NEW YORK, Dec. 22, 2015 /PRNewswire/ -- The two-year suspension of the medical device tax signed into law last week by President Barack Obama should allay medical device industry concerns that about R&D spending, according to Kalorama Information, but the greatest affect might be on small companies in the industry. The market research publisher notes that the industry has been hoping for repeal of the 2.3% medical device excise tax, passed as part of healthcare reform, since its enactment. Kalorama Information estimates the U.S. medical device industry is worth $165 billion dollars in its report, The Global Market for Medical Devices, 6th Edition.
According to Kalorama, individual device companies were broadly impacted by the tax, with tax payments from major medical device firms reaching many millions of dollars. In 2014, Johnson & Johnson was the largest single medical device taxpayer with $180 million in payments, followed by Medtronic at $112 million. Covidien paid $60 million, Smith and Nephew $25 million, and CR Bard $3.5 million. But broad impact was felt by the thousands of device companies with one or two products and less than 50 employees.
"It's welcome news, especially for the multitude of smaller companies in this industry," said Bruce Carlson, Publisher of Kalorama Information. "A top 20 device company can pay tens of millions and post a note in their annual report. A small company with one device needs all monies from their sales. Small device companies are often funded by venture capital, least able to raise price or find a partner to merge with, and companies where the two point three was critical operating funds."
The excise tax was a tax on sales and device was paid whether a earned a profit or not, and this caused concern that the tax would squeeze out dollars firms spend on developing new products. Kalorama didn't see that effect over the years since the tax took effect, but saw other impacts. Kalorama estimates companies spend on average 7% of revenue on R&D and spending at large firms did not change greatly since the enactment of the tax.
"We didn't see the effect on research on development broadly in the industry, but VC money did go away at the same time the tax was enacted" said Carlson. "R&D spending major firms, continued to be a similar percentage of revenue as in the past, with top firms spending hundreds of millions of dollars. "
Venture investment in medical technology declined by 42 percent between 2007 and 2013, according to healthaffairs.org. The tax is not likely the sole reason for that decline, as the device industry faces may challenges with regulation, reimbursement and device performance.
The tax grew unpopular as it failed to collect the billions promised and bipartisan support built for repeal. Many devices such as audiology devices and wheelchairs, had been exempt from taxes under the statute. IRS rules also added additional exempted devices. Oxygen concentrators, glucose monitors and other point of care tests, ileostomy bags, walkers, home medical beds and bandages were not specifically named in the original ACA statute, but were granted favorable IRS rulings. So, the actual tax burden was slightly less than most predictions before the tax was collected, because of these exemptions and other tax strategies, like writing off the tax payment amount from revenues on product sales and thus lowering the burden.
As part of its market analysis, Global Market for Medical Devices includes discussion of Total Market 2014-2019, Market by Region, Health Expenditure as Share of GDP, Select Countries, US Market Forecast, 2014-2019, Significant Country Device Markets (United States, Japan, Germany, China, France, United Kingdom, Italy, Spain, Chile, Canada, Australia, Mexico, South Korea, Turkey, Brazil), Estimated Revenues of Medical Device Market by Competitor. The report examines specific device markets, describing trends and major companies in many fields. The report addresses device category segment markets, analyzing these to help render the total market for medical devices visible. Markets discussed include wheelchairs, defibrillators, pacemakers, medical gloves, advanced wound care devices, and many others. Global Market for Medical Devices can be found at Kalorama Information: http://www.kaloramainformation.com/redirect.asp?progid=88187&productid=8983360.
About Kalorama Information
Kalorama Information, a division of MarketResearch.com, supplies the latest in independent medical market research in diagnostics, biotech, pharmaceuticals, medical devices and healthcare; as well as a full range of custom research services. Reports can be purchased through Kalorama's website and are also available on www.marketresearch.com and www.profound.com.
We routinely assist the media with healthcare topics. Follow us on Twitter, LinkedIn and our blog at www.kaloramainformation.com.
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SOURCE Kalorama Information