sending the IRS about $97 million every two weeks since Jan. 29.

'A Toxic Effect'

“The device tax is already having a toxic effect on innovation, jobs and U.S. leadership of the medical technology industry,” Ubl said. “Nobody has clear visibility on how budget negotiations will play out, but we will be opportunistic” and use the negotiations as a vehicle for repealing the tax, Ubl said.

As an example, Ubl noted Cook Group Chairman Stephen L. Ferguson discussed the impact of the device tax during a Feb. 26 Senate Budget Committee hearing. Ubl commended Ferguson for speaking on behalf of manufacturers and bringing more attention to what Ubl said were the devastating effects of the tax.

“Recent policy changes have already put a heavy burden on large sectors of our industry--including successive Medicare cuts impacting diagnostic lab tests, imaging, durable medical equipment, and diabetes test strips--on top of hospital cuts which have also had an adverse impact on our industry,” Ubl said.

Sequestration, User Fee Concerns

Without congressional action, sequestration takes effect March 1. According to Ubl and Dvorak, the 2013 impact will amount to an across-the-board cut of between 5.1 to 5.3 percent in federal funding that applies both to the Food and Drug Administration's appropriated budget, as well as industry user fees.

If sequestration occurs, Dvorak said AdvaMed would work with FDA officials to figure out how the agency would best be able to absorb the cuts. However, Dvorak said, AdvaMed objects to the fact that user fees will be affected, as well as appropriations.

“The fees voluntarily paid by industry are not taxpayer dollars and should not be considered in the same light as appropriated funding,” Dvorak said. “FDA should have full access to fees paid by the industry, and the agency should be properly funded to meet its commitments under the new user fee agreement.”

As part of the user fee law, the Medical Device User Fee Amendments of 2012 (or MDUFA III), FDA agreed to meet certain performance metrics, including expedited review times. In the past, FDA had indicated that insufficient funding was a major contributor to many of the problems associated with the agency's premarket approval program for medical devices. Under the user fee law, device companies are expected to pay $595 million over five years (fiscal years 2013 through 2017). Much of that money will go toward hiring 208 new agency employees.

If the user fees are cut by sequestration, Ubl said FDA would be hard pressed to meet the device review performance goals. While acknowledging the broader political implications of sequestration, Ubl said the devices industry has worked too hard to see negotiation efforts go to waste.

“We've come too far to see these gains unravel,” Ubl said. “We're just trying to do our part to draw attention” to the impact it will have.

More Pressing Financial Concern

Of more pressing financial concern to industry is the current federal budget continuing resolution. Unless corrected, the continuing resolution also limits FDA's ability to access user fees. Ubl said FDA's Center for Devices and Radiological Health still is pursuing an “aggressive hiring plan” of bringing on new managers and device review staff, but “the combination of the continuing resolution and sequestration is problematic.”

Under the spending bill, which will fund the government through March, FDA can only spend user fees up to the 2012 amounts, even though device companies have already begun paying the fiscal year 2013 rates. That adds up to about $40 million that will not be spent on improving FDA's performance, Ubl said, but he added that AdvaMed is “cautiously optimistic” that the problem will be solved when the next funding bill is debated.

“AdvaMed stands with FDA on the need to prevent limitations on the agency's ability to access 100 percent of the user fees it collects,” Ubl said.

By Nathaniel Weixel