1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 OCTOBER 24, 2017 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 ANGIODYNAMICS, INC. 14 NO. 609588 (OH) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 17 18 19 20 21 22 23 24 25 26 27 Reported by: Kathleen Skidgel 28 CSR No. 9039 1 1 P R E S E N T 2 For the Board of Equalization: Diane L. Harkey 3 Chairwoman 4 Sen. George Runner (Ret.) Vice Chair 5 Fiona Ma, CPA 6 Member 7 Jerome E. Horton Member 8 Yvette Stowers 9 Appearing for Betty T. Yee, State Controller 10 (per Government Code Section 7.9) 11 Joann Richmond 12 Chief Board Proceedings 13 Division 14 For Appeals Bureau: Jeff Angeja Tax Counsel IV 15 Legal Department 16 For the Department: Scott Claremon Tax Counsel III 17 Legal Department 18 Kevin Hanks Chief 19 Business Tax and Fee Department 20 Stephen Smith 21 Tax Counsel IV Legal Department 22 For Petitioner: Jacob Bholat 23 Representative 24 25 ---oOo--- 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 OCTOBER 24, 2017 4 ---oOo--- 5 MS. HARKEY: Ms. Richmond, next item, 6 please. 7 MS. RICHMOND: Our next item is C4, 8 AngioDynamics, Inc. 9 Please come forward. 10 MS. HARKEY: Okay. Mr. Angeja, will you 11 please introduce the items of this appeal. 12 MR. ANGEJA: Madam Chair and Members, the 13 appeal before you involves one unresolved issue, 14 which is whether claimant's sales of implantable 15 port catheters qualified as exempt sales of 16 medicines. 17 MS. HARKEY: Thank you. 18 Welcome to the State Board of Equalization. 19 You will have ten minutes to present your case. The 20 Department will have then have ten minutes, and you 21 will have five minutes again on rebuttal. So please 22 introduce yourself for the record and begin. 23 MR. BHOLAT: Thank you, Members of the 24 Board. My name is Jacob Bholat. I am from Equity 25 Recovery Solutions. 26 AngioDynamics sold permanently implanted 27 catheter products to hospitals, customers, and 28 collected sales tax in California. Claim for refund 3 1 was denied by staff based on the language of 2 Regulation 1591 section (b)(2) paragraph three. 3 The products included in this claim for 4 refund are intended for permanent long-term 5 implantation and are generally implanted between 6 3 and 10 years. The items support the function of 7 the vascular system or the veins and arteries within 8 the human body. These items provide or support the 9 vascular system from occlusion, which is clotting, 10 blockage or collapse. The item also reduces 11 infection risks for patients. 12 Regulation 1591(b)(2) provides language to 13 exempt implants based on Revenue and Taxation Code 14 6369 that items permanently implanted in the human 15 body to assist the functioning of the body qualify 16 as medicines. An article is considered to be 17 permanently implanted if its removal is not 18 otherwise anticipated for more than six months. 19 There is no disagreement that these items are 20 implanted in the human body and that it generally 21 remains implanted for greater than six months. 22 Subdivision (b)(2) unnumbered paragraph 23 three further lists additional items that are 24 examples of excluded items which are either 25 temporary in nature or are not fully worn. 26 It's states: Implanted articles that do 27 not qualify as permanently implanted medicines 28 include, but are not limited to, Chemoport implanted 4 1 fluid systems, and Port-a-Cath systems, etcetera. 2 The language under subdivision (b)(2) 3 paragraph three specifically states the word 4 "permanently," in quotations, to exclude any items 5 that are temporarily implanted and should not be 6 taken as a hundred percent exclusion list. The 7 quotation marks are added as an emphasis within the 8 regulation. 9 The list of examples in paragraph three 10 included items that were not permanently implanted 11 at the time that section was added. Today the 12 Port-a-Cath systems included in this claim are 13 permanent and assist the function of the human body. 14 Port-a-Cath systems devises have many uses 15 qualifying under the diagnosis cure mitigation 16 treatment prevention of disease as defined in 17 Regulation 1591. The items are intended to support 18 the natural function of the artery system within a 19 patient requiring long-term care in order to prevent 20 long-term difficulties associated with collapsing 21 veins, arteries, damage to their blood systems and 22 the increased risk of infection. 