Choose Your Poison with DME Excise Tax

WASHINGTON — House plan or Senate plan? For medical device
manufacturers looking at proposed excise
taxes on DME, it is a case of pick your poison. The $20-billion
tax proposed in the House version of health care reform (currently
expected to be voted on Saturday night) undoubtedly inspires nausea
among equipment makers, but the $40 billion advocated by Senate
Finance Committee members is, literally, twice as bad.

According to an Oct. 30 article in The Wall Street
Journal, the House bill would impose a 2.5 percent levy on
device makers that applies to revenue at the point of sale, while
leaving out some retail purchases. The Senate Finance version would
tax manufacturers “according to their share of the market and would
go into effect three years sooner.”

In any discussion of market share, the largest home medical
equipment manufacturer in the United States — Elyria,
Ohio-based Invacare — naturally comes to mind. WSJ reporter
Alicia Mundy quotes Mal Mixon, chairman and CEO of Invacare: “We
wanted the tax to be tiered to give companies like ours a chance,”
Mixon said in the article, titled “Drug Makers Face Tough Measures.” “They should have
taxed profits, not revenues.”

Why are legislators attempting to generate revenue from device
makers? Lisa Getson believes the government is likely under the
misconception that DME manufacturers generate the same kind of
double-digit margins as their pharmaceutical and higher-tech
counterparts.

“A simple review of publicly available data proves that this is
not the case,” said Getson, executive vice president of government
relations and corporate compliance for Lake Forest, Calif.-based
Apria Healthcare. “Given all the reimbursement cuts to home care
providers in recent years, the downstream effect on America’s
leading HME manufacturers has been severe.

“In some cases, the proposed excise tax exceeds 100 percent of
the companies’ research and development budgets, or even 100
percent of their annual operating income,” added Getson. “In some
cases, U.S.-based companies with an international presence are
already losing money, or barely breaking even on the U.S. portion
of their business. This excise tax exacerbates an already untenable
situation for the quality HME manufacturers in this country.”

The American Association for Homecare opposes any device tax
proposal, believing the levies would make it harder for HME
companies to provide quality home care, especially since they are
already being squeezed by steep reimbursement cuts and escalating
costs.

“In addition, the tax would lead to further loss of American
jobs,” pointed out Michael Reinemer, AAHomecare’s vice president of
communications and policy. “The tax would also hurt small
manufacturers and discourage research and development for medical
devices that promote independence for seniors and cost-effective
care at home.”

Mundy reported that tax proponents still believe that despite
the cost, “drug and device makers will make money on the health
care overhaul because more Americans will carry health insurance”
and thus be able to buy more products. However, Mixon told the
Journal, “he does not expect to gain new customers because
his products are mostly used by older patients already covered by
Medicare.”

In a letter to Ohio senators outlining potential consequences of
the Senate’s proposal, Mixon also pointed out that the excise tax
would raise health care costs, since much of the cost of the tax
would be passed on to patients.

“It does not make sense to finance health reform by taxing
countless products that patients require,” Mixon wrote. “Bearing
the burden of an acute illness or chronic condition is costly
enough; the additional financial penalty on these same patients
seems unjustified.”