Congressional Hearings

There have been many Congressional health policy hearings recently, with more scheduled. Highlights include the following:

  • House Ways and Means Committee. Recent hearings have examined traditional Medicare’s benefit design and tax-related provisions in the ACA, and on March 15, the Health Subcommittee is holding a hearing on the Medicare Payment Advisory Commission's annual March Report to the Congress.
  • House Energy and Commerce Committee. The Health Subcommittee has reviewed innovative ways to fight health care fraud and abuse, and the panel has scheduled hearings on the impact of the ACA on jobs (March 13) and health insurance premiums (March 15). A March 18 hearing will focus on “Saving Seniors and Our Most Vulnerable Citizens from an Entitlement Crisis.”
  • Senate Hearings. The Finance Committee held a hearing on the status of CMS delivery reform efforts. A Health, Education, Labor and Pensions Committee hearing examined animal drug user fees. The Commerce Committee has reviewed transparency in the individual health insurance market. An Aging Committee hearing focused on ways to strengthen Medicare.

IRS Issues Regulations to Implement ACA Medical Device Tax

This post was written by Ruth N. Holzman, Angelo Ciavarella, and Debra A. McCurdy.

On December 7, 2012, the IRS published final regulations that provide guidance on the 2.3% excise tax imposed on any sale occurring after December 31, 2012, of any “taxable medical device” by the manufacturer, producer or importer of such device (such tax enacted as part of the Affordable Care Act (ACA)). A “taxable medical device” is any device (as defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act (FFDCA)) that is intended for humans, excluding eyeglasses, contact lenses, hearing aids, and any other medical device of a type that is generally purchased by the general public at retail for individual use. The final regulations set forth the IRS’s interpretation of key elements of the excise tax, including the retail exemption, as discussed after the jump. 

The final regulations provide that a device defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act that is intended for humans means a device that is listed as a medical device with the Food and Drug Administration (FDA) under section 510(j) of the FFDCA and 21 CFR part 807, pursuant to FDA requirements (or devices that should have been so listed). This definition generally follows the approach taken in the proposed regulations. Furthermore, the final regulations generally provide that a device is considered to be of a type generally purchased by the general public at retail for individual use if: (i) the device is regularly available for purchase and use by individual consumers who are not medical professionals, and (ii) the device’s design demonstrates that it is not primarily intended for use in a medical institution or office, or by medical professionals. The regulations provide a set of non-exclusive factors for use in evaluating whether a taxable medical device qualifies for the retail exemption, as well as a safe harbor provision identifying certain categories of taxable medical devices determined to fall within the retail exemption. The final safe harbor includes: (1) devices that are identified in the FDA’s IVD Home Use Lab Tests (over-the-counter, or OTC, tests) database; (2) devices described as OTC devices in the relevant FDA classification regulation heading; (3) devices that are described as OTC devices in the FDA’s product code name, device classification name, or the classification name field in the FDA’s device registration and listing database; and (4) certain devices that qualify as durable medical equipment (DME), prosthetics, orthotics and supplies (DMEPOS) for which payment is available on a purchase basis under Medicare Part B payment rules in accordance with the fee schedule published by the Centers for Medicare & Medicaid Services (CMS). Devices that qualify as DMEPOS include: (a) prosthetic and orthotic devices as defined in 42 CFR 414.202, that do not require implantation or insertion by a medical professional; (b) parenteral and enteral nutrients, equipment, and supplies as defined in 42 CFR 411.351 and described in 42 CFR 414.102(b);(c) customized items, as described in 42 CFR 414.224; (d) therapeutic shoes as described in 42 CFR 414.228(c); or (e) supplies necessary for the effective use of DME, as described in section 110.3 of chapter 15 of the Medicare Benefit Policy Manual.

