Reconciliation Bill Includes Changes to Medical Device Tax

WASHINGTON — Late March 21, the U.S. House of
Representatives approved the Senate
health care reform bill, the Patient Protection and Affordable
Care Act, along with a reconciliation bill that makes changes to
the Senate legislation.

After President Obama signs the measure, which could be as early
as tomorrow, the Senate is expected to begin debate on the
reconciliation bill.

According to Cara Bachenheimer, senior vice president of
government relations for Invacare, Elyria, Ohio, that debate could
be dominated by a series of procedural challenges from Republicans
under the rules that govern the budget reconciliation process.
Under the reconciliation rules, 51 votes are required for passage
in the Senate.

As far as its impact on HME, Bachenheimer said, the
reconciliation bill contains “few significant changes to the
underlying Senate bill that directly impact the DME industry” with
one notable exception: The reconciliation bill would replace the
medical device tax provision in the Senate bill with a different
provision that delays the tax until 2013 and exempts Class 1
devices (like canes and walkers) and other items that the HHS
Secretary deems a “retail” item purchased for individual use.

Bachenheimer said details of the new provision are “really
not 100 percent clear. There remains the possibility that DME items
will be exempt under the ‘retail’ exemption, but we
will have to await the Treasury secretary’s determination of
what products will be classified as
‘retail.’”

The Senate bill includes a $2 billion-a-year tax on medical
device makers that Invacare Chairman and CEO Mal Mixon has said
would send more manufacturing jobs offshore and curtail the
industry’s research and development.

The Senate bill also includes an expansion of Round 2 of
competitive bidding, elimination of the first-month purchase option
for standard power wheelchairs and elimination of planned CPI
increases for HME, none of which are changed in the reconciliation
bill.

Following is Bachenheimer’s explanation of the new device tax
provision and others in both bills affecting HME.

In the reconciliation bill

(passed by the House with Senate debate expected this
week)

• Excise tax on medical device manufacturers.
  Delays the tax by three years to 2013 and converts the industry fee
  to an excise tax on the first sale for use of medical devices at a
  rate of 2.3 percent. Exempts from the tax Class I medical devices,
  eyeglasses, contact lenses, hearing aids, and any device of a type
  that is generally purchased by the public at retail for individual
  use. The tax is tax-deductible and would apply to sales of covered
  devices that occur after Dec. 31, 2012.

• Funding to fight fraud, waste and abuse.
  Increases funding for the Health Care Fraud and Abuse Control Fund
  by $250 million over the next decade. Indexes funds to fight
  Medicaid fraud based on the increase in the Consumer Price
  Index.

• 90-day period of enhanced oversight for initial claims
  of DME suppliers. Requires a 90-day period to withhold
  payment and conduct enhanced oversight in cases where the HHS
  Secretary identifies a significant risk of fraud among DME
  suppliers.

In the Patient Protection and Affordable Care Act (H.R.
3590)

(passed by the Senate and House of Representatives)

• Annual fee on manufacturers and importers of medical
  devices. This provision would impose an annual fee on the
  medical device manufacturing sector beginning in 2011, based on
  2010 sales. The tax would raise $2 billion starting in 2011, and $3
  billion starting in 2017. This non-deductible fee would be
  allocated across the industry according to market share. The fee
  would not apply to any sale of a Class I product or any sale of a
  Class II product that is primarily sold to consumers at retail for
  not more than $100 per unit (under the FDA product classification
  system).

  Small manufacturers, defined as those companies with sales of
  medical devices in the U.S. of $5 million or less, would be exempt,
  and firms with U.S. sales between $5 million and $25 million would
  pay the tax on 50 percent on the sales. 

  The Secretary of the Treasury would require manufacturers to
  file an annual report of its covered domestic sales for the prior
  calendar year. The Secretary would establish individual assessments
  by determining the relative market share for each covered entity. A
  covered entity’s relative market share would be the entity’s
  covered domestic sales as a percentage of the total reported
  covered domestic sales for all covered entities.

• Expansion of Round 2 and beyond of the competitive
  bidding program. This provision will expand Round 2 of the
  competitive bid program by 21 additional metropolitan areas. It
  also requires the HHS Secretary to bid all areas of the country or
  apply bid rates nationwide by 2016.

• Elimination of the first-month purchase option for
  standard power wheelchairs. Effective for services
  beginning Jan. 1, 2011, beneficiaries will no longer have the
  option to have Medicare purchase a standard power wheelchair in the
  first month of medical need. Instead, the Medicare program will pay
  on a rental basis for 13 months, and ownership will transfer at
  that time. DME suppliers will be paid 15 percent of the purchase
  price in months one through three, and 6 percent of the purchase
  price in months four through 13.

  Complex rehab power wheelchairs will retain the first month
  purchase option. This provision will not apply to any contracts
  entered into prior to Jan. 1, 2011, under the competitive bid
  program.

• Elimination of CPI increases; imposition of annual
  productivity adjustment. The provision will eliminate 2
  percent add-on payment (above CPI) for DME in 2014 that Congress
  provided for in last year’s Medicare Improvements for Patients and
  Providers Act. Instead, DME fee schedules updates will be reduced
  each year by a “productivity adjustment” estimated to result in a
  minus 1 percent applied to the annual update factor for DME
  items.

• Accreditation exemption for certain pharmacies.
  This provision will exempt from the accreditation requirement
  pharmacies with less than 5 percent of revenues from Medicare
  DMEPOS billings until the Secretary of HHS develops
  pharmacy-specific standards.