"There has been a lot of thinking that they should go after [the medical device] industry, which has been strong in the past and has a high cost of devices overall," says John McLean, vice president and co-leader of the Life Sciences Practice at the executive search firm Witt/Kieffer. "I think it's incredibly unfair."
Manufacturers, surgeons and patients are demanding a certain level of care, and the device tax is spawning concerns for the future of medical devices in the U.S., he says.
Eric Olson, president and CEO of Salt Lake City-based device company Amedica, says he is also highly disappointed that the tax was not repealed, as many industry officials anticipated. Amedica will continue to be a vocal opponent of the tax, he says.
Meanwhile, device developers and surgeons are trying to cope with the excise tax. Here are Mr. McLean and Mr. Olson's six predictions for how the tax will affect the medical device industry.
1. Innovation may take a hit. The process for securing FDA clearance is already a long and costly one. With increased costs, developers will have harder choices to make before seeking new device or incremental improvement clearance.
For instance, Amedica has developed a new interbody fusion device for the spine market that is made of silicon nitride which is an alternative to PEEK, a plastic material. Several PEEK devices were recently recalled, and few viable alternatives are available. However, Amedica's device has been proven to provide strong, anti-infective and osteopromotive properties, Mr. Olson says.
The tax could reduce the company's resources to promote and distribute its innovative technology, which would impact overall care to U.S. patients.
"It could have a negative impact on spine surgeons who are seeking alternatives to a less-than-optimal interbody device," he says. "If we were an earlier stage company, this tax would significantly impact sustainability and impede the development of innovative technology. Ultimately, that results in a lower standard of care for patients.”
2. Broad languages means an unclear impact. The language of the legislation is meant to be broad, and industry experts are still not clear on exactly what devices are included, Mr. McLean says.
The unclear language could mean that not only are medical implants and devices taxed, but also supplies, such as wheel chairs. Unintended consequences may follow, he says.
"It will impact a wide range of industries and populations," he says. "It's still not clear what exactly is included, and as it states now, the legislation is meant to be broad."
3. It will force budget cuts and possible closures. The language of the legislation implies that companies are not to pass off the expense of the tax to consumers through increased device price tags, Mr. Olson says. Companies will be forced to cut budgets and streamline efforts to cope.
Research and development, marketing, sales and human resources are the typical targets for internal budget cuts. Budget cuts in these areas often translate to future projects being canceled or delayed.
Cutting costs can be particularly worrisome for start-up device companies, which do not make a profit for several years, Mr. McLean says. "If you tax every sale on the revenue side, it hits profitability that is already slim or none," he says. "We say we want this industry to be innovative, but the 2.3 percent federal excise tax is coming off of revenue. The vast majority of new ideas are from up-and-coming, struggling firms. [This tax] hits profitability so it's not good to invest in innovative ideas."
Even large spine and orthopedic device developers, such as Medtronic and Stryker, have announced they will reduce employees or close facilities to streamline business. As more companies experience the impact, closures and layoffs may follow.
"In terms of how many people are directly affected, it's close to 400,000," Mr. McLean says of the number of employees in medical device companies nationwide. "If those companies cut costs, the natural reaction will create a ripple across a wide range."
4. Patients and surgeons will suffer. Orthopedic and spine devices particularly thrive on continual upgrades and improvements, and the device tax may alleviate incentives to produce better devices that can handle an increasing spectrum of ailments, Mr. McLean says.
"My guess would be that surgeons want to have the best and the greatest technology to treat their patients. This will impact their access [to that technology]," he says.
Fewer device clearances and releases will impact patients, who expect to have choices in how their diagnosis is treated. Less innovation brings less choice in treatments.
5. Overseas innovation will grow. The United States has always been a leader in medical device innovation, Mr. Olson says, but increased regulations and taxes have shifted much of that innovation to countries in the European Union.
"A lot of companies are inclined to take innovation overseas to Europe [rather] than to the U.S.," he says. "It's not a positive direction for the domestic market."
Given that the European market is more attractive for revenue-generation, companies may focus efforts on revenue-generation in Europe rather than fueling ongoing development, Mr. Olson says.
"There is no potential upside [to this tax] domestically," he says.
6. The effects won't be known for years. Device companies have already altered their budgets for 2013 in anticipation of the tax, but until it has been in effect for a longer period of time, companies cannot fully anticipate the effects.
While this tax may be limiting or stifling, industry members will have to adjust to survive in the future.
"I have great faith in the industry itself," Mr. McLean says. "I think long term they will figure out ways to work with it."
However, he says, in the next three or so years all companies will take a hit. To stay viable, manufacturers will need to make sure their device is the absolute best in the marketplace or risk losing too much revenue.
"It's hard to say how this will play out long term, but from a hypothetical sense we are forced to make some very difficult decisions," Mr. Olson says. "Across the board this will have an impact on all aspects of our organization and the spine industry."
