Medical Device Excise Tax - What You Should Know


The Medical Device Excise Tax, a component of the Affordable Care Act, is approaching implementation at the beginning of 2013. The tax is intended to provide an estimated $20 billion in tax revenues to help pay for the expansion of health coverage to 32 million uninsured Americans. Healthcare supply chain leaders have until May 7, 2012, to comment on the way in which the Internal Revenue Service (IRS) intends to implement this new tax.

How the IRS implements this provision could be important. For example, one device manufacturer suggested that the way in which it is implemented could allow the company to pass it on to its customers. The following FAQs will help to explain what the tax is and why its implementation is important to provider supply chain leaders.

Frequently Asked Questions:

Q. What is the Medical Device Excise Tax, when does it go into effect, and how much is it?
A. The Medical Device Excise Tax is a tax on the sale of certain medical devices by the manufacturer, producer, or importer of the device. The tax goes into effect after December 31, 2012, and is 2.3% of the price for which the manufacturer or importer sells the taxable medical device.
Q. Who is responsible for reporting and paying the tax?
A. The manufacturer or importer making the sale of a taxable medical device is responsible for reporting and paying the tax.
Q. What devices are covered?
A. According to the proposed regulation a taxable medical device is any device that is intended for humans. In general this is based on the Federal Food, Drug & Cosmetic Act which provides that the term device means any apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, that is recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them; intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease; or intended to affect the structure or any function of the body, and that does not achieve its primary intended purposes through chemical action within or on the body and that is not dependent upon being metabolized for the achievement of its primary intended purposes.
The proposed regulation also notes that the term “taxable medical device” does not include eyeglasses, contact lenses, hearing aids, and any other medical device determined by the Secretary to be of a type that is generally purchased by the general public at retail for individual use.
Q. Does the tax impact custom procedure trays and kits?
A. Under the proposed regulations, items such as custom procedure trays are considered kits. A kit is a “taxable medical device” if the kit is listed as a device with the FDA pursuant to FDA requirements. The proposed regulations define “kit” as a set of two or more articles packaged in a single bag, tray, or box for the convenience of the end user. In some circumstances, the manufacturer may make a tax-free sale of a taxable medical device to the distributor for use in the production or assembly of a kit; tax will attach, however, upon the sale of the kit by the distributor.
Q. Has the IRS issued guidance on the Medical Device Excise Tax?
A. The IRS and the Treasury Department jointly issued proposed regulations on February 3, 2012 and welcome comments on the proposed regulations. Comments are due by May 7, 2012. The IRS and the Treasury Department will take those comments into consideration before issuing final regulations. If you would like to view the actual proposed regulations, click here.

This member briefing was created by the AHRMM Issues & Legislative Committee and approved for release by the AHRMM Board of Directors. The Issues & Legislative Committee is charged by the Board to review and understand the regulatory, environmental, quality of service, and standards issues that impact the healthcare supply chain and clearly inform and advise the Board of pertinent issues and produce guidelines and recommendations for their review that will create good supply chain practices.

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