Reform ramp-up slows device and Dx demand

Johnson & Johnson ($JNJ), Abbott ($ABT), St. Jude Medical ($STJ) and Quest Diagnostics ($DGX) are already experiencing new declines in demand for non-emergency medical devices and diagnostic tests. And that reality will likely spread to their competitors, Reuters reports. Blame the gradual ramp-up of the Affordable Care Act, which is likely to broaden the trend through much of the med tech industry in the months ahead.

As the story explains, implementation of the new healthcare law appears to be causing a trickle-down effect that's hitting device and diagnostic companies' bottom lines, as well as surgical supply companies. The Affordable Care Act will expand coverage to tens of millions of Americans, and doesn't fully kick in until 2014, but employers are switching to high-deductible insurance plans to help address some of their anticipated extra costs created by the law. And as patients seek to manage their own expenses, they are delaying non-emergency medical procedures until they reach their deductibles. With this in mind, hospitals are seeing lower in-patient and out-patient volumes, the article notes, and the aforementioned device and diagnostic companies experienced a softening in demand as a result, the story notes, citing early data from their 2013 first quarter earnings.

Many have noticed the trend, including Morningstar, J.P. Morgan and other analyst firms that pointed to the decline in doctor and hospital visits as well as surgical admissions, according to the Reuters story.

The 2.3% medical device industry tax is one of those extra costs created by the Affordable Care Act. Tax supporters say the measure is needed to help support the health reform law, and that device companies can make up the extra cost in other ways. But opponents see the tax as a killer of both jobs and innovation, and they will likely cite first quarter earnings reports as another reason to repeal the tax entirely. That argument has gained steam in recent weeks, but it may not go very far unless Congress can come up with a way to replace the nearly $30 billion the tax will generate over the next decade.

As Reuters notes, analysts see a chance for some sort of rebound later in the year. That's because patients with high deductible plans are likely to pursue their non-emergency medical procedures and diagnostic tests after they meet their deductibles, a trend that occurred to a smaller degree late in 2012. But there's another overarching element that also tamps down device and diagnostics use--a continued sluggish economy, with many potential customers that continue to be unemployed.

- here's the Reuters story