The preamble to the regulations also addresses the application of the excise tax to certain specific circumstances, including dual use devices, humanitarian use devices, veterinary devices, and dental instruments. Existing rules governing manufacturer excise taxes, including exemptions for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by the second purchaser for further manufacture, and for export, generally will apply to this excise tax, subject to certain exceptions. The preamble to the regulations discusses how these general rules will be applied to medical devices, including guidance on the meaning of manufacturer, importer and sale price. The IRS also addresses in the preamble a number of other issues raised by public comments, including interaction with the ACA’s branded prescription drug (BPD) fee. The IRS notes that there is no statutory basis for providing an exclusion from the device tax for a combination product with both a device and drug component, even if the combination product is taken into account for purposes of computing the BPD fee. Other specific areas addressed include classification of “convenience kits,” associated devices and components of devices, and medical software. The IRS has posed a frequently-asked questions document and other guidance on its web page.

 

IRS Issues Notice on ACA Branded Prescription Drug Fee Parameters for 2013

The IRS has issued Notice 2012-74, which provides guidance on the ACA branded prescription drug (BPD) fee for the 2013 fee year. Specifically, the guidance addresses: (1) the submission of Form 8947, “Report of Branded Prescription Drug Information,” (2) the time and manner for notifying covered entities of their preliminary fee calculation, (3) the time and manner for submitting error reports for the dispute resolution process, and (4) the time for notifying covered entities of their final fee calculation.

Jumping Off The 'Fiscal Cliff'? What Can Happen When Congress Returns?

This post was written by Christopher L. Rissetto and Robert Helland.

With all attention now focused on the campaign for control of Congress and the Presidency, it might be easy to forget that the 112th Congress is still in session and returns to work in September. When Congress does return, a number of important decisions affecting health care and energy policy, among other areas, remain to be considered. Added to this list of issues is the threat that the economy could fall back into a recession, or as some put it – fall off a "Fiscal Cliff" – should Congress fail to stop the tax hikes and spending cuts currently set to take effect January 2, 2013. All of this promises a busy agenda for the next few months, likely stretching into a Lame Duck Session of Congress after the November elections.

Sequestration and Tax Increases: A recipe for recession?

The biggest question is whether Congress will allow the automatic spending cut process it set in motion under the Budget Control Act (Public Law 112-35, “Act”), known as "sequestration," to proceed. This is just the latest in a series of recent steps under the Act to reduce the federal debt. The first step involved a spending cut of $900 million that only came after the threat of government shutdowns that resulted in the government's credit rating falling for the first time. The second step involved the so-called congressional "Super Committee," which was unable to find $1.2 trillion in additional spending cuts. Now those $1.2 trillion in spending cuts will begin to take effect automatically over the next 10 years, with the first installment of $109 billion taking effect January 2, 2013. It will be distributed equally between most defense and non-defense programs, with only a few spared the budget ax (including Social Security and Medicaid). Cuts to Medicare are limited to 2 percent a year. More specifics are expected soon as Congress has passed – and the President signed – the Sequestration Transparency Act of 2012, which requires the Obama Administration to report to Congress as to how it will administer the cuts (Public Law 112-155).

Next in importance is whether Congress will allow a series of tax cuts to expire at the end of the year, as currently scheduled. The expiring tax cuts include the reduction in income, capital gains, estate and gift taxes found in the “Bush Tax Cuts.” Other tax cuts set to expire include the recently enacted 2 percent Social Security payroll tax cut.

In addition, other fiscal measures will need to be decided before the end of the year, including whether to extend unemployment benefits for the long-term unemployed and whether to adjust Medicare’s rates so that physician payments are not cut (the so-called “doc fix”).

If Congress does nothing and allows all spending and tax measures to expire, the non-partisan Congressional Budget Office forecasts the United States economy will fall back into a recession as a result, “with real [Gross Domestic Product] declining by 0.5 percent between the fourth quarter of 2012 and the fourth quarter of 2013 and the unemployment rate rising to about 9 percent in the second half of calendar year 2013” (www.cbo.gov).

