- Our Approach
The Future of the Medical Device Industry
As we all know, U.S. health care reform has been a hot topic over the last few months. I have paid some attention to it - simply as a concerned citizen. I believe in improving the health care options offered to all, but have been suspect of the circumstances and timing. My personal opinion is that the U.S. has bigger problems at the moment, specifically a recessionary economy and unemployment wavering around 10%. And I also felt information overload; you can find a supporting blog, video, article, etc., for all of the varied opinions on the subject.
But my interest piqued after discovering the impact of the health care reform on the medical device industry. This industry is one that we have been monitoring closely, particularly as we see regional manufacturers retooling (or preparing) to enter this industry. I attended the Medical Device Midwest conference in September 2009, and truly enjoyed learning more about this innovative, progressive and important industry. I feel strongly that this growing industry is of critical importance to the "Rust Belt" states as it offers numerous opportunities for participation.
With that said, the new health care reform that was passed by the Senate on December 24, 2009, seems counter-productive to me. The Senate passed H.R. 3590, the Patient Protection and Affordable Care Act. The bill included numerous provisions of interest to device manufacturers including the imposition of an annual fee, disclosure of financial relations and other provisions. Specifically, the device fee included in the Senate bill will total $20 billion over 10 years and begin in 2011. The fee will be $2 billion annually from 2011-2016 and increase to $3 billion in 2017. In addition, the fee remains non-deductible and includes a small business exemption similar to earlier Senate legislation. Many in the industry are hoping that a medical device tax amendment will be passed over the next few weeks as further bill details are debated. (http://www.dotmed.com/news/story/11153).
It appears that the medical device tax goal started at $40 billion, so some progress has been made. (Tongue in cheek comment there, folks). So, how does this translate to a small- to medium-sized medical device manufacturer? A good ballpark is a 3 - 5% tax on top-line revenue, including about 1/3 of profits. These cuts in profits will ultimately lead to cut backs in R&D and manufacturing, which truly is discouraging for an industry that has had such a promising outlook.
Time will tell how the medical device tax shapes up and what the overall impact on the industry as a whole will be. Perhaps this is more of a "the sky is falling" reaction currently than what we will see as reality over the next 3-5-7 years.
P.S. - I enjoyed this interview of Mr. Hawkins from Cook Medical. A nice perspective regarding the tax and the impact on business: http://bit.ly/3jXGde .