Initial Proposed Rules on Medical Device Excise Tax Take a Very Favorable View Toward Orthotics and Prosthetics, As Recommended by AOPA
Today, the Internal Revenue Service/Department of Treasury has posted its first proposed rules on its plans for enforcement of the new Medical Device Excise Tax. This is the first step-a proposed rule sent out for public comment-in Treasury/IRS establishing the final interpretation of the applicable rules. The entire picture could change dramatically as Treasury/IRS receives and evaluates comments from a range of stakeholders, but from the initial text that they published, the picture looks very good for orthotics and prosthetics.
Almost exactly a year ago, AOPA representatives initiated a 1-1/2 hour meeting with the key Treasury/IRS personnel charged with writing the rules to implement the medical device excise tax. We argued that O&P devices fit within the one significant exemption from this tax which Congress set forth when it wrote the health care reform law-the retail exemption. This exemption applies to devices "of a type generally purchased by the general public at retail for individual use." AOPA adopted a similar position in a formal letter that we provided to Secretary of Treasury Timothy Geithner.
Click here to read AOPAs letter to Secretary Geithner.
The proposed rule is not absolutely definitive in publishing a list of devices that do, or do not fall within the retail exemption, but here are a couple of key excerpts of what they say about O& P devices, the medical device excise tax, and the retail exemption:
(i) Factors to suggest that a device is "regularly available for purchase and use by individual consumers:"
(C) The device is classified by the FDA under Subpart D of 21 CFR Part 890 (Physical Medicine Devices) -- This is a statutory reference to Physical Medicine Prosthetic Devices
(ii) Safe Harbor. The following devices will be considered to be of a type generally purchased by the general public at retail for individual use:
(D) Devices that qualify as durable medical equipment, prosthetics, orthotics and supplies, as described in Subpart C of 42 CFR Part 414 (Parenteral and Enteral Nutrition) and Subpart D of 42 CFR Part 414 (Durable Medical Equipment and Prosthetic and Orthotic Devices), for which payment is available on a purchase basis under Medicare Part B payment rues, and are-
(1) "Prosthetic and orthotic devices," as defined in 42 CFR 414.202, that do not require implantation or insertion by a medical professional;
(2) "Therapeutic shoes," as defined in 42 CFR 414.228(c).
Some further analysis will be required of all the specific sections of law and rules cited, but we can say very tentatively that it appears that the Department of Treasury/IRS has carved out a safe harbor for O&P devices as falling under the retail exemption-as AOPA had requested last February-and so to be exempt from the tax.
Click here to read the Treasury/IRS Proposed Rule
We'll keep you posted on further analysis. Comments (target deadline appears it will be May 7, though that is still to be announced) and testimony at a May 16 hearing on this proposal are solicited, and AOPA will be planning to do both. We will advise AOPA members soon of possible key points they may wish to make in individual company comments as well.