Would there be a 'Grand Compromise' and what could it include?

Already, posturing by both parties has begun, to avoid any jumping off that Fiscal Cliff. The posturing includes legislation passed in the House of Representatives that would shift cuts in defense spending to domestic programs (H.R. 5652, the Sequester Replacement Reconciliation Act of 2012). Posturing actions also include legislation passed in the Senate that would limit income tax cut reductions to households making $250,000 or less (S. 3412, the Middle Class Tax Cut Act).

Neither of these bills passed their respective chamber with bipartisan support. But the pressure to compromise will build as Congress gets closer to the edge of the Fiscal Cliff. We expect to see movement on the need to compromise likely, building to a resolution either during a Lame Duck session of Congress or when a new Congress convenes in January. Other spending measures likely to be caught up in this include:

The budget for Fiscal Year 2013 (“FY 13”).  Progress on the 12 spending bills needed to fund the federal government for the next fiscal year has slowed to a stop. This outcome is due entirely to the broader sequestration debate. As a result, Senate Majority Leader Reid (D-NV) announced on July 31 a deal with Speaker of the House John Boehner (R-OH-8) on a six-month continuing resolution (“CR”) that will fund the government through May 31, 2013 (www.dpcc.senate.gov).

Spending for the Patient Protection and Affordable Care Act.  The “power of the purse” is one way, besides outright repeal, that Republicans can limit the effects of the Patient Protection and Affordable Care Act (Public Law 111-148). While the Senate Appropriations Committee has passed appropriations legislation that provides full funding for FY 13, the Sequester Replacement Reconciliation Act of 2012, passed in the House, would not.

Energy policy.  Whether the federal government should be funding efforts that promote the development of renewable energy has been debated in the House of Representatives. On August 1, the House Energy and Commerce Committee passed legislation that would effectively end the Department of Energy’s loan guarantee program by prohibiting any new applications; other congressional reviews are ongoing. Beyond this prohibitory action, however, a number of tax credits are in place that also fund the development of renewable energy and are set to expire at the end of the fiscal year, unless renewed. Notably, the Senate Finance Committee passed a one-year “tax extenders” bill on August 2 and included only an extension in the wind energy tax credit in a package that included tax relief from the alternate minimum tax, as well an extension of the research and development tax credit given to businesses (www.finance.senate.gov).

Considerations

The timing and elements of a final decision on all of these policy, spending and taxation issues will be essentially affected by who wins the White House and Congress in November. But the Federal Government must operate, so decisions must, and will, be made regarding these policy and budget issues. Careful monitoring of upcoming activities may suggest beneficial future strategies.

Please contact the Reed Smith Public Policy & Infrastructure practice, or the attorney with whom you regularly work, if you have any questions regarding this Client Alert.
 

Congressional Panels Schedule Hearings on ACA Issues (Tax Policy, Physician/Economic Impact)

On July 10, 2012, the House Ways and Means Committee will hold a hearing on the implications of the Supreme Court's ruling that the individual mandate in the Affordable Care Act (ACA) is constitutional, particularly as it relates to Congress' authority to lay and collect new taxes. Also on July 10, the House Oversight and Government Reform Committee is holding separate hearings on the impact of the ACA on doctors and patients, and on job creators and the economy.

House Approves ACA Device Tax Repeal Bill in Face of Veto Threat

This post was written by Ruth N. Holzman, Angelo Ciavarella and Debra A. McCurdy.

Yesterday the House approved by a vote of 270-146 legislation to repeal the ACA’s controversial 2.3% excise tax on the sale price of certain medical devices, which is scheduled to apply to sales after December 31, 2012. The repeal provision is included in H.R. 436, the Health Care Cost Reduction Act of 2012, which also would: repeal ACA provisions that disqualify expenses for over-the-counter medicine under certain health savings arrangements; allow employees with health flexible savings arrangements funded through salary deductions to “cash out” any remaining balance at year-end (up to $500), and treat such funds as taxable compensation; and require individuals who receive ACA health insurance exchange subsidies to which they are not entitled to repay the full amount of overpayments. The bill now moves to the Senate, where its fate is uncertain, particularly since the Administration has threatened to veto the bill. According to the Administration, the medical device industry will benefit from expanded health insurance coverage under the ACA, and a repeal would “fund tax breaks for industry by raising taxes on middle-class and low-income families.”

