Updated at 11:30 a.m. with additional comments from Invacare.
Home healthcare products maker Invacare (NYSE:IVC) doesn’t expect to see too hefty a hit to its bottom line once the medical device tax take effect in January, and it expects to shift that cost onto the market, the company announced today.
Invacare "believes that most of its products will be exempt from the tax based on the retail exemption provided in the regulations," according to a press release. "Based on its interpretation of the regulations, the company expects that the impact from the tax when it first takes effect in 2013 will be less than $1.5 million; and it intends to pass it on to the market."
The IRS yesterday released the long-awaited final regulations on the 2.3% medical device tax contained in President Barack Obama’s Affordable Care Act, just 3 weeks before the tax is set to take effect.
Under the new law medical device manufacturers will be required to make semimonthly tax deposits to the IRS in the amount of 2.3% of every sale, unless the manufacturer’s net tax liability does not exceed $2,500 for the quarter.
Thanks to certain exemptions in the IRS codes, Invacare cut its estimated tax liability by around 90%. The company had said in 2010 that the levy could result in an annual impact of as much as $14 million, suspending matching 401(k) contributions and merit increases for management and freezing hiring in reaction to the tax.
Those cuts were reversed just months later and fulfilled retroactively as the device tax took shape and the company gained more clarity on its expected impact, Invacare spokeswoman Lara Mahoney told MassDevice.com today.
"The medical device tax looked very different back then," Mahoney said. "At the time we thought it was going to be significantly more than it was because of the way the language was phrase."
"We’ve had a lot more clarity on just what exactly the ruling would be," she added.
Invacare expects that it can pass its estimated $1.5 million tax tab onto the market, the company reported. It’s a move that many device makers have cited as a possible means of dealing with the 2.3% top-line tax.
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.
Invacare hasn’t yet announced how it will pass the bill to the market, but is "still exploring" how to do that, Mahoney told us.
In a February survey of 180 medical device industry executives, over half said they would increase prices in order to absorb the cost of the med-tech levy. Other expected impacts included layoffs, budget cuts and general confusion about how to comply with the new law.
The IRS medtech tax regulations classified taxable medical devices by relying heavily on FDA definitions, largely rejecting attempts from industry to narrow its interpretation of the rule and create carve-outs to limit the impact of the tax.
The IRS did carve out some exemptions to the levy, including a "retail exemption" for eyeglasses, contact lenses, hearing aids and any other medical devices purchased by the general public at retail for individual use. It also singled out medical devices used in veterinary medicine and software upgrades.
"At this point its a tax that we have to deal with," Mahoney told us. "We’ve spent a lot of time trying to understand exactly what it meant for our company; now we have that understanding."