Support Vaccine Tax Deduction

TMA Testimony Presented by TMA and the Texas Pediatric Society

House Ways and Means Committee
Written Testimony: Equity and Administrative Issues with the Margins Tax
March 25, 2013

Mr. Chairman and members of the committee, the Texas Medical Association (TMA) and Texas Pediatric Society (TPS), representing more than 47,000 physicians, thank you for the opportunity to comment on the state franchise tax. We understand the difficult task ahead of balancing the revenue needs of Texas to meet the minimum responsibilities of government for infrastructure, education, and the health of our population while keeping the burden on a free market at a minimum.

Physician practices are primarily small businesses. While some physicians prefer large group practices or employment venues, the large majority of Texas physicians still practice privately, either in solo practices or in small groups. In many of these cases, they are organized as professional associations, and therefore must pay taxes under the state franchise tax. 

One concern our organizations have surrounds physicians’ practices and the current franchise tax structure, which conflicts with sound economic and public health policy for the state. 

A fully vaccinated population is critical to preventing disease. Immunization is our best strategy for reducing total health care costs, which, as you know, impact the state budget. It is only when all Texans children are vaccinated that we can protect infants who are not fully vaccinated, and protect vulnerable seniors from bacterial pneumonia. Bacterial pneumonia is one of the top 10 preventable hospitalization conditions recognized by the Department of State Health Services. From 2005-2010, Texas had more than 308,000 hospitalizations at a cost of more than $9 billion.

Today, the number of vaccines available to children and the cost of those vaccines have never been higher. In 1980, it cost only about $23, or $59 adjusted for inflation, for the seven shots and four oral doses needed to fully immunize a child. By contrast, a child today who receives all recommended vaccines would receive as many as 37 shots and 3 oral doses by the age of 18, at a cost exceeding $1,600. 

According to the Medical Group Management Association (MGMA), facility costs are the second largest expense after wages and compensation for most physician practices. For pediatricians and many family physicians who administer vaccines, the second largest expense is vaccines.

The state’s current franchise tax allows taxpayers to deduct either compensation or the cost of goods sold. Physicians, like most service industry businesses, deduct compensation expenses and pay a 1-percent tax on all other costs, including the purchase cost of vaccines... This tax falls more heavily on physicians who provide vaccines for their patients because their businesses are a combination of “physician services” and “vaccination sales.”

Physicians must place vaccine orders 9 to 12 months before they even need to use them. Physicians pay for the vaccine out of pocket, not knowing if they will use the vaccine or not, or what insurance companies and government payers will pay. The labor cost incurred in administering the vaccine is deductible but the vaccine cost is not. Even if the insurer pays enough to cover the purchase and the related storage cost, a 1-percent tax on the vaccine means, instead of breaking even, a physician loses money every time he or she administers the vaccine. Administering vaccines is one of the most critical health care services physicians can provide patients but one of the riskiest services from a business standpoint.

Vaccines are the only medical service physicians administer that actually impacts society as a whole. In the absence of a network of physicians able to administer vaccinations, the risk of outbreaks of vaccine-preventable diseases could increase. While it is true that patients can obtain vaccines in a variety of settings, surely the state needs physician offices to continue to be an access point.

Vaccines are central to preserving public health, and our membership believes in the importance of immunizing all Texans. We fully support efforts to ensure that vaccines make good business sense. Providing this minor cost deduction within the margins tax will greatly ensure future access to vaccination services for all Texans.

83rd Texas Legislature Letters and Testimonies main page