The determination as to whether a particular OTC item is a medicine or drug is important because the new rules only apply to such items. Unfortunately, the IRS OTC Notice does not provide further guidance as to what is a "medicine or drug" and existing IRS guidance is circular, providing that the term "medicine or drug" includes any items that are "generally accepted as falling within the category of medicine and drugs." However, insulin is not a medicine or drug for purposes of this rule.
The SIGIS List Committee has already reviewed the current list and published the categories that will need to be removed. In reviewing the list, it is important to consider "primary use" and/or "active method" when evaluating certain products. Examples are:
- Band-Aids with an antibiotic cream remain eligible because primary use is for wound cover and are considered a "medical supply".
- Heating patches that contain menthol or eucalyptus are ineligible because a medicine or drug is used to create the pain relief and are considered a "medicine or drug".
- Heating patches that are self contained that transfer just heat remain eligible as there is no "medicine or drug"
- There are many more examples.
In addition, on December 15, 2010, SIGIS published the fully updated Eligible Products List reflecting the changes required by the new guidance via the online portal. Members using FTP download will find changes available since December 31, 2010.