More Articles on Devices:
Dr. David Chao Sues Smith & Nephew for $2.2M After Failed Hip Surgery
FDA Issues New Metal-on-Metal Hip Implant Communication
Stryker Offers to Buy Trauson Holdings in China for $764M
6 Potential Effects of the Medical Device Tax on Orthopedics Companies FeaturedWritten by Heather Linder | Friday, 18 January 2013 18:17
As of Jan. 1, all sales on medical devices will be taxed an additional 2.3 percent, as the federal government looks to make $20 billion in 10 years to pay for programs within the Patient Protection and Affordable Care Act. Exactly which programs has not yet been defined.
© Copyright ASC COMMUNICATIONS 2017. Interested in LINKING to or REPRINTING this content? View our policies here.
Most Read - Devices & Implants
- DePuy Synthes earns FDA clearance for VIPER, EXPEDIUM screws: 5 highlights
- Medtronic plans to sell medical supplies unit, Bloomberg reports: 6 key insights
- MRI inventor Dr. Raymond Damadian to receive medtech innovation award: 5 highlights
- J&J, DePuy Synthes, Stryker & more: 15 device company key notes
- Medtronic, Zimmer Biomet, ChoiceSpine & more: 11 device company key notes
Top 40 Articles from the Past 6 Months
- Police investigate death of American Spine Center's physician accused in federal kickback scheme: 6 things to know
- Suicide likely cause of Dr. Sandeep Sherlekar's death, police report shows: 6 things to know
- 38 female spine surgeon leaders to know
- Dr. Gregory Sherr sues HealthEast, CentraCare & 6 neurosurgeons for allegedly ruining his reputation & career — 6 things to know
- 11 highest-paying states for orthopedic surgeons: New Jersey tops the list at $494.5k
- Understanding the Impact of the CMS 2017 ASC Payment Rule on Spine Procedures
- 21 statistics and facts for orthopedic surgeons — compensation, net worth and more
- 19 more things to know about orthopedic bundled payments — September 2016
- Beyond the implant — DePuy Synthes pushes innovation inside & out of the OR
- Are Stryker's hip implants about to be recalled?
- 5 trends for orthopedic surgeons to watch in 2017
- 15 spine surgeons discuss techniques revolutionizing spine care
- FDA regulation, insurance coverage: Dr. Raj N. Sureja talks challenges in regenerative medicine
- 33 of the largest orthopedic groups in the US by number of physicians
- 5 largest orthopedic companies have 61% of market share
- 3 orthopedic clinics to pay $2.39M to settle False Claims Act allegations: 5 things to know
- 4 of the most pressing challenges orthopedic surgeons face in 2017
- What not to wear — Physician's attire elicits mixed responses in outpatient orthopedic centers
- Dr. Robert Watkins performs spine surgery on Patriots' Rob Gronkowski
- 6 spine physicians ranked #1 on Google - 2016
- Orthopedic residency programs violate Match Code of Conduct: 6 things to know
- Behind bars for fraud: Neurosurgeon Dr. Aria Sabit receives nearly 20-year prison sentence — 8 key insights
- The science of healthcare delivery: 10 thoughts on the future structure of healthcare organizations
- 8 biggest stories in 2016's spine market — Acquisitions, lawsuits, bundled payments & more
- Dr. Jonathan Falakassa joins Southern California Orthopedic Institute: 5 key notes
- Wal-Mart adds Mayo Clinic to spine centers of excellence, 50% copay for out-of-network care
- Medtronic, Stryker and Smith & Nephew dominate MIS instruments market — 6 observations
- 7 trends in healthcare digital transformation
- Dr. Angus McBryde Jr. passes away after car accident: 4 things to know
- Dr. Robert Watkins performs spinal disc surgery on Houston Texans' J.J. Watt: 4 notes
- 'Surgery is like comfort food for my soul' — Dr. Thomas Scully on being a neurosurgeon in an evolving landscape
- Dr. Robert Spetzler to resign as Barrow Neurological Institute's president, CEO; Dr. Michael Lawton to take helm — 5 things to know
- 26 latest statistics & notes on neurosurgeon salary — Hourly, annual & regional pay
- An innovation powerhouse — Techstars Healthcare Accelerator in partnership with Cedars-Sinai brings health startups' visions to fruition
- 9 Mayo Clinic strategies to quench the physician burnout flame
- Rochester Regional Health in NY acquires Finger Lakes Bone & Joint Center: 5 key notes
- 8 trends impacting the global sports medicine devices market through 2019
- 5 key statistics on young physician compensation — Orthopedics comes out on top at $329k
- Anthem BlueCross and BlueShield now covers 2-Level disc replacement with Zimmer Biomet's Mobi-C
- What 6 sports medicine physicians wish they would've known at the beginning of their careers