23 Let's take a quick look at the historical 24 disagreements within this area pertaining to 25 implant -- permanent implants. Since 2001, this 26 Board has provided several decisions on products 27 that were implanted and you have consistently ruled 28 that items permanently implanted qualify as 5 1 medicines. 2 In each of these cases the products were 3 deemed taxable by staff were exempted by the Board 4 as medicines. This list includes: Dental bone 5 screws, cochlear implants including external 6 components, cosmetic implants, and most recently 7 monitoring devices and breast tissue markers. 8 In 2014, November 2014, there was a BTC 9 Committee meeting held at the Board that related to 10 the business tax -- sorry -- that related to the 11 breast tissue markers. The issue, treatment of the 12 permanently implanted Port-a-Caths, was discussed 13 along with the regulation revisions based on the 14 language that we proposed during that interested 15 parties discussion. 16 Based on the BTC minutes, the following 17 relevant issues impact this direct case: Section 18 (b)(2) paragraph three was modified so that the 19 section -- the sentence stated that those items are 20 taxable was removed. BOE tax counsel also indicated 21 in that meeting that the removal of that sentence 22 could allow this product to be exempt. 23 Since then we were unable to get any 24 further movement from the Board's staff, therefore 25 that's why we're here. We respectfully request that 26 this product receive a similar treatment to all of 27 the permanently implanted products under Regulation 28 1591 and be determined to be exempt medicine. 6 1 Thank you. 2 MS. HARKEY: Thank you very much. 3 Department, you have ten minutes. Please 4 introduce yourself for the record. 5 MR. CLAREMON: Thank you. 6 Good afternoon, Chairwoman Harkey, Members 7 of the Board. I'm Scott Claremon with the Department 8 of Tax and Fee Administration; with me are Stephen 9 Smith and Kevin Hanks, and we concur with the 10 recommendation of the Appeals Bureau that the claim 11 for refund should be denied. 12 Claimant is seeking a refund of use tax 13 that it collected or remitted to the Board on its 14 sale of implantable port catheters or Port-a-Caths 15 to a hospital in California. 16 As stated in the hearing materials, the 17 Port-a-Caths at issue are used to provide repeated 18 access to the vascular system for blood sampling, 19 delivery of medication, infusion of fluids and 20 introduction of contrast media. 21 Revenue and Taxation Code section 6369 22 exempts from sales and use tax the sale or use of 23 medicines under certain conditions. Section 6369 24 subdivision (b)(2) generally excludes medical 25 devices and other articles from the definition of 26 medicines. However, subdivision (c) provides 27 exemptions -- exceptions to that exclusion. That 28 is, it identifies medical devices that can meet the 7 1 definition of medicines, including, in paragraph 2 two, permanently implanted articles that assist the 3 functioning of a natural organ, artery, vein or limb 4 and which remain or dissolve in the body. 5 Regulation 1591 subdivision (b)(2) further 6 clarifies this exception and specifically states 7 that Port-a-Caths systems used for drug infusion 8 purposes do not qualify as permanently implanted 9 medicines. This statement is a codification of the 10 Board's longstanding position that by providing 11 access to veins and arteries, Port-a-Caths do not 12 assist the functioning of the vascular system. 13 Accordingly, they do not satisfy all the elements of 14 the definition of medicines set forth in Revenue and 15 Taxation Code section 6369 subdivision (b)(2). 16 And therefore we agree with the 17 recommendation of the Appeals Bureau. 18 Thank you. 19 MS. HARKEY: Thank you. 20 You have five minutes on rebuttal. 21 MR. BHOLAT: I would like to delve into the 22 structure of the Revenue and Taxation Code section 23 6353, which I provided as a exhibit. 24 The language provides a very clear 25 description of an exempt permanent implant in the 26 law section. The section (c) states, 27 notwithstanding subdivision (b), medicines as used 28 in this section mean and include any of the 8 1 following -- I'll skip item number one -- number two 2 says bone screws, bone pins, pacemakers and other 3 articles, other than dentures, permanently implanted 4 into the human body to assist the function of a 5 natural organ, artery, vein, or limb which remains 6 or dissolves in the body. 7 Within the language -- within the language 8 of law section there are no the distinctions, 9 exceptions, qualifications to a permanently 10 implanted item other than dentures. 