What You Need to Know About Medical Device Tax

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There has been a lot of controversies surrounding the Medical Device Tax which until now remains to be unpopular. Despite its suspension until December 31, 2017, it still remains to be an important part of the legislation of health care reform and should at all times be taken into consideration during planning stages. Other than its current status, however, not a lot of people know much about the Device Tax.

Medical Device Tax

Here’s what you need to know:

What is it?

Launched back in 2013, the medical device tax is included in the ACA or Affordable Care Act. Imposing a 2.3% sales tax evenly on medical supplies both imported and domestically-produced, it does make an exemption for products that are produced in the U.S. but are tagged for export. It applies to a wide range of medical devices and products, including artificial joints, pacemakers, and even surgical gloves. However, it does not apply to devices that the general public typically buys for individual use such as hearing aids, contact lenses, and wheelchairs.

Why is it part of the Affordable Care Act?

Estimated to bring in around $29 billion over the next ten years, this tax was one of a number of revenue-raising provisions intended to offset the projected cost of providing healthcare coverage to over 25 million Americans through the Affordable Care Act.

What is a Taxable Medical Device?

A medical device is generally considered taxable if it is listed with the Food and Drug Administration of the FFDCA or Federal Food, Drug, and Cosmetic Act and 21 CFR part 807. That is, unless the device falls within an exemption from the tax. An example would be the retail exemption. There are many debates on the term “medical device”, however, as its definition is subject to broad interpretation.

Who are affected?

While the 2.3% sales tax might not be much for a big corporation, it can be pretty hard hitting for smaller medical device manufacturers, such as those who have just started producing small devices (for example tongue depressors, hearing aids, and patient monitoring accessories. Funds that will need to be diverted toward this tax could have been used much more effectively for research and development, and this could hurt the tight timeframe by which these companies run and can lead to loss of income for them as well.

The future of the Medical Device Tax

While the tax is currently considered “on hold”, it is certainly not dead. It will automatically be brought “alive” at the beginning of the year 2018, unless there are actions done between now and then to further delay or repeal the tax altogether. While there are those who vehemently oppose the medical device tax citing its significant costs and effects on the economy, those who are for it also have important points raised up that outline just how much the healthcare system and its reform can benefit from it in the long run.

For now, the Medical Device Tax is up in the air, and is still the subject of many a continued discussions and debates. It’s well worth remembering, however, that future health care reforms in the healthcare industry will definitely be affected if and when it is put into action in the year 2018.


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