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Final Rule Paves Way for Exemption of Home Respiratory Technologies

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December 13, 2012

Comments from AARC and others within the medical device industry seem to have swayed the Internal Revenue Service to make numerous changes in the final rule that make it easier to exempt many home oxygen therapy technologies and other respiratory care devices and accessories from an excise tax scheduled to go into effect by the Affordable Care Act.

The IRS/Treasury recently issued final rules that outline policies device manufacturers must follow to determine whether they are subject to a 2.3 percent medical device tax on gross revenues from sales made after December 31, 2012 as required by the Act.  The law requires the tax to be applied to devices that are intended for use in an institution or office by medical personnel.  However, devices that are generally purchased at retail for individual use by consumers who are not medical professionals and who can safely and effectively use the device with little or no training from medical personnel are not subject to the tax under a “retail exemption” provision.

When the tax rules were first proposed, AARC had strong concerns that many of respiratory devices would be subject to the excise tax because they were part of the FDA’s “Anesthesiology” classification and therefore excluded from any exemption under the law.   Further, AARC supported a bill that was subsequently introduced in Congress that would repeal the tax altogether over concerns that such a tax could have adverse long-term effects on manufacturers that develop technologies to assist patients with a variety of pulmonary diseases. 

The final rules apply a “facts and circumstances” decision tree that is used for evaluating whether a device is of a type generally purchased by the general public at retail for individual use.  Numerous examples are provided to illustrate how the policy works with portable oxygen concentrators highlighted as an example.  When taking the facts and circumstances in their totality into consideration, the conclusion is that these devices meet the requirements of the “retail exemption.” 

“We believe many other types of respiratory devices when put to the ‘test’ would also be exempt,” says Anne Marie Hummel, AARC’s director of regulatory affairs.