$180 Billion U.S. Medical Device Industry Reckons With Return of Tax
ROCKVILLE, Md., Jan. 8, 2018 /PRNewswire/ -- A bipartisan two-year suspension of a medical device tax in the Affordable Care Act (ACA) has expired, forcing companies will to pay that tax as there was no legislation reversing it. This has sparked concerns from several members of the device industry and its leading association, AvaMed. Kalorama Information, in its latest report on the size of world device industries, Global Market for Medical Devices, Kalorama said the United States is the largest medical device market in the world with over $180 billion in revenue. The tax is an excise tax, so it is paid on sales of most FDA-regulated non-consumer items whether there was profit made on the device or not.
Congress and President Obama suspended the tax for 2016 and 2017, although the tax's repeal was not included in the recent Tax Cuts and Jobs Act nor did any larger repeal pass. Large manufacturers with resources are currently lobbying to remove the tax.
"It's not the best New Year's Day surprise for the industry," said Bruce Carlson, Publisher of Kalorama Information. "For the industry, there was no preference for a repeal bill of the ACA or a separate repeal but AvaMed and the device industry did want the tax repealed in some form. It missed the various legislation. Congress is likely to address it but in the meantime there will be companies with Q1 costs due to the tax."
The 2.3% medical device tax took effect on January 1.
"Short term, it's just a bad month," Carlson said. "Long term you might see R&D effects and less interest from investors."
Kalorama notes progress of a bill from the House "Problem Solvers Caucus" a bipartisan group of House Members to repeal the tax. As of Dec 20th it had been referred to the Committee on Energy and Commerce, and in addition to the Committee on Ways and Means, for a period to be subsequently determined by the Speaker.
"What we have seen from past experience is that it comes out of funding for product development, research and the jobs associated with those things. We fear we will see employment freezes or reductions and a slowdown in the pipeline for medical innovation," said Ava Med's spokesperson in media report. Boston Scientific, a maker of cardiac, surgical and scoping devices, said R&D may be affected. Orthopedics, surgery and wound care giant Stryker agreed – they noted they will face a 120M bill if the tax continues and that those costs may run against R&D and other costs.
There are bright sides for the U.S. industry from Kalorama Information's report. The use of technologically superior devices combined with a steady replacement rate to remain competitive in the industry will be significant factors for growth.
"Also, the U.S. has shifted many of its reusable devices for single-use devices due to risk mitigation strategies to reduce healthcare acquired infections," said Carlson. "This will pressure spending."
Kalorama thinks firms could also engage in marketing efforts outside the U.S. if the tax remains. Sales of medical devices by U.S. firms to Europe are not subject to the recently renewed medical device tax, one more reason for a positive outlook on medical device sales there. Kalorama says the European market for medical devices was estimated at $104 billion in 2017, with average 3.4% growth over the next five years. This per Kalorama Information's other market study, European Medical Device Markets (Germany, France, United Kingdom, Italy, Spain, Switzerland, Sweden, Poland, Other Markets).
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.
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SOURCE Kalorama Information
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