By extending healthcare coverage to a projected 27 million more Americans, the Affordable Care Act will increase the demand for medical devices. To add to that, a study by Wells Fargo Securities finds that health reform will increase medical device sales by 3.6% through 2022. This is not all that surprising, especially with the increased demand from baby boomers.
Ironically, as the demand increases for medical devices, along with the pressure to reduce prices, the industry has been challenged to find solutions to pass on the added costs of the Medical Device Excise Tax enacted in 2013.
The Medical Device Excise Tax, a 2.3% excise tax imposed on the sale of any taxable, non-retail medical device products was created to help pay for health reform through the Affordable Care Act. The tax is assessed on gross sales and net profits and has forced some companies to lay off staff, reduce spending on research and development, reduce capital investment, and impact innovation. The tax is projected to generate $29 billion over the next 10 years.
While some companies have absorbed the tax into regular operating expenses, others are still identifying ways to reduce spending to offset the earnings impact due to the tax.
An effective way to reduce labor costs, meet labor needs, limit risk and stay focused on developing, testing or producing innovative products is the use of a temporary staffing model, especially during the product ramp up phases.
It will be interesting to see what becomes of the tax as the repeal for it has bipartisan support, but does not yet include an alternative solution to help fund the healthcare law. Support to repeal the tax is sure to continue but only as long as it does not come at the expense of increasing the deficit or the health care costs for lower-income families.