A tax break for HME?

Thursday, May 5, 2011

WASHINGTON - Industry stakeholders expect the Internal Revenue Service (IRS) to make a decision this summer about whether or not to exempt home medical equipment from a 2.3% annual excise tax.

The IRS is in the middle of trying to figure out how to implement the medical device tax, a provision of the Affordable Care Act passed by Congress last year.

"They said they would be coming out with some form of guidance this summer," said Cara Bachenheimer, senior vice president of government relations for Invacare. "It's unclear, at this point, whether it will be draft guidance or more formal guidance."

Under the law, the secretary of the treasury has the power to exempt "any medical device determined by the secretary to be of a type which is generally purchased by the general public at retail for individual use."

Industry stakeholders submitted comments to the IRS in March, outlining why they believe HME meets those criteria.

"All of our items are purchased by consumers and they're used by consumers," Bachenheimer said. "The definition of a retail interaction is a sale to an individual customer. HME providers are, arguably, retailers. They're not wholesalers. It's a pretty strong argument."

In meetings earlier this year, IRS officials seemed receptive to exempting HME from the medical device tax, but they were unsure how to do it since some HME, like a hospital bed, is used both in the home and in institutional settings, industry stakeholders say.

"Their big question was, 'OK, how can we do this in a clean manner?'" said Seth Johnson, vice president of government affairs for Pride Mobility Products. "Because if it's used in an in-patient setting, from an IRS perspective, the tax needs to apply. So how do you draw the line?"

Industry stakeholders argue that HME used in the home is similar but different than HME used in institutional settings. Also, they argue the IRS could use a threshold to determine whether a device is used more in the home or more in an institutional setting and if it's used more in the home, it would be exempt from the tax.

The tax goes into effect in 2013.