GPOs cry foul when device makers shift tax burden

January 28, 2013 by MassDevice staff

More medical device buyers protest as they see some small manufacturers directly shifting the cost of the 2.3% medical device tax onto hospitals and other healthcare providers. coverage of the medical device tax

More medical device purchasing groups are protesting what they see as some small medical device makers' attempt to directly shift the burden of a new tax onto healthcare providers.

The Healthcare Supply Chain Assn. last week issued a sternly worded press release chiding some medical device makers for "shifting the burden of the medical device excise tax directly to American hospitals and other healthcare providers."

Manufacturers who attempt to pass the buck could face a boycott of sorts, the group warned.

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"HSCA and its group purchasing organization members will continue to monitor the device marketplace for evidence of cost-shifting onto hospitals, and encourage our hospital partners not to enter into contracts that bill them for the device excise tax," president Curtis Rooney said in prepared remarks. "We urge all manufacturers to immediately stop passing the medical device tax on to American hospitals, and ultimately to patients and taxpayers."

HSCA, formerly the Health Industry Group Purchasing Assn., represents 15 GPOs with a mission of advocacy, education, sales and utilization of goods and services within the health industry. Medtech buying titans Premier health alliance and Novation are both member organizations.

HSCA wasn't alone in refusing to accept the burden of the medical device tax, a 2.3% levy which took effect at the start of the year despite industry objections.

Last week group purchasing organization Novation issued a "firm stance" of its own, accusing unnamed device makers of shifting their tax burdens onto an already stressed healthcare system.

""While most device manufacturers are taking responsibility for this tax, there are some manufacturers attempting to pass their obligation on to hospitals," Novation president & CEO Jody Hatcher said in prepared remarks. "This tax should be the responsibility of the manufacturers, and Novation is dedicated to ensuring that member hospitals are impacted by it as little as possible."

Both groups painted the medical device tax as the industry's fair share of the cost of healthcare reform, a financial burden that was also passed on to healthcare providers and the pharmaceutical industry.

The tax was designed to ensure that medical device makers help cover the cost of the Affordable Care Act. Healthcare providers committed $155 billion over 10 years and the pharmaceutical industry committed to $80 billion, Novation noted.

"Medical device manufacturers, however, refused to voluntarily contribute," according to the Novation statement. "As a result, the government imposed the Medical Device Tax to cover their portion.  This Tax was specifically intended to be a tax on the manufacturer.  Even then, by comparison, the Tax is anticipated to amount to roughly $20 billion over 10 years."

HSCA reiterated those sentiments, adding that the group would work with GPOs to ensure that the tax doesn't end taking an undue toll on hospitals.

"American hospitals have already lived up to their shared financial responsibility for national healthcare reform, and now face mounting budgetary strain as they continue to deliver affordable and effective patient care with fewer dollars," Rooney said.  "As hospitals, long-term care facilities and other healthcare providers continue to stretch their budget dollars, they will continue to rely on their GPO partners to reduce healthcare costs and deliver the best medical products and services at the best value."

GPOs have been wary of tax-related price hikes long before the tax took effect at the start of this year. In May 2012 GPO Premier urged the IRS to protect hospitals from price hikes by requiring device makers to promise that their tax burden isn't baked into their prices.

The effort is not in vain, as a handful of industry surveys have already found that medical device companies are looking for various ways to offset the cost of the medical device tax, including by raising prices for their products. A GPO protest, however, packs quite a punch. About 96%-98% of hospitals use some form of group purchasing and ¾ of hospital purchases are made through GPOs, according to HSCA.