Dental Trade Alliance
Governmental Relations Committee

Background: Medical Device Tax
There are over 2000 companies in the US that manufacture and supply products and services to oral health professionals. Sales in the industry total almost $7 billion dollars. The total number of employees is over 39,000.

While we are a small portion of the total expenditure for health, the importance of good oral health is increasing as more and more studies show a link between oral health and health in the rest of the body. Both cardiovascular disease and low birth weight infants are linked to oral disease.

Because of this we are concerned that any increase in the cost of dental care resulting from the added tax will affect access to oral care.

The original legislation drafted for health reform included coverage for oral health. Unfortunately, because of the cost of providing this care the coverage was dropped except for limited coverage for children.

As you know, many tax mechanisms were used in the law to pay for extended health coverage. One of these is a tax on medical devices. The tax applied to all classes of medical devices including dental devices. During the debate, DTA, along with other groups were successful in convincing the Senate to exclude Class I devices from the tax. The Class I device category covers many, but not all dental supplies. Unfortunately, at the eleventh hour, this provision was reversed such that law now requires a tax on essentially all medical devices, whether they support procedures covered in the legislation or not, such as dental. There were other devices specifically excluded from the law such as hearing aids and eye glasses.

Effect of the tax:
The Congress and the Department of Health and Human Services (HHS) continues to collect data on the implementation of the law. We have collected information from government and government funded sources to provide a prediction of the impact the law will have on the dental industry. To the best of our knowledge these figures are accurate based on data available at this time.

HHS reports in “National Health Expenditures” published by the Centers for Medicare and Medicaid, Office of the Actuary in January 2009 that the law provides expanded Medicaid coverage for 18 million individuals. One third of these are children, therefore approximately 6 million additional children will become eligible for oral healthcare services under the new law. There are currently 5.1 million eligible children under Medicaid. The law also provides that any insurance provided by the ‘exchanges’ must include pediatric dental care. It is difficult to estimate how many children this will add. It is likely that many of these children are receiving care on a private pay basis. At the present time we are not aware of any estimate of the number of children that may be eligible under these plans.

In a collaboration of the Pew Center on the States, the DentaQuest Foundation and the W.K. Kellogg Foundation Medicaid utilization rates for eligible children was studied. It determined that the national utilization rate among children eligible for Medicaid dental services is about 25 percent. Based on CMS Office of Actuary numbers on the average amount of care provided to an eligible child, this means that the total amount of care added would be about $330 million.

The industry share of the $330 million is about $20 million, using practice management statistics on the ratio of supplies and equipment to total practice revenue from the American Dental Association survey on Dental Practice. We believe that translates to about $2 million dollars of pretax profit. The device tax on dental devices would generate approximately $159 million of tax. The HHS office of actuary numbers for total dental expenditures in the US are projected to the current year from 2007 (last data they have compiled). They project the dental market to be $106 billion in 2011. If we use the number most often assumed by ADA, consultants, and SDM that 10 percent of the total dental expenditure is supplies and equipment, then our estimate of the market for tax purposes would be $10.6 billion. If we assume 65 percent of that number would be wholesale then the taxable amount would be $6.9 billion. That would put the tax at $159 million.

These figures show that the tax is totally disproportionate to the revenues and profits generated by the dental device market from the legislation. In fact, the tax will be almost 70 times the benefit to the industry.

Following is the text of the tax provision:
‘‘SEC. 4191. MEDICAL DEVICES.
‘‘(a) IN GENERAL.—There is hereby imposed on the sale of
any taxable medical device by the manufacturer, producer, or
importer a tax equal to 2.3 percent of the price for which so
sold.
‘‘(b) TAXABLE MEDICAL DEVICE.—For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘taxable medical device’ means
any device (as defined in section 201(h) of the Federal Food,
Drug, and Cosmetic Act) intended for humans.
‘‘(2) EXEMPTIONS.—Such term shall not include—
‘‘(A) eyeglasses,
‘‘(B) contact lenses,
‘‘(C) hearing aids, and
‘‘(D) any other medical device determined by the Secretary
to be of a type which is generally purchased by
the general public at retail for individual use.’’, and
(2) by inserting after the item relating to subchapter D
in the table of subchapters for such chapter the following new
item:
‘‘SUBCHAPTER E. MEDICAL DEVICES’’.
(b) CERTAIN EXEMPTIONS NOT TO APPLY.—
(1) Section 4221(a) of the Internal Revenue Code of 1986
is amended by adding at the end the following new sentence:
‘‘In the case of the tax imposed by section 4191, paragraphs
(3), (4), (5), and (6) shall not apply.’’.
(2) Section 6416(b)(2) of such Code is amended by adding
at the end the following: ‘‘In the case of the tax imposed
by section 4191, subparagraphs (B), (C), (D), and (E) shall
not apply.’’.
(c) EFFECTIVE DATE.—The amendments made by this section
shall apply to sales after December 31, 2012.
(d) REPEAL OF SECTION 9009 OF THE PATIENT PROTECTION
AND AFFORDABLE CARE ACT.—Section 9009 of the Patient Protection
and Affordable Care Act, as amended by section 10904 of such
Act, is repealed effective as of the date of enactment of that Act.

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