House Panel Takes Up ACA Medical Device Tax Repeal, Other Health Tax Policy Bills

On May 31, the House Ways and Means Committee will mark up H.R. 436, the Protect Medical Innovation Act of 2011, which would repeal the ACA’s 2.3% excise tax on the sale price of medical devices sold by the manufacturer, producer, or importer of the device after December 31, 2012.  House Majority Leader Eric Cantor announced May 25, 2012 that the full House could vote on H.R. 436 as early as the week of June 4, 2012. In addition to the device tax bill, the Ways and Means Committee will consider:

  • H.R. 5842, which would repeal ACA provisions that disqualify expenses for over-the-counter medicine under health savings accounts (HSAs), Archer medical savings accounts, health flexible spending arrangements (FSAs), and health reimbursement arrangements;
  • H.R. 1004, which would allow allowing any funds remaining in a medical FSA at the end of a plan year to be distributed to the employee; and
  • H.R. 5858, which would change the tax treatment of HSA distributions for certain early retirees.

House Leaders Plan June Vote on ACA Medical Device Tax Repeal

This post was written by Debra A. McCurdyRuth N. Holzman, and Angelo Ciavarella

A vote on legislation to repeal the ACA’s medical device excise tax could come in June, House Majority Leader Eric Cantor announced today.  The ACA imposes a 2.3% excise tax on the sale price of medical devices sold by the manufacturer, producer, or importer of the device after December 31, 2012. Citing the negative impact of this “draconian tax” on jobs in the medical device industry, Cantor plans a vote on H.R. 436, which would repeal the medical device tax, as early as the week of June 4, 2012. The bill would then await Senate action.

IRS Notice on ACA Insurance Plans Fees to Fund Patient-Centered Outcomes Research Trust Fund

On April 17, 2012, the Internal Revenue Service (IRS) published proposed regulations that implement and provide guidance on an ACA provision imposing fees on issuers of certain health insurance policies and plan sponsors of certain self-insured health plans to fund the Patient-Centered Outcomes Research Trust Fund. The Trust Fund supports the Patient-Centered Outcomes Research Institute (PCORI), which is intended to assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing clinical effectiveness research. The fees, which will be based on the average number of lives covered under the policy for the year and the applicable dollar amount in effect for the policy year, will apply to policy and plan years ending on or after October 1, 2012, and before October 1, 2019. Comments on the proposed regulations will be accepted until July 16, 2012. The IRS also is holding an August 8, 2012 public hearing on these proposed regulations.

IRS Proposes Regulations to Implement ACA Medical Device Tax

This post was written by Ruth N. Holzman, Angelo CiavarellaJennifer A. Goldstein and Debra A. McCurdy.

On February 7, 2012, the Internal Revenue Service (IRS) published proposed regulations to implement the Affordable Care Act’s (ACA) 2.3% excise tax on the sale price of medical devices sold by the manufacturer, producer, or importer of the device after December 31, 2012. The ACA defines a taxable medical device as any device (as defined in section 201(h) of the Federal Food, Drug, and Cosmetic Act) that is intended for humans and is listed as a medical device with FDA (or should have been listed) by a registered medical device establishment excluding eyeglasses, contact lenses, hearing aids, and any other medical device of a type that is generally purchased by the general public at retail for individual use. The proposed regulations set forth the IRS’s interpretation of key elements of the excise tax, including the retail exemption.

Additional details are available after the jump.

