April 2013 Volume 9 Number 8

House Hearings Focus on Emerging Federal Regulations of Mobile Medical Devices and Apps

By Catherine Barrett, MITRE, Annapolis, MD1

AuthorThe House Energy and Commerce subcommittees on oversight and investigations, health and communications and technology held three hearings over three days beginning on March 19 th to discuss the critical role health information technology (“HIT”) plays in the healthcare industry. Two themes which emerged over the course of the hearings were how federal regulations may impact the growing mobile medical applications (“apps”) industry and the possible levying of federal taxes on smartphones, tablets, mobile apps, and other health information technologies.

The Food and Drug Administration (“FDA”) defines a “mobile medical app" as an app that meets the definition of "device" as described in section 201(h) of the Food, Drug, and Cosmetic Act (“FD&C Act”) and is used as an accessory to a regulated medical device or transforms a mobile platform into a regulated medical device.”2 A medical device is "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is:

  • recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them;
  • intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or
  • intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.”3

For example, a mobile app, which can be downloaded onto a smart phone and is used to collect and analyze blood glucose “would be considered similar software running on a desktop computer, which is regulated under 21 CFR 862.1345 ("glucose test system").”4 The determination of whether or not a mobile medical app is a device turns on the intended use of the app.

The FDA reaffirmed its intent to regulate medical devices, including some mobile medical apps, during the hearings. The FDA first signaled its intent to regulate in this space on July 21, 2011 when the FDA published the “Draft Guidance for Industry and Food and Drug Administration Staff - Mobile Medical Applications” and requested public comments.5 However, the FDA has not yet issued final guidance. Many witnesses characterized this delay as creating uncertainty in the market among potential investors, healthcare policy advocates, mobile device developers, mobile medical app developers, lawyers and others. Several witnesses and members of Congress called on the FDA during these hearings to finalize and publish guidance governing mobile medical applications. FDA witness Christy L Foreman, Director of the Office of Device Evaluation, Center for Devices and Radiology Health at the FDA, testified that the FDA intends to publish final guidance before the end of this Federal fiscal year (September 30, 2013).6 Ms. Foreman also noted that guidance is not legally binding.

In addition, many witnesses and some members of Congress called for the repeal of the 2.3 percent excise tax imposed on the sale of certain medical devices to encourage rather than discourage investment in innovative medical devices. The excise tax became effective on January 1, 2013 and was included in the Health Care and Education Reconciliation Act of 2010 in conjunction with the Patient Protection and Affordable Care Act (“PPACA”).7 The tax issue is important because the FDA has not yet provided final guidance to the public on what is and is not a “medical device” and this uncertainty, in turn, raises the possibility that the excise tax could apply to a wide array of mobile medical apps and other products that may fall within the scope of the FDA definition of a “medical device.”8

The IRS provides a “retail exemption” for medical devices that are “generally purchased by the general public at retail for individual use.”9 To determine whether an item falls within the “retail exemption”, the IRS sets forth a “facts and circumstances test” whereby the IRS balances a number of factors to determine if the tax applies and where no one factor is determinative. Applying the facts and circumstances test, an item may “be of a type generally purchased by the general public at retail [store, internet] for individual use and therefore outside the scope of the medical device tax or may fall within the safe harbor or retail exemption.10 IRC 4191(b)(2) lists eyeglasses, contact lenses, hearing aids and other medical devices as exempt from the tax because they are “generally purchased by the general public at retail for individual use.”11 In addition, the IRS includes a safe harbor provision identifying certain categories of medical devices that are excluded from the tax. The safe harbor provision includes: (1) certain home use lab tests that are available over the counter (“OTC”); (2) devices that are available OTC; and (3) other items such as therapeutic shoes, prosthetics and orthotic devices so long as they do not require implantation or insertion by a medical professional.12

Ms. Foreman testified that “the Internal Revenue Service (“IRS”) and the Department of the Treasury, not the FDA, are responsible for the [2.3 percent] excise tax imposed on the sale of certain medical devices.”13 However, the FDA, not the IRS, determines what is or what is not a medical device. According to the IRC 4191(a), the 2.3 percent tax is imposed on the price for which the device is sold by the manufacturer, producer or importer of the device.14 Thus, the full scope of what may or may not be taxed as a medical device is still unclear and is likely to remain unclear until the FDA issues the final “Guidance for Industry and Food and Drug Administration Staff - Mobile Medical Applications” sometime before the end of September 2013.


1

Catherine Barrett, Esq. is a Lead Healthcare Consultant with MITRE, a not-for-profit organization chartered to work in the public interest. She received her JD and MBA from the American University Washington College of Law and Kogod School of Business, respectively. She may be reached at: cabaret@mitre.org.

The author's affiliation with The MITRE Corporation is provided for identification purposes only, and is not intended to convey or imply MITRE’s concurrence with, or support for, the positions, opinions or viewpoints expressed by the author.

2

FDA, “Draft Guidance for Industry and Food and Drug Administration Staff - Mobile Medical Applications”, July 21, 2011 at http://www.fda.gov/medicaldevices/deviceregulationandguidance/guidancedocuments/ucm263280.htm; Accessed March 25, 2013. The FDA goes on to note that “software applications that run on a desktop computer, laptop computer, remotely on a website or "cloud," or on a handheld computer may be subject to device regulation if they are intended for use in the diagnosis or the cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body of man.” See also 21 USC § 321.

3

21 USC § 321.

4

FDA, “Draft Guidance for Industry and Food and Drug Administration Staff - Mobile Medical Applications”, July 21, 2011 at http://www.fda.gov/medicaldevices/deviceregulationandguidance/guidancedocuments/ucm263280.htm; accessed March 25, 2013.

5

FDA, “Draft Guidance for Industry and Food and Drug Administration Staff - Mobile Medical Applications”, July 21, 2011 at http://www.fda.gov/medicaldevices/deviceregulationandguidance/guidancedocuments/ucm263280.htm; accessed March 25, 2013.

6

Foreman, Christy L. Statement to the House Subcommittee on Oversight and Investigations, Committee on Energy and Commerce. Health Information Technologies: Administration Perspectives on Innovation and Regulation”, Hearing, March 21, 2013. Available at: http://docs.house.gov/meetings/IF/IF02/20130321/100544/HHRG-113-IF02-Wstate-ForemanC-20130321-U1.pdf ; accessed March 25, 2013.

7

Pub.L. 111–148.

8

There is a concern among some members of Congress that repealing the 2.3 percent excise tax will decrease the amount of revenue available to finance the PPACA and consequently adversely affect some health reform measures.

977 Fed. Reg. 72927, December 7, 2012.
10

77 Fed. Reg. 72928, December 7, 2012.

1177 FR 72927, December 7, 2012.
12Id.
13Foreman, Christy L., Id.
14

77 FR 72934; See also IRS, “Taxable Medical Devices, (Final Regulations),” 77 Fed. Reg.72924, 72934 (Dec. 7, 2012), available at http://www.gpo.gov/fdsys/pkg/FR-2012-12-07/pdf/2012-29628.pdf.


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