Survey: Device tax could force job cuts, higher prices

May 4, 2010 by MassDevice staff

Medical device companies plan to cope with a 2.3 percent healthcare reform tax by enacting job cuts and passing higher prices along to customers, according to a MassMEDIC survey of about 100 C-level industry executives.

Companies in the medical device arena see three ways to deal with a looming tax on medical devices, slated to start in 2013: Lay off workers, raise prices and lower costs.

A survey of about 100 mostly C-level executives conducted by PRTM for the Mass. Medical Device Industry Council shows that the tax is foremost on the industry's mind. The tax, enacted as part of the healthcare reform act in March, would levy a 2.3 percent excise tax on U.S. sales of any medical devices not sold over the counter. According to the survey, device makers plan to deal with the tax by reducing operating expenses (namely by lowering payroll), raising prices for customers and cutting the cost of goods sold.

One area companies aren't planning to cut is research and development, according to the survey's respondents. They were evenly split on the question of whether healthcare reform will increase the market for medical devices, as an estimated 32 million more Americans gain health insurance. Forty-one percent of the executives said they expect the reforms to increase their customer pools, but 42 percent said they don't expect to see any change.

The executives also expressed concern over the impact of changes to the Food & Drug Administration's 510(k) clearance program. The FDA is in the midst of a soup-to-nuts review of the process, by which most medical devices are cleared for the U.S. market, examining the program internally and externally via a $1.3 million study by the Institutes of Medicine.

An exclusive new MassDevice report shows that 510(k) decision times increased once again in 2009, to an average of 119 days — up 37 percent from 2005, when times to decision averaged 87 days.

About 70 percent of participants in the survey said they believe the process is just fine as is. Any changes, added to the burden posed by the excise tax, would stifle innovation in the med-tech sector, they said. And 81 percent said the uncertainty represented by the potential changes makes doing business overseas more attractive.

Sharad Rastogi, a director in PRTM's healthcare practice and lead for the survey, is slated to presented the results at MassMEDIC's 14th Annual Conference today in South Boston. The economic downturn had a mixed effect on device makers, Rastogi said in prepared remarks, with about 40 percent of those polled reporting sales growth over the past year and another 40 percent reporting declines.