Medical Device Excise Tax Program May Require Surgery to Meet its Goals

The Treasury Inspector General for Tax Administration (TIGTA) has issued a report revealing inadequacies in the Internal Revenue Service’s (IRS) current strategy for ensuring compliance with the medical device excise tax created by the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). According to the TIGTA press release, the current IRS protocol for processing the Form 720, Quarterly Federal Excise Tax Returns that manufacturers, producers, and importers are obligated to file, is not sufficiently ensuring compliance and reporting of the new ACA tax.

Excise Tax

The ACA, through amendment to the Internal Revenue Code (IRC) (26 U.S.C. 4191), implemented an excise tax of 2.3 percent on the sale of certain medical devices. The tax, set out in regulations at 21 C.F.R 807, was projected to produce $20 billion in revenue for Fiscal Years (FYs) 2013 through 2019. The IRS has issued final regulations and the Department of Treasury has issued notices that are designed to provide guidance and ensure compliance with the new tax.Despite the agency outreach, the TIGTA investigation and report revealed that the number of Forms 720 filed and the amount of revenue reported was lower than had been projected.

Findings

The TIGTA Report identified $117.8 million in medical device excise tax discrepancies between the amount of tax collected by the IRS through the Form 720 process and the amount TIGTA calculated as proper. The TIGTA investigation revealed 219 “failure to deposit” penalties totaling $706,753 that were incorrectly assessed by the IRS. The IRS reversed 133 of those penalties and the remaining 86 were reversed by IRS management after TIGTA identified the errors. A significant fault in the present system that TIGTA identified is the inability of the IRS to determine the medical device manufacturers that are registered with the FDA, which are required to submit a Form 720. Without the ability to identify the tax paying population, TIGTA believes the IRS will be unable to form an effective strategy to ensure businesses are remaining compliant.

Recommendations

TIGTA’s primary recommendation is for the IRS to develop a protocol for identifying non-compliant manufacturers. Another recommendation is for the IRS to review tax returns that resulted in improper payments so the IRS can identify the appropriate amount owed. TIGTA also suggest that the IRS develop a correspondence mechanism so that IRS can obtain information about missing taxable sales and tax amounts.

Highlight on Maine: Maine Tightens TANF Benefits with Drug Test Enforcement

By Lisa A. Weder

In a push to make Maine’s residents more self-sufficient, Governor Paul R. LePage (R-Me.) says it’s time to enforce a drug testing law on convicted drug felons who receive or apply for welfare benefits. On Wednesday, August 6, 2014, the former businessman turned governor announced that the Maine Department of Health and Human Services (Maine HHS) will carry out its plans to drug test those felons who receive Temporary Assistance for Needy Families (TANF) benefits.

TANF benefits are funded under Part A of Title IV of the Social Security Act (SSA), as amended by sec. 5507 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), which awards states grant funding to provide health services and education and job training to low-income individuals. TANF benefits are designed to:

  • Assist needy families in ways that children can be cared for in their own homes;
  • Promote job preparation, work, and marriage to foster independence in needy parents;
  • Prevent and reduce out-of-wedlock pregnancies; and
  • Encourage the formation and maintenance of two-parent families.

Welfare reform was a large part of Maine’s 2012-2013 budget, which implemented a new five-year limit on welfare benefits. The governor’s reasoning for instituting the drug-testing policy revolves around spending tax dollars wisely. “Maine people expect their tax dollars to be spent supporting our most vulnerable citizens—children, the elderly and the disabled,” said LePage. “We must ensure that our tax dollars do not enable the continuation of a drug addiction.” The thought is that someone using drugs will misspend TANF assistance funding and put their family’s needs on the back burner. The governor asserts that being drug-free enables welfare beneficiaries to move away from poverty and toward financial independence.

Maine HHS has implemented its drug-testing procedures and program with best practices, privacy, fairness, and accountability in mind, according to Maine HHS Commissioner, Mary Mayhew. When a person applies for TANF benefits, the individual must indicate whether he or she has a prior drug-related felony conviction. If that is the case, the state will schedule a drug test and notify the person 24 hours prior to the actual test. A person testing positive the first time can take the test one more time. According to Maine’s state website, a first offense results in the termination of adult benefits, and a second offense may result in the family’s loss of benefits. The tests are funded by the state.

To avoid termination of welfare benefits, an afflicted individual may enroll in an HHS-approved substance abuse program. Persons failing to disclose that they are convicted drug felons violate the program rules and face immediate termination of TANF benefits.

Maine’s new rule was originally introduced in 2011, but becomes effective October 1, 2014. Some question why the governor is enforcing the policy now in light of the fact that Maine is ranked 47th in terms of job creation. Portland, Maine’s local news channel, WCSH6, interviewed Democratic political analyst Ethan Strimling who said that “ … in terms of getting people off welfare, it’s not going to do us much good.” The policy will be published in August 2014 and will be subject to a public hearing and final approval by the Attorney General’s office.

The question yet to be answered is whether Maine’s drug testing policy will help or hinder families receiving TANF benefits.

Refuse to Buy Subsidized Coverage? No Charity Care for You.

