Medical device tax: Projection shortfall or error?
This week the Treasury Inspector General for Tax Administration (TIGTA), the federal office that acts as watchdog to the IRS, issued a report stating that the revenue generated by the medical device tax fell seriously short of expectations, generating $913.4 million in Q2 and Q3 2013 versus the anticipated $1.2 billion. The revenue from this tax is earmarked to pay for healthcare insurance expansion under the Affordable Care Act.
Furthermore, TIGTA points out that the agency has no way of knowing which manufacturers, producers and importers are liable for the tax, leaving them with no way of going after tax evaders. (Here comes another IRS form for providers to match the vendor’s Form 720.)
I can’t help but wonder what data the government’s revenue projections were based upon. Was it the historical data the Joint Commission on Taxation likely used when the ACA was written, projecting the $20 billion in revenue that would be generated to help finance healthcare reform?
Basing projections on historical data from the medical imaging industry would likely result in a projection error, as medical imaging technology sales have been flat and prices have deflated.
Earlier this week, the Wall Street Journal reported on a billion dollar projection error that cost Walgreen’s CFO and pharmacy unit heads their jobs. Prices the pharmacy unit negotiated with Medicare apparently did not take into account the probability of price increases from pharmaceutical companies for many generic drugs.
Attention, healthcare providers: Proceed with caution into risk assumption contracts with CMS and other government payors.
After the price increases were recognized, the CFO cut Walgreens 2016 pharmacy unit revenue projection from $8.4 billion to $7.3 billion on July 7. The announcement that the two executives had been replaced initiated a stock slide that went into a 14% free fall a few days later when the company announced it would not take its headquarters offshore following the acquisition of the European drugstore chain Alliance Boots GmbH.
Perhaps the government should take a closer look at its projection data before flying into a tizzy over whether medical-device vendors knowingly are avoiding the medical device tax. We know that sagging sales in the medical imaging industry have caused layoffs in the United State. The last thing the government wants to do is to discourage “corporate patriotism” and send those vendors that have the option out of the country.
Vice President, Executive Editor, Radiology Business
Cheryl began her career in journalism when Wite-Out was a relatively new technology. During the past 16 years, she has covered radiology and followed developments in healthcare policy. She holds a BA in History from the University of Delaware and likes nothing better than a good story, well told.