The medical device industry has been led by the United States for many years. According to Forbes, the sector employs 400,000 Americans directly and provides jobs for almost 2 million more people. The medical device industry is one of the few American industries with a net trade surplus.
Unfortunately, regulations and taxes are negatively impacting the industry and causing firms to either shut down or move abroad to Europe.
In an effort to force companies to focus on quality rather than quantity, legislation to ensure that all products are identifiable and secure have presented challenges to the industry. Delays on the part of the FDA and the U.S. Patent Office lengthen the approval process and cost the companies large sums of money.
The most crippling legislation for the industry is the 2.3% excise tax. This tax comes out of revenue instead of profit despite the fact that medical companies invest large amounts before they see their first cent of profit. Between research, development and navigation of the regulatory process, a company needs revenue of $1 million in order to make a profit of $100,000. $23,000 owed as excise tax is almost a quarter of the company’s profits!
Medical device companies tend to be fairly small, with 50 employees or less. Many of these companies are laying off employees to offset their extra costs. And they are talking about other solutions, such as increasing their prices. Since most of the users of medical devices are senior citizens, these costs will be rolled back to the government, who will have to pay more for healthcare.
The American government may be making a mistake in squeezing the industry. Medical device companies are at the forefront of innovation and provide products which are essential to the health of the nation at all. Forcing them to leave the country or raise their prices cannot be a positive move for the country’s economy.
At Triode, we specialize in developing new products and services for complex industries like medical devices and transportation. We work with you closely to help define product strategy, with an emphasis on reducing the risks associated with innovating in these sophisticated and often regulated consumer-oriented environments.
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