IRS Regulations on Taxing Medical Devices FAQ

Q: When did the IRS release the new regulations regarding the taxing of medical devices?
A: On Friday, Dec. 7, 2012, the IRS released the final regulations that provide guidance on the 2.3 percent excise tax imposed on the sale of certain medical devices.  The proposed regulations were released for public comment on Feb. 7, 2012.

Q: How are medical devices defined?
A: The definition of “device” in section 201(h) of the Federal Food, Drug and Cosmetic Act (FFDCA) includes devices used in veterinary medicine. However, the definition of “taxable medical device” under IRS section 4191 limits taxable medical devices to devices described in section 201(h) of the FFDCA that are “intended for humans.”

The proposed regulations further limit the definition of “taxable medical device” to devices that are listed with the FDA.

Under existing FDA regulations, a device intended for use exclusively in veterinary medicine must be labeled as such and is not subject to several pre-market and post-market provisions of the FFDCA, including the listing requirement. Therefore, under the proposed regulations, devices intended for use exclusively in veterinary medicine are not “taxable medical devices.”

For more information on the FDA’s regulation of medical devices, visit the “Medical Devices” section of the FDA website.

Q: Are there devices used in both human and veterinary medicine?
A: There are many devices that are approved and labeled for use on human patients that are also appropriate for use in veterinary patients.   Common examples include IV fluid pumps, endoscopes and cardiac monitors. Because of the many similarities between human and animal patients, the devices are suitable for use in more than one species, even if they aren’t specifically labeled as such.

Approved devices labeled for human medical use will be subject to the new tax, as will devices labeled for human medical and veterinary use. Devices labeled and approved only for veterinary use will not be subject to the 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.  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.

Q: Will this tax affect medical devices purchased as used or secondhand devices?
A: The regulations are not very clear about this, so we aren't sure at this time whether or not the tax will affect the purchase of used equipement. If the equipment is reconditioned by the manufacturer, it appears that it will be subject to the tax when purchased as a reconditioned/refurbished device. If it is purchased secondhand from a hospital or another veterinary practice, we're not yet sure. We are checking into this, and will update this FAQ when we have an answer.

Q: What is the extent of the tax impact on veterinary medical devices?
A: The degree of the impact on veterinary medical devices remains to be seen, but it’s reasonable to believe that the tax could increase the cost of providing veterinary medical care. Whether or not the increased costs associated with taxed medical device purchases will be passed on to veterinary clients will be determined on an individual basis by veterinary practices. The veterinary profession is aware that the affordability of care is already of concern to animal owners, and this is a consideration whenever pricing decisions are made.

It is also possible that the tax will impact veterinarian’s decisions when choosing new devices or deciding whether or not they will make a medical device purchase.

The AVMA cannot speculate on the impact of this tax on the production or marketing decisions made by the manufacturers of medical devices.

Q: Will costs go up for pet owners due to the new tax?
A: If a veterinarian or veterinary hospital buys a device that is listed by the FDA and is “intended for humans” for use in their hospitals, then the device will be subject to the tax.  What would happen would purely be speculation, but if the costs of the device go up because of the excise tax, the veterinarian would have to absorb those costs, or charge more to make up for the increased costs of the medical device, hence increasing the costs to the pet owner.
Q: Will the higher cost of care result in more people not seeking medical care for their animals?
A: We do not know if the additional costs associated with the tax will be passed on to pet owners. Nor do we know how much would be passed on if a veterinarian buys a device that is subject to the tax. We certainly hope that any increases in costs associated with the excise tax do not keep people from seeking appropriate medical care for their pets and making regular visits to their veterinarian.