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Hatch Sees Reconciliation as Avenue for Device Tax Repeal

By Alan K. Ota, CQ Roll Call

September 3, 2015 -- With a shortage of other viable legislative vehicles, Senate Finance Chairman Orrin G. Hatch has his eye on using a potential reconciliation bill later this year or early in 2016 to repeal parts of the health care overhaul, including the 2.3 percent excise tax on medical devices.

The top tax writer has been hunting for a home for a device tax repeal (S 149) he authored that has 39 co-sponsors. The House passed a similar plan (HR 160), 280-140, in June. The Utah Republican also is weighing other health-related add-ons for reconciliation, including incentives for manufacturing so-called orphan drugs that combat rare diseases.

"You can overdo reconciliation. But I would like to get rid of the medical device tax," the Utah Republican said. 

Hatch in July opted not to attach the device tax repeal proposal to the Senate-passed version of a six-year surface transportation reauthorization (HR 22), while House Republicans develop their own version of that legislation. He also has been cool to adding potentially contentious proposals to to a bipartisan two-year package of tax break extensions (S 1946).

But Hatch is open to using reconciliation to gut portions of President Barack Obama's legislative legacy, and to make other health-related tax changes. The budgetary maneuver would only require a simply majority for passage in the Senate and potentially set up a veto showdown with Obama.

One bipartisan proposal (S 1906) by Sen. Robert Menendez, D-N.J., that Hatch is eyeing would broaden the exemption of orphan-drug sales from manufacturers' government-related branded prescription drug sales, which are used to calculate the annual prescription drug fee that companies pay under the health care law. The proposed expansion would apply to companies with annual branded drug sales above $5 million. The fee is paid by drugmakers and importers and is based on their share of the industry's overall sales through government programs such as Medicare, Medicaid and defense and veterans' health care programs.

The exemption currently applies to drugs for which a company has claimed an orphan drug tax credit. Menendez has been working with a GOP ally, Sen. Mike Crapo, R-Idaho, to build bipartisan support for his proposal to expand the exemption to cover any drug or biological product approved by the Food and Drug Administration for treating rare diseases or conditions, regardless whether they are covered by the orphan-drug tax credit. 

Hatch said he had not yet reviewed the Menendez bill, but said that a number of orphan-drug incentives could attract bipartisan support and could be considered as add-ons to a reconciliation bill or as part of other legislation. "I suspect that that will happen," Hatch said.

Democrats regardless are expected to strongly oppose any reconciliation bill aimed at uprooting part of the Affordable Care Act (ACA).

"We want to get this thing fixed. We don't want to gut the ACA to get this fixed," said a Senate Democratic aide, referring to the expanded orphan-drug exemption and the Affordable Care Act moniker for the law.

Senate GOP aides say no final decision has been made on whether to develop a Senate reconciliation bill or to simply take up the House version of the legislation. Both chambers have moved different versions of reconciliation bills in the past, but Democratic majorities in both chambers opted to move in tandem on a 2010 reconciliation measure to help enact the health law.

GOP senators returning from their August recess next week are expected to wait for the House Republicans to settle on an outline for their reconciliation bill before developing a Senate plan of action.

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