For the last few years now, I have begged the Obama administration, Trump administration, and Congress to adopt Lee Iacocca’s motto of “lead, follow, or get the hell out of the way” regarding Obamacare. Unfortunately, other than eliminating the individual mandate, there has been little leading and a lot of following and getting the hell out of the way. Recently, I realized why my pleadings have fallen on deaf ears: I’ve been targeting the wrong executive branch of government. The group I should be pleading with is the group that has become the new Congress of the United States—the Supreme Court.

As I was driving to work one day last month, I learned the Supreme Court reversed its 1992 ruling Quill v. North Dakota, that legislates tax collection for interstate product sales. I use the term “legislate” deliberately because I believe that is what the Court has been doing in recent years, and now it has moved on to healthcare. Whether the Court knows it or not, it has imposed another tax on healthcare.

In recent years, the Supreme Court has “legislated” topics like gay marriage, travel bans, immigration, and even business patronage (same sex wedding cake case). Seeing the writing on the wall, Starbucks took steps to end racial profiling rather than have the Supreme Court fix it. In June, the Court voted 5-4 to reverse its 1992 Quill v. North Dakota ruling, effectively driving up already sky-high healthcare costs. I do not believe the Supreme Court justices realized how their ruling impacts healthcare when they attempted to fix bricks and mortar interstate retail.

The Quill v. North Dakota ruling effectively prevented states from collecting any sales tax from online retail purchases through sellers that did not have a physical presence (Nexus) in the state. The ruling was based on the Dormant Commerce Clause, preventing states from interfering with interstate commerce unless authorized by the U.S. Congress. The case stemmed from an attempt by North Dakota to collect sales tax on licensed computer software sold by the Quill Corporation, an office supply retailer with no physical presence in the Peace Garden State. Quill accepted direct orders from customers.

With the ruling reversed, and in the absence of a unified Congress, states can now create laws that allow them to collect taxes from any merchant, regardless of their address. For many, this topic has been an “out of sight, out of mind” issue. But in many cases, it can inadvertently increase product cost (bought or sold) by the amount of tax a state chooses to collect.

In theory, the ruling reversal should not raise the cost of healthcare because all interstate purchases are subject to a use tax, but organizations and individuals seldom report use tax, making it difficult for states to enforce collection. This is a viable argument from the states. The reason enforcement is so difficult, however, is because states have not had a good method for compliance. If they had used the KISS (Keep It Simple Stupid) method, more retailers would obey.

The healthcare space is synonymous with the term compliance. The myriad of rules and regulations in play create a burden, and arguably, a necessary barrier to entry excluding all but those able to meet stringent requirements. Put simply, you have to be able to pay to play. Unlike Congress, the U.S. Food and Drug Administration (FDA) has worked very hard over the years to create rules that transcend borders so companies know how to best conduct business from state to state and internationally. In fact, many state health departments have harmonized efforts with the FDA regarding auditing and other processes. In essence, the FDA created a form of interstate compliance.

There currently is no unified approach to compliance in state tax collections and payments from suppliers and OEMs. For example, South Dakota’s law, which led to the recent dispute (South Dakota v. Wayfair), is now enforceable per the Supreme Court’s recent ruling, allows merchants who are conducting online sales to collect taxes on more than $100,000 in sold merchandise or greater than 200 transactions annually. Georgia’s threshold, on the other hand, is $250,000 or 200 transactions. Alabama is simply $250,000 regardless of the number of transactions. Many states, however, don’t have any laws, making compliance challenging.

Having gained valuable experience during my career with landed costs analysis and the role tax plays in landed cost, I have found tax payments to be particularly difficult. Collecting taxes is actually rather easy. It’s simply an invoice line item, and most any software can calculate the amount of taxes that should be on the invoice. But there is no common plan for paying states the monies they are owed. Every state has its own tax collection thresholds and each differs in how the state is paid.

