Healthcare Business News

GPO group names over 45 firms planning to pass device tax on to providers

By Jaimy Lee
Posted: February 28, 2013 - 8:00 am ET

More than 45 medical supply and device manufacturers have informed hospitals that they plan to pass the cost of the medical-device excise tax on to providers, according to a list compiled by the Healthcare Supply Chain Association.

The HSCA, which represents group purchasing organizations, published the names of 48 companies on a new website that launched Thursday.

At least eight of the companies are publicly traded, including Alere, a Waltham, Mass.-based developer of diagnosis and monitoring technologies, and Cerner Corp., the North Kansas City, Mo.-based health information technology firm. Most of the companies are much smaller manufacturers of commodity items.

The manufacturers either sent letters notifying providers of price increases as a result of the excise tax or added the cost of the tax to product invoices.

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“HSCA has been alarmed to discover mounting evidence that some medical-device manufacturers have chosen to tack the costs associated with the medical-device excise tax directly onto their invoices, shifting the cost burden of the tax onto American hospitals, healthcare providers, patients and ultimately taxpayers,” HSCA President Curtis Rooney said in a statement. “National healthcare reform is a shared financial responsibility, and hospitals have already paid their fair share.”

Device manufacturers are required to pay a 2.3% excise tax on the sales of certain devices. The tax is considered the industry's contribution to financing the Patient Protection and Affordable Care Act.

The device industry has conducted an aggressive campaign to repeal the tax, often citing the negative impact it may have on innovation and jobs. More recently, the Advanced Medical Technology Association has framed the tax as a tax reform issue, rather than one relating to healthcare reform.

“Like all other taxes, the true incidence of the device tax will be determined by market forces and will vary from company to company,” an AdvaMed spokeswoman said in an e-mail. “This is true of other financing mechanisms included in the ACA as well, such as Medicare cuts in payments to hospitals, which may be absorbed by the hospitals or passed on to patients, to private insurers and employers, or to suppliers like the device industry.”

The HSCA, as well as other groups representing the interests of hospitals, began expressing concern in 2011 that the tax would be passed through to providers.

Six groups, including the HSCA and American Hospital Association, asked the Internal Revenue Service during the rulemaking period to prohibit companies from passing through the cost of the tax by requiring them to certify on their tax returns that their products' prices didn't include the tax.“The issue of passing the tax on to hospitals?” said Blair Childs, senior vice president of public affairs for Premier. “That should not happen. Period.”

The AHA was not available for comment.

Stradis Healthcare, a Lawrenceville, Ga.-based manufacturer of custom surgical procedure packs, said it is awaiting final guidance from the IRS to clarify whether the tax applies to its products, which include custom kits.

The company “literally could not afford to pay that tax” and would likely have to lay off several of its 52 full-time staffers, Stradis Healthcare President Bret Buhler said.

Others companies have reversed plans to add the tax to the costs of its products. Both Dynasthetics, a Salt Lake City-based provider of anesthesia devices, and Gambro, a Swedish medical technology company that is set to be acquired by Baxter International, initially told providers that the tax would be added to the costs of its products.

“Based on market feedback, we made the decision to no longer charge customers for the [medical-device excise tax] on their invoices,” said Anne Bonelli, a Gambro spokeswoman.

While the policy was officially changed Feb. 1, the company also decided to offer a credit to providers that paid the tax in January.

“We have decided not to pass that on to our customers,” said Steve Blackwell, Dynasthestics' vice president of sales. He declined to say why the company changed its policy.

Earlier this month, Reps. Erik Paulsen (R-Minn.) and Ron Kind (D-Wis.) reintroduced a bill to repeal the tax. In an interview then, Paulsen said the legislation now has bipartisan support and support for repeal is growing.

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