FMI Testifies on OTC Meds

Food Marketing Institute (FMI) SVP, government and public affairs Jennifer Hatcher testified today before the U.S. House of Representatives Ways and Means Committee’s Subcommittee on Oversight about the challenges for supermarkets when limiting the use of tax-advantaged accounts for the purchase of over-the-counter (OTC) medicines.

“More than 68 percent of supermarkets have pharmacies, and both pharmacy and OTC products represent an important component of our overall health-and-wellness offerings,” Hatcher said. “Our members accept a variety of payment types for the purchase of OTC products. Until Jan. 1, 2011, when purchases for flexible spending accounts (FSA) OTC medicines were cut off for customers using an FSA debit card without a prescription, FMI members were seeing growth in the use of debit cards to make purchases with an FSA.”

Hatcher briefly outlined the grocery industry’s work to ensure stores were compliant with the Internal Revenue Service’s (IRS) guidance on FSAs, which required FMI members and other retailers to develop and implement an Information Inventory Approval System (IIAS) if they wished to be able to continue to accept FSA debit cards for purchases.

“The FSA business increased, as customers, merchants and the IRS seemed to be happy with this new system,” Hatcher recounted. “It was consistent, efficient and accurate, and was created without a single taxpayer dollar.” Still, she acknowledged the frustrations among food retailers who met the IRS requirements of obtaining a list of eligible FSA items, developing an integrated flagging system for eligibility and then retaining the data for IRS audits, only to see the program changed in March 2010 in an attempt to raise revenue for the Patient Protection and Affordable Care Act (PPACA).

“Our members are in the business of selling food and other retail products. As you can imagine, developing a system as complex as IIAS was an enormous task,” Hatcher observed.

Indeed, as well as the logistics, the costs incurred to be compliant were steep, noted Hatcher, recalling the answers she got when she asked FMI members about IT costs invested in an IIAS system: “Each respondent reported more than $100,000 in expenses. In government dollars that may not seem like a lot, but with a 1 percent industry profit margin, that equates to more than $10 million in grocery sales just to break even on the expense. Our largest members reported numbers far in excess of $100,000.”

Hatcher concluded: “The elimination of FSA OTC purchases is basically a new tax on consumers who previously could put aside pre-tax dollars to pay for health-related items throughout the course of a year. Moreover, in our opinion, the provisions in PPACA that took away this benefit will not reduce overall health care costs, but will simply shift these costs to other areas of our health care delivery. FMI urges the restoration of this important OTC tax-preferred health account benefit.”

Testifying along with Hatcher were Scott M. Melville, Consumer Healthcare Products Association; Dr. Joel M. Feder, American Osteopathic Association; Steven Taylor, Sjogren’s Syndrome Foundation; and Paul N. Van de Water, Center on Budget and Policy Priorities.

Those interested can view a live webcast of the committee hearing  or read Hatcher’s full testimony.