Experts predict that the medical device tax will cost the industry more than $30 billion over the next decade. So it's not surprising that more than three months into the implementation of the tax, companies are still working out strategies to mitigate its effects. Here are six ways that medical device companies are trying to offset the financial burden of the 2.3% excise tax.
#1 Implementing a Lean Labor Strategy
Nearly one-third of medical device companies say they’re trying to lower production costs without reducing staff, according to a recent Emergo Group survey. One way to cut operational costs is by implementing a Lean Labor strategy. Device makers are adept at applying Lean practices to their manufacturing processes. But the Lean philosophy—which emphasizes eliminating resources that don’t create value for end customers—can also be applied to the way companies manage the workforce. A Lean Labor strategy could help to mitigate the cost of the device tax, according to a white paper from Kronos.
#2 Taking Advantage of the R&D Tax Credit
The federal R&D tax credit could offer companies considerable savings—around $20,000 for a device maker with $300,000 in qualifying R&D expenses. Yet, most companies don’t take advantages of the credit, according to CPA and business advisory firm Habif, Arogeti & Wynne. At least 35 states offer their own R&D tax credits, too.
#3 Cutting Employee Transportation Costs
Employees such as sales representatives and service technicians, who must travel frequently to do their jobs, can make a lot of money for medtech companies. But they also represent a significant expense. By switching to a fixed- and variable-rate reimbursement plan for employee vehicles, companies can save as much as $2,000 per employee per year, according to Runzheimer International.
#4 Passing It On
More than 40% of the respondents to Emergo Group’s survey indicated that they plan to pass some or all of the financial burden of the medical device tax onto customers. Nearly 40 medical device suppliers are already shifting the cost onto hospitals and other healthcare providers, according to the Web site devicetaxwatch.com, which is run by the Healthcare Supply Chain Association.
#5 Reducing Headcount
It’s unfortunate, but 11% of medical device companies say that the medical device tax will cause them to reduce employee headcounts, according to Emergo Group. Companies such as St. Jude and Stryker have already blamed job losses on the device tax. And if you believe AdvaMed, more are likely to follow. A report commissioned by the industry trade group last year found that the tax could result in the loss of nearly 40,000 jobs per year.
Though the device tax is already in effect, many are hoping it will be a temporary inconvenience. The industry spent nearly $30 million in lobbying efforts last year, with much of that money aimed at encouraging lawmakers to repeal the device tax. It appears to be paying off, too. The House passed a bill to repeal the tax last year, and the Senate passed a symbolic resolution calling for its repeal in March.
—Jamie Hartford is MD+DI's managing editor.