Medical Device Makers Shift Excise Tax Cost to Hospitals

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Evidence suggests that some medical device manufacturers are shifting the burden of the medical device excise tax directly to American hospitals and other health care providers, an industry association charges.

Under the Affordable Care Act, manufacturers and importers of medical devices would be subject to a 2.3 percent excise tax. The tax was fiercely opposed by the medical device industry during lobbying over the health care reform law and after its passage. However, the Healthcare Supply Chain Association and its group purchasing organization members are warning that now that the tax is in place, medical device makers are simply passing along the costs to hospitals, health care providers and ultimately patients.

Hospitals have committed $155 billion over the next 10 years to help fund the Affordable Care Act, according to the association, which now reports that some medical device manufacturers are billing hospitals directly to cover the costs associated with the ACA’s medical device tax.

“American hospitals have already lived up to their shared financial responsibility for national health care reform, and now face mounting budgetary strain as they continue to deliver affordable and effective patient care with fewer dollars,” said HSCA president Curtis Rooney in a statement. “It is disheartening to find that some medical device companies have chosen to tack the tax right onto their invoices. We urge all manufacturers to immediately stop passing the medical device tax on to American hospitals, and ultimately to patients and taxpayers.”

Beginning Jan. 1, 2013, a 2.3 percent excise tax was imposed on sales of “taxable medical devices” by manufacturers and importers. In a March 2011 letter to the Internal Revenue Service, HSCA joined the American Hospital Association, the Federation of American Hospitals, and the Catholic Health Association in urging the IRS not to allow medical device manufacturers to pass on the cost of the device tax to hospitals. The IRS issued regulations on the tax last month (see IRS Issues Guidance and Regulations on Medical Device Tax).

“HSCA and its group purchasing organization members will continue to monitor the device marketplace for evidence of cost-shifting onto hospitals, and encourage our hospital partners not to enter into contracts that bill them for the device excise tax,” said Rooney. “As hospitals, long-term care facilities and other healthcare providers continue to stretch their budget dollars, they will continue to rely on their GPO partners to reduce healthcare costs and deliver the best medical products and services at the best value.”

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