Tax: a 'Four-Letter Word' . . . With a Deficit
Posted Oct 09, 2012, Published 2012-10-01
It would be downright silly to suggest anyone actually likes taxes so it's no surprise that a coalition of 400 medical device manufacturers voiced its opposition to the 2.3% excise tax on medical devices slated to go into effect January 1, 2013.
In other words, any time a tax is imposed, there's bound to be a "hey, why target me" reaction.
Interestingly, hearing aids and eyeglasses are exempt from this tax because these are "for use by an individual and are sold directly to the consumer at retail," according to the IRS and Treasury. For anyone who missed last month's news item about this tax, dental restorations--considered medical devices since 1997--are not exempt.
The NADL, in conjunction with all the major dental associations from the ADA to the DTA petitioned the IRS and Treasury to expand the "retail exemption" definition to include dental restorations. That request was denied.
Also requesting an expansion of the definition is the American Orthotic and Prosthetic Association. It, too, pleaded its case for an exemption specifically because devices manufactured by prosthetists and orthotists are purchased by the end user through a retail operation.
Interestingly, the Association reported that government agencies were inclined to agree with their perspective; however, that final ruling has yet to be announced.
Here are some of the Association's arguments; note the parallels between our industries:
"With the exception of off-the-shelf orthotics, prostheses and custom orthoses are prescribed by a physician to treat a particular condition and delivered directly to patients in patient care facilities, similar to the way hearing aids and eyeglasses are delivered to those who need them.
"Orthotics and prosthetics are generally purchased by the general public at retail and therefore should not be subject to the device tax . . .
"The device tax is focused on devices generally sold to hospitals, doctors, and other health care providers for use in providing medical services, rather than devices that are generally delivered directly to individuals for their personal use. . .
"In most cases, the end product/device is a custom-fabricated or custom-fitted unit, built for a single patient and that patient only, in accordance with a specific prescription written by that patient's physician." 1
Given the similarities to our industry, it will be interesting to see how this situation plays out.
There is another argument brought forth by both the dental community and the 400-company medical device coalition: the hardship it expects to be created by this tax.
The coalition noted that, except for a few, most medical device companies are small businesses, employing fewer than 50 employees. The tax will make it especially hard for very small businesses with narrow profit margins to remain profitable.
Of course, that goes double for us; 80% of our community has less than five employees, let alone 50!
But then, I go back to my earlier comment: "why target me?" Since 60% of America is made up of small businesses of every kind, it's easy to see how just about any legislation that is passed raises the ire of one or another "special interest" group. It's pretty tricky to ensure that any ruling will appease all 60% of a 300-million-person organization called the United States of America.
To that end, I appreciate the silver-lining, glass-half-full perspective on this issue expressed by Steven Ubl, President and CEO of the Advanced Medical Technology Association:2 "While we remain concerned about the effects of the medical [device] tax, we applaud expanded insurance coverage for millions of American families3 and the significant progress in a number of important areas . . . that will enhance relationships between providers and the health care industry."
P.S. The IRS has yet to publish its final rulings on every aspect that needs to be included as taxable, so keep checking The BRIDGE for more news on this topic where over 250 BRIDGEsters have been following the conversation. Thanks to NADL Executive Director Bennett Napier, who's become the industry expert on this subject, many answers reside there, along with links he posted to the proposed government rules and FAQ's. You can also find more information at his website: www.nadl.org. I also believe your participation in the NADL strengthens efforts like this one that are made on your behalf; if you are not a member, this may be a good time to become one.
1 White paper submitted by the American Orthotic and Prosthetic Association
2 Medical Device Now.com
3 The tax is a means of raising funds to support the Health Care and Education Reconciliation Act
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