The Perils of Regional Protectionism, Part CXXVII

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Monday, October 19, 2009 at 5:48 pm

The hospitals have pledged more than $150 billion over a decade. Drug makers have chipped in another $80 billion. And the medical device manufacturers’ voluntary contribution to health reform? $0.

Indeed, as The Washington Post reported over the weekend, that failure to lend a financial hand for the sake of fixing the broken health care system has made the industry few friends on the Senate Finance Committee, which has proposed $40 billion in fees on medical device makers over the next decade, when those companies are estimated to pull in $2 trillion.

Yet, this being Washington, even that proposal is getting pushback from lawmakers representing states where medical device makers are most concentrated. From the Post:

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 M. Reid (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 also have weighed in with objections.

“The issue here is that these are very good jobs in our state and in our country,” [Sen. Amy] Klobuchar [D-Minn.] 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.”

And herein lies what’s perhaps the most significant hurdle facing the Obama administration as it attempts to fix health care this year. The medical-industrial complex is a $2.3-trillion-a-year behemoth. And even the most wasteful of that spending creates jobs somewhere, thereby producing a perverse incentive for congressional lawmakers to protect regional interests at the expense of national ones. The device makers are only one tiny sliver of that much larger trend. But they should be careful. Regional protectionism has its perils.

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