Complying with the New Medical Device Tax

Though the Patient Protection and Affordable Care Act (PPACA) was enacted nearly three years ago, some controversial provisions have only recently garnered public attention. One such provision, an excise tax on medical devices, went into effect on January 1.

The medical device tax imposes a 2.3% tax on the sale of medical devices, where “taxable medical device” is defined by the FDA in section 201(h) of the Federal Food, Drug and Cosmetic Act, but excludes eyeglasses, contact lenses, hearing aids, and some other devices under the retail exception. The FDA defines medical devices as instruments used to diagnose, mitigate, cure, treat or prevent disease in humans or animals or devices that affect the structure or function of humans or animals. This results in a broad swath of devices subject to taxation from heart implant products and general hospital equipment to tongue depressors. The Obama administration advocates the increased cost to manufacturers is offset by the influx of millions of new healthcare customers. The tax is expected to generate $29 billion in tax revenue over the next 10 years.