Affordable Care Act Continues To Hit Headwind From Companies

In an article published in US News vehicle The Times-Tribune, Cook Medical’s Chairman, Stephen Ferguson writes as guest columnist on the subject of President Obama’s Medtech reforms, specifically the 2.3% tax levy and its impact on the industry sector.

The article can be found here and argues powerfully and coherently that by imposing a 2.3% levy on revenues, Medical Device Manufacturers are being forced to look overseas for sales revenue and manufacturing capacity.

In perhaps the most telling paragraph Ferguson states:

“A 2.3 percent tax may not seem like much; after all, sales taxes are double or even triple that amount. But sales taxes are paid by consumers, not producers. Also, this top line tax of 2.3 percent (it’s a tax on revenues not profits) yields a 15 percent tax rate when applied to earnings. Add to that the 35 percent corporate tax already paid and a 5 percent state corporate tax, and the combined tax rate for a medical device company tops out at 55 percent.¬†Imagine if your company had to pay a 55 percent tax. You couldn’t make it.”

In another article, published in Forbes, here, the results of a survey conducted by IBISWorld, the largest publisher of industry research in the US, similarly suggest that profitability of medical device companies may suffer as a result of the Patient Protection and Affordable Care Act of 2010 because The Act places downward pressure on pricing and increases regulatory costs. The article balances this by going on to state that the overall industry should see an increase in revenues because it will increase the number of insured (citizens) by a significant amount. According to IBISWorld, revenue is projected to increase by 7.4 percent in 2012 and at an average annual rate of 6.4 percent during the next five years to 2016, reaching to $82.1 billion.

If you’re a clinician based in Europe these numbers will no doubt seem staggering and any gripes about the new tax may look like the spoilt kid only getting twenty video games for Christmas instead of the twenty one he wanted. The reality may be somewhere in the middle. There’s no doubt Medtech companies can make big money, but only by taking massive risks, especially in start-up phase and in many cases failing to survive.

At medlatest we’re believers in the value of brilliant medical device technology and completely sign up to the argument that technological advancement is the way to delivery of affordable healthcare. So we have to listen when senior industry figures speak up against these reforms. Equally we believe industry cannot have it all its own way and there has to be room for compromise. Two years into this discussion the story hasn’t really evolved… and it needs to.