Washington Wit & Wisdom
Don't Exercise the Excise
Why HME shouldn't be subject to PPACA's medical device excise tax
Earlier in 2011, industry stakeholders submitted comments to the Internal Revenue Service on the provision in last year's health reform law (the Patient Protection and Affordable Care Act) that will require manufacturers and importers to pay an annual excise tax on the sale of a “taxable medical device” equal to 2.3 percent of the price of the device.
Importantly, the law also requires the Secretary of the Treasury to exempt from the definition of “taxable medical device” any medical device determined to be of a type that is “generally purchased by the general public at retail for individual use.”
The Department of Treasury will issue guidance to implement the new medical device excise tax, which will be effective for sales on or after Jan. 1, 2013. Before issuing its guidance, the IRS has asked the public for comments on the tax, particularly regarding the exemption Congress required for devices “generally purchased by the general public at retail for individual use.”
Following is a summary of Invacare's comments to the IRS, in which the company demonstrates that home medical equipment meets the statutory definition of devices that must be exempted from the excise tax.
- Items of DME are clearly “generally purchased by the
general public.”
The intent of Congress throughout the entire health care reform process has been that the tax, or fee, should apply to medical devices such as scalpels, diagnostic equipment and other items used “in connection with providing a health care service,” in the words of the House bill.
Items used in connection with providing a health care service are not generally purchased by the general public; they are purchased by hospitals, medical offices, physician practices and other health care providers. Although it is true that some items of HME will be purchased by health care providers, the phrase “generally purchased” provides the Secretary of the Treasury with enough flexibility to determine that a sale of an item of HME is “generally purchased by the general public,” and thus, meets the first prong of the exemption.
Individuals can purchase HME items at retail establishments such as a local retail pharmacy, a local HME retailer or a big-box retailer such as Walmart. There are a wide variety of firms that sell (and/or rent) HME items. Regardless of the array of HME devices they carry, HME retailers share the common characteristic of selling HME directly to consumers for the consumers' own use.
