Survey: Med device companies say they'll pass on tax to customers

February 26, 2013
by Brendon Nafziger, DOTmed News Associate Editor
A new survey of medical device companies has turned up some good news and bad news.

First, the bad news. More than 40 percent of medical device companies plan on passing along at least part of the costs of a new medical device tax onto their customers. The good news? Most companies say they will look to lower production costs rather than lay off staff.

In its 2013 Medical Device Industry Survey released last week, consulting firm Emergo Group polled thousands of workers from device companies around the world, trying to suss out where they think the industry is headed.

Emergo then concentrated on 657 senior executives at companies in North and South America to find out how they're reacting to the 2.3 percent excise tax on device sales, which went into effect this year.

According to the survey, about 42 percent of respondents said they'll pass along "some or all" of the cost to their consumers, while 31 percent said they'll lower production costs without cutting staff. However, 11 percent said they would reduce employee headcount, about 12 percent would cut back on R&D, and one and a half percent would exit the U.S. market altogether. (Respondents were allowed to check off more than one answer, so there's presumably some overlap for all of these.)

Interestingly, bigger companies were more likely to say they were cutting staff. Pulling back to look at the responses from 1,100 senior executives from countries around the world, Emergo found that 13 percent of respondents from companies with 250 or more employees said they would lay off workers, compared to only 6 percent of respondents from companies with under 10 employees. Bigger companies, however, were the least likely to say they planned to pass along tax costs (28 percent), cut R&D spending (28 percent) or abandon the U.S. (0.8 percent).

There is some uncertainty, though. Close to half of these respondents didn't really disclose their plans. As Emergo puts it, "It remains to be seen what impact the (tax) will have on employment."

Still, the overall mood of the executives was pretty bright. In the survey of the whole list, some 3,300 respondents, 71 percent were either very or somewhat positive, up from 67 percent in last year's survey. And only 12 percent or so were negative.

"Despite global economic uncertainty, results suggest that medical device firms expect growth opportunities driven by aging populations and growing middle classes in emerging markets including Brazil, India and China," the report said.