95-021
Request
May 2, 1995
Utah State Tax Commission
Attn: Commission Chairman
210 North 1950 West
Salt Lake City, Utah 84134
Dear Gentlemen:
We represent a company in the business of selling, among other items,
bone growth stimulators -- referred to as the OL 1000 -- to patients pursuant
to prescriptions from licensed physicians.
Our client has requested advice concerning its obligation to collect
and pay over state and local sales tax on sales of the OL 1000. Our client believes that sales of the OL
1000 constitute sales of home medical equipment and supplies or sales of
prescription drugs and medicine and are therefore exempt from this tax.
We would appreciate it if you would provide us with an advisory opinion
as to whether the OL 1000 is exempt from sales tax either pursuant to the
exemptions described above, or under some other relevant exemption. In order to give you further insight on the
OL 1000, we have enclosed a detailed description of the product as well as
company produced materials showing the results of clinical studies.
If you require any additional information to assist in your
determination , please contact the undersigned.
Sincerely,
XXXXX
RE: Advisory Opinion - Application of Sales Tax
Exemption for Home Medical Equipment to Bone Growth Stimulators
Dear
XXXXX,
You
requested an advisory opinion as to whether the OL 1000 bone growth stimulator
is eligible for the sales tax exemption applied to home medical equipment. From the materials accompanying your
request, it appears that the bone growth stimulator does not fulfill the
requirements for the exemption.
To
qualify for exemption, sale or rentals of home medical equipment and supplies
must meet all of the following criteria:
1. it is prescribed or authorized in writing by
a licensed physician;
2. it is purchased or leased by or on behalf of
a home patient and used personally and exclusively by that patient to serve a
medical purpose in treating an existing disease or injury;
3. it is of a type which is generally not
useful to a person in the absence of illness or injury;
4. it is appropriate for home use; and
5. it is listed as eligible for payment under
Titles 18 or 19 of the Social Security Act.
Medical
equipment and supplies which are sold or rented to any hospital, clinic,
doctor, nurse or other health professional for use in their professional
practice do not qualify for the sales tax exemption.
The
descriptive material accompanying your letter states that the device must be
applied by a physician in the physicians office. Although the device is dedicated for use only on one patient, the
physician retains ownership of the equipment until treatment is complete and
the equipment is returned to the company for disposal. We interpret the sale of the bone stimulator
device to be a sale to the physician for use in his or her medical
profession. As such, it does not
qualify for an exemption as home medical equipment.
This
opinion is based only on the information provided. If you do not agree with this determination, you may appeal to
the Tax Commission for a formal hearing.
The results of that hearing would constitute a declaratory judgement and
be appealable to the Utah State Supreme Court.
Also, if new facts arise which present additional questions, please fell
free to ask for another advisory opinion.
For
the Commission,
Alice
Shearer
Commission
The OL 1000 is a proprietary Class 3 medical device. The device is FDA approved for the treatment
of non-union fractures. Non-union fractures
are bone fractures that have failed to heal in the expected and usual healing
time. Generally if a fracture has not
healed after 9 months from the time of injury it is considered a non-union. There are approximately 100,000 NU occurring
in the U.S. every year. Non-unions are
a very serious medical condition where the biological healing process has
slowed or stopped and if the condition has occurred in a weight-bearing bone
the patient will be unable to walk.
Normally the orthopaedic surgeon will attempt numerous surgical
procedures including bone grafts to attempt to heal the fracture. Obviously these subsequent surgical
procedures are painful, risky and costly to the patient. If the NU is not resolved many of these
patients ill face surgical amputation as the ultimate solution to their
problem. The OL 1000 is designed to be
applied externally to the patient to stimulate the NU fracture site to
heal. The bone cells at the NU sites
have slowed or ceased to produce bone.
The specific biophysical stimulation delivered by the OL 1000 stimulates
the bone cells at the site to produce and secrete Growth Factors. Growth factors are small proteins that have
the capability of directly stimulating cells to divide to make more cells and
also stimulate cells to be more active.
In the case of the bone cells they stimulate a growth factor known as
IGF-2 (Insulin Like Growth Factor-2).
IGF-2 stimulates the bone cells to divide and to produce and secrete
collagen which is the precursor to bone.
These events stimulate the production of bone and ultimately the healing
of the previously non-union fracture.
The Orthologic 1000 is regulated by the FDA as a Class 3 significant
risk device. This is the same level of
regulation that is applied to devices such as artificial hearts and
valves. These devices require extensive
pre-clinical and clinical testing prior to approval by the FDA. In the case of the OL 1000 there was 5 years
of preclinical testing as well as 4 years of clinical testing in human clinical
trials and 2 years of review of this data by the FDA prior to approval. Our data has shown that the OL 1000 can heal
60% of all these serious Nus and in the tibia (the bone between the knee and
the ankle) which represents half of the NU population the results were over 75%
healed.
The device can only be obtained by prescription from a licensed
physician and then must be applied by the physician in their office. After application the OL 1000 is used daily
buy the patient for a period up to 9 months until the NU heals. The OL 1000 once applied to a patient is
dedicated to that patient and at the completion of treatment it is returned to
the physician and then the company for disposal. There is no reuse.
**See file for more information, charts and diagrams of the OL 1000.**