Kalorama: Device tax could encourage outsourcing

A new tax on device manufacturers as part of healthcare reform may be one of many factors driving the outsourcing of medical devices, according to a report released by Kalorama Information.

The healthcare market research publisher reports that the once conservative medical device industry is outsourcing at an increasing rate. The new tax, which could put pressure on margins, will be one more factor in growing the $60 billion market for outsourcing medical devices and device parts, say the authors of Contract Manufacturing in Medical Devices (Materials, Processing, Electronics, Finished Products).

"The tax itself won't force a firm to outsource," explains Bruce Carlson, publisher of Kalorama Information. "But since the law taxes revenues notwithstanding the cost of manufacture--it could add further pressure to bring costs down in order to restore profits." And even though manufacturers have until 2013, the tax is a consideration now for many in the industry. Furthermore, because the excise tax does not include a blanket exemption for Class I devices, a wide range of medical devices, including low-risk hospital and physician office supplies, will be subject to the new tax.

"2013 is not that far away in terms of planning for manufacturing and soliciting vendors," Carlson said. "Device manufacturers will make outsourcing decisions in the coming year, and the future tax will be a factor on their minds."

At least one contract manufacturer agrees. Guidewire maker Lake Region Medical indicated in a recent press release: "The pressure on major MD companies from the new taxes introduced in healthcare reform presents a growing opportunity to further serve the industry."

- get the Kalaroma release