11 The law section uses the term 12 "notwithstanding" subdivision (b), which is defined 13 in the dictionary as "in spite of" which clearly 14 indicates the intent to exempt all permanent 15 implants, ignoring subdivision (b) limitations. 16 The application of 1591(b)(2) paragraph 17 three, which is what staff is relying on, should be 18 construed only to exclude temporary implants and 19 nothing else. The actual word "permanent" is in 20 quotations in that section. 21 The permanent period has been agreed and 22 accepted at six months or longer by Board staff, and 23 it's a longstanding process or test that's used. 24 The examples included in the regulation, in 25 paragraph three, were used to illustrate potential 26 temporary implants. At that time the Port-a-Cath 27 product was a temporary implant. Today it's a 28 permanent implant. 9 1 Therefore, that section should not be used 2 to exclude the permanently imported Port-a-Caths as 3 an exempt medicine. That position that the Board 4 has taken is not supported by law section 6369. 5 During the Business Tax Committee meeting 6 in 2014, the sentence that stated that these items 7 are subject to tax was specifically removed. And in 8 that discussion it was removed because that sentence 9 says -- gives a exact definition of that product is 10 taxable. It was removed because it was determined 11 during that meeting that that language would lead 12 staff to make those items taxable when there is a 13 potential that those products could be exempt. And 14 we believe when you look at law section 6369 and 15 apply that product to the actual law section, that 16 it fits the definition of a permanent implant and 17 there are no other exceptions, limitations or 18 qualifications to a permanently implanted item that 19 qualifies under Regulation 1591 when it's 20 administered by a hospital or a physician under a 21 prescription. 22 MS. HARKEY: Thank you. 23 MS. STOWERS: Madam Chair? 24 MS. HARKEY: Yes. Madam Stowers. Ms. 25 Stowers. 26 MS. STOWERS: I want to start with 27 petitioner. 28 So looking at the statute that you read to 10 1 us, it says assist in the function of any natural 2 organ, artery, vein or limb which remains or 3 dissolves in the body. 4 Please describe how your devices assist in 5 the function of the veins; and do you have any 6 medical research to support that assertion? 7 MR. BHOLAT: We actually submit -- provided 8 information in the original package in the claim for 9 refund, and it's included in that package. 10 What the product does is it provides a 11 process where a patient who is receiving consistent 12 access has a problem where when they consistently 13 access the artery or the vein, that it will collapse 14 over time. And what that product does is it creates 15 a port, an access port which allows the incision of 16 the needle to not damage the vein or the artery. 17 Thus, it keeps it propped up and it keeps this -- 18 and it supports that vein or artery. 19 And it is very similar to what a prosthetic 20 does. And what a prosthetic does is it allows a 21 patient who has a function -- body function that's 22 not working properly to be supported. In this 23 situation the Port-a-Cath creates a -- a device -- 24 it's a device that's implanted in the vein. So when 25 they access the vein part, it doesn't collapse. 26 What happens is it'll stay up, the needle will be 27 able to go into the Port-a-Cath, they'll be able to 28 remove it, access it as they need it, without the 11 1 vein or artery collapsing. 2 MS. STOWERS: Okay. I'm not a doctor. So 3 it's preventing the vein from collapsing. 4 MR. BHOLAT: Correct. 5 MS. STOWERS: To the Department, I'm 6 assuming you guys reviewed all that documentation 7 that he just referenced? 8 MR. CLAREMON: Correct. 9 MS. STOWERS: And why is it you guys 10 believe it's not supporting the vein? 11 MR. CLAREMON: It's always been the 12 position of the Board, as evidenced by the 13 annotations that are cited in the hearing materials, 14 that essentially that's part of accessing the vein. 15 The point of a Port-a-Cath is to provide access to a 16 vein. And in doing so, the vein -- you know, it's 17 creating a hole in the vein that needs to be 18 buttressed and kept open, without collapse, but that 19 the position of the -- the Board staff has always 20 been that that's not the function of the vascular 21 system. The function of the vascular system is to 22 provide -- is for there to be flow through the vein 23 and that's not what a Port-a-Cath is assisting. 