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Medical Electronics Possible Pawn in the US Government Shutdown – Growth at the center


It's not every day that we happen to see the convergence of growth trajectories for the semiconductor and electronics industry and leading US news stories. This week has been building around just such a moment. Could an excise tax on medical devices, and notably among them included medical electronic devices, be a key (or pawn) in moving toward a resolution for the current US government shutdown and stalemate? Possibly so, after having also been one of the issues (of not repealing the medical device excise tax) that reportedly lead to the shutdown.

The 2.3% talking point

Small numbers can have a big impact, after all. In this case we are talking about a very big number: US $29 billion for the period 2013-22. That is the dollar equivalent that is estimated to be at the core of the rumored bone tossing over the possible repeal of the 2.3% medical device excise tax that was to assist in the funding of the Affordable Care Act (ACA). This excise tax was actually passed and approved back in 2010 during the various negotiations around the ACA and, importantly, does not include any "retail" devices which consumers could purchase, rather these are identified as medical devices only available through medical professionals for use in or on humans (see the IRS code and original Public Law 111-152).

This week's political hot potato is coming close to centering on precisely this tax, but it is by no means a new idea to the ongoing debate. Rather, the medical device excise tax repeal was formally introduced by the US Joint Committee on Taxation as a Mark-Up for consideration by the US House Committee on Ways and Means, back in May 2012. The repeal was, obviously, not enacted in 2010 and made a reappearance leading up to the shutdown and may now be used a piece in the negotiations puzzle, as cited also by MedCity news which targets the medical innovation community.

Why should the semi & electronics industry care?

Okay, so there's a quick crumb trail of what exactly is being talked about and where it all came from. The real isuse on this first Friday of October, in the midst of a US government shut-down is the threat to the positive momentum we were seeing in consumer and enterprise/industry spending and financial loosening due to (once?) modest confidence growth. That's a real issue for our industry. The negative business and economic impacts cannot continue in a see-saw or wait-and-see mode. We need a solid return to growth.

Why care about this seemingly arcane tax event though rather than the more macro issues then? Well, you can consider it as yet another indicator of the strength of the medical (electronics) device growth. Look simply to the anticipated yield on a 2.3% excise tax equaling US $29 billion over the 2013-2022 period. That's quite a yield for a small percentage. What these numbers demonstrate is the strength (growth) in spending on medical devices, among them are the quickly growing subset of medical electronic devices. As The Washington Post recently summarized the impact of the ACA from a business perspective:

The Affordable Care Act is expected to expand health insurance coverage to millions of Americans, which amounts to a windfall for health-care providers. The previously-uninsured will, all of a sudden, have health plans that cover trips to the doctor and hospital. That's expected to increase the consumption of health care.

Regardless of your politics, an increase in medical electronic device purchases is positive and provides one avenue of solid growth. The increase in the number of people able to take advantage of preventative and remedy care is going to increase under the ACA, a fact that economically directly translates into increased consumers for products – medical (electronic) devices. As Forbes recently reminded us, from a purely business and industry perspective, that is a significant positive in terms of volume sales alone. Medical device demand growth brings with it increased competition to fulfill demands, innovation to spur new solutions at better costs to purchasers (regardless of the tax implications, lower ASP is a lower ASP), and therefore an increase in the supply chain supporting the end-devices. (For one "think tank" perspective, see the recent review of the medical device tax impact by the Center on Budget and Policy Priorities.) Of course the costs of devices themselves are always at the core of debates, as was well-argued in this recent post weighing medical and fiscal pros and cons from The University of Pennsylvania's Wharton School.

Growth is still undeniable

No matter the outcome of the ACA's success or failure, or even the US government arm wrestling, the demand for medical (electronic) devices and mobile health care (mHealth) connected via smart wireless devices (SWDs) has a secure and undeniable growth trajectory ahead. Simply put, the opening of ubiquitous computing floodgates has, in turn, pushed open the rapid adoption of new patient care connectivity opportunities. The expectations, features, and possibly even cost and time efficiencies that consumers (and enterprises) have come to demand of SWDs and consumer electronics (CE) is likely to trickle over to the medical industry as well.

Big Data reminds all of complexity

Beyond these debates, today's latest news linking our industry with the ongoing US Government news and ACA discussions is that the complexities of handling and interconnecting an onslaught of people amounts to the creation of a new Big Data set. This IT and hardware challenge is nowl also going to affect US national policy. As Forbes presented today, there will likely be a necessary extension on the individual mandate to carry insurance, part of the ACA, due to IT problems being encountered during this heavy ACA traffic time. However, it is unlikely that the web traffic alone is at the cause of the online slowdowns. Rather, as Forbes reports, "[T]he issues are unlikely to be mere coding errors, but stem from the way the modules are constructed to speak to different systems and networks."

Were there a question of the "trickle down" effect of secondary business growth from increased connectivity, the opportunities for IT, data servers and storage, as well as network equipment have certainly proven their case as well this week.

Lisa Ann Cairns, Ph.D.
Written on Friday, 04 October 2013 12:13 by Lisa Ann Cairns, Ph.D.

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