Lots of controversy is associated with this new tax levy that was mandated by the Affordable Care Act
Will it be medical device manufacturers or their customers—including medical laboratories—who pay the new 2.3% medical device tax that became effective on January 1, 2013? That question is being asked by healthcare policymakers and experts, as well as pathologists and clinical laboratory administrators.
This new tax is mandated by the Affordable Care Act on medical device sales to healthcare providers. It taxes gross receipts of more than $5 million for manufacturers and importers of medical devices and is unpopular within the medical device industry, including in vitro diagnostics (IVD) manufacturers.
Early evidence indicates that hospitals, physicians, and clinical laboratories will see a 2.3% hike in the cost of the medical devices they purchase. This would occur because the medical device industry would pass this tax on to customers via higher prices, according to a story recently published by Modern Healthcare.
Medical Device Tax Covers Medical Laboratory Equipment
The Healthcare Supply Chain Association (HSCA) represents group purchasing organizations (GPOs). It claims to have evidence that some device manufacturers are billing hospitals for the excise tax, noted the report.
Pictured above is a headline for a story about the 2.3% medical device tax that took effect on January 1, 2013. The story was published by Health News Review and took a skeptical look at the arguments put forth in favor of the tax’s repeal by some medical device companies. The tax, which was mandated by the Affordable Care Act, was imposed to help pay for expanding healthcare insurance to 30 million uninsured Americans. (Graphic copyright HealthNewsReview.com)
For example, Novation, a GPO that serves community, academic and pediatric hospitals, claimed that one unnamed medical device company has billed “many” of its member hospitals for the cost of the excise tax. Novation President/CEO Jody Hatcher told Modern Healthcare, “While most device manufacturers are taking responsibility for this tax, there are some manufacturers attempting to pass their obligation onto hospitals.”
Hospitals Concerned about “Paying Twice” for ACA
Hatcher pointed out that, as part of their contribution to the ACA, hospitals are voluntarily contributing $155 billion over 10 years to help pay for the cost of covering uninsured Americans. It was noted that the medical device excise tax—expected to generate up to $30 billion over the same period—was imposed because the medical device industry “refused to voluntarily contribute.”
In a report published by Accounting Today, HSCA President Curtis Rooney, pointed out, “American hospitals have already lived up to their shared financial responsibility for national healthcare reform, and now face mounting budgetary strain as they continue to deliver affordable and effective patient care with fewer dollars. It is disheartening to find that some medical device companies have chosen to tack the tax right onto their invoices.”
GPO and hospital advocates are urging the Internal Revenue Service to block the medical device industry from shifting the cost to providers, noted Modern Healthcare.
AdvaMed Has ‘No Position’ on the Medical Device Tax
Meanwhile, a statement issued by a spokesperson for AdvaMed, a trade association representing the medical device industry, said that the organization has no position on how its members approach this tax. Furthermore, Modern Healthcare noted that this spokesperson said, “We have consistently said the device tax is bad policy, and that’s why AdvaMed and its member companies continue to fight for its repeal.”
Members of Congress on both sides of the isle favor eliminating this tax. This is particularly true for those representing states where many large medical device companies are based. A bipartisan group of U.S. senators and representatives recently introduced legislation to repeal the tax, noted a Reuters report.
Industry leaders and the lawmakers argue that the tax will hamper innovation and job creation. In fact, they contend that it will cause companies to layoff workers. A Forbes article noted that this industry sector directly employs 400,000 Americans and indirectly generates about 2 million jobs that supply and support this highly-skilled workforce.
The Forbes article pointed out that the tax is particularly insidious because it is assessed on sales, rather than just profits. Furthermore, April Giles, CEO of Colorado Bioscience Association, claimed in an interview with the Northern Colorado Business Report, “It really takes their [medical device companies] corporate tax from maybe 39% to 55% to 80% of all revenue.” She noted that this increase hurts companies’ ability to grow.
Both Houses Introduced Bills to Repeal the Medical Device Tax
On February 6, U.S. Representives Erik Paulsen (R-MN) and Ron Kind (D-WI) introduced a bill to repeal the medical device tax with a bipartisan group of 175 cosponsors in the House. U.S. Senators Orrin Hatch (R-UT) and Amy Klobuchar (D-MN) introduced a similar bill in the Senate, cosponsored by 20 GOP senators and supported by Al Franken (D-MN), Joe Donnelly (D-IN) and Bob Casey (D-PA).
This bill is identical to one introduced by Paulsen last year. That bill passed by an overwhelming majority in the House, but failed in the Senate. Democrats opposed the bill’s spending offset, which called for limiting health insurance subsidies to low- and middle-income individuals to pay for repealing the tax.
“Companies have already laid off thousands of workers as a result of this onerous new tax, and more jobs will be lost now that this tax is in effect,” said Paulsen, in the interview with the Northern Colorado Business Report. He told MinnPost.com that in anticipation of the new tax, the industry has already laid off 10,000 workers. “It’s not only costing our country jobs and deterring innovation, but most importantly, it will reduce patient access to cutting-edge medical products and treatments that save lives,” he added.
Clinical Labs and Pathology Groups Will Watch IVD Equipment Pricing
Across the nation, clinical laboratory organizations and anatomic pathology groups will be watching how IVD manufacturers price the new medical devices and any consumable products covered by the 2.3% medical device tax. It is still too early to know if IVD companies are raising prices in a manner that passes this tax along to their medical laboratory customers.
Meanwhile, clinical laboratory managers and pathologists may want to contact their elected officials and educate them about the financial impact this medical device tax is having on their laboratory’s financial well-being. By all indications, the medical device tax is a hot potato, and it is uncertain whether a repeal bill can pass Congress and then be signed into law by the president.
—Patricia Kirk
Related Information:
ObamaCare’s Medical Device Tax Will Cost Innovation and Jobs
Drive on to repeal medical device excise tax
Erik Paulsen tries again to dump medical device tax
Medical Device Makers Shift Excise Tax Cost to Hospitals
Senators push to repeal U.S. medical device tax; success unlikely