24 MS. STOWERS: So if the Port-a-Cath was 25 putting -- providing flow through the vein, we 26 wouldn't be here? 27 MR. CLAREMON: If there was -- if it was 28 a -- if it was some type of article that did provide 12 1 assistance -- like a stent, yes -- 2 MS. STOWERS: A stent. 3 MR. CLAREMON: -- that provided -- that 4 aided in the flow of the vein, yes. 5 MS. STOWERS: Okay. 6 MR. CLAREMON: That's been the position. 7 MS. MA: I have a question. 8 MS. STOWERS: Okay. I'm going to kind of 9 jump. You want to just jump in right now? 10 MS. HARKEY: Member Horton had -- 11 MS. STOWERS: Go ahead. 12 MR. HORTON: Yeah. Thank you, Madam Chair 13 and Member Stowers. 14 I'm trying to understand the Department's 15 position. It's not your position -- is it your 16 position that just because the term is included in 17 an annotation, therefore it's taxable? Or did you 18 actually examine the science to determine if this 19 device provided assistance to the body so that the 20 body could function in its normal -- its normal 21 capacity and purpose? 22 MR. CLAREMON: You mean -- that was the 23 analysis, the legal analysis that was done in these 24 annotations and why it was codified in the reg. 25 MR. HORTON: Again, my question is, did the 26 auditor or the Department conduct some type of 27 examination to determine how this unit was being 28 used? 13 1 I mean, it could be used to open a hole, 2 sounds like, typically for ease of -- of, you 3 know -- of injecting medicine into the body, or it 4 sounds as if though the science has evolved to such 5 a point that it could actually be used to supplement 6 the artery, that the artery itself would not 7 function in its normal capacity without this unit. 8 Did the Department conduct some type of 9 survey of the doctors who used it, scientists and so 10 forth, to determine how this unit was being used? 11 MR. HANKS: Yes. Mr. Horton, the auditor 12 that looked at this is very familiar with medical 13 devices, and so when -- 14 MR. HORTON: The auditor's a doctor? 15 MR. HANKS: He's -- he's not a doctor. But 16 I mean we can -- we can all as we sit here, you 17 know, read about articles and understand how they're 18 used. And I think what he concluded is that the 19 device itself doesn't conduct blood flow through the 20 body. 21 MR. HORTON: How did he conclude that? 22 From testimony, inquiries? It's got to be stated in 23 the 414. 24 MR. CLAREMON: Well, this -- this is a 25 claim for refund. 26 MR. HORTON: I understand that. 27 MR. CLAREMON: So it was the -- 28 MR. HORTON: Let me ask that question. Is 14 1 this a claim for refund? 2 MR. CLAREMON: Yes. 3 MR. HORTON: Okay. Now back to my 4 original. 5 MR. CLAREMON: It's based on -- it's based 6 on the materials from the claimant, that were 7 provided by the claimant, describing the function of 8 what these things do. 9 MR. HORTON: Okay. Question of -- of 10 the -- 11 MR. BHOLAT: Within the refund package, we 12 actually provided documentation outlining, from the 13 manufacturer, the instruction for use. And in the 14 material that they provide as a manufacturer, they 15 discuss the benefits of the product. 16 The product is implanted into the body, and 17 it is used -- I actually have a nephew who actually 18 has one implanted. And what happens in that process 19 is is that when a patient who has repeated 20 requirements to have access, their veins or arteries 21 will collapse over time. It's just a given fact, 22 and they'll have to consistently look for new 23 locations to access the patient. 24 What this product provides, when it's 25 implanted inside the patient, is it allows them -- 26 it allows a vein in the artery to remain open 27 without being damaged. 28 MR. HORTON: And that's in the 15 1 specifications from the manufacturer? 2 MR. BHOLAT: Correct. 3 And I would -- when the earlier point that 4 was brought up about the stents, I would liken this 5 product very similar to a stent in that it's 6 implanted into the -- into the body. 7 Staff is correct when they say access 8 results in a taxable product. However, when an 9 item's implanted, then it becomes an implant. The 10 attachments to the implant going out would then be 11 the parts of the items or the main medical products 12 that are used for access. 