- An internal audit by the Treasury's inspector general for tax administration has found that thousands of companies are not paying the Affordable Care Act's medical device tax, leading to a big shortfall in revenues from the tax.
- The IRS had expected about $1.2 billion in device tax revenues during the first six months of 2013—but the audit found the agency had collected just $913 million, a shortfall of 24%.
- It is unclear how many of the companies are purposefully ignoring the tax and how many are simply unaware that they are supposed to pay it.
Obamacare's 2.3% excise tax on all medical devices—other than consumer products such as eyeglasses and prosthetics—is a significant funding mechanism for the healthcare law. But biotech and medical device makers have long trashed the tax, calling it a blunt tool that causes confusion and saps financial resources. Lawmakers from both sides of the aisle have also expressed concerns about the tax.
"We've expressed concerns from the outset that the device tax is poorly conceived, applying an excise tax—usually reserved for rubber tires, alcohol and tobacco—to an extremely diverse high-technology manufacturing industry," said J.C. Scott, head of government affairs for medical device trade group giant AdvaMed, in a statement to Modern Healthcare.
The auditors have told the IRS to craft a better education campaign for medical device companies that may be unaware that they owe the tax, step up policing of firms that are outright ignoring it, and create less confusing tax forms in order to bolster compliance.