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PRICEWATERHOUSECOOPERS STUDY: GROSS RECEIPTS TAXES PENALIZE LOW INCOME PATIENTS, INCREASE HEALTHCARE COSTS AND UNFAIRLY TAX ILLINOIS DISTRIBUTORS
ARLINGTON, VA – May 9, 2007 –According to a new PricewaterhouseCoopers report (available by clicking here), gross receipts taxes penalize low income patients, increase healthcare costs and tax healthcare distributors nearly ten times more than the average industry. Based on these findings, HDMA President and CEO John M. Gray today presented written testimony to the Illinois House of Representatives, urging Members to reconsider plans to enact a gross receipts tax in the state.
The Illinois gross receipts tax would be assessed at each stage of production -- once when the medicine is sold by the manufacturer to the distributor, and again when the distributor sells to the retail or mail order pharmacy. “Double or sometimes even triple taxing prescription medicines and healthcare products before they reach consumersis counterintuitive to the state-wide efforts to contain healthcare costs,” said Gray. “More troubling, the PricewaterhouseCoopers study found that these cumulative taxes are particularly unfair to low-income families who, relative to household income, spend six times more on prescription medicines, and who would bear six times the tax burden.”
Because the tax is assessed at each stage of the supply chain, the PricewaterhouseCoopers study also found that a gross receipts tax, like the one proposed in Illinois, disadvantages in-state companies. States that impose gross receipts taxes create strong incentives for companies to move production and distribution facilities to neighboring states with fairer tax climates. This could compromise the speed with which vital medicines are delivered to Illinois patients.
The Illinois proposal would tax distributors’ total sales dollars (or gross receipts), regardless of costs or expenses. “Unlike a corporate income tax, gross receipts taxes must be paid whether the business is profitable or not,” said Gray. “The typical profit margin in healthcare distribution is roughly 1%. A .85 % tax in Illinois is punishing, and would affect distributors’ pre-tax income at a rate that is ten times higher than the average industry. This tax simply cannot be absorbed by this industry.”
“Gross receipts taxes will penalize Illinois pharmacies, providers and consumers, who may receive more limited service in the state, or who may absorb future cost increases,” continued Gray. “Delivering prescription medicines efficiently, safely and affordably to Illinois patients is critical, yet gross receipts taxes run counter to that goal. Not only is this tax harmful to distributors with margins too small to absorb the cost, it disadvantages in-state businesses who must pay taxes that don’t apply in neighboring states.”
About HDMA
The Healthcare Distribution Management Association (HDMA) is the national association representing primary, full-service healthcare distributors. Each business day, the member companies of HDMA are responsible for ensuring that more than eight million prescription medicines and healthcare products are safely delivered to 145,000 pharmacies, hospitals, nursing homes, physician offices, clinics, government and other providers in all 50 states. This essential public health function is provided with tremendous efficiency, saving the nation’s healthcare system nearly $32 billion each year. HDMA and its members are the vital link in the healthcare system, working daily to provide value, remove costs and develop innovative solutions to deliver care safely and effectively.
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