Medical imaging OEMs says device tax is no "windfall"

May 16, 2012
by Brendon Nafziger, DOTmed News Associate Editor
A medical imaging OEM trade lobby said an excise tax scheduled to go into effect next year would not be a "windfall" for their businesses, in response to the wording of a letter from hospitals and group purchasing organizations urging the IRS to ensure device makers shoulder their share of the cost of health reform.

"Only in Washington could paying a $30 billion tax over the next 10 years be viewed as a windfall opportunity, but that's exactly the false claim being made," Gail Rodriguez, executive director of the Medical Imaging & Technology Alliance, said in a statement. "MITA continues to oppose the device tax precisely because we believe it creates strong headwinds against an important sector of the U.S. economy."

The Affordable Care Act levied a 2.3 percent excise tax on device companies, set to start in 2013 and continue for the next decade. Initially expected to raise about $20 billion, manufacturers now say the true cost is closer to $30 billion.

Unsurprisingly, the tax is hated by the device industry, which has lobbied aggressively against it, claiming that it will drive jobs overseas or stifle innovation as companies cut R&D spending to deal with the costs. Stryker, a device firm, announced plans to lay off 5 percent of its global workforce last year, in a move analysts said was taken to soften the hit from the tax.

However, despite the grumbling of manufacturers, hospital and GPO lobbies are worried that the tax could actually "result in a windfall" for manufacturers if they're allowed to pass along the costs of the tax to their customers, according to a letter sent to the IRS last week.

"In summary, the IRS should implement the device tax in a manner that recognizes the 'shared responsibility' commitment from a broad group of key health care stakeholders, including medical device companies, to bring forward long-needed national health reform," wrote the groups in their May 7 letter. Signatories to the letter include three hospital groups: the American Hospital Association, the Federation of American Hospitals and the Catholic Health Association of the United States; a supply chain professionals society, the Association for Healthcare Resource & Materials Management; and a GPO lobby, the Healthcare Supply Chain Association.

In their letter, the organizations said if device companies can deduct the tax from their income, which appears to be allowed under the current rules, while also passing along the cost it would "leave these companies in a better financial position than they were before the ACA became law."

"This is clearly not what Congress intended," they said in the letter.

The hospitals argue that the deduction of the tax from the companies' income, which they don't want to impede, should be treated as "seeking a refund" which, under the tax code, they can only do if they certify that the costs weren't passed on to customers, according to the group.

Hospitals said, for their part, they'll take a $155 billion hit over 10 years as a result of ACA in the form of Medicare cuts, according to the letter.

Comments from both MITA and the hospital and GPO groups came on the last day the IRS was accepting responses to proposed rules, floated earlier this year. A hearing on the matter was also scheduled for this morning.