Uncertain Prognosis: Industries Impacted by Health Care Reform

Health care suppliers 
In order to balance the overall expense of health care reform associated with the expansion of health insurance coverage, particularly through state Medicaid programs, new revenue streams were needed. One of these new sources is a medical excise tax, which has remained one of the most controversial key provisions of health care reform.
 
As of January 1, 2013, a 2.3 percent excise tax was levied on the domestic sale of medical devices paid by all manufacturers, regardless of size and revenue. The excise tax is projected to cost the medical device sector $20 billion in the next ten years and could place more strain on the US innovation system for medical technology, affecting investors' willingness to back startup companies seeking to commercialize new technologies. In March 2013, operators in the medical device manufacturing and medical instrument and supply manufacturing industries breathed a sigh of relief when the Senate voted to repeal the excise tax. Although the final decision has yet to be made, the voting results demonstrated the industries' lobbying clout; medical device manufacturers have been petitioning to repeal this part of health care reform since its introduction. 
 
While some manufacturers will likely pass the cost of the new tax on to end users, such as hospitals and clinics, others may reduce their labor force, slash research and development budgets, or delay expansion plans. Tightening regulations and intense competition, along with new market opportunities, are also prompting medical device companies to outsource manufacturing to areas with lower production costs. Merger and acquisition activity is expected to intensify because manufacturers are more likely to secure contracts with large purchasing organizations if they can offer a wide product assortment. In anticipation of additional costs associated with the excise tax and other health care reform provisions, medical device manufacturers will seek accounting services to maximize returns while keeping their books safe.
 
With all the anticipation, opposition, and uncertainty surrounding health care reform for the past three years, the implementation of its major provisions is rapidly approaching. Awareness of an industry's exposure to the changes brought on by the legislation will help accounting professionals anticipate and explain