Individuals and small businesses will all be impacted indirectly or directly by the recent passage of new law as it relates to fees and taxes.  NADL has looked at one of the key provisions in the health care reform legislation to determine any direct impact on dental laboratories.
 
Part of the new law, referred to as the Patient Protection and Affordable Care Act ("PPACA")[1], as amended by the Health Care and Education Reconciliation Act of 2010 ("Reconciliation Act") includes an excise tax on the price for which a finished medical device is sold.
 
Dental laboratories customize or manufacture crowns, bridges, and other dental products based on a prescription from a licensed dentist.  These dental products, which include prosthetic devices (e.g., denture teeth and implants) and therapeutic devices (e.g., orthodontic devices) are regulated as medical devices by the Food and Drug Administration (FDA),[2] and are subject to FDA’s good manufacturing practice (“GMP”) and quality system (“QS”) requirements, but in most cases are exempt from manufacturer registration requirements.[3]
 
The Reconciliation Act amends certain provisions of the PPACA and represents the final version of those provisions that were signed into law. The Reconciliation Act includes an excise tax on all medical devices, with some exceptions.[4]   Specifically, Section 1405 of the Reconciliation Act adds Section 4191 to Chapter 32 of the Internal Revenue Code, and imposes a tax on the sale of any “taxable medical device” by the “manufacturer, producer, or importer” of the device.[5]
 
The tax is 2.3 percent of the price for which the device is sold.[6]  A “taxable medical device” is defined as any device that meets the FDCA definition of “medical device,” excluding eyeglasses, contact lenses, hearing aids, and other medical devices the Secretary of U.S. Health and Human Services determines to be one which is generally purchased retail by the general public for individual use.[7]  The excise tax provisions apply regardless of the classification of the device.
 
The Reconciliation Act does not define “manufacturer, producer or importer.”  Since the Reconciliation Act uses the FDCA definition of “device,” we can consider the FDCA definition of “manufacturer, producer, or importer” for insight into how those terms might be defined in application of the tax provisions of the Reconciliation Act.
 
FDA defines a medical device manufacturer as “any person who manufactures, prepares, propagates, compounds, assembles, or processes a device by chemical, physical, biological, or other procedure.”[8]  While the FDCA and implementing regulations do exempt dental labs from some requirements applicable to manufacturers, dental laboratories are considered by FDA to be manufacturers.
 
In summary, the key impacts and points to remember on this new law as it relates to dental laboratories are as follows:

• All dental laboratories will be subject to paying a 2.3% tax on annual sales of medical devices starting in 2013.
• The tax will be on the sale of the finished device rather than components. For example, if Laboratory A outsources the manufacture of a component part such as a partial framework to Laboratory B, there would be no tax due on the transaction for the partial framework. The 2.3% excise tax would be on the sale and price of the finished device, at the point that Laboratory A ships or delivers the finished device to the prescribing dentist.
• With regards to imported medical devices, the tax applies to the importer. In the case of a foreign dental laboratory which provides a finished device to a domestic dental laboratory or dentist, the tax applies to the importer, which may the U.S. agent for the foreign dental laboratory. FDA requires that all foreign manufacturers designate a U.S. agent in order to be able to import medical devices into the United States.
• The tax goes into effect in 2013 and applies to sales of medical devices after December 31, 2012.

 
The IRS will be developing implementing regulations within the next two years to provide guidance to businesses on how the excise tax will be collected and the frequency of tax reporting and submission.  The NADL will continue to provide information to its members and the industry as further government guidance is developed prior to the effective date of the new law.