Veterinarians may notice an increase in the cost of some medical devices in 2013. A provision of the Patient Protection and Affordable Care Act, the healthcare law signed by President Barack Obama in 2010, includes a 2.3 percent tax on the sale of medical devices by the manufacturer or importer.
Although veterinary healthcare is not addressed in the Affordable Care Act, equipment intended for human use but also used in veterinary medicine--such as IV fluid pumps, endoscopes and cardiac monitors--will be taxed. Devices sold solely for use in veterinary medicine are not subject to the new tax.
“For example, if a veterinarian buys an endoscope that is approved and labeled for use in human patients for use in his/her veterinary practice, then the endoscope purchase will be taxed,” states a release on the new tax by the American Veterinary Medical Association (AVMA). “However, if the device is approved and labeled for use exclusively for veterinary medicine (and is labeled as such), then it will not be taxed.”
According to Section 201 (h) of the Federal Food, Drug, and Cosmetic Act, a medical device is “an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is:
• recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them,
• intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or
• intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes.”
Veterinary consultant Gary Glassman, CPA, of Burzenski and Co. in New Haven, Conn., says veterinarians will have to consider how often equipment is used per year and how many years it will be used to assess the impact of the tax on their practice. “These are factors commonly considered when pricing a procedure that takes into consideration the use of the equipment,” Glassman says. “With the tax at 2.3 percent, when price is based on a procedural basis, the additional cost may be very marginal and would not impact the client’s decision to either accept or reject the veterinary service--especially when the equipment has a long useful life and is used quite frequently.”
However, many in the healthcare field are opposed to the tax, including Stephen J. Ubl, president and CEO of AdvaMed, the Advanced Medical Technology Association. He had hoped language to repeal the tax would be included in the fiscal deal passed at the end of 2012 by the House and the Senate. Defeated in that effort, he vowed to continue repeal efforts.
AdvaMed contends that after surveying 81 of its members, 62 percent of companies say they are planning layoffs or reduced hiring to help offset the cost of the tax. Proponents of the tax estimate that revenue gained by additional customers generated by the Affordable Healthcare Act will offset the cost of the tax for manufacturers. According to the AdvaMed survey, 80 percent of responders expect less than 1 percent in revenue from new business related to the Affordable Care Act.
“If a veterinarian is pricing a service that includes the cost of the equipment and the equipment cost goes up, in a general business sense, the charge to the client should go up,” Glassman says. “I think the veterinarian will have to consider how much the additional cost is.”
He says the additional cost of 2.3 percent has to be looked at over the life of the equipment. “If it relates to an $18,000 machine, and the machine’s life is 15 years, the additional total tax cost is $400. That yearly over 15 years will only be $26 per year. If the equipment has a five-year life, the yearly cost would be $80. If the equipment is used 100 times during the year, the incremental cost increase per procedure is 80 cents,” Glassman says. To that end, the tax would cause the procedure to go up about $1.50.
The AVMA says in its release that the tax’s impact on veterinary medical devices remains to be seen: “It’s reasonable to believe that the tax could increase the cost of providing veterinary medical care.” The organization states that it is aware that increased costs absorbed by veterinarians could result in increased costs to the pet owner or impact veterinarians’ decisions when choosing new devices or deciding whether or not they will make a medical device purchase.
“I do not believe it will eliminate the veterinarian’s decision to buy or not buy a needed piece of equipment to carry on the trade of providing required medical care,” Glassman says. And if the cost of the tax is looked at on a procedure basis, clients at many veterinary clinics probably won’t notice a marginal difference in cost.
The tax is not imposed on retail sales or device manufacturers with revenues under $5 million a year. The tax falls under “Revenue Offset Provisions” in the law and is projected to bring in $20 billion in revenue by 2019, according to the Joint Committee on Taxation.