At long last, the IRS has released its final guidance for the medical device tax--which takes effect Jan. 1--and, after a lengthy public comment period, the agency is adopting very few of the suggested changes to the law's major provisions.
"The final regulations do not adopt this suggestion." That's a phrase you get used to when reading the IRS's 58-page document on the 2.3% tax. Commenters had asked for exceptions for devices with medical and non-medical uses, more specific definitions of "taxable medical devices" and provisions that would account for a device's pricing before applying the tax, among other things.
All of these were weighed, debated and ultimately rejected by the IRS, which by and large affirmed its last guidance, something we covered in detail last month. In sum, that leaves a 2.3% tax on medical devices as defined by the FDA, with exemptions for devices that are sold directly to consumers, destined for further manufacture or slated to be sold outside the U.S.
Industry also asked for broader and more granular rules in the retail exemption--which says medical devices are exempt if they "are generally purchased by the general public"--but the IRS largely turned those down. The agency acquiesced to expanding its over-the-counter provision to include devices bought over the Internet or by telephone, but requests to better define "affordable," elaborate on "minimal or no training" and to exempt Class III devices were all spurned by the IRS.
Among the most irksome-to-industry aspects of the whole process was that the agency had yet to issue a final ruling on a tax that takes effect in less than a month. As a result, many commenters asked for a transition period for their existing sales contracts that will roll over into 2013, when the 2.3% will be due. The IRS rejected that one, too, saying the only contracts that will qualify for transitional relief are those entered before March 30, 2010--the date the Affordable Care Act took effect.
Mark Leahey, CEO of the Medical Device Manufacturers Association, said the final ruling does nothing to dull the blow the 2.3% tax will deliver to jobs and innovation in the industry.
"There is growing bipartisan support in Congress to repeal the medical device tax, and MDMA remains committed to working with elected officials to fix a policy that was a bad idea when it passed, and is proving to be more harmful than imagined to our economy and patient care as it gets closer to implementation," Leahey said in a statement.
- read the guidance (PDF)
Special Report: 5 Things You Need To Know About the Medical Device Tax