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GAO-15-635R 1 (2015-06-30)

handle is hein.gao/gaobaajba0001 and id is 1 raw text is: GAOU.S. GOVERNMENT ACCOUNTABILITY OFFICE 441 G St. N.W. Washington, DC 20548 June 30, 2015 The Honorable Harry Reid Senate Minority Leader United States Senate Medical Device Companies: Trends in Reported Net Sales and Profits Before and After Implementation of the Patient Protection and Affordable Care Act Dear Senator Reid: The Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA), contained a number of provisions intended to increase the availability and affordability of health insurance coverage while also controlling costs-particularly beginning in 2014. Various PPACA provisions that were designed to control costs, including provisions that reduced Medicare reimbursement rates for certain types of services that rely on imaging devices, were implemented starting in 2010 through 2015.1 PPACA also expanded coverage by requiring the creation of health insurance exchanges in each state, through which eligible individuals and small businesses could qualify for federal subsidies to purchase private health insurance coverage, by 2014. PPACA included a number of provisions to raise revenues in order to help finance these coverage expansions, such as the medical device tax.2 Specifically, PPACA established a 2.3 percent excise tax on the sale of certain medical devices in the United States after December 31, 2012, which the Joint Committee on Taxation estimates will raise cumulative revenues of $20 billion for fiscal years 2013 through 2019.3 Congress exempted from the tax certain medical devices that are typically purchased by the general public at retail for individual use, such as eyeglasses, contact lenses, and hearing aids.4 The medical device industry has raised concerns that PPACA-and in particular the medical device excise tax-will adversely affect the medical device market. For example, opponents of the tax have said that the tax would result in a cancellation of capital investments, decreased 1The Medicare program provides health coverage for persons age 65 or over, certain individuals with disabilities, and individuals with end-stage renal disease. 2See Pub. L. No. 111-148, §§ 9009, 10904, 124 Stat. 119, 862, 1016 (2010) (hereafter PPACA), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, § 1405, 124 Stat. 1029, 1064 (2010) (hereafter HCERA) (codified at 26 U.S.C. § 4191). For purposes of this report, references to PPACA encompass the provisions of HCERA. Thus, while HCERA enacted the medical device tax described in this report, we refer to the tax in relation to PPACA as the better known law. Medical devices include instruments that are intended to be used for the diagnosis, cure, mitigation, treatment, or prevention of a disease. Medical device companies produce a wide variety of products that range from tongue depressors and surgical clamps to more complicated devices, such as hip replacements and heart pacemakers. 326 U.S.C. § 4191. See Joint Committee on Taxation, JCX-1 7-10, Mar. 20, 2010. 4Under PPACA, any other medical devices determined by the Secretary of the Treasury to be generally purchased by the general public at retail for individual use are to be exempt. The Department of the Treasury issued regulations on December 7, 2012, establishing a two-prong test for determining whether a medical device falls within this retail exemption. Taxable Medical Devices, 77 Fed. Reg. 72924 (Dec. 7, 2012) (codified at 26 C.F.R. § 48.4191-2(b)). GAO-15-635R Medical Device Companies' Sales and Profits Page 1

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