13 MR. HORTON: Did the Department observe 14 that the manufacturer had indicated that this unit 15 could be used to support the artery, a function of 16 the body, because without it the body wouldn't 17 function in its normal capacity if the artery would 18 actually collapse without this? 19 MR. CLAREMON: I think we observed that the 20 materials provided by the claimant in this case are 21 consistent with our -- of the Department's 22 understanding of what Port-a-Caths do in that it 23 does prevent collapse in the context -- this is put 24 in to provide access to the artery. This wouldn't 25 be put in -- 26 MR. HORTON: That -- that's not the 27 testimony and that's not the question. 28 In the manufacturer's description of the 16 1 use of this item, did the manufacturer indicate that 2 this item could be used to supplant the function of 3 the artery to actually prevent the artery from 4 collapsing so that it could serve its normal 5 function? 6 MR. CLAREMON: We did not see any 7 indication that this would be put in absent a need 8 to access the artery. 9 MR. HORTON: Do you have a copy of that 10 information from -- 11 MR. BHOLAT: I do not have it with me. I 12 did not bring it with me. I assumed it was in the 13 package that we originally submitted. 14 MR. HORTON: Is there someone you can call 15 that could get us a copy of that? 16 MS. HARKEY: Wouldn't we have it in the 17 file? 18 MS. STOWERS: Was it -- isn't it -- is it 19 on the website? 20 MR. BHOLAT: Yes. 21 MR. HORTON: Oh, okay. 22 MR. BHOLAT: It should be part of the 23 package. 24 MS. STOWERS: Well, we don't have -- at 25 least I don't have it. 26 MR. BHOLAT: Yeah, I apologize. I assumed 27 it would have been provided. 28 MS. STOWERS: To the Department, did you 17 1 guys access the website, the manufacturer's website 2 about this product? 3 MR. CLAREMON: We did, yes. 4 MS. STOWERS: And what did it say? 5 MR. CLAREMON: It was similar information 6 to what was provided by the claimant in his 7 submissions. 8 MR. HORTON: So it said it could be used 9 to -- to assist the function of the body so that the 10 artery itself which normally absorbs the medicine 11 would not collapse. So it actually became part of 12 the artery? 13 MS. STOWERS: Did it say that? 14 MR. CLAREMON: It said that it was -- 15 MR. HORTON: That's like a yes or no. I 16 apologize, but -- 17 MR. CLAREMON: I don't know if it said 18 anywhere that it actually became part of the 19 artery. 20 MR. HORTON: Okay. Well, let's see if we 21 can find it. I mean if the testimony is that it -- 22 you know, it supplants the function of the body and 23 it's not just there for access, then it's exempt. 24 MS. HARKEY: And it's over six months. 25 MR. CLAREMON: This -- 26 MS. HARKEY: You're over six months. 27 MR. CLAREMON: The information I was 28 provided, which is consistent with what we found on 18 1 the website, states for indications for use, in this 2 case the Smart Port CT power-injectable port line is 3 indicated for any patient requiring repeated access 4 to the vasculature system, for delivery of 5 medications, nutritional supplementation, fluids, 6 blood, blood products, sampling of blood and power 7 injection of contrast media for imagining. 8 MR. RUNNER: Mm-hmm. 9 MR. CLAREMON: And that's the -- that's the 10 language that -- 11 MR. HORTON: I read that. 12 MR. RUNNER: Yeah. 13 MR. HORTON: The tax -- this is it, Madam 14 Chair. But the taxpayer's testimony is that 15 somewhere in this document it said something -- does 16 more. That it can actually serve in a different 17 capacity, a different function. Which, quite 18 frankly, I mean I've actually had a experience with 19 a relative where they were going through cancer 20 treatment and what they found was is that their 21 veins would collapse. And the nurse would go in and 22 they couldn't find a vein, so they needed to create 23 a mechanical vein. Not -- it wasn't -- it wasn't 24 access. The -- the -- the body wasn't functioning 25 anymore. So they needed to provide a mechanical way 26 that became part of the body and served a function 27 of the vein. 28 I don't know if this is the case, but I do 19 1 know that that could be the case. And 2 unfortunately, we have -- don't seem to have 3 evidence one way or the other in that regard. 4 Thank you, Madam Chair. 5 MS. HARKEY: Member Ma? 6 MS. MA: So these catheters, port-a -- what 7 are they called? 8 MS. HARKEY: Port-a-Cath. 9 MS. MA: Port-a-Caths? How long do they 10 stay in the body? 11 MR. BHOLAT: They're generally intended to 12 remain between three and ten years. 13 MS. MA: Three and ten years. 