Finding Ways to Cope with New Medical Device Tax

2016-bl-new-regulation-page-imageMedical device companies started paying a 2.3 percent excise tax this past January as part of the Affordable Care Act, also known as "Obamacare." The industry has opposed the tax, which is being assessed on total revenues, not profits. The Obama administration has said the excise tax will be offset by an increased number of insured people receiving treatments; it's something that remains to be seen.

Some companies have addressed their new financial burden by announcing layoffs and reducing their R&D investment. Now more than ever, medical device companies must do more with less. Let's explore a few ways of doing that, but first, consider the following facts about the industry.

"Now more than ever, medical device companies must do more with less."

Industry Profile

The medical device industry employs more than 400,000 workers nationwide, generating about $25 billion in payroll, according to a coalition composed of the Medical Device Manufacturers Association (MDMA), Advanced Medical Technology Association (AdvaMed), and Medical Imaging and Technology Alliance (MITA).

The coalition said the industry invests $10 billion in R&D annually and pays out salaries that are 40 percent higher than the national average. It is estimated that under the Affordable Care Act, medical device manufacturers will be paying about $194 million per month in excise tax.

"In this difficult economic climate, the medical device tax threatens hundreds of thousands of American jobs as well as life-saving innovation," said Gail Rodriguez, MITA executive director, in a press statement.

Importance of Efficiency

While some companies have no choice but to implement layoffs and reduce their R&D investment, such measures can only take them so far without sacrificing productivity, innovation, and profitability. In the end, medical device companies need to improve their overall operations and reduce their costs in a more sustainable way.

One way of doing that is by promoting efficiency and optimizing productivity on a daily basis. "The excise tax places our medical device manufacturers in a very difficult situation as it pertains to profitability. It is absolutely essential that every single resource is as efficient as possible and all processes are operating at full capacity," said Matt Lowe, executive vice president of global sales and marketing at MasterControl Inc., a software solutions provider that serves life science and other regulated industries.

Lowe, a mechanical engineer with over a dozen years of medical device experience in product development, product management, and regulatory compliance, said MasterControl is helping medical device firms save time and money through automation and implementation of best practices in CAPA, root cause analysis, and other critical areas.

"Medical device companies can make their resources go farther by automating labor intensive tasks and reducing scrap rates and reworks," said Lowe. "In difficult times such as these, they must implement tools that will make sure they are getting every ounce of value out of their labor investment."

In addition to increasing efficiencies and reducing waste, it is essential that medical device manufacturers implement and maintain a robust quality management system (QMS), according to Kevin Marcus, a senior product manager and a medical device expert at MasterControl. He has more than 25 years of quality, regulatory compliance, and auditing experience in both the medical device and pharmaceutical industries.

"Effective, centralized QMS systems provide management with the information and tools necessary to reduce the likelihood of expensive regulatory actions including 483s, warning letters, and recalls," said Marcus.

Doing More with Less

Given that the new excise tax is here to stay, it all boils down to doing more with less for medical device companies. Switching from a manual or hybrid QMS to a fully automated system is one way they can increase efficiency, reduce waste, and boost productivity without having to resort to further layoffs and R&D cuts. Consider the following:

  • The biggest advantage of automation is that it reduces the number of people needed to do the same amount of work. A company can save resources that can be redeployed to other areas, such as R&D.
  • Increasing overall efficiency helps accelerate time to market, which means medical device companies can bring in revenue faster.
  • Automation helps facilitate regulatory compliance by making it easier for all stakeholders to participate in quality and compliance processes. Again, this will help accelerate time to market, and therefore, help generate revenue sooner than later.

After considering the abovementioned factors, some of you will probably say that your companies are too small to invest in an electronic QMS. If this is the case, then consider subscribing to a cloud-based service. It will offer you the same robust and secure QMS without the large upfront cost of owning a system and without the need to hire a full IT staff. Cloud is a great alternative for small companies that are, unfortunately, hit the hardest by the new excise tax.

Cindy Fazzi, a copywriter at MasterControl Inc.,writes about the life sciences industry and other regulated environments. Her two decades of experience as a news reporter, writer, and editor includes working for the Associated Press in Ohio and New York. She has a master's degree in journalism from Ohio State University.

Note: The views expressed in this article are those of the author and do not necessarily represent those of her employer, GxP Lifeline, its editor or MasterControl Inc.