Companies such as Scanlan, Cerner, Invacare, and Alere, among several dozen others have already been accused of passing the device excise tax up thte supply chain to hospitals, according to a new Web site, run by the Healthcare Supply Chain Association (HSCA). The site, www.devicetaxwatch.com, lists about 40 medical device suppliers “shifting the burden of the medical device excise tax (MDET) directly to American hospitals and other healthcare providers.”
An accompanying letter on the site is from Curtis Rooney, president of HSCA. The letter explained that the association had expressed concerns earlier about industry passing the tax on to end users. “We urge all manufacturers to immediately stop passing the medical device tax on to American hospitals, and ultimately to patients and taxpayers,” he said in the letter.
In a Reuter’s story about the Web site, Invacare released a statement, saying that based on its interpretation of the regulations, the company expects the impact of the tax to be less than $1.5 million, adding it intends to pass the cost on to the market.
Most of the companies on the list are small, private firms. If they were passing on the device tax, my guess would be that they are doing so out of genuine confusion. “The documents released by the IRS still have not satisfactorily answered the question of who, exactly, is supposed to pay the device tax,” says Frank Pokrop, director of regulatory affairs at CareFusion.
This problem is very likely going to worsen before it gets better. It really is unclear how firms can and cannot levy for the tax, and in the meantime, this kind of site could damage public opinion.
--Heather Thompson is editor-in-chief of MD+DI
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Re: Correction
There is definitely a lot of confusion over the issue of passing the tax onto customers and ultimately the end user.
We hear different things. Some of our clients have received letters from customers like the one you mentioned in your article. Many companies are accepting the price increases, others are not.
As for patient fallout, ironically, the thought process behind the legislation is that so many more people would be insured and would now have access to medical devices, resulting in a windfall for medical device companies. I am not saying this makes sense, but was certainly one of the main arguments raised by proponents of he tax.
I would be glad to help and provide guidance. Since I wrote the Medical Device Tax 101 article, a lot of new information has come out and we have assisted many companies with handling this tax. Please feel free to contaft me.
Correction
I misrepresented Frank Prokrop's quote (per the response above). What he really said was that it is unclear how (that is, in what way) medical device companies can pay the tax. Can they pass it on to consumers, pass it back to suppliers, or what? Ori Epstein is right: there is so much misinformation and misunderstanding on the rules of the tax.
Will, thanks for your comments as well. Medical device companies are freely admitting that their prices are rising to accommodate the tax--A medical device company that sent out a note saying '"In accordance with new legislation, as of Jan 1, 2013 there will be a 2.3% excise tax added on all domestic medical device sales."
My concern is that in the fallout, patients will ultimately pay the price, which completely flies in the face of what Obamacare is supposed to do (make healthcare more sustainable and affordable). My deeper concern is that patients will be (unfairly) angry with the device industry.
Ori--if you have expertise would love to get your help. I've heard from several people, most recently at the MD&M West show that confusion about the device tax continues to be worrisome.
Heather Thompson
Medical Deice Tax
Manufacturers have a variety of expenses all of which play some part in determining the cost of a product, along with what the market will bare and their desire for profit. Unless itemized, how is it determined whether a new or increased cost is passed along to the purchaser? If the price goes up is it the new tax or some other expense, or higher profit? Even if the price stays the same something else might have gone down--labor costs from all the layoffs blamed on the tax for example--and the tax then added in.
When the minimum wage goes up, can product prices go up? If utility costs or local taxes go up, can prices go up? If the answer is yes, then why not this expense?
Unless the tax is itemized, or a deep audit undertaken, it cannot be determined if the tax as passed along. And, as was pointed out, even if it was passed along, there does not appear to be anything wrong with that.
Medical Device Tax confusion
I disagree with the quote from the representative from Carefusions - the regulations are very clear. Regardless of whether the tax is being passed along or not, at the end of the day, manufacturers and importers are the parties responsible for reporting and paying the tax. There is no prohibition against passing along the tax. In fact the rules and regulations specifically state that the sales price for calculating the tax excludes the excise tax WHETHER STATED OR UNSTATED. If a medical device manufacturer invoices a customer for a $100 device but does not include a line item for the tax, it is assumed that the tax has been included in that $100.
There is so much confusion around this issue and still plenty of misinformation and pure misunderstanding of the rules of this tax. Companies need to do their due diligence in making decisions about this issue. That means reading the rules and regulations and consulting their tax and legal advisors.