The cost of medical device manufacturing continues to increase unfortunately and manufacturers have prepared for the impact. This issue stems from the implementation of the Obamacare Medical Device excise tax.
The tax puts more pressure on medical device manufacturers who sell end product. In this position, organizations must find ways to mitigate costs, such as employee reductions and across the board budget cuts to keep their profits maintainable. Concurrent to cutting costs, the increased taxes have driven some manufacturers to raise their prices, which could possibly drive down sales.
Although SMC Pneumatics USA is not impacted directly by this tax, our medical manufacturing customers are. With this in mind, we want to discuss this tax below and how it impacts manufactures and what it means for medical device consumers.
What is the Medical Device Tax?
As of January 1, 2013, medical device manufacturers were required to pay an additional 2.3% tax on the products they produce for sale. These include items such as surgical gloves, cardiac pacemakers, advanced imaging equipment and other types of medical devices.
The reasoning for this tax, which coincided with Obamacare, will possibly expand sales of these types of devices and boost medical device manufacturing. With Obamacare, more individuals could afford these devices and purchase more with newly acquired health insurance via the government.
Keep or Remove the Medical Device Tax?
Tax supporters say if repealed, it would cost the government $26 billion dollars over the time span of 2012-2024 period. The repeal would force Congress to increase taxes other ways and possibly cause the repeal of other revenue raising provisions in health care, which would increase the national deficit.
Others, such as those in the medical device manufacturing industry want to remove the tax. One reason states they already must pay a large amount to the government to stay compliant with the new Affordable Care Act. Now, they have to pay a tax on these same devices produced and sold for medical necessities.
Also, those who oppose the tax feel the money could be better spent by hiring more employees and boosting their efforts in research and development (R&D). For instance, California’s employment in this industry dropped to 70,000- a drop from 76,000 in 2009.
The Impact on Medical Device Manufacturing
For manufacturers, producing and selling medical devices is more costly than before. These costs come in product manufacturing sales, but also a productivity loss, with less workers, reduces manufacturers’ ability to respond to demand for things such as pneumatics for healthcare. With fewer resources, financially and personnel wise, you must compensate and that can hurt how much product you can generate for the customer.
The increase in cost also impacts Sub-Assembly manufacturers such as Orange Coast Pneumatics, Inc. who could potentially feel a trickle-down effect if the manufacturers’ sales decline since they, in turn would not be ordering as many units due to basic supply and demand. Fortunately, the products SMC Pneumatics USA offers will not be increasing in price, which is great for everyone.
Medical Device Tax: For or Against?
Reading all the information provided, what’s your opinion on the subject? Would you keep or remove the tax? How does the impact on medical device manufacturing influence your decision and what you would you do to offset the cost on either side?
Many medical manufacturing companies now must work to stay compliant with this new tax. That’s why, here at SMC Pneumatics USA, we take this into account and continue to keep our medical manufacturing customers in mind by keeping our prices as is; with no increase to compensate for the medical device tax.
Orange Coast Pneumatics Inc. (OcAire) is an official, certified provider of SMC Pneumatics USA products. SMC offers 11,300 general pneumatics products, with over 560,000 variations, engineered to meet applications in every sector of the market, including medical device manufacturing. From Semiconductor to Automotive, Medical to Petroleum, SMC's products are designed to fit your unique requirements.