Manufacturers of Medical Devices Seek Carve-Outs From New PPACA Excise Tax

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

Medical device manufacturers in recent weeks have supplied the Internal Revenue Service with their wish list of carve-outs from a new excise tax imposed by the health care reform law.

Stakeholders such as Olympus, which manufactures medical systems in addition to digital voice recorders and cameras, told IRS that while the new 2.3 percent tax on sales of taxable medical devices in 2013 is intended to help cover the cost of health care reform, it could end up stifling innovation and medical progress.

“It is imperative that guidance on the medical device tax reflect how the tax will apply in situations where a company markets the device to a customer who uses it for both medical and non-medical uses,” Olympus said in a March 7 comment letter.

The IRS asked for comments on how to implement the new law in Notice 2010-89, issued in December.

Tax code Section 4191 was added by the Health Care and Education Reconciliation Act of 2010 (Pub. L. No. 111-152), part of health care reform law that passed in conjunction with the Patient Protection and Affordable Care Act (Pub. L. No. 111-148).

Olympus said forthcoming guidance that will implement the law should also include clarification on how the excise tax will be administratively applied--specifically indicating that this particular excise tax can be deducted from corporate taxable income as an ordinary and necessary business expense.

Thermo Fisher Scientific, a laboratory equipment provider, focused on the intended use of the device, in its March 18 letter to IRS. The company said only those products that are intended to diagnose disease in man or animals should be subject to the tax, and not products sold for research or industrial laboratory use.

The American Association for Homecare said that home medical equipment and supplies should be exempt from the excise tax. The association's letter offered a definition of home medical equipment that included home oxygen systems, scooters, and wound care dressings and supplies.

Meanwhile, the American Orthotic and Prosthetic Association said medical devices should qualify for the retail sale exception in the rule and went one step further, saying that component parts of devices that are manufactured upstream from the sale should also be exempt.

By Diane Freda

Comment letters on Notice 2010-89 can be obtained by calling BNA PLUS toll-free at 800-372-1033 (select Option 5, then Option 2), or by sending an e-mail to or fax to (703) 341-1643. Customers outside the United States should call (703) 341-3500 (select Option 5, then Option 2).

Request Health Care on Bloomberg Law