President Obama's re-election victory last night — and the Democrats' retention of the Senate — means the Affordable Care Act is likely to survive. And for medical device companies, regardless of whether they support the broader aims of the measure, that means one headache they can count on: the medical device tax.
The 2.3 excise tax on sales of medical equipment, called for by the ACA and set to go into effect in January, is meant to raise some $30 billion to offset part of the costs of expanding insurance coverage. But device companies say the tax, which is applied to revenues and not profits, will lead to layoffs and dry up R&D funding.
And manufacturers of medical imaging equipment cite a new report on venture capital funding as evidence that all is not well in the sector, which has experienced three straight quarters of declining investments.
The third quarter 2012 MoneyTree Report Venture Capital Investment Report, recently put out by Pricewaterhousecoopers and the National Venture Capital Association, gathers data on VC investments in emerging private companies.
The report shows overall investments are down from the previous quarter (but up over the first quarter this year). But the investments in the medical devices and equipment sector are at their lowest level since early 2004, and have experienced a 48 percent decline in dollar value since the same period last year. For the third quarter 2012, investments stood at $435 million across 65 deals, down from $751 million across 89 deals in the third quarter 2011. The investments total also fell over 36 percent from the previous quarter this year, when they stood at $687 million across 89 deals.
The Medical Imaging & Technology Alliance, a trade group representing OEMs that manufacture diagnostic imaging equipment, suggested the tax and other "regulatory uncertainties" were either scaring investors or could hurt cash-strapped companies.
"This report is yet another indication of the economic impact of regulatory uncertainties — such as those created by the impending medical device tax — on device manufacturers and their ability to create well-paying jobs in the United States," Gail Rodriguez, the executive director of MITA, said in a statement.
Legislative efforts have been attempting to scuttle the tax. The House passed a bill to repeal it over the summer, but it was not taken up by the Senate.
