Devices & Diagnostics

The sky IS falling for medical devices. But is that a disaster or a rainmaker?

Understatement of the week: There’s a bit of a clash of opinion when it comes to the medical device tax at the AdvaMed 2014 conference this week in Chicago. Namely, the trade group’s staunchly clinging to the opinion that it’s pretty much a disaster. But other sources at the conference, including the folks over EvaluateMedTech who released a […]

Understatement of the week: There’s a bit of a clash of opinion when it comes to the medical device tax at the AdvaMed 2014 conference this week in Chicago. Namely, the trade group’s staunchly clinging to the opinion that it’s pretty much a disaster. But other sources at the conference, including the folks over EvaluateMedTech who released a new global outlook report, indicate the industry’s thriving – even in the United States.

AdvaMed President and CEO Stephen Ubl said in a media briefing that the device tax is “playing out exactly as we feared.” He says it continues to kill jobs, has led to reduced R&D spending, is “a nightmare for the IRS” and that, in terms of government revenues, there’s “no evidence of a windfall.”

But there’s other angst as well. Along with Covidien CEO José Almeida (who kept understandably mum about its ongoing, $43 billion megamerger with Medtronic), Ubl also emphasized that on top of the tax, there’s a much more uncertain payment environment for providers thanks to tightening reimbursement among insurers, according to a new report from the Analysis Group. The study basically indicated this, too, could dampen R&D innovation and future investment. Further, some are afraid this could deter cost-conscious providers from buying into the latest and greatest new devices.

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Yet here’s the upside: many reports indicate that the industry has absorbed the brunt of a tax on device revenues. Plus, the medical device sector is absolutely thriving, if sliced a certain way. A new report from EvaluateMedTech says this is largely due, of course, to the mass consolidation (take today’s $12.2 billion CareFusion acquisition, for instance) going on among the big players in the industry.

Global medtech sales, according to the report, are projected to reach $514 billion by 2020 – and these megamergers will reconfigure the who’s who of industry leaders.

“2014 marks a year of rapid change for the global medical device market, particularly within the cardiology and orthopedic spaces, which have been dominated by megamergers,” Ian Strickland, report author and EvaluateMedTech Product Manager, said in a statement “If the deal between Covidien and Medtronic goes through, we could see a new market leader. In an industry forecast to be worth more than half a trillion dollars in 2020, that is no insignificant achievement.”

It may at surface seems like an apples/oranges comparison, but consider this: The latest report of global medtech increases has a very strong American presence (see chart above) (it’ll be interesting to see how inversion affects this) including that potential new market leader in Medtronic. Also, there have been a litany of other arguments saying that, in essence, those clamoring for a tax repeal need to find a new argument.

“This is not what (we) were led to expect before the excise tax started to bite,” John R. Graham, former vice president for payment and health care delivery research and policy at Advamed, wrote an August Forbes article.

The industry will likely remain in fisticuffs over the medical device issue, however. Ernst & Young just put out a report that medtech’s holding steady, but there’s no sizzle or wow factor in its growth rate. And it’s no secret that venture funding’s been down in medtech, and that the investment spread compared to biotech and digital health is wildly askew. Ubl said these global industry reports don’t look at smaller and midsize companies, which are ostensibly the most impacted by the tax – and, of course, that there’s just a core difference in opinion.