August 4, 2015

Michael Causey, GAO Report Finds Steady Medical Device Profit Climb – Especially the Big Boys

Michael Causey, Editor-in-Chief,
Association of Clinical Research Professionals

A new Government Accounting Office (GAO) report designed to shed light on what impact the medical device tax will have on the industry in the future might have done a better job of taking us under the industry’s financial hood today.

The GAO, the non-partisan counting-house arm of the federal government.  Is often called upon by lawmakers to assess the financial impact or cost of compliance for potential regulations and taxes. These folks at GAO are mostly career bureaucrats. On top of that, they’re mostly career accountants.

In other words, they aren’t known for cooking the books to benefit either side.

But where a 2014 Congressional Research Service study suggested a medical device tax would not impact company profits, GAO seemed to play it more neutrally in a report made public July 30.

That’s why their overall assessment of the medical device industry just might be the most interesting thing they produced. GAO report defined thirty of the companies as large-sized, including 3M, Baxter, Boston Scientific, and Medtronic.

It defined 35 as medium-sized, including Accuray, Biolase, Luminex, and Utah Medical Products. GAO report defined 37 of the medical device companies as small, including Bovie Medical, Fonar, Urologix, and Zynex.

Here’s a little of what they found:

  • Net sales and profits were up between 2005 and 2014 – but it was better to be a big device company. Of the 102 surveyed, the 30 large-sized companies garnered more than 95 percent of the total net sales gains. Overall the industry enjoyed a 43 percent increase over the period, rounding out about a 4 percent increase annually.
  • Profits usually went up, except when they didn’t. While the overall trend was north rather than south. There were three periods were overall net profit decreased: 2005-6, 2007-9 and 2011-2.
  • Device industry still doesn’t know how bad it thinks device tax will be. According to GAO, 75 of the 102 companies in the report were uncertain about the full impact on their business.

While AdvaMed and others have slammed the device tax, saying it threatens jobs and funds for medical device innovation, others, including The Washington Post, have shrugged those job claims off as more about hype than fact.