Medical Devices

Why will 2013 be bad for med device companies? Hint: it’s not the tax

Anything is possible in the fiscal cliff negotiations, but without direct congressional action, the medical device tax kicks in Jan. 1.

In the medical devices group on LinkedIn, Joe Hage asked what the new year will be like for the industry. There are plenty of complaints about the ACA and gloom and doom, but several people said Obamacare is not to blame for layoffs and other painful changes.

Paul Stein

Paul Stein, president at SoCal Preclinical Services: “Just because many blame Obamacare and the 2.3% excise tax for the layoffs doesn’t make it the actual cause. Having been employed at companies like Medtronic and St. Jude Medical for 22 years, I would think, instead, that increasing recalls, worse quality systems, few new products and overpriced and poorly thought-out acquisitions finally have come home to roost. We have been seeing reports, hard data, of these things in recent years, so I firmly believe that they are having a much greater effect than legislation that hasn’t even gone into effect yet.”

Peter Stucki, a senior infrastructure developer at Accenture: “The medical device industry, at least in my little corner of cardiac products, has been saddled with a generation of managers who are “fair-weather” leaders, unprepared captaining in rough, rapidly changing weather. Why? For a long time they have been protected by an effective oligopoly that is now being challenged worldwide.

I see Obamacare merely as the first symptom of huge forces changing the paradigm:

  1. Globalization
  2. Baby boomers reaching retirement in bad financial shape
  3. Intergenerational struggle for resources
  4. Chronic stagnancy in the buying power of population in the U.S.
  5. Costs doubling every 10 years to the point where, by 2020, the cost of insuring a family will reach $30,000 (real terms) and the median earning of a family still is around $35,000 (real terms).
  6. A management using Theory X paradigm — both in industry and in government — that is long outdated in this day and age of the knowledge worker causing risk-taking and innovation to cease for a decade. Example, leading cardiac devices still use 8088 processors that were considered old 30 years ago because the incentives for innovation aren’t there.”

Tom Dowd

Tom Dowd, marketing strategist at Philips Healthcare, imaging systems: “Having worked in and consulted to medium and large-size medical device companies, their issues have nothing to do with Obamacare or the device tax. The biggest hurdles they have to address are their own inefficiencies due to overly complex and matrixed organizations. When you dig into the majority of layoffs at the large firms they stem from too many people doing the same jobs, silo-ism, and too many senior managers. Add in the lack of investment in product cost reduction (material component) and overconfiguration of products (Cadillacs in a Hyundai market) and you get to the core of the device industries challenges. I think it is going to be rough into 2015.”

Todd Snowden

Todd Snowden, president and CEO at PathoGene, LLC: “I agree with a previous commenter that the device tax, healthcare reform, etc., has nothing to do with whether it will be a good year or a bad year, they are just excuses. This will be determined I believe by two things: the ability of management to find a way to be successful in the environment that exists rather than whining about the device tax and healthcare reform; and whether we get out of the habit that we got in of believing we could continually bring products to market with significantly higher prices/costs that provide minimal or incremental improvement to patient outcomes.”

Dale Lehner

Dale Lehner, director of client services at MERA: “There is more certainty in Obamacare than there is in new product success. When all companies are subject to the same taxes, no one has a competitive advantage except those who figured out how to maintain margins even with a new tax. Less margin does not mean loss of innovation. It means wiser choices.”

If Congress makes any changes to the tax, why not apply it to profits, not revenue? As Cook Medical’s John Eckberg points out, that would at least allow companies to cover the basic expenses of running a business before paying the tax.

Comments have been edited for length. Check out the entire discussion to see what everyone had to say.

Veronica Combs

I was the editor in chief at I started writing and editing in the print world and joined a dotcom right before the 2000 crash. I was at TechRepublic/CNET/BNET for 7 years. Health was more interesting to me than the latest version of Windows, so I left for a startup tracking prescription drug news. A year later, MedTrackAlert was acquired by HealthCentral, so I shifted to audience research. The fun of daily news and interviewing smart people brought me to MedCity News in February 2012. More posts by Author

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