The Harsh Reality of the Medical Device Excise Tax – Sparta Systems Insights

There’s no denying that 2013 has brought new economic pressures thanks solely to the 2.3% Medical Device Excise Tax which is now in effect with the first payment due to IRS at the end of January. About $30 billion is anticipated to be collected over a ten year period. This new tax obligation is imposed on device companies’ revenue regardless of profit and already impacts large device manufacturers like Boston Scientific, Medtronic, St. Jude, Stryker and Covidien who in 2011 and 2012 have already publicly announced internal cost reduction activities including layoffs and manufacturing facilities relocating outside the US. About 43,000 U.S. jobs are at risk since manufacturers had to assess their manufacturing operations and transform them significantly to “do more with less.” Innovation is also impacted since the tax is imposed on cutting edge lifesaving devices. The tax burdens about 40% of the U.S. share of the global medtech industry by about one third. One way for the medical device companies to stay competitive is to place greater value in quality. Customers demand and expect high quality medical device products – in many cases their lives depend on it. Any deterioration in product quality that results from a reduced investment in quality systems and practices will have a detrimental impact on manufacturers and consumers alike. Conversely, those companies who prioritize and invest in quality stand to gain from continued customer loyalty and greater likelihood of business success. Having the right enterprise quality management solution in place to monitor all aspects of the quality management system not only increases operational efficiencies but enables leadership to focus on innovation and consumer safety.