WASHINGTON -- Nestled in the 2,000-page Congressional health reform bills and largely overlooked amid high-profile debates about insurers and hospitals is a tax that is causing consternation in the growing medical device industry.

In their proposals, the House of Representatives and Senate took different routes to raise about $1 trillion over 10 years to pay for expanded health insurance coverage for nearly all Americans.

Both proposals would expand Medicaid and federal subsidies to permit lower-income Americans to purchase private insurance or a government-run option. Both also are seeking $20 billion in new taxes on medical devices over the next decade.

The House passed its bill Nov. 7; debate in the Senate could last for several weeks before a final vote. The two versions then must be melded together in conference committee, and the chambers would vote again on final legislation.

Device makers -- including several in Western Pennsylvania -- say their products are helping to save money in the health care system by providing items such as oxygen tanks that help sick patients to remain in their homes rather than hospitals.

The proposed taxes would cover a wide range of devices, from prosthetic legs and powered wheelchairs used by individual patients to beds and equipment used in hospitals.

Bob Thomas, a Washington-based lobbyist for Medrad, a 2,000-employee device company in Marshall, said the tax would result in his company spending less on research and development and possibly laying off workers.

"If the approach is to simply tax innovation, then you prevent or you slow innovation," Mr. Thomas said.

Makers of medical devices are one of several potential sources of funding for the massive health reform legislation. Congress also sought revenue from pharmaceutical companies, insurance companies and health consumers -- either in a tax on millionaires (the House) or high-cost insurance plans (the Senate). In both bills, the biggest chunk of funding comes from more than $400 billion in Medicare cost reductions.

"The bill has to be paid for," said Rep. Mike Doyle, D-Forest Hills. "Anyone [who is] part of the pay-for doesn't like being part of the pay-for."

But Mr. Doyle stressed that he is not a member of the Ways and Means Committee and didn't have a hand in crafting the device tax.

The House and Senate bills come up with the $20 billion figure in different ways.

In the House, it's a simple 2.5 percent tax levied on any medical device that would go into effect in 2013. In the Senate version, the government immediately would begin to collect $2 billion in yearly fees under a structure that would be weighted more toward expensive products and bigger companies.

Device makers argue that the House version is too high a tax and the Senate version goes into effect too quickly and is too vague.

Ideally, Mr. Thomas said, the final legislation would include no tax on medical devices. But he's lobbying for some lag time for companies to prepare as well as for protection for smaller companies that could be seriously harmed by big fees.

Though that would shift more of the burden to companies like Medrad -- which reported revenues of more than $600 million last year and growth above 10 percent each year for more than a decade -- Mr. Thomas said it would be better overall for the industry.

In the Senate, the lobbying work of device makers has been noticeable. The Senate Finance Committee bill initially sought $40 billion from the industry, but that was cut in half by Majority Leader Harry Reid, D-Nev., in the bill that made it to the floor.

The Advanced Medical Technology Association -- the industry's largest lobby group -- spent $2.1 million on lobbying through the first nine months of the year on a range of bills and issues, including health care reform.

The stakes are high for an industry that generated a total of $131.6 billion in nationwide sales in 2006, according to the Advanced Medical Technology Association, which was 6.2 percent of total health expenditures. That figure has remained steady for the past two decades.

In that span, devices have been responsible for some remarkable medical achievements, said Dr. William Peck, director of the Center for Health Policy at Washington University in St. Louis. Among them, he said, is the use of stents to reduce the rate of heart bypass surgeries.

Although Dr. Peck did not endorse taxes on medical devices, he said he didn't buy the argument that taxes will hinder innovation in the device market. He noted that a new pool of customers will open up when tens of millions of Americans are added to the insurance rolls, and foreign markets for devices are starting to emerge.

"Without innovation, there's no hope," Dr. Peck said. "That's how we progress."

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