In brief, under the proposed regulations, a device is considered to be of a type generally purchased by the general public at retail for individual use if: (i) the device is regularly available for purchase and use by individual consumers who are not medical professionals, and (ii) the device’s design demonstrates that it is not primarily intended for use in a medical institution or office, or by medical professionals. The proposed regulations provide a set of non-exclusive factors for use in evaluating whether a taxable medical device qualifies for the retail exemption, as well as a safe harbor provision identifying certain categories of taxable medical devices determined to fall within the retail exemption. The safe harbor includes: (1) devices that are identified in the FDA’s IVD Home Use Lab Tests (over-the-counter, or OTC, tests) database; (2) devices described as OTC devices in the relevant FDA classification regulation heading; (3) devices that are described as OTC devices in the FDA’s product code name, device classification name, or the classification name field in the FDA’s device registration and listing database; and (4) certain devices that qualify as durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) for which payment is available on a purchase basis under Medicare Part B payment rules in accordance with the fee schedule published by the Centers for Medicare & Medicaid Services (CMS).

The preamble to the proposed regulations also addresses the application of the excise tax to certain specific circumstances, including dual use devices, investigational devices, veterinary devices, and dental instruments. Existing rules governing manufacturer excise taxes, including exemptions for use by the purchaser for further manufacture, or for resale by the purchaser to a second purchaser for use by the second purchaser for further manufacture; and for export, generally will apply to this excise tax, subject to certain exceptions. The preamble to the proposed regulations discusses how these general rules will be applied to medical devices, including guidance on the meaning of manufacturer, importer, taxable event, and sales price. The IRS also addresses in the preamble a number of other issues raised by public comments submitted prior to the rulemaking, including classification of “convenience kits,” associated devices and components of devices, combination products, and medical software. Comments will be accepted until May 7, 2012. The notice of proposed rulemaking also includes a notice of a public hearing on the proposed regulations to be held on May 16, 2012.

 

President Signs Bill to Repeal 3% Government Payment Tax Withholding Provision, Revise Medicaid Eligibility Standard

On November 21, 2011, President Obama signed into law of H.R. 674, which repeals a requirement scheduled to take effect in 2013 that the government withhold 3% of certain payments made to private contractors – including Medicare providers -- as a credit against the contractor’s income tax. The law also amends the Affordable Care Act’s (ACA) definition of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs. Specifically, the law tightens Medicaid eligibility standards by providing that modified adjusted gross income includes both taxable and non-taxable Social Security benefits to align the definition with other federal subsidy programs.

Congressional Health Policy Hearings

The Senate Health, Education, Labor, and Pensions Committee recently held a hearing on “Medical Devices: Protecting Patients and Promoting Innovation” (a Reed Smith write-up of the hearing is available here). In addition, a recent House Ways and Means Oversight Subcommittee hearing focused on the ACA’s small business health insurance tax credit. Two hearings are scheduled for November 30: a Senate Special Committee on Aging hearing entitled “Overprescribed: The Human and Taxpayers' Costs of Antipsychotics in Nursing Homes” and a House Oversight and Government Reform Health Care Subcommittee hearing on “Drug Shortage Crisis: Lives Are In The Balance.” The Senate Judiciary Antitrust Subcommittee also is holding a hearing on December 6 to examine the proposed Express Scripts/Medco merger, and the Senate Aging Committee is holding a hearing December 15 entitled “Parting the Clouds: Implementing the Physician Payment Sunshine Act” (this hearing originally was scheduled for Dec. 8). 

