Why the Medical Device Industry is Likely to Face a Huge Revenue Hit

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Sometimes people build businesses based on current conditions, only to have an unexpected event throw their business into chaos. While such circumstances are unexpected, it’s part of the risk when someone opens a business.

medical-billing-advocate_150829160Due to the volatility of the economy, individuals usually know they are taking a risk investing any amount of money into any market. All they can really do is try to anticipate any potential risks the best that they can and come up with solutions.

Furthermore, changes in the business environment sometimes occur. But when they occur because of the government reversing a policy, it can be overwhelming and frustrating for a business owner. Small business owners have enough to worry about when it comes to paying their taxes and staying solvent.

The Affordable Care Act has many provisions that improve the way healthcare is delivered to American citizens. And many business owners have found ways to profit from the changes in how people get their insurance and how medical organizations deliver care.

People in the medical device industry have seen wonderful growth but they are now facing some issues that could spell a decline in profits for the industry. Innovation will be the only way out of any possible dip in profits.

According to Bizjournals.com, there are five different factors that spell danger for those in the medical devices industry. The government may play a role in helping in one area, though.


The Change in Power

According to bizjournals.com, the people who request medical services and the professionals who provide them are increasingly looking at evaluations of medical devices and making more informed decisions. That increases the importance of creating quality products that work and the need for a positive reception from the public.

Cost and value are still factors, according to the article, but safety and effectiveness are becoming much more important. In other words, it is important for manufacturers to make products that are considered quality.


The Government is Watching

Medical devices are part of the focus in Obamacare and that means that medical devices are certain to experience more scrutiny. According to bizjournals.com, recalls have placed a target on the manufacturers of medical devices. That has caused regulators to tighten up on their enforcement of regular regulations and there have also been a good amount of new ones added.

The article goes on to say that Food and Drug Administration audits have increased by 40 percent in the past year and that warning letters are also on the rise, with a 24-percent increase in the past 24 months.


An Unclear Origin of Innovation

The medical devices industry already has a somewhat negative connotation because of the Affordable Care Act and the fights in Congress. Currently, there is a tax on all medical devices and there appears to be bipartisan approval to overturn that tax in an effort to help businesses affiliated with the healthcare industry.

medical-billing_146650508These issues have undoubtedly prevented people from starting businesses in the industry, according to bizjournals.com. Instead of developing new products and services that could serve the public, entrepreneurs are focused instead on improving or altering products that already exist.

The reason? Governmental policies have been developed over the last few years based on the policies put forth in the Affordable Care Act. But the Affordable Care Act is fluid, and since things change so fast, there is little incentive to start new businesses in the medical devices area. There is still uncertainty in the market, and that is not a market that most investors would even want to get involved in.

Additionally, according to the article, the regulatory focus on new medical device manufacturers, and the reimbursement rates, have deterred many investors from putting their capital into the field. Since new products are going to face a backlog and increased scrutiny, there is simply less motivation for individuals or companies to invest time and money into entering the field.

Because of all the uncertainty, there has simply been a lack of capital when it comes to businesses that are seeking loans and other financing to get off the ground. According to bizjournals.com, new innovations are simply not making it because of the tough market.


New Delivery Models

The new healthcare exchanges and a bigger emphasis on people paying attention to the details regarding their healthcare means that companies must evolve in their marketing designs and also the cost effectiveness of their products. Increased scrutiny means that people and businesses are finding new ways to get their medical devices for much cheaper rates.

It means that, once again, companies must find ways to evolve to meet what consumers demand. Hospitals no longer just run the show without any oversight. People now have more choices and that means that cost effectiveness is now a very high priority.


The Lower Class is Now Involved

The Affordable Care Act opened the doors for many people to get healthcare whereas in the past they were not part of the conversation. People with less expendable income are always looking for ways to get the things they need at lower prices.

That means that there is now a larger push of lower-income people in the market and they are going to be looking for great value. New business models will be needed, according to bizjournals.com, and that will necessitate lower price points and more value-based offerings that didn’t seem to be necessary in the past.

Healthcare is no longer limited to the people who have solid incomes – it’s now open to all Americans, some of whom wouldn’t have otherwise sought medical devices before the Affordable Care Act.


How the Elimination of the Medical Device Tax May Help

Currently, there is a 2.3 percent tax on medical devices under the Affordable Care Act. It simply means that the prices that people and insurers must pay is higher than it would otherwise be without the tax.

advamed device tax


But the tax appears to be imperiled. Facts reported by the Washington Post state that the medical device tax eliminates tens of thousands of jobs and stifles innovation, neither of which our citizens or economy should be forced to deal with.

The Washington Post cited an AdvaMed study which said its own members have had to cut 14,000 jobs in the industry because of the tax and also that they have prevented an additional 19,000 jobs from being created.

Lobbyists for the industry have been hard at work in Washington, D.C., and they are fighting to repeal the tax. Many Republican lawmakers have been outspoken in their opposition to the tax, which can affect everything down to surgical gloves.

In governmental negotiations, the repeal of the tax has been used as a bargaining chip in a potential government shutdown. President Obama has expressed a willingness to abolish the tax, an act that would lift a financial burden from the industry.


The Likely Fallout

Firms can benefit from the repeal of the medical devices tax. According to Ernst and Young, it would aid an industry that has still found a way to increase its revenues four percent to $336 billion in 2013.

The nonpartisan Congressional Research Service, according to the Washington Post, predicts that the changes would be unlikely to change the amount of profits from medical device sales. The change of 0.2 percent would not greatly help company profits, but would affect customer prices going forward.

Filed under: Technology, US Healthcare, Resources, Obamacare, News, Affordable Care Act

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