I have personal experience with one state that actually requires merchants to manually tabulate by city and county the amount of taxes they are owed. The merchant has to open a portal on this state’s website and fill in monthly the amounts collected for each city and county for every customer. This is very burdensome. The Supreme Court’s ruling stands contrary to long-standing Congressional legislation that prohibits states from implementing an undue burden on merchants conducting interstate business. To me, the Court’s ruling represents an undue burden, and four Supreme Court Justices agreed by dissenting. Perhaps the Court should consider overturning its own reversal of the 1992 Quill ruling, if that’s even possible.

What does the Supreme Court ruling mean to healthcare suppliers and OEMs? That’s a tough question to answer, as it really depends on where in the buy-and-sell ecosystem they fall. Large OEMs selling final use products most likely have a nexus in every state and are probably already collecting taxes on customer sales. But it is unclear whether suppliers are collecting taxes from OEM sales (and whether all suppliers are now within their legal right to collect taxes). Other blurred lines exist over whether OEMs will incur an unexpected “landed cost increase” from suppliers’ tax bills, and the types of products that could be taxable.

With Obamacare’s intense focus on cost at the expense of care, sourcing organizations have been squeezing every penny out of the supply chain—even embracing the concept of buying something from an institution that does not collect tax over the internet. But that changes now. Regardless of where they fall in the ecosystem, medtech companies will have to closely examine their supply chains to better understand the ramifications of this landmark ruling.

The Supreme Court ruling appears intended to address Amazon retail players rather than healthcare firms. The majority of Supreme Court justices are siding with President Trump in his war on Amazon, believing many retailers like cookie companies, T-shirt sellers, and re-sale marketeers are creating an unfair advantage for out-of-state retailers who never had to collect taxes. In fairness, it does seem unfair to local merchants. But the President and justices failed to realize the healthcare industry’s intricate connections and its necessary use of interstate internet sellers to provide therapies. In many cases, in fact, the internet is the only viable method of delivering products to end customers. Of course, there will always be select healthcare companies that will benefit from the Quill decision, but those firms are few and far between.

I fear the Court’s Quill ruling may cost lives by increasing the cost of U.S. healthcare products and consequently bankrupting some small companies. Think about it: If a small OEM or supplier cannot comply with the tax laws in all the states in which they conduct business, they no longer will be allowed to sell their products. These organizations can comply with sophisticated FDA regulations and are ISO certified, but they may be driven out of business because they simply won’t be able to comply with various state, county, and city tax laws.

I’ve been wondering for quite some time now why Trump’s tax plan was approved so quickly by Congress and I think I know the answer: I suspect the Supreme Court was prepared to interpret/legislate for the President if he didn’t get what he wanted from Congress. It’s a brilliant strategy that might bear more fruit this fall in the form of immigration legislation, travel bans, and/or trade wars (supply chains, beware).

I’ve been preaching for some time now about the need in Washington for an over-arching approach to the U.S. healthcare chain. Until Congress steps up, the “new” Congress of President Trump and the Supreme Court will run America, as they are doing what 435 congressmen and 100 senators can’t seem to accomplish. Although it might involve a cost reduction, I don’t believe this is how the forefathers envisioned the three branches of government working together. Either Congress or the Supreme Court must act quickly to eliminate the undue burden on interstate tax compliance or the healthcare industry will once again have another Obamacare-related levy on its hands.

Let me repeat my appeal to Congress: You’re only partly adhering to Lee Iacocca’s motto by following and getting the hell out of the way. It’s now time to lead and fix this recent undue compliance burden on the healthcare space wrought by the Supreme Court. Otherwise, America will continue to be led by the “9 and 9”—nine robes working nine months a year (Oct. 1-June 30) as the new nine-month Congress. The healthcare industry doesn’t need another tax—it’s still trying to permanently get rid of one. 

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Chris Oleksy is founder and CEO of Oleksy Enterprises, Next Life Medical and Emergent Respiratory. He can be reached at chris@oleksyenterprises.com or chris@nextlifemedical.com.