Senate Approves Legislation to Repeal Government Payment Tax Withholding Provision,Reform Medicaid Eligibility Standard

On November 10, 2011, the Senate approved an amended version of H.R. 674, which would repeal a requirement that the government withhold 3% of certain payments made to private contractors – including Medicare providers -- as a credit against the contractor’s income tax. This requirement currently is scheduled to take effect on January 1, 2013. The House of Representatives had approved its version of the repeal bill in October. Before passage, the Senate added language from another House-approved bill (H.R. 2576) to modify the ACA’s definition of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs. The Congressional Budget Office has estimated that this change would save $13 billion over ten years, primarily by tightening Medicaid eligibility standards. Specifically, the legislation would provide that modified adjusted gross income includes both taxable and non-taxable Social Security benefits to align the definition with other federal subsidy programs. Beginning in 2014, this income definition would be used to determine financial eligibility for Medicaid and the State Children’s Health Insurance Program, and for premium tax credits and cost-sharing reductions available through Affordable Insurance Exchanges. The Senate also amended H.R. 674 to add tax credits for hiring unemployed veterans. The Senate-approved bill is expected to be considered by the House later this month.

Congressional Health Policy Hearings & Markups

A number of Congressional committees have held hearings recently on health policy issues, including the following:

A number of additional hearings and markups have been scheduled, including:

House Clears Bills on Government Payment Tax Withholding, Medicaid Eligibility Standard

On October 27, 2011, the House of Representatives approved H.R. 674, which would repeal a provision scheduled to take effect on January 1, 2013 requiring the government to withhold 3% of certain payments made to private contractors – including Medicare providers -- as a credit against the contractor’s income tax. The bill was approved on a 405-16 vote. Also on October 27, the House passed H.R. 2576, to modify the ACA’s definition of modified adjusted gross income for purposes of determining eligibility for certain healthcare-related programs. The Congressional Budget Office estimates that the bill would save $13 billion over ten years, primarily by tightening Medicaid eligibility standards. Specifically, the legislation would provide that modified adjusted gross income includes both taxable and non-taxable Social Security benefits to align the definition with other federal subsidy programs. Beginning in 2014, this income definition would be used to determine financial eligibility for Medicaid and the State Children’s Health Insurance Program, and for premium tax credits and cost-sharing reductions available through Affordable Insurance Exchanges. H.R. 2576 was approved by a 262 to 157 vote. Both bills, which were endorsed by the Obama Administration, await Senate action.

Congress Clears Bill to Repeal ACA "1099" Tax Reporting Provision

On April 5, 2011, the Senate approved H.R. 4, the “Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011.” The legislation, which was approved by the House in March, would repeal an ACA provision that requires businesses to file an IRS form 1099 for each vendor from whom they make purchases of at least $600 and revise other ACA IRS reporting requirements. The bill is paid for by expanded recoupment of health insurance exchange subsidy overpayments. The bill now awaits the President’s signature; the President has expressed support for the bill since it corrects “a flaw that placed an unnecessary bookkeeping burden on small businesses.” 

IRS Extends Filing Date for Reporting 2009 Sales of Branded Prescription Drugs Under the Affordable Care Act, Clarifies Information Requested From Covered Entities

This post was written by Ruth N. Holzman, Angelo Ciavarella, Joseph W. Metro and Vicky G. Gormanly.

On January 14, 2011, the Internal Revenue Service ("IRS") issued Notice 2011-9 (the "Notice"), which extended the filing date for reporting on Form 8947 a covered entity's 2009 sales of branded prescription drugs under the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the "Affordable Care Act" or the "ACA"). The filing date for Form 8947 with respect to 2009 sales of branded prescription drugs was extended from January 20, 2011 to February 11, 2011. In addition, in response to numerous comments received by the IRS, the Notice made certain changes to Notice 2010-71, 2010-50 IRB (the "Initial Notice"), primarily with respect to the information requested from covered entities. Please click here to view the full alert prepared by Reed Smith Tax and Life Sciences Health Industry attorneys.

On November 29, 2010, the IRS issued the Initial Notice, which provided guidance on the calculation of the annual fee imposed on certain manufacturers and importers of branded prescription drugs for calendar years beginning after December 31, 2010. Click here to view Reed Smith's previous alert which includes a detailed description of the Initial Notice, including the definitions of "branded prescription drugs," "covered entity," "Sales Year" and "Fee Year."

Older Entries