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Device Tax Concerns Expand to Smartphones

As number of medical applications grows, questions arise over FDA’s plans.


The Burrill Report

“I don’t think that the legislators that proposed the medical device tax were thinking about the app store.”

Lawmakers worried that smartphones running regulated mobile medical apps could end up taxed as medical devices are seeking clarification from the U.S. Food and Drug Administration.

The tax on manufacturers and importers of regulated medical devices was passed in conjunction with the Patient Protection and Affordable Care Act and has been fiercely opposed by the medical device industry. Whether it could be applied to smartphones should be clarified, say members of the House Energy and Commerce Committee in a letter to FDA Commissioner Margaret Hamburg.

The FDA issued draft guidance regarding its intention to regulate certain mobile medical apps in July 2011, but has not yet finalized it.

Committee Chair Fred Upton, R-Michigan, and five other committee members wrote to Hamburg to ask for information about when the FDA will issue final or updated guidance regarding its intention to regulate mobile medical apps; any internal deliberations regarding the impact of the medical device tax on app developers; whether the use of smartphones and tablets will be a factor in whether the agency chooses to regulate them as medical devices; and how many mobile medical apps have been submitted to the agency for approval.

“I don’t think that the legislators that proposed the medical device tax were thinking about the app store,” says Jon Potter, president of the Application Developers Alliance, a membership group representing more than 20,000 mobile app developers. “I think that the FDA is taking their time here, and may be vexed by their own opportunities and risks. They’re used to regulating software, but the software that operates the X-ray machine, not mobile apps,” he says.

There are now more than 17,000 health and fitness apps and more than 14,000 medical apps in the iTunes store. Meanwhile the Google Play store boasts more than 15,000 health and fitness apps, and about 7,000 medical apps for Android-based devices.

How much regulatory discretion the FDA will choose to exercise over the use of smartphones in healthcare will remain unclear until the agency issues further guidance. But, even if the agency does decide to treat them as regulated medical devices in some contexts, the possibility of taxation is far from certain.

The Internal Revenue Service makes specific statutory exemptions to the medical device tax for eyeglasses, contact lenses, and hearing aids. There is also an exemption for other devices that are of a type that are usually purchased by the general public at retail for individual use, it says, an exemption that could potentially be applied to smartphones and tablets in most cases.

An inquiry submitted to the FDA by The Burrill Report regarding the lawmakers’ letter had not been answered at the time of publication.

March 08, 2013

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