Device tax: HME manufacturers strategize

Friday, March 30, 2012

WASHINGTON - Will HME manufacturers spread the pain of a 2.3% excise tax on medical devices?

A new report from Emergo Group predicts that a good number of them could. It surveyed 284 CEOs, presidents and managing directors at medical device companies and found that 52% of them plan to pass along some or all of the increased costs associated with the tax, which is scheduled to go into effect January 2013, to their customers.

HME News in March asked four HME manufacturers about their plans for tackling the tax.

First, a few things to remember: The tax will be applied only to certain HME (oxygen, yes; power wheelchairs, no); and it's not quite a done deal (The U.S. Department of the Treasury is accepting comments on a proposed rule until May 7, and is expected to release a final rule later this year; and the U.S. Supreme Court is expected to issue an opinion on the constitutionality of the Affordable Care Act, of which the tax is a provision, in June).

We can't do it through cost cutting alone

While a 2.3% tax may sound insignificant, Invacare's Carl Will says it's important to remember that it will be levied on total revenues.

"It's a big deal," he said. "We're going to need to find a way to displace the tax and we don't see how we can do it all through continued cost reductions."

We're going to have different products

Drive Medical's Doug Francis agrees. He says his company will try to offset the tax like it has other cost and reimbursement pressures: By tweaking its product line.

"We will come up with something that meets the need and coding requirements, and allows providers to breathe," said Francis, executive vice president. "But it will be a different product."

We're going to take advantage of technology

GF's Ken Spett says his company's recent investment in a high-tech, fiber optic laser tube cutting system at its Fond du Lac, Wis., facility will help to defray the cost of the tax.

"We invested $1.2 million in the system, but it's a good time to buy equipment because the prices have been driven down and the cost to finance is low," said Spett, president and CEO. "And it will help cut the cost of our domestic-made products."

We're still fighting

While they've made strides to get certain HME exempted from the tax, the likes of Invacare and Pride Mobility Products, along with an AAHomecare task force, are still trying to carve out all HME.

"That's where we're focusing the larger industry comments (to the Department of the Treasury)," said Seth Johnson, vice president of government relations for Pride Mobility. "We think we have a strong case."