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Medical device companies accused of passing on cost of new tax to customers

Medical device manufacturers are shifting the cost of the 2.3 percent device tax, which went into effect on Jan. 1 as part of the Affordable Care Act, to hospitals and other healthcare providers, the Healthcare Supply Chain Association alleged on Friday.

According to HSCA, some medical device companies are adding a line to their invoices that passes on the cost of the tax to its customers.

“Medical device manufacturers should be on notice that passing the device tax on is not acceptable,” said Curtis Rooney, president of HSCA, a trade organization that represents 15 group purchasing organizations.

“GPOs are effective at limiting these attempts but it appears medical device manufacturers are trying to work around the GPOs by creating a new line on their billing statements to hospitals,” said Rooney. “We think this practice should stop immediately.”

“We think now that the tax is being implemented, it should be the responsibility of the medical device companies to pay it and not pass it on to others,” he added.

The medical device tax is not what is driving up product prices, said Kem Hawkins, president of Bloomington, Ind.-based device company Cook Medical.

[See also: Medical device tax goes into effect despite industry objections]

“Like every other company doing business in America today, we have seen significant increases in utilities, rising gasoline prices and higher healthcare costs,” said Hawkins.

“We have seen higher costs for raw materials and from regulations. We’ve seen unemployment insurance taxes increasing, along with other state and local taxes including property taxes. Our employees need raises. We will have price increases but those increases will not include the 2.3 percent tax,” added Hawkins.

Bruce Carlson, publisher of New York City-based healthcare research and publishing firm Kalorama Information believes the HSCA’s accusations are designed to discourage device companies from attempting to use the tax as leverage in negotiations with GPOs.

“It’s an unsurprising part of negotiations that will occur between GPOs and med device companies for a long time, with the tax adding just a bit more friction,” said Carlson. “Right now, I’d say this is a warning shot across the bow to device companies saying, ‘don’t come to us – GPOs representing hospitals – and ask us to consider the excise tax you are facing in price negotiations.”
While it is illegal for medical device companies to charge their customers for the tax, it is legal in some states for them to include a line item showing the tax on their invoices, said Carlson.
“It is illegal to put the healthcare reform medical device excise directly onto an invoice and collect it as tax,” he said. “However, some states such as Texas – where there was opposition to healthcare reform in the state legislature – have allowed companies to print the 2.3 percent tax on invoices to demonstrate to consumers what costs the company is facing, as long as the tax doesn’t add to the total.”


[See also: Medical device excise tax remains in place after SCOTUS ruling]