Exempting mHealth from the Medical Device Tax

By Dylan CiceroPublished May 1, 2013

Mobile healthcare, or “mHealth,” describes the infrastructure of smartphone apps and smartphone-enabled devices that offer easy access to healthcare solutions.  The space is rapidly growing- over 600 million healthcare apps were downloaded last year- and it presents some exciting, innovative tools for monitoring individual health: the iBG Star Blood Glucose Meter that enables individuals to take and chart blood glucose levels, the SkinScan app that identifies cancerous moles, and the Zeo Sleep Monitor that tracks sleep patterns in order to offer personalized sleep advice are just a few examples of the more than 20,000 apps currently available.  The implications of mHealth are extraordinary, not only in terms of healthcare accessibility, but also in terms of the ability to collect and analyze big data for public health leads.

Last week, the Congressional Committee on Energy and Commerce deliberated whether smartphone-enabled devices would be subject to the 2.3% medical device tax outlined in PPACA. All of the Committee witnesses – prominent players in the mHealth community – denounced the tax.  Witnesses argued that mobile medical app developers are typically small start-up companies that rarely generate any profits and that pump all revenue back into their firms for growth.  They argued that the tax would be regressive in nature because mHealth is commonly targeted at low-income populations.  And they cited the retail exemption clause of the Federal Food, Drug, and Cosmetic Act that exempts certain “individual use” items from classification as a medical device.  (The full witness testimony can be found here).

Besides these concerns, I believe that two other key issues are worth highlighting:

First is the guiding principle behind PPACA funding that those who benefit from PPACA, should pay for it.  For example, because over 15 million newly insured Americans will be paying premiums to private insurers, it makes sense that the insurers concede fees, and that insurers will no longer be permitted to exclude people for pre-existing conditions or impose lifetime limits on coverage.  Likewise, because an additional 30 million newly insured Americans will drive up demand for medical devices and for prescription drugs, it makes sense that the medical device and pharmaceutical industries will be required to pay additional taxes and fees.  However, newly insured Americans will not drive up demand for mHealth products because insurers don’t cover them.  mHealth companies will not benefit from PPACA and thus should not have to pay.

Second, and more importantly, the excise tax on mHealth devices would be counterintuitive to the fundamental goals of reform- increased access and lower costs to care.   According to a 2013 Pew survey, 87% of adults own a cell phone.  If you combine the widespread prevalence of cell phone ownership with the convenience of mHealth app use (reaching into your denim pocket is all it takes) you get the epitome of access.  In terms of costs, mHealth focuses on preventative healthcare, e.g., monitoring blood pressure, charting blood-glucose levels, identifying skin abnormalities, and encouraging high-quality sleep.  Similarly, PPACA stresses preventative healthcare.  For example, Title IV establishes a Prevention and Public Health Investment Fund, and authorizes new screening and immunization programs.  PPACA includes these provisions because it is well established that preventative healthcare saves money in the long run.   To be consistent with goals of reform, mHealth products should not be taxed.

The facts have been stated, and the conclusions are obvious.  Don’t tax – lets push mHealth growth forward.