Committee Kicks Off Three Day Hearing Series On Potential Regulations and Taxes on Smartphones, Tablets, and Mobile Apps

March 19, 2013

WASHINGTON, DC – The House Energy and Commerce Subcommittee on Communications and Technology, chaired by Rep. Greg Walden (R-OR), today kicked off the “Health Information Technologies” hearing series to discuss the critical role of technology in the health care industry and how federal regulations and taxes could impact patients, hinder innovation, and increase costs for consumers. In July 2011, the FDA proposed regulating mobile medical apps. In early March, committee leaders wrote to FDA Commissioner Margaret Hamburg seeking more information on possible FDA regulation of smartphones, tablets, and mobile apps through Obamacare's medical device tax, which could harm the innovation and economic benefits of the U.S. mobile marketplace.

“The collision of worlds in the mobile health – or mHealth – market is a study in contrasts. The app economy is characterized by low barriers to entry, quick time to market, and the ability to adapt to quickly changing user needs,” said Subcommittee Chairman Walden. “Medical devices, on the other hand, face a long and costly pre-market approval process at the FDA. We all want to ensure patient safety, but why would we treat mobile applications the same as a dialysis machine? Wireless has and can continue to bring the mobile revolution to our nation’s health and wellness sector. But we must ensure that as we bring the innovation of the wireless economy to health and wellness that we not place unnecessary hurdles in the way of the developers and investors that are fueling mHealth.”

Energy and Commerce Committee Chairman Fred Upton (R-MI) added, “Arbitrarily applying the definition of ‘medical device’ and the medical device tax to the wireless world could prove disastrous and grind this innovation cycle to a halt. We certainly want to ensure patient safety, but the approach we take must be a smart one.”

While protecting patient safety is a universal objective, innovators today expressed concern regarding the FDA’s failure to finalize the rule, the effects that overbroad application of the arduous medical device approval process would have on the ever-changing mobile app marketplace, and the deterrent to investment that would result from applying the medical device tax created by the president’s health care law. Despite claims from some Democrats that the ground rules for FDA regulation of mobile health applications are clear and that there is no risk applications, smartphones, or tablets will be taxed, all six of the witnesses said the situation is murky at best.

Dr. George Ford, Chief Economist at the Phoenix Center for Advanced Legal and Economic Public Policy Studies, explained that regulations could raise costs and hurt innovation, stating, “An inevitable and arguably intended effect of FDA involvement is to raise the cost of innovation and to alter the trajectory of innovation. Uncertainty, delays and the fixed costs related to the regulatory process reduce expected returns, and thus discourage firms from participating in the healthcare industry. As such, we must expect FDA review of mobile applications to slow innovation and to reduce competition.”

In response to a question from Chairman Walden, Jonathan Spalter, Chairman of Mobile Future, outlined the detrimental effects the 2.3 percent medical device tax would have on the mobile health app industry. Spalter explained, “These types of taxes, if they are applied to mobile medical applications and devices, will stifle innovation, will tempt entrepreneurs to pursue as you suggested other types of innovation, and apply their genius and their efforts to other parts of the mobile ecosystem rather than efforts to make our children, our families, our parents, healthier. So there is an impact, and we need to be very, very vigilant and cautious about going down this path.”

At the conclusion of the hearing, Rep. Renee Ellmers (R-NC) asked each witness if they could rule out the possibility that the medical device tax would hamper innovation and all six said they could not. Watch the exchange here.

Scheduling Note

On Wednesday, the Subcommittee on Health will continue the hearing series with a look at “How Innovation Benefits Patients.” More here.

On Thursday, the Subcommittee on Oversight and Investigations will hear from HHS and FDA as part of their look at “Administration Perspectives on Innovation and Regulation.” More here.