SOURCE: Kalorama Information

Kalorama Information

January 27, 2011 10:14 ET

New Taxes Could Encourage Medical Device Outsourcing

NEW YORK, NY--(Marketwire - January 27, 2011) - A new tax on device manufacturers as part of healthcare reform may be one of many factors driving the outsourcing of medical devices, according to "Contract Manufacturing in Medical Devices (Materials, Processing, Electronics, Finished Products)," a new report by Kalorama information. The healthcare market research publisher reports that the once conservative medical device industry is outsourcing at an increasing rate, and the new tax, which could put pressure on margins, will be one more factor in growing the $60 billion market for outsourcing medical devices and device parts.

In order to partially subsidize healthcare financing and reduce the deficit strain, the Patient Protection and Affordable Care Act (PPACA) institutes a 2.3% excise tax on "taxable medical device" sales beginning January 1, 2013. The tax applies to medical devices intended for human use, but exempts eyeglasses, contact lenses, and hearing aids, as well as devices that are "generally purchased by the general public for retail or individual use," as determined by the Secretary of the Treasury. The Medical Device Manufacturers Association (MDMA) and other groups successfully fought to reduce the target size of the tax as well as the rate, but even in its revised form Kalorama thinks there will be an impact.

"The tax itself won't force a firm to outsource," said Bruce Carlson, Publisher of Kalorama Information. "But since the law taxes revenues notwithstanding the cost of manufacture -- it could add further pressure to bring costs down in order to restore profits." 

Although the tax will not be a reality for device manufacturing until 2013, it is a consideration now for many in the industry, and will be for the next few years as they await any further action on healthcare reform. Because the excise tax does not include a blanket exemption for Class I devices, the large category of non-retail Class I products, a wide range of medical devices, including low-risk hospital and physician office supplies, will be subject to the new tax.

"2013 is not that far away in terms of planning for manufacturing and soliciting vendors," Carlson said. "Device manufacturers will make outsourcing decisions in the coming year, and the future tax will be a factor on their minds."

At least one contract manufacturer agrees. Guidewire maker Lake Region Medical indicated in a recent press release: "The pressure on major MD companies from the new taxes introduced in healthcare reform presents a growing opportunity to further serve the industry."

Kalorama Information's report projects revenues for various areas of device manufacturing services. More information on "Contract Manufacturing in Medical Devices (Materials, Processing, Electronics, Finished Products)" can be obtained at: http://www.kaloramainformation.com/redirect.asp?progid=80943&productid=6059484.

About Kalorama Information
Kalorama Information supplies the latest in independent market research in the life sciences, as well as a full range of custom research services. We routinely assist the media with healthcare topics. Follow us on Twitter (http://www.twitter.com/KaloramaInfo) and LinkedIn (http://www.linkedin.com/groups?gid=2177845&trk=hb_side_g).

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