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Medtech Issues in the 2012 Election Year |
Published: September 17, 2012
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Investment Bank Report: Healthcare Reform Not a Boon to Medtech
As reported in a story published recently on MassDevice.com, a report from an Orange County-CA investment bank asserts that healthcare reform will not be a significant boon to medical device companies.
The report was produced by Roth Capital Partners and contends that the "millions of patients that will come into the healthcare system as a result of the Patient Protection & Affordable Care Act" will not offset the 2.3% medical device tax.
Specifically, the report cites the performance of nine medical device companies in Massachusetts, where the universal healthcare law passed in 2006 serves as a kind of model for national healthcare reform.
"Eight out of 9 companies in our analysis did not see any sign of a windfall when universal healthcare was implemented in Massachusetts. Even more striking, most saw relative under-performance in this state," MassDevice.com quoted from the report.
There is "currently no independent analysis of the impact of Massachusetts healthcare reform on the medtech industry, although several companies have performed internal audits," MassDevice.com added.
An independent study of Massachusetts's healthcare reform by the Kaiser Family Foundation showed that the law successfully reduced the number of uninsured to 6.3%, a 5% reduction from 2006 and more than two-thirds lower than the national average, which increased 7% to 18.4% in 2010. However, the reforms haven't helped reduce costs there, the Kaiser researchers concluded.
The Roth report was presented at a meeting last week held in Washington, D.C. and hosted by CONNECT, an organization that supports innovation in technology and life sciences in the San Diego area.
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Very Accurate Report
This report is right in line with our 2013 business plan & budget. We have no other alternative but a headcount reduction. Corporate is also in the process of planning U.S. wide plant closures to move all US manufacturing to the Global Corporate Headquarters in Europe.
Due to the AHA taxes,we have calculated that we would not be in a position to compete globally with other foreign companies as they could offer their products at a lower price than us.
U.S. operations are already running as lean as they possibly can; highly automated, almost zero inventory (Lean), with most plants on property that the company currently owns. Our margin currently is almost 4%, which means the excise taxes and fees that we would get hit with would put us in the red. Because we will not be allowed to pass the taxes on to the consumer, the consumer being the US government. We will have no other choice but to cut costs.
The initial headcount cuts would be in Quality(QA/QC), Regulatory Compliance, R&D, Complaints, and Regulatory Affairs. Basically all non-direct product producing labor.
The Board of Directors has determined that the risk of making the cuts is acceptable when compared to closing plants.
I know of at least 12 other Medical Device companies that are planning to take the same action as us. Some, like St Jude, have begun executing their plan already.
Others are waiting till the last possible moment to execute as they do not want to loose experienced personnel should the government halt implementation of the taxes & fees.
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Unless this law is repealed or un-funded, 2013 is going to be a very ugly year economically for us and the United States.
And please keep in mind,the Medical Device & Pharma Excise taxes are not the only taxes that will be imposed on Medical Device & Pharma companies.
Recent amendments to the Federal Food, Drug, and Cosmetic Act by the Food and Drug Administration Safety and Innovation Act (FDASIA).
Signed into law by President Obama in July 2012, FDASIA includes the Prescription Drug User Fee Act (PDUFA ) V,
the Medical Device User Fee Act (MDUFA ) III, the Generic Drug User Fee Act (GDUFA) and the Biosimilars User Fee Act (BsUFA).