Analyst: Medical Device Tax Is Causing ‘Significant Harm’

Analyst: Medical Device Tax Is Causing ‘Significant Harm’

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The medical device tax is already causing “significant harm” to the medtech industry and it remains to be seen whether Obamacare will deliver the predicted influx of newly insured patients next year, according to analyst and ex-AdvaMed policy veep John Graham.

Analyst: Medical device tax is causing 'significant harm'

The medical device tax caused flat sales for medtech makers during the 1st half of the year and is causing “significant harm,” according to independent analyst John Graham.

Graham compared the revenues of 6 of the largest publicly traded medical device companies, finding that sales for the 1st 6 months of 2013 were flat compared with the same period in 2012. Sales for those companies rose a collective 3.7% in 2012, compared with 2011, he found.

“Preliminary research on the financial results for the first half of the year suggests that the excise tax is causing significant harm,” wrote Graham, a former policy vice president for trade lobby AdvaMed. “The only major factor that changed between U.S. and international medical-device markets in 2013 is the excise tax. The tax must, therefore, explain much of the U.S. lag.”

The 6 firms Graham chose for his Forbes piece – Medtronic (NYSE:MDT), Covidien (NYSE:COV), Stryker (NYSE:SYK), Intuitive Surgical (NSDQ:ISRG) and CareFusion (NYSE:CFN) – were selected from the 10 largest companies listed in the S&P Healthcare Equipment Select Index (NYSE:XHE).

Four other companies (including Boston Scientific (NYSE:BSX) and Zimmer (NYSE:ZMH)) were excluded because they don’t break down U.S. sales versus international sales. Medtech titans Becton Dickinson & Co. (NYSE:BDX), GE (NYSE:GE), and Siemens (NYSE:SI) were left out because they don’t break out divisional and geographic sales.

Graham estimated that the 6 he studied paid a collective $117 million for the medical device tax, calculating that the figure represents about 12% of the $1 billion in medtech tax payments claimed by 3 trade associations, including AdvaMed.

“Admittedly, this is a very preliminary analysis of a small (but important) sample. Further, high growth in U.S. sales last year might reflect device makers stuffing their channels and hospitals stockpiling before the tax took effect – but that is not a long-term solution to avoiding the tax,” he wrote. “Even if it is true that device makers are going to earn a windfall from Obamacare, the increased revenue will not be realized until 2014, when Obamacare’s benefits finally roll out. So, 2013 alone should certainly be all pain and no gain – an annus horribilus – for the medical-device industry in the U.S.”

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