WASHINGTON — House plan or Senate plan? For medical device manufacturers looking at proposed excise taxes on DME, it is a case of pick your poison. The $20-billion tax proposed in the House version of health care reform (currently expected to be voted on Saturday night) undoubtedly inspires nausea among equipment makers, but the $40 billion advocated by Senate Finance Committee members is, literally, twice as bad.
According to an Oct. 30 article in The Wall Street Journal, the House bill would impose a 2.5 percent levy on device makers that applies to revenue at the point of sale, while leaving out some retail purchases. The Senate Finance version would tax manufacturers "according to their share of the market and would go into effect three years sooner."
In any discussion of market share, the largest home medical equipment manufacturer in the United States — Elyria, Ohio-based Invacare — naturally comes to mind. WSJ reporter Alicia Mundy quotes Mal Mixon, chairman and CEO of Invacare: "We wanted the tax to be tiered to give companies like ours a chance," Mixon said in the article, titled "Drug Makers Face Tough Measures." "They should have taxed profits, not revenues."
Why are legislators attempting to generate revenue from device makers? Lisa Getson believes the government is likely under the misconception that DME manufacturers generate the same kind of double-digit margins as their pharmaceutical and higher-tech counterparts.
"A simple review of publicly available data proves that this is not the case," said Getson, executive vice president of government relations and corporate compliance for Lake Forest, Calif.-based Apria Healthcare. "Given all the reimbursement cuts to home care providers in recent years, the downstream effect on America's leading HME manufacturers has been severe.
"In some cases, the proposed excise tax exceeds 100 percent of the companies' research and development budgets, or even 100 percent of their annual operating income," added Getson. "In some cases, U.S.-based companies with an international presence are already losing money, or barely breaking even on the U.S. portion of their business. This excise tax exacerbates an already untenable situation for the quality HME manufacturers in this country."
The American Association for Homecare opposes any device tax proposal, believing the levies would make it harder for HME companies to provide quality home care, especially since they are already being squeezed by steep reimbursement cuts and escalating costs.
"In addition, the tax would lead to further loss of American jobs," pointed out Michael Reinemer, AAHomecare's vice president of communications and policy. "The tax would also hurt small manufacturers and discourage research and development for medical devices that promote independence for seniors and cost-effective care at home."
Mundy reported that tax proponents still believe that despite the cost, "drug and device makers will make money on the health care overhaul because more Americans will carry health insurance" and thus be able to buy more products. However, Mixon told the Journal, "he does not expect to gain new customers because his products are mostly used by older patients already covered by Medicare."
In a letter to Ohio senators outlining potential consequences of the Senate's proposal, Mixon also pointed out that the excise tax would raise health care costs, since much of the cost of the tax would be passed on to patients.
"It does not make sense to finance health reform by taxing countless products that patients require," Mixon wrote. "Bearing the burden of an acute illness or chronic condition is costly enough; the additional financial penalty on these same patients seems unjustified."