Some hospitals are toying with the idea of scaling back their charity programs in response to worries that providing free or discounted care to patients with low incomes and no insurance may dissuade them from purchasing government-subsidized health insurance through the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) Health Insurance Exchanges, according to a report by Kaiser Health News (KHN).

Charity Care Policies

While the ACA requires that hospitals make their written charity care policies widely available, it does not impose any specific requirements as to eligibility for such programs.

According to the charity care policy posted online by Southern New Hampshire Medical Center, “[A]pplicants who refuse to purchase federally-mandated health insurance when they are eligible to do so will not be awarded charity care.” The policy also cuts off charity care for those who choose not to apply for the state’s Medicaid expansion program.

Alternatives to Limiting Charity Care

While some hospitals are enacting restrictions like this one, others are choosing simply to require patients to make a contribution toward the services received, such as $100 for emergency care.

“Patients will continue to receive needed medical care regardless of their ability to make payment at the time of service,” Kim Kitson, spokeswoman for Barnes Jewish Hospital in St. Louis told KHN. The hospital provides discounts for patients with incomes up to three times the federal poverty level.

Considerations for Hospitals

In evaluating possible changes to their charity policies, hospital executives must also weigh whether patients are unwilling to pay or if they could not afford purchasing coverage even with a government subsidy. Ultimately, though, KHN reports that hospitals have a strong interest in having more insured patients, especially since the ACA cuts government payments to providers for uncompensated care.

Todd Nelson of the Healthcare Financial Management Association told KHN, “Hospitals have always encouraged patients to apply for coverage they are entitled to receive, whether commercial insurance through employer or through programs like Medicaid.”

Outsourcing Substitute Teachers, the ACA’s Unintended Lesson

Nationwide, school districts are scrambling to find more substitute teachers. Leaning on private companies to help them do it, schools are changing the way they find substitutes. When asked why, some of the school districts are pointing their fingers at the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). While some schools are looking to staffing agencies to try and avoid the penalties that stem from the ACA’s employer mandate, other schools claim they are streamlining a burdensome process. The answer to what is really going on lies somewhere in between the ACA employer mandate and the hectic world of school administration.

Outsourced

The problem is simple. Schools need substitutes and sometimes they need more then they can find. Whatever is driving the need, whether the ACA or teacher absence, private substitute staffing services are becoming an alternative to the traditional method where schools fill the spots themselves. The Virginian-Pilot reported that one private company, Source4Teachers, has partnerships with over 160 school divisions in New Jersey, Pennsylvania, Connecticut, and Virginia. Source4Teachers charges school districts a slight markup over what the schools would have paid teachers directly; however, schools that use the company say costs are lower than providing healthcare benefits or paying the ACA employer penalty.

The Hampton Virginia school division reportedly had over 300 of its 350 substitute teachers working more than the 30 hours a week. Because those substitutes would have potentially qualified as full time employees under the ACA’s employer mandate, districts and divisions, like the one in Hampton Virginia, went looking for a way out. According to the Virginian-Pilot, the cost of compliance with the ACA to the Hampton school division would have been $2 million, if the school had continued to employ the same “full time” substitutes. Contracting with Source4Teachers was a means around an expensive end. By contracting with a company like Source4Teachers, school districts are able to eliminate “full time” positions by employing more substitutes with each substitute working fewer hours.

Efficiency

Some reports, including one story in the Boston Globe, suggest that substitute teacher outsourcing is not about the ACA at all. For some schools, outsourcing may be little more than a practical way to resolve a complex problem. In districts where several substitutes are needed every day, administrators often scramble to fill vacancies. Outsourcing the process to a private company, like Source4Teachers or Michigan based Kelly Educational Staffing, eliminates the headache and more efficiently places much needed teachers in classrooms. However, other districts, like the Shelby County School District in Tennessee, are not shy about expressly pointing to the ACA as the motivation behind substitute outsourcing.

Guidance

At the very least, schools are talking about the ACA and the effect the employer mandate will have on traditional substitute hiring. The Missouri School Board Association has issued a document to assist the state’s school boards with navigating the employer mandate of the ACA. Similarly, the Kentucky Department of Education has issued a resource aimed at helping Kentucky schools understand the law. Both of the documents emphasize the fact that substitute teachers may constitute full time employees under the laws requirements related to employee health benefits. In other words, the documents advise schools that, at least in some cases, they either will have to limit the hours each substitute is permitted to work or take on additional costs in the form of penalties or employee benefits. Outsourcing is just one of the ways schools are choosing to deal with the reality.

Legislation

Efforts have been made to change the ACA’s treatment of schools. For example, Luke Messer (R-IN) introduced the Safeguarding Classrooms Hurt by ObamaCare’s Obligatory Levies Act (SCHOOL Act), which seeks to exempt school’s from the ACA’s employer mandate. Legislation like the SCHOOL Act focuses on a supposed harm to schools and classrooms. Yet, some reports suggest that the districts looking to outsourcing are doing so for the very purpose of keeping their classrooms running at full steam. In fact, the use of a staffing service might mean that school districts will have the teaching staff they need more often and more dependably. At least for now, speculation is required to decide where the true harm falls.