HIDA | Congress Proposes Annual Tax on Distributors

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Congress Proposes Annual Tax on Distributors HIDA Members Act Now!

The House of Representatives has included a 2.5% federal excise tax on medical products distributors within healthcare reform legislation. The Affordable Health Care for America Act (H.R. 3962) adopted a Senate proposal for a medical device tax, but applies the fee annually on distributors by taxing at the point of sale of products to providers. HIDA strongly opposes this tax and we urge all members to contact their members of Congress as soon as possible - votes on this language may take place as early as next week.

The core arguments against this tax structure are: 1) a healthcare distribution industry earning 1.3% annual profits cannot pay a 2.5% annual tax 2) distributors should not bear the burden of a tax intended to be levied on manufacturers and 3) the tax burden will inevitably shift to hospitals and doctors

HIDA is proactively meeting with key committees to advocate against the tax, coordinating with members who have existing Congressional relationships, and sending letters to targeted leadership offices. Most importantly, HIDA members must contact Congress (both in the Senate and House of Representatives) and urge them to advocate for a manufacturer tax structure that doesn't "pass" the tax burden along to distributors and providers.

Thank you for your involvement and support. If you have any questions. please contact Andrew E. Van Ostrand, Vice President of Policy & Research at vanostrand@hida.org.

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On behalf of (INSERT COMPANY NAME), I am writing to you with deep concerns regarding Congress’s proposed implementation of the Medical Device Manufacturer Tax within H.R. 3962, the Affordable Health Care for America Act. (INSERT COMPANY NAME) is a member of the Health Industry Distributors Association (HIDA), the professional trade association representing medical and surgical products distributors. HIDA and its 180 member companies broadly support the key principles of healthcare reform and believe those goals are best served by an efficient, safe medical products supply chain.

As you may know, the Affordable Health Care for America Act (H.R. 3962) proposes a 2.5% annual tax on medical device manufacturers, which to be collected at the "point of sale" by healthcare distributors. Distributor companies like mine have the following critical concerns:

1. An industry earning 1.3% annual profits cannot pay a 2.5% annual tax
The overwhelming majority of products providers purchase from distributors are low cost, low profit margin supplies. These supplies are the “essentials” required for the delivery of basic medical care and include items such as gauze, bed pans, tongue depressors, and syringes. Distributors cannot pay this tax.

2. Distributors should not bear the burden of a tax intended to be levied on manufacturers
As proposed, it is guaranteed that someone other than a medical device manufacturer will pay taxes on one-half of all product purchases. Fifty percent of all medical products reach providers via a medical products distributor; the remaining 50% are bought directly from the manufacturer. Administering the tax at the point of purchase will mean that taxes on half of all products will be collected by distributors and paid for by healthcare providers.

3. Shifting the Tax Burden to Providers
Taxing distributors when they sell a product to providers will inevitably shift the burden of the tax to hospitals and doctors. With extremely low overhead and yearly average profit margins of 1.3%, distributors will be forced to pass the cost of the sales tax to their provider customers. This “passes” the tax to providers who are under considerable economic pressure. This runs counter to many of the goals of healthcare reform efforts.

Congress has identified certain parts of the healthcare market which will benefit from increased healthcare spending and utilization-- sectors which have significantly higher profit margins than distributors. If such a tax is allowed to be spread throughout the healthcare channel, it will be paid for by relatively less profitable sectors of the healthcare economy – distributors and healthcare providers. The inevitable result will be higher prices for both providers and patients.

Thank you for your consideration of my concerns. If you have any questions about my business or would like to discuss this with me further, please contact me.

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Thank you for your consideration of my concerns. If you have any questions about my business or would like to discuss this with me further, please contact me.

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