Healthcare reform tax targets HME manufacturers

WASHINGTON ¬- It appears inevitable that final health care reform legislation will include a tax on HME and other medical device manufacturers, and if that happens there's a good chance providers and Medicare beneficiaries will share the pain, say industry watchers.

“This tax seems to be counter to the stated goals of healthcare reform to reduce costs,” said Seth Johnson, vice president of government affairs for Pride Mobility. “It will have the opposite effect of increasing costs throughout the healthcare continuum.”

Industry manufacturers have begun looking for ways to offset the tax. Options include a reduction in R&D, products with fewer features, layoffs, operational efficiencies and increasing the cost of products.

“We are looking at everything,” said Carl Will, Invacare's senior vice president, North American Homecare. “We've been putting in lots and lots of time as a management team trying to understand how we would deal with the negative ramification of this tax.”

Currently, the House reform bill calls for a tax of 2.5% on the revenue of manufacturers who produce Class I, II and III medical devices. This tax would take effect in 2014. The Senate bill calls for a tax on revenue that would generate $20 billion year. This tax would impact Class II and III medical devices, be in the neighborhood of 2% annually and take effect in 2011.

Key DME products fall into the Class II category, including power wheelchairs, respiratory equipment and hospital beds. Class I products include manual wheelchairs and most standard products like walkers and crutches.

Members of Congress who favor the tax believe medical device companies make huge profits and should therefore help pay for healthcare reform.

It may be true that manufacturers of high-tech hospital equipment and other Class III products make large profits, but that is not true of homecare manufacturers, Will said.

A task force of manufacturers who belong to AAHomecare prefer the House bill, which takes effect at a later date and therefore allows them more time to adapt, Johnson said.

A final vote on healthcare reform legislation is expected in early to mid February.