Last week, hospital group purchaser Novation warned that at least one devicemaker was unfairly passing its 2.3% device tax charges down to customers, but a new report from The Wall Street Journal suggests the practice is far more rampant.
The tax kicked in Jan. 1, and devicemakers like Cardica ($CRDC), Applied Medical Technology and Hans Rudolph have added new surcharges to their pricing designed to make hospitals foot the bill, the WSJ reports. Cardica was even up-front about it, according to the newspaper, sending customers a letter explaining that they were now on the line for the Affordable Care Act-supporting tax.
Needless to say, hospitals are none too pleased with this. Novation, which serves more than 65,000 healthcare providers, says it's making a stand and won't tolerate the practice. And while GPOs like Novation have the heft and clout to protect large hospitals, smaller outfits might not have the same bargaining power to defend their margins.
Big-time devicemakers like Medtronic ($MDT) and GE Healthcare ($GE) are yet to join in on the tax-passing, WSJ reports, but some procurement officials expect them to roll new costs into their next contracts once the current ones expire.
And there doesn't seem to be anything illegal about that. The IRS' final guidance on the device tax ensures devicemakers can't outright raise prices to escape the burden--the 2.3% excise is taken off the list price, no matter rebates or fluctuations--but it doesn't prohibit adding on surcharges or special fees.
Proponents of healthcare reform, including President Barack Obama, have said the $29 billion-over-10-years tax will likely be a wash for the device industry, as ACA will inject about 30 million newly insured patients into the marketplace. But devicemakers aren't buying that logic, saying the majority of those patients will be young and not in need of the pacemakers and orthopedic implants that drive their revenue.
- read the WSJ story (sub. req.)
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