The medical device tax embedded in the
Patient Protection and Affordable Care Act (PPACA) that was
signed into law in March imposes a 2.3% excise tax on the sale and import of
Class I, II and III medical devices, beginning in 2013. The vast majority of
O&P products, as well as durable medical equipment, are considered Class I
devices. Medical device manufacturers and O&P industry leaders will be
tracking the development and implementation of this tax closely through the
legislative or regulatory processess before its 2013 implementation, according
to the National Association for the Advancement of Orthotics and Prosthetics
(NAAOP).
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Last minute changes
Originally, the
medical device tax was limited to Class II and III medical
devices. These devices include implanted devices, such as hip replacements,
stents and pacemakers. Congress instituted a 2.9% tax on the sale and import of
those medical devices, raising $40 billion in 10 years. But industry pressure
later convinced Congress to reduce the impact of the tax to $20 billion over
ten years.
“Once we saw the first draft of the legislation, our members and
stakeholders in the medical device community reached out to elected officials
to tell them the impact that it would have on one of the only industries that
reduces the costs of health care and that still creates good jobs in this
economy,” Mark Leahey, president and chief executive officer of Medical
Device Manufacturers Association (MDMA) said. “While we appreciated the
$20 billion reduction and the efforts of congress who advocated for this, more
work remains.”
According to NAAOP, the original Senate bill was repealed and replaced
with a different tax of smaller magnitude during the reconciliation process,
known as the Health Care and Education Reconciliation Act (HCERA). The HCERA
compromise slashed the tax from 2.9% to 2.3%, in order to reduce the impact on
medical device manufacturers, but in order to continue to raise $20 billion in
revenue, the tax was expanded to include Class I medical devices. Although the
tax rate was cut, it now touches nearly all medical devices.
“I think the original intent was to tax the large companies that
manufacture MRI machines, imaging equipment and other medical devices used in
hospitals and health offices across the country,” Peter Thomas, JD general
counsel for the NAAOP, explained. “But when they extended the tax to Class
I, they really opened the door. When they included Class I, they covered most
devices.”
Long odds
Legislators left a small window for medical device manufacturers and the
O&P industry. According to the HCERA, exclusions from the tax include:
“eyeglasses, contact lenses, hearing aids and any other medical device
determined by the [Department of Health and Human Services] Secretary to be of
a type that is generally purchased by the general public at retail for
individual use.”
David Nexon |
“Every part of that last definition is important,” Thomas
explained. “Clearly, all of O&P is for individual use, arguably it is
at retail, depending on the definition of retail. The other issue is whether
O&P services and devices are ‘generally available to the public.’
O&P tends to be available to a subset of the general public that requires
use of these devices. We will be closely monitoring and trying to impact how
that definition ultimately impacts O&P.”
Brian Gustin, CP, president of Forensic Prosthetics and Orthotics,
explained that because of the billions of dollars the health care bill intends
to cut, the O&P industry will no longer be excluded from similar tax
provisions.
“Unfortunately, I do not think there will be any legislative
process to exempt O&P because the government will not play favorites and
leave certain industries out,” Gustin said. “Quite frankly, O&P
is too small of a market for a legislator to fall on a sword for.”