REUTERS – The U.S. Internal Revenue Service on Wednesday released final rules for a new tax on medical devices, products ranging from surgical sutures to knee replacement implants, that starts next year as part of President Barack Obama’s 2010 healthcare law.
The 2.3 percent tax must be paid, effective after Dec. 31, by device-makers on their gross sales. The tax is expected to raise $29 billion in government revenues through 2022.
Companies including Boston Scientific Corp, 3M Co and Kimberly-Clark Corp have been lobbying the U.S. Congress for a repeal of the tax. Medical device makers here in the orthopedic capital of the world are also worried about the tax.
On its website, Zimmer says, “While the company generally supports U.S. healthcare reform, including the fact that millions of American families will have better access to health insurance coverage, Zimmer feels strongly that the medical device tax should be repealed. The company estimates that this tax will cost Zimmer more than $50 million per year. The pending imposition of this tax is forcing the company to identify ways to aggressively cut costs and reduce spending in other areas to offset the increased expense that the company will incur because of the tax.
“Zimmer does not expect to be able to pass along the cost of the tax to hospitals, which continue to face cuts to their Medicare reimbursement per the healthcare law. Nor does the company expect to be able to offset the cost of the tax through higher sales volumes resulting from the expansion of health insurance coverage because of the demographics of the current uninsured population.”
OrthoWorx has also responded to the tax saying, “Whatever your position on the tax itself, no doubt, if implemented in its current form, it will have a profound impact on the medical device industry broadly and the Warsaw-based orthopedic industry cluster specifically.
“The ramifications of implementation are of particular concern in Indiana, which has one of the most sizeable medical device industries in the U.S. The Hoosier medical device sector makes up the largest component of the state’s life sciences industry and is comprised of a diverse set of major employers (Cook Medical, Roche Diagnostics, Zimmer, Biomet, DePuy, Hill-Rom, Boston Scientific and Medtronic). It reaches all corners of the state. With 20,300 employees, accounting for 41% of all life sciences jobs, working in nearly 300 establishments throughout the state, the medical device sector is a vital component of Indiana’s overall economy.”
Many medical devices that are sold over-the-counter – such eyeglasses, contact lenses and hearing aids – are exempt from the tax, as are prosthetics, the IRS said.
The tax applies mostly to devices used and implanted by medical professionals, including items as complex as pacemakers or as simple as tongue depressors.
Products sold for humanitarian reasons, such as experimental cancer treatment devices, are not exempt from the tax.