Healthcare Reform which was enacted March 30, 2010, ushered in several new revenue raising provisions to partially offset the cost of broadening healthcare coverage in the United States. One of these provisions is the medical device excise tax law which went into effect on January 1, 2013.
Section 4191 of the Internal Revenue Code imposes an excise tax on the sale of certain medical devices by manufacturers and/or importers. This tax amounts to 2.3 percent of the gross sale price of the device revenue for not-for profit organizations and must be filed and paid in quarterly Federal Excise Tax Returns. For an industry with over 2 million+ highly skilled workers, the $1 Billion dollars in collected tax to date is clearly diminishing profits and hurting investments previously recognized as secure. This is producing a bit of an uproar in finance and accounting departments.
We’re here to tell you that it doesn’t have to be as difficult as it sounds. Leveraging collaboration through BPO partnerships helps take some of the complications out of the matter by understanding the regulation, its impact and the fine details, minimizing the impact on working capital.
In anticipation of the tax, most companies within DME are working to update their finance and accounting systems to take into consideration the tax obligation and are evaluating any exceptions or business changes that may impact the tax. Financial systems need to be enabled to deliver accurate and timely compliance and understand the impact to business operations. Projections are one thing, but are they spot on? Was analysis performed to understand how this change will impact forecasting? It’s also important to ensure you are able to recover the cost of any added infrastructure, new IT solutions and being able to optimize cash flow and capital does exactly that.
Being able to initially analyze your product portfolio, revenues and customers will help to better understand what devices are taxable, who the end users are and the intended use of the product so that you can accurately estimate and therefore determine, what the true price should be for the product and to continue profitability plans.
In addition to analysis and system updates, comes the complexity of recording and reporting to ensure you’re in compliance with the regulations. This requires more oversight and controls from a compliance perspective but also requires more diligence in operations – from taking the order to accruing revenue.
Are there ways to mitigate the tax? In some cases, the answer is yes. We believe that determining how the tax will be applied – to some or all of the products including samples, demonstration products, evaluations and loaners – is key.
The tax may not be the only provision to slice into profits, but the need for additional resources across F&A becomes another issue burdening business with more expenses. With the availability of technology just like any particular process, the need for manual intervention will be removed. This may take time but for some but others utilizing a BPO strategy today, the expertise and enablement is already leveraged. Business process outsourcing and technology solutions can make this entire new process seamless and can help you ensure you are being diligent in optimizing your working capital while ensuring proper governance and compliance.