HME Manufacturers Rally to Fight Medical Device Tax

ATLANTA — As congressional negotiations escalate on a final health care reform package, manufacturers continue working to blunt the effects of a proposed excise tax on medical device manufacturers.

"We're doing everything we can to modify or moderate the impact of this tax — if we can't get rid of it entirely," said Seth Johnson, vice president of government affairs for Pride Mobility Products, Exeter, Pa.

Included in both the House and Senate bills, the tax would raise $20 billion over 10 years to help pay for health care reform. That could mean millions of dollars in annual costs for manufacturers no matter which version ends up in the final legislation.

The House bill includes a flat tax that would be implemented in 2014 based on 2013 gross sales. The Senate version calls for a percentage calculated on each manufacturer's gross sales, with collection beginning in 2011 based on sales from 2010.

"It provides no time for manufacturers to plan," Johnson said of the Senate measure. "We have no idea what that percentage amount would be. If the Senate bill is enacted, [the tax] would be retroactive to Jan. 1 this year. That would require significant expense to our company that was not planned for. It would require some significant restructuring."

That huge unknown has already prompted Elyria, Ohio-based Invacare to begin saving now should the tax become a reality. The HME manufacturer, which has estimated the tax could cost the company $12 million to $14 million annually, recently suspended merit increases, matching contributions to its 401(k) and froze hiring.

In a filing with the Securities and Exchange Commission, the company also said it was evaluating the possibility of price increases, shifting more production overseas and reducing research and development expenditures. (For more, see Invacare Institutes Hiring Freeze, Suspends Merit Raises, Jan. 14.)

"It's a significant impact," said Cara Bachenheimer, senior vice president of government relations for Invacare, about the tax. "We don't know what version is going to pass or if it is going to be some combination. This is a big deal."

"We are very concerned about the effect [of a tax] on the home medical equipment sector," added Jay Witter, senior director of government affairs for the American Association for Homecare, which held a Jan. 13 conference call with its manufacturer members on fighting the tax. The association's arguments:

• American jobs will be lost. The tax would be based on sales of domestically produced medical devices, so it could propel U.S. manufacturers to move production overseas.

• Universal health care coverage will not increase sales for the HME industry. "One of the concerns we talked about [on the conference call] is that we feel there won't be an increase in volume for manufacturers because of increased access," Witter said, adding that proponents of the tax claim that with universal health coverage, more people will have access to HME. "Manufacturers provide equipment to Medicare beneficiaries already," he pointed out. "There aren't going to be more Medicare beneficiaries because of health care reform."

• Profits, research and development will be eliminated. "Unfortunately, the excise tax applies to medical device sales regardless of whether those devices represent the latest technology or older technologies," AAHomecare said. "Moreover, many medical technology innovations come from smaller undercapitalized companies. If this tax goes into effect, it will penalize manufacturers who are at the forefront of research and development."

Another argument, Johnson said, is that the tax would "translate into increased costs throughout the health care continuum, which is contratry to the underlying primary goals of both the administration and Congress. The president linked health reform to building the economy and creating jobs," he continued, but the excise tax would do just the opposite.