Are Companies Shifting Tax Burden to Hospitals?

Evidence is emerging that some medical device manufacturers are shifting the burden of the newly implemented 2.3 excise tax onto hospitals customers. The medical device tax is a section of the Obama administration’s Affordable Care Act (ACA) that came into effect Jan. 1 this year.

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 to 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.

Hospital executives confirm they are paying for the hike in taxes device companies have to pay, but device company executives remain tight lipped on the pattern this early in the game.

Industry lobbyists and advocates have said repeatedly that the tax will not “pay for itself” in the form of new customers who can now afford better healthcare, as defenders of the law suggest.

“This theory that there’s going to be a windfall [of new patients for device makers] just doesn’t hold water,” said J.C. Scott, chief lobbyist for the Advanced Medical Technology Association (AdvaMed). Organizations such as AdvaMed and the Medical Device Manufacturers Association warned there would be effects such as decline in innovation, layoffs and offshoring. Making hospitals pay for the tax indirectly could be one more unforeseen ripple effect.

The Healthcare Supply Chain Association (HSCA) and its group purchasing organization (GPO) members expressed alarm over evidence of this shift in monetary burden to American hospitals and other healthcare providers. According to HSCA, hospitals have already committed some $155 billion over the next 10 years to help fund the ACA –and the organization said as much in a letter to the Internal Revenue Service last year.

GPOs are able to see across the health care system and detect changes in the health care supply chain, HSCA President Curtis Rooney explained to Medical Product Outsourcing. “Hospitals began receiving invoices and billing notices that state that the manufacturer has added a specific line-item explicitly referencing the medical device excise tax shortly after the beginning of the new year.”

“American hospitals have already lived up to their shared financial responsibility for national healthcare reform, and now face mounting budgetary strain as they continue to deliver affordable and effective patient care with fewer dollars,” Rooney said. “It is disheartening to find that some medical device companies have chosen to tack the tax right onto their invoices. We urge all manufacturers to immediately stop passing the medical device tax on to American hospitals, and ultimately to patients and taxpayers.”

Rooney went on to say that HSCA and its GPO members would closely monitor the situation. He also challenged hospitals to refuse to participate in contracts that clearly include surcharges meant to shift the tax burden.

“As hospitals, long-term care facilities and other healthcare providers continue to stretch their budget dollars, they will continue to rely on their GPO partners to reduce healthcare costs and deliver the best medical products and services at the best value,” he said. “Hospitals should continue to work with their GPOs to prevent medical device manufacturers from passing along this excise tax.”