On a recent visit to a university to speak with students and professors in biomedical engineering I was amazed that not one single person was even aware that a sales tax on medical devices would go into effect as part of the Health Care and Education Reconciliation Act of 2010 (also known as Obama-Care). I was asked where I saw the future of biomedical technology and I could not help but caution the students and professors that funds for research and development will be seriously impaired if this tax is allowed to take effect.
According to the Medical Device Manufacturers Association website this tax will be “levied on the total revenues of a company, regardless of whether a company generates a profit.” Medical device manufacturers simply cannot standby and allow this tax to go into effect. The tax will be levied on manufacturers and importers of medical device or equipment sold in the United States. Certain “retail” medical devices used by the general public will be exempted, such as eye glasses and contact lenses, and any other devices “the Secretary” determines to be used by the public. How far might this list go?
Although there are efforts underway to repeal this tax, so far there is little traction. Congressman Erick Paulsen (MN) has introduced H.R. 436 and has 228 cosponsors, including Congressman Todd Rokita of Indiana. A letter signed by over 70 freshman members of Congress went to House leadership in February. Orrin Hatch (R-UT) introduced S.17 on January 25, 2011 and has only 20 sponsors. At a time of soaring deficits, it is easy to stash a hidden tax on what appears to be a strong segment of the economy, as if it will have no impact to anyone of any consequence.
Frank Mattei, national tax leader of KPMG’s Pharmaceutical and Medical Device practice has said, “Companies will need to become familiar with the excise tax rules, identify their affected entities and products, and develop the appropriate compliance processes. A ‘gap’ analysis should be conducted as soon as possible to identify areas that need to be addressed.” Read more… According to experts at KPMG, if legislative relief is not forthcoming, the first deposit of medical device excise tax will be due by January 29, 2013 and the first quarterly federal excise tax return will be due by April 30, 2013.
It should be disturbing to medical device manufacturers and importers that even the most aggressive proponent for appeal of this law has not posted anything new to the dedicated website since February;
The Supreme Court is currently deliberating a challenge to “ObamaCare” but results may not be known until the last week of June. At that time there may be a decision regarding “severability”, deciding whether or not remainder of the Act may continue if the mandated purchase of health insurance is removed. Certain provisions of the Act, such as the medical device tax may be deemed enforceable, despite the determination of the unconstitutionality of the provision for medical insurance. Certain groups may raise cause to repeal the entire Act is the Supreme Court removes the personal health insurance mandate because of the strain that will be placed on the system. Presumably then the medical device tax would be swept out with ObamaCare. Whether a person’s politics lean for or against the measure, it is clear that medical device companies have become an unwitting pawn in this tug of war. Hoping that this tax will be repealed is a dangerous gamble. Remaining indifferent or under informed is not an option. Representatives and senators on both sides of the aisle need to hear from every user of a medical device and every manufacturer.
Before leaving this topic, I’d like to invite explanation to the following questions:
If the excise tax can be passed on to the “purchaser”, as most sales and excise taxes are, doesn’t this raise the net price of medical device to everyone? (I thought ObamaCare was meant to stop the rising health care costs.)
If this tax is to be paid by “purchaser”, and the purchaser (such as hospital and clinic) passes the cost onto the third party payor (meaning Medicare or your health insurance company) or directly to you, the patient recipient, aren’t we all going to see higher prices for insurance premiums and doctor visits?
If this tax is to be paid by Medicare when it reimburses for the cost of medical devices used in treatment, aren’t we increasing the cost of Medicare at a time when it is said to be nearly bankrupt?
News releases state the funds from this tax are to support “other” portions of ObamaCare but it is difficult to find the specific use the government has in mind for this money. Could it be used for purposes other than to offset Medicare? Could it go to the FDA, HHS? How about DOD, DOT? Who exactly will receive this windfall?