Survey: Medtech tax’s impact milder than expected

Medical device makers last year were less affected by the medical device tax than they had anticipated. Fewer reported negative impacts and more reported no impact at all, according to an annual industry survey.

Among more than 1,200 medtech senior-level managers, 34.3% said that the medical device tax had no impact on their company in 2013. That compared with 27% who had predicted an unaffected 2013. About 45% of senior-level respondents reported "somewhat" or "very negative" effects of the tax, down from the 53% which had predicted negative outcomes.

About 1.2% reported a "somewhat positive" impact and 0.4% reported "very positive" results. The remaining 19.5% said that they were uncertain of the impact of the tax.

"Overall, the impact of the [medical device excise tax] is being felt by industry, but the impact seems to be less severe than depicted by the media and industry organizations," according to survey taker Emergo Group.

Perhaps the greatest impact was in R&D spending and layoffs, two areas frequently highlighted by opponents of the medical device tax. More companies than expected cut their R&D budgets and lowered headcounts, but half of those surveyed said that they didn’t’ make any significant changes as a result of the tax.

In last year’s survey 8.4% of senior management expected to reduce their staff in response to the medical device tax, but this year’s results showed that 8.7% actually did so. More than 10% chopped their R&D budgets, compared with 8.4% that reported in last year’s survey that they expected cuts.

Far fewer attempted to pass on the cost to customers, with 15.5% actually passing some or all of the cost along compared with 32% who planned to. More than 27% reported last year that they’d lower production costs without reducing staff, but only 7.8% managed to do so.

The smallest companies, those with 1-9 employees, were the most likely to take the tax in stride without making significant changes. That feat proved much more difficult for companies with more than 250 workers, which were also the most likely to resort to layoffs and the least likely to attempt to pass on the cost of the tax.

Firms with fewer than 10 employees were the least likely to reduce R&D spending or to reduce staff, although they were also the least likely to lower production costs without resorting to headcount cuts.

Despite headwinds such as the medical device tax, regulatory uncertainty and the lack of access to funding, medical device makers reported increasing optimism about the industry’s outlook for 2014, according to the survey. Nearly 75% of the more than 3,560 total survey respondents said that they were "somewhat positive" or "very positive" about the year ahead, compared with 71% last year.