14 MR. BHOLAT: Three to ten years, depending 15 on -- 16 MS. MA: Three to ten years. Okay. 17 So, I don't know, I'm reading the 18 definition of medicines. Means any substance or 19 preparation intended for use by external or internal 20 application to the human body in the diagnosis, 21 cure, mitigation, treatment or prevention of disease 22 and commonly recognized as a substance or 23 preparation intended for use. 24 And so then it goes through what is not a 25 medicine. Obviously, you know, bandages and 26 compresses and things that don't go in, alcohol, are 27 not included. But then when the taxpayer read bone 28 screws, bone pins, pacemakers, other articles other 20 1 than dentures, permanently implanted. 2 So is it the Department's contention that 3 because it's not permanent, like it could be removed 4 three to ten years? 5 MR. CLAREMON: No, that's not position. 6 MS. MA: Okay. 7 MR. CLAREMON: It's the other element of 8 that subdivision that it doesn't assist the 9 functioning of the -- of the vein in this 10 instance. 11 MS. MA: Okay. So, to the taxpayers, who 12 needs these type of products? 13 MR. BHOLAT: So one of the examples was a 14 cancer patient. My nephew is a cystic fibrosis 15 patient and so -- and then elderly people. Anybody 16 who is in long-term care. 17 It's been accepted by staff and in 18 processing medical products that anything implanted 19 for more than six months is permanent. So the 20 six-month rule is kind of the definition. If it's 21 less than six months it's temporary, if it's more 22 than six months it's permanent. 23 The patients who need this are going to be 24 anybody who has a requirement for access for more 25 than several years generally. And that's why when 26 the manufacturer publishes -- and all of this stuff 27 was included in the original claim. And the BOE 28 auditor who reviewed this, who is very knowledgeable 21 1 in medical products, hasn't refuted any of these 2 statements. And that is, that it is implanted for 3 more than six months. It does stay in the body. It 4 is used -- the actual usage that I cited comes from 5 the manufacturer. It's not something I'm saying. 6 And that information is included in the 7 claim for refund. Unfortunately, I have no cell 8 phone access in here, so I can't even call anyone. 9 MR. HORTON: Yeah, me neither. 10 MR. BHOLAT: But we can provide that 11 information if you can't find it. It's already in 12 the package. 13 MS. MA: Thank you. 14 MR. RUNNER: Madam Chair. 15 MS. HARKEY: Member Runner? 16 MR. RUNNER: Yeah. Unfortunately, I'm 17 really aware of the Port-a-Cath. Sharon had one for 18 five years under -- under skin type that would find 19 an access, you know, wasn't one that sometimes they 20 hang out of the skin, sometimes they put them under 21 the skin. Hers was under the skin in order to 22 provide access for a monthly infusion that she was 23 required to have. 24 And I'm trying -- in our dialogue with the 25 doctors and the process there, trying to get through 26 as to why it was necessary. It really was necessary 27 because it had to create the function of the artery. 28 Without that, without that ability her artery would 22 1 not be able to receive the medicine. 2 Now I think I'm -- again, we're nuancing 3 it, I think, a bit to say it's access or whatever. 4 But the reality is that it -- you don't get 'em 5 simply because you need another way to access the 6 artery, as a -- as a choice. You get it because the 7 artery is not capable of functioning in the way an 8 artery needs to function in order to receive the 9 medicine. 10 So, you know, I don't see it as an optional 11 thought, you know. Let's go to plan B here because 12 we can get access to the artery that way. No. You 13 get it because it's the only way you can make the 14 artery function correctly in order to receive the 15 medicine. 16 So, for me, I think the interesting issue 17 as I was dealing with this earlier, I was kind of 18 hung up on the "permanent" side of the discussion. 19 It seems to me we've settled the permanent side and 20 the Department isn't really making the argument 21 based on the permanent side anyhow. 22 It's really based upon the issue of whether 23 or not it just provides access or whether it's part 24 of the function of the organ. And I'm, from my 25 experience, would believe that that really wasn't a 26 part of the function of the organ in order for -- in 27 order for it to take -- in order for the organ to 28 take -- act correctly as the medicine was being 23 1 used. 2 MS. HARKEY: The functioning of the artery 3 or the vein. 4 MR. RUNNER: Mm-hmm. 5 MS. HARKEY: Correct. 6 Any other comments, Members? 7 MS. STOWERS: I would just like to see the 8 material. 9 MR. HORTON: Madam Chair. 