Are ObamaCare Taxes Hurting the Medical Device Industry?
ObamaCare imposed an excise tax on medical-device makers that they have been lobbying relentlessly to repeal, arguing it kills jobs. However, according to Alex Lykken of Pitchbook, an information provider that collects and analyzes data on financial deals, ObamaCare’s medical-device tax has not had an impact on venture financing of new medical device companies:
Devices & supplies financings, believe it or not, hit a 10-year high in 2012, two years after the ACA was passed and just a year before the medical device tax went into effect. It seems odd that VC firms, which look several years down the road before investing, would complete more financings and invest more capital in the industry every year right until January 2013.
There is another plausible explanation: Device makers have global markets, and investors are looking to them, not the U.S., for growth.
My fiancé’ is an engineer who works in the medical devise industry as a quality and regulatory consultant. She reports that firms have become increasingly cost-conscious since the Affordable Care Act was passed.
The medical device tax is very arbitrary; it impacts low-margin firms much worse than high-margin firms. The tax may be only a few percentage points of the profit for a firm that’s producing patented implants. Yet, the tax often consumes more than half the profit margin of a firm that’s producing medical commodities.
Many aspects of the medical device industry reflects how tight money is — from innovation to hiring and plant location to quality initiatives. Anyone who doesn’t believe the tax has harmed the medical device industry does not know much about how the industry.
Firms becoming more “cost-conscious” doesn’t sound too bad to me, but how can it be possible to mitigate impact on smaller firms?
It doesn’t seem plausible that decreases in profit margins could ever “not have an impact” on any industry. Of course, medical device makers will always turn a profit, because people need medical devices. The question is how much, and whether that loss of profit means loss of funds that could be reinvested elsewhere, such as driving innovation. My guess is “yes,” but it’s tough to say.
Looking at this situation from an economic perspective, the results are clear. Originally, if these device-makers looked both domestically and abroad for markets, then they would make “X” profit. However, if the ACA is discouraging the domestic profit, then that decreases overall profit if foreign profit remains constant. With decreasing revenue and profit, these companies will be forced to downgrade by cutting employees. Clearly, the ACA is hurting job growth.
I work in a medical device company..there are many different kinds of companies out there..many of the day to day devices used are low innovation or the hottest thing from 20 years ago that device companies are still trying to market as innovations…new packaging and lovely color changes arent innovation..they are medical devices a new flavor doesnt constitute innovation. companies have been shedding employees for years now..nothing to do with taxes..just good old fashioned opportunity that couldnt be passed up to trash employees or labour for a few extra bucks. now that the environment is such a marketable buzz in the industry ..have to find something new to trash up for free money..free money being the kind you dont have to work for..it’s the kind you just squeeze out of something else..with many device companies proud they make 20-30% profit while people either don’t have access it’s kind of hard to imagine why that is a good thing….what innovation is being funded in the urinary catheter market for example? these companies in some ways are shameful. more than 90% of operating budgets lets just say in some companies are sales and marketing why is it that everyone believes the only options they have is to cut jobs..there are plenty of other ways to cut costs and why do these companies need such profit to begin with?…what drives that? the oh look what I can do factor..
someone also made an economic argument above that the only thing that can offset the profit impact of a tax are labour costs…a unique perspective. most medical devices aren’t even priced at market clearing..med device companies aren’t the most sophisticated of firms..mostly because they enjoy excessive profit…in many markets lower prices would drive increased rev and margin.. I know of some firms sitting on the wrong side of their revenue curve and don’t have a clue what a revenue curve is..