Tax-Shifting Companies Exposed by HSCA

The Healthcare Supply Chain Association (HSCA), a trade association based in Washington, D.C., has launched a website to draw attention to what the association claims are efforts by some medical device manufacturers to pass the costs of the medical device excise tax to hospitals, healthcare providers, patients and taxpayers. The website is called Medical Device Tax Watch [link]. HSCA represents healthcare group purchasing organizations.

Beginning January 1, a 2.3 percent excise tax was imposed on sales of “taxable medical devices” by manufacturers and importers. In a March 2011 letter to the U.S. Internal Revenue Service, HSCA joined the American Hospital Association, the Federation of American Hospitals, and the Catholic Health Association in urging the IRS not to allow medical device manufacturers to pass on the cost of the device tax to hospitals.

“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,” said HSCA President Curtis Rooney. “National healthcare reform is a shared financial responsibility, and hospitals have already paid their fair share. HSCA is pleased to launch Medical Device Tax Watch as part of our ongoing effort to raise awareness of manufacturer cost-shifting efforts, and we urge all manufacturers to immediately stop passing on the costs of the medical device tax onto hospitals.”

Hospitals committed $155 billion over the next ten years to help fund the Affordable Care Act (ACA). Hospitals are now reporting that some device manufacturers are billing hospitals directly to cover the costs associated with the ACA’s medical device excise tax.

In January, The Wall Street Journal (WSJ) acquired letters sent from nine different device companies to hospitals. “As a result of this law, we will be forced to charge the 2.3 percent federal medical device excise tax to you,” said a letter to from Cardica Inc., maker of cardiac surgical tools, the newspaper reported. Other companies confirmed by WSJ have quietly added new surcharges or warned hospitals of price increases include feeding-tube supplier Applied Medical Technology Inc. and respiratory-valve maker Hans Rudolph Inc.

At the time this information began to trickle out, Rooney pointed out that hospitals were already bearing their fair share of the tax burden, and that it was “disheartening to find that some medical device companies have chosen to tack the tax right onto their invoices.”

“As hospitals, long-term care facilities and other healthcare providers face increased budgetary pressure, HSCA and its group purchasing organization members will continue to be critical cost-savings engines, delivering the best products at the best value to the supply chain,” added Rooney. “HSCA will also continue to serve as a resource and advocate for American hospitals and healthcare providers as we monitor the medical device marketplace for evidence of unfair cost-shifting.”

There currently are 42 companies listed on HSCA’s new website identified as cost shifters, including the ones identified by WSJ. The list is compiled from information directly from HSCA members. Members have reported letters of intent or invoices from medical device companies that show the shift of the tax burden.