Opposition stiffens to ACA’s 2.3% tax on medical devices

Washington Manufacturers that develop medical devices will start paying a new excise tax in 2013 for producing and selling items used for surgeries and other medical procedures, according to new regulations released by the Internal Revenue Service.

The Affordable Care Act requires a 2.3% tax on certain devices and is projected to raise $30 billion in revenues. Device manufacturers have opposed the tax, stating that it will have a negative effect on the industry — including on research and development. The ACA implemented the tax to pay for part of its major coverage expansion starting in 2014.

The IRS finalized the tax in a Dec. 5 rule. Manufacturers disapproved of the rule, while other commenters acknowledged that the government took steps to alleviate concerns about paying taxes on medical kits assembled in hospitals and in other settings for use in patient care.

“This final rule does nothing to prevent the loss of jobs and innovation that has already occurred as a result of the medical device tax, and will unfortunately continue if we do not repeal this bad policy,” said Mark Leahey, president and CEO of the Medical Device Manufacturers Assn. “There is growing bipartisan support in Congress to repeal the medical device tax, and MDMA remains committed to working with elected officials to fix a policy that was a bad idea when it passed.”

The House has passed legislation to rescind the device tax, but the bill has not received consideration in the Democratic-controlled Senate, which has resisted attempts to repeal provisions of the health system reform law. But a delay of the device tax does have support from more than a dozen members of the Senate Democratic caucus.

Sens. Amy Klobuchar (D, Minn.) and Kay Hagan (D, N.C.) wrote a Dec. 4 letter to Senate Majority Leader Harry Reid (D, Nev.) about stopping the 2013 tax.

“With this year quickly drawing to a close, the medical device industry has received little guidance about how to comply with the tax — causing significant uncertainty and confusion for businesses,” the senators stated. “As we work together to develop a long-term solution to help move our economy forward, reduce our debt and reform our tax code, we urge you to support delaying enactment of this provision in a fiscally responsible manner.”

Rep. Tom Price, MD, chair of the Republican Policy Committee, called on his Senate colleagues to pass the House-approved legislation, which would offset the tax repeal by paring back the reform law’s insurance tax credits. Taxing device manufacturers would cause items to be more expensive, Dr. Price said.

“The tax on medical devices harms America’s ability to conduct the necessary research and development to maintain our global competitiveness, resulting in the loss of tens of thousands of jobs and fewer groundbreaking innovations in this field,” he said.

The White House has threatened to veto the House measure, because the revenue raised partially offsets the cost of expanding health coverage to the uninsured.

The American Hospital Assn. had urged the IRS to prohibit device companies from passing along the tax to consumers by raising prices. The final rule did not address the hospital association’s recommendation that companies certify that they do not pass the tax onto others, but it states that current rules apply when determining sales prices.

Facilities also wanted to prevent the tax from applying to kits packaged by hospitals for a variety of medical procedures, ranging from suture removal to open-heart surgery.

The Premier health care alliance was pleased to see the IRS rule clarified that the tax does not affect procedure kits assembled at hospitals.

“Kitting provides benefits to health care providers and patients, including increasing patient safety by ensuring that the medical devices needed for a medical procedure are all present and correctly chosen,” said Blair Childs, Premier senior vice president of public affairs. “Kitting also helps health care providers to organize their inventory efficiently, with all of the cost savings that entails.”