AdvaMed, the medical device industry’s trade association, has announced a new ad campaign to push Congress to repeal the device tax.
This past week, the organization also released a study showing that the price of hip and knee implants has fallen since 2007 because of pricing pressures from hospitals.
“This is the way of the double jeopardy the industry is placed under, ” Dave Dvorak, CEO of Zimmer Holdings, Inc. and chairman of AdvaMed told our friends at MassDevice. “We have the device tax directly upon us and then customers who are expecting us to absorb a piece of what they’re being asked to take on to finance healthcare reform.”
The ads, scheduled to start running in online and print outlets on September 26, 2013, reportedly says repeal efforts could save 43, 000 jobs, save billions and improve the U.S. industry’s global competitiveness.
“Congress must act now for jobs & medical innovation, ” the ad states. “The medical device tax has already cost medical technology companies more than $1 billion this year alone.”
Britt: “Soaring Margins”
The ad announcement came on the same day that The Wall Street Journal’s MarketWatch ran a story by Russ Britt saying the device tax was put in place in the first place because device makers had “soaring margins” in the decade prior to the passage of Obamacare.
Britt wrote that seven core medical-device makers on the S&P 500 at the end of 2009 had nearly tripled their net margins, to 14.3% on average from 5% in 1999. “Sales of the device makers more than tripled in that time frame, growing more than 264%. Meanwhile, earnings for the seven companies ballooned more than ten-fold, leaping to $6.3 billion from $585 million.”
“Companies like Stryker Corp., which said recently it would have to lay off personnel as a result of the tax, managed to stretch its margin from 1% in 1999 to more than 16.5% in 2009.”
Since 2009, Britt wrote the average margin for those seven companies has kept inching up. For the 2012 fiscal year, the average margin grew to 16.1% from that 14.3% figure. “Most companies hovered around the same margin percentages they had achieved by 2009, but a few made some significant strides. One was industry leader Medtronic Inc., whose margin swelled to 21.2% from 14.9% in 2009. That was up from 11% in 1999.”
“Another thing to keep in mind, ” added Britt, “is that while other health-care sectors such as biotech and pharmaceuticals may have healthier margins of anywhere from 20% to 30%, those figures stayed fairly consistent from 1999 to 2009 and, thus, weren’t targeted in the same way as medical-device makers. Meanwhile, insurers, hospitals and such specialty sectors as pharmaceutical distributors have margins that are only a fraction of device makers—usually ranging from 1% to 5%—and they have changed little since 1999.”
AdvaMed has to try to get rid of the tax, but the road is steep.
