Impact of Healthcare Reform on Medical Device Companies; Three Core Points

September 18, 2012

A new report released last Thursday provides three core points for medical device companies on the impact on the medical device industry of last year’s landmark healthcare reform.

1. Weakened Tax Rationale. The report from ROTH Capital Partners, an Orange County, California-based investment bank, discredits the theory that medical device companies will realize a windfall from the large number of new patients that will enter the healthcare system as a result of the Patient Protection and Affordable Care Act. This large windfall has been the rationale behind the newly established 2.3 percent medical device tax levied on U.S. sales of medical equipment, also contained in the Patient Protection and Affordable Care Act. Discounting the windfall that medical device companies were to realize under the healthcare reform severely weakens the rationale behind the 2.3 percent medical device tax.

2. Underperformance in Massachusetts. The report analyzed the performance of nine medical device companies in Massachusetts, where universal healthcare reform passed in 2006, as the basis of its findings. The report finds that eight out of nine medical device companies did not see any sign of a windfall when universal healthcare was implemented in Massachusetts. In fact, the report finds that most companies “saw relative underperformance” in Massachusetts.

3. Unlikely to See Growth. Although no independent study has been conducted on the impact of Massachusetts healthcare reform on the medical device industry, internal audits have been performed. In an internal audit by the Kaiser Family Foundation, the Massachusetts healthcare reform has been found to have successfully reduced the number of uninsured to 6.3 percent in 2010, a 5 percent reduction from 2006 and more than two-thirds lower than the national average, which jumped 7 percent to 18.4 percent in 2010. Such increases in patients have not translated to growth for Massachusetts-based medical device companies.