IRS Releases Final Rule on Affordable Care Act’s Medical Device Tax

The Internal Revenue Service on Wednesday released a final rule on a 2.3% medical device tax that is scheduled to take effect on Jan. 1, 2013, under the Affordable Care Act, Reuters reports (Temple-West, Reuters, 12/5).

About the Medical Device Tax

Under the rule, manufacturers of specific types of devices must start paying the bimonthly tax beginning on Jan. 29, 2013 (Adams, CQ HealthBeat, 12/5).

The tax on the manufacturers' gross sales is expected to generate $29 billion in federal revenue over the next decade, which will be used to offset the cost of the ACA.

According to CQ HealthBeat, a substantial portion of the final rule defines the types of device manufacturers that will have to pay the tax and filing requirements. It also addresses concerns that the industry and other stakeholders expressed during the comment period on a proposed rule earlier this year.

The levy applies primarily to devices used and implanted by health care professionals, such as tongue depressors and pacemakers.

Products marketed for humanitarian reasons -- including experimental cancer treatment devices -- are also subject to the tax (Reuters, 12/5). However, the tax will not apply to custom kits that hospitals make to package devices that they intend to use in their own facilities for surgery or other procedures, CQ HealthBeat reports (CQ HealthBeat, 12/5).

Industry Responds to Final Rule, Renews Call for Repeal of Tax

Several health care provider and group purchasing organizations previously expressed concern that the tax would force medical device manufacturers to shift additional costs to consumers, while industry groups argued that the tariff would lead to job losses and compromise innovation, Modern Healthcare reports. Similar criticisms and concerns emerged following the release of the final rule (Lee, Modern Healthcare, 12/5).

Gail Rodriguez, executive director of the Medical Imaging and Technology Alliance, said, "With a mere 27 days until the device tax goes into effect, medical imaging and radiation therapy manufacturers do not have sufficient time to implement or adjust to these job-killing regulations."

Steve Ubl -- president and CEO of the Advanced Medical Technology Association -- joined several members of the industry in calling for a repeal of the tax, which would cost $30 billion over a decade. Ubl added that the tax "could push us off an innovation cliff, costing as many as 43,000 jobs and hurting the ability of medical technology companies to find tomorrow's treatments and cures" (CQ HealthBeat, 12/5).

According to Reuters, several major device makers, including Boston Scientific and 3M, have been lobbying Congress to repeal the tax (Reuters, 12/5).