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Healthcare Reform: 2010 Medical Device Industry Perceptions Survey
Frost & Sullivan, Aug 2010, Pages: 54
The objective of this study is to research the impact of the healthcare reform, evaluate what parts in the organization will be most affected by the added tax burden, investigate the effect and impact of that reform and its components over different markets and the interest of expanding the business.
This research service titled Healthcare Reform: 2010 Medical Device Industry Perceptions Survey examines the impact of healthcare reform in the United States and identifies the areas that have been most affected by the added tax burden. It also analyzes the impact of healthcare reform on organizations in the near term and determines the level of interest for expansion of the business into new markets.
Market Overview
Healthcare Reform Offers Wider Coverage and Introduces New Measures to Modernize Care
The healthcare reform legislation of March 2010 is poised to trigger the largest transformational shift in the way medical care is delivered in the United States since the Social Security Act of 1965. The bill aims to simultaneously cut costs and expand coverage, thus leading to uncertainty over the ultimate impact on the marketplace. The bill introduces a number of new taxes for almost everyone involved in the healthcare continuum, from product developers to providers, and even certain patients. For the medical device industry, that includes a 2.3 percent excise tax on all sales of nearly all types of medical devices. Indications point to a negative reaction to the effects of excise tax on current business practices. Most companies expect R&D spending to be impacted the most Increased taxes may also translate into a rise in product prices. Pricing pressures could force spending on mature technologies and restrict adoption of newer technologies and upgrades. While the impact might not be felt immediately given the long time-to-market for next-generation technologies, restricted staffing and R&D spending could have some serious effects on the long-term market landscape. Whenever there are market events that affect business models, adjustments will have to be made to account for the new costs. “Increased product pricing as a direct result of the excise tax seems to be the most likely effect, as suggested by the respondents,” notes the analyst of this research service. “However, with reform measures that restrict increases in reimbursement for certain procedures, questions will surely arise on how much flexibility manufacturers will have with respect to pricing.”
Outsourcing to contract research organizations and contract manufacturing companies has not been as prevalent in the medical device industry as in other markets. However, with projected limitations in R&D spending, staffing, and margins, manufacturers seem more interested than in the past to explore those resources. Historically, the U.S. market has been the main driver for profit for medical device manufacturers; in anticipation of changes, respondents indicated that there might be a greater interest in rededicating resources to expand their presence in other global markets. Various measures of the Healthcare Bill are poised to affect market segments within the medical device industry differently and to varying degrees. Areas of the market where more than 50 percent of the respondents felt there would be a net positive result were healthcare IT and technologies used in long-term care/chronic disease management.
Market segments where more than 50 percent of the respondents project a major or minor negative impact include cardiovascular treatments, medical imaging, and orthopedics. Expansion of coverage options, particularly for older patients, is expected to create opportunities for the market. Interestingly, a significant number of respondents felt measures that increased coverage of preventative services and removed lifetime payment restrictions and bars on pre-existing conditions, would have little-to-no impact on their business. Shifting manufacturing overseas may be a way to cut costs for many companies. “In the past five years, many companies have started manufacturing units in Asia and Mexico to be able to cut manufacturing costs and compete with cheaper alternatives available in the market,” says the analyst. “Respondents expressed a lot of interest in expanding businesses in Asia compared to other regions.
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