10 MS. HARKEY: Yes. 11 MR. HORTON: Just a couple follow-up 12 questions if I may. 13 Is there any time that this device is 14 implanted for a -- when, for a patient that does not 15 have any physical challenges of -- of receiving 16 medicine through the normal injection process, or 17 for ease of receiving the medicine? 18 MR. BHOLAT: I'm not a medical 19 professional. But from the research and analysis 20 that we've done, from the information that's 21 published by the manufacturer, the answer to that 22 would be no. 23 They do have a Plan B, as Chairman Runner 24 said -- or Board Member Runner said, that if you 25 need a short-term access, there are short-term 26 catheters that are available. When you need longer 27 term repeated access, that's when they'll go through 28 the step of saying, okay, let's implant this 24 1 Port-a-Cath product. 2 MR. RUNNER: Well, and I can assure you the 3 insurance companies only "okay" a use of a product 4 like this if there's no other way to access. 5 MR. HORTON: Yeah. 6 MR. RUNNER: Because it's -- it's an 7 ongoing health issue, it's an ongoing process. 8 MR. BHOLAT: It's also a separate procedure 9 that they go through to do the implantation. 10 MR. RUNNER: Right, right, right. 11 MS. HARKEY: It's a separate procedure with 12 separate risks, separate potentials for infection, 13 the whole thing. 14 And so I am ready to make a motion that we 15 grant all claims for units implanted more than six 16 months. And if that's all of them, then that's all 17 of them. 18 But I think that is all of them actually, 19 right? There was never a debate on that? 20 Well, make a motion for the taxpayer. 21 MS. MA: Second. 22 MS. HARKEY: There's a motion and a second. 23 Is there any objection? 24 MS. STOWERS: Abstain. 25 MS. HARKEY: Okay. 26 If you want to call the roll, Ms. 27 Richmond. 28 MS. RICHMOND: Chairwoman Harkey. 25 1 MR. HORTON: Did you register the 2 "abstain"? 3 MS. HARKEY: Here -- yes. 4 MS. RICHMOND: Mr. Runner. 5 MR. RUNNER: Aye. 6 MS. RICHMOND: Mr. Horton. 7 MR. HORTON: Aye. 8 MS. RICHMOND: Ms. Ma. 9 MS. MA: Aye. 10 MS. RICHMOND: Ms. Stowers. 11 MS. STOWERS: Abstain. 12 MS. HARKEY: Okay. 13 MS. RICHMOND: Motion carries. 14 MR. ANGEJA: Point of clarification. 15 MS. HARKEY: Yes. 16 MR. ANGEJA: Just to make sure, the first 17 line of the summary, this was a claim filed on 18 behalf of the customer. And so the refund would be 19 going to the customer. 20 MS. HARKEY: Correct. 21 MR. BHOLAT: Correct. I actually represent 22 the customer as well, so correct. 23 MS. HARKEY: Correct. Thank you very much, 24 Mr. Angeja. 25 All right. 26 MR. RUNNER: Let me just say -- let me just 27 ask if I -- again, we've already dealt with this, 28 but I wonder if -- is this -- and again, we're in a 26 1 weird time of timing right now in terms of a memo, 2 in terms of a published issue in order to give 3 clarification for this in the future. 4 Because I think, I think what we're really 5 doing is really defining this particular application 6 of this particular device as meeting -- as meeting 7 both the legal definition and also then the 8 regulatory definition. And if we would feel like it 9 might be purpose for this to be able then to be 10 applied into the future also. 11 MS. HARKEY: That would be -- that would be 12 fine with me if you wanted -- do you want a 13 precedential opinion or do you want just a -- I 14 guess that's -- 15 MR. RUNNER: Yeah. 16 MR. HORTON: Mr. Runner, if I may? 17 MR. RUNNER: Mm-hmm. 18 MR. HORTON: I believe I would be 19 supportive if it is to codify the Board's position 20 that when this unit is used in such a way that it 21 actually serves to -- to support the functioning of 22 the body -- 23 MS. HARKEY: Of a vein or artery. 24 MR. HORTON: -- a vein or artery of the 25 body and so forth, then it is considered a medicine. 26 I think it's 1502 is the regulation. 27 MR. RUNNER: Well, that certainly is my 28 understanding, and that's why it is I think I voted 27 1 the way I did. 2 The -- the -- the question then is -- and I 3 think the facts to this are pretty specific too. 4 This is a specific fact -- point at issue it seems 5 to me. 6 MR. ANGEJA: We've got a -- the larger 7 concern is 1591(b)(2), the third paragraph down 8 expressly states that Port-a-Cath systems used for 9 drug infusion purposes do not qualify. 10 MR. HORTON: Yeah, but we would agree with 11 that. 12 MR. ANGEJA: No, but my point would be if 13 we've got it in an ad hoc precedential decision 14 that's going to try to overturn a regulation that 15 industry had say-so in interested parties -- 16 MR. RUNNER: Is that where we used the word 17 permanently? 18 MS. HARKEY: We also don't want to delay 19 the decision going final. 20 MR. RUNNER: Let me just ask, that could be 21 an issue which I think that's worthy of discussion 22 too. Is that -- is that where we -- help me 23 understand that. Is that where we talk about the 24 permanently implanted? 25 MR. ANGEJA: Well, for our purposes it says 26 it excludes it. I grant that it's in that section 27 that says articles that do not qualify as 28 permanently, but these, they accepted that it was 28 1 permanent. But we still have it in print in the 2 regulation that says that item doesn't qualify in 3 the first place, and so we now have a conflict. A 4 memorandum opinion, potentially -- 5 MR. RUNNER: Potentially. 6 MR. ANGEJA: -- and a regulation -- 7 MR. RUNNER: Yeah, I get it. And the 8 idea permanently was the fact that there was a 9 misun -- not a misunderstanding -- a growing 10 understanding of temporary versus permanent by 11 definition, at least I heard the Department talked 12 about permanent being any more than six months. So 13 we've already -- Department's already resolved that 14 side of the issue. I'm actually more concerned 15 about whether or not this would actually -- 16 MS. HARKEY: Impact -- 17 MR. RUNNER: -- impact -- 18 MS. HARKEY: -- the final. 19 MR. RUNNER: -- the decision itself because 20 of the timing that we face with getting us 21 decisions. 22 MR. HORTON: Madam Chair and Mr. Runner, 23 this is not unusual, where, as a result of the 24 evolution of technology the term, the description of 25 a camera, for example, is now a cell phone. You 26 don't have cameras anymore. So there are 27 descriptions in the law that's relative to the use 28 of a camera. 29 1 And in this case I believe that it 2 sounds -- I mean my recollection, and I think the 3 Department ought to take it under consideration to 4 have more time to look at it, but that we're 5 speaking -- we're not in conflict with the 6 Regulation 1591; in fact, we agree with the 7 regulation. 8 It -- it -- it is not a question of the 9 time, it is a question of the usage. And I think 10 the law itself supercedes the regulation and the law 11 speaks to the actual usage of this. And so the 12 ruling of the Board, as I understand it, is the 13 method in which this was used is -- was used in such 14 a way that it does serve as a enhancement to replace 15 the function of the artery. 16 Now, unfortunately, I don't know if this 17 was the case all the time or I don't know -- you 18 can't go out and do the audit all over again. It's 19 incumbent upon the Department to be able to respond 20 to the questions of law as to whether or not this 21 exists and to have the evidence in order to support 22 their position. That evidence wasn't here, from my 23 perspective, that there was scientific evidence that 24 said that this was not used in the capacity that the 25 witness testified. 26 So, Mr. Runner, I would just sort of ask 27 that they take it under consideration and report 28 back to the Board. But I would make a ruling 30 1 contingent upon that happening. 2 MR. RUNNER: Well, again -- 3 MS. HARKEY: I would -- 4 MR. RUNNER: -- I'm concerned about the 5 timing. 6 MS. HARKEY: I'm concerned about the 7 timing, too. I think we just roll with it and move 8 on. And if we want to, you know -- if somebody 9 wants to pursue a reg. change or something like 10 that, then -- 11 MR. HORTON: Well, we -- we -- I agree. 12 MS. HARKEY: Okay. 13 MR. HORTON: But we could ask that the 14 Department consider conducting a interested parties 15 or some type of examination so that the unknown 16 that's here, how this is actually being used and the 17 evidence can be provided, uh -- 18 MS. HARKEY: If that's separate and apart 19 from the motion, I agree. Let the motion stand. 20 And then the Department will probably choose to 21 ignore it. But that's okay. 22 MR. HORTON: Well, they're certainly under 23 no obligation to seek whether are not this is the 24 case. 25 MR. RUNNER: That's fine. Let's go on. 26 MS. HARKEY: Okay. Thank you. 27 MR. HORTON: But I believe they actually 28 will try. 31 1 MS. HARKEY: It's okay. You know, all this 2 flapping. 3 MR. HORTON: Yeah, I think the Department 4 will try, to get to the truth. 5 MS. HARKEY: Okay. Yeah, they should. 6 Okay. Our recommendation. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 32 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on October 24, 2017 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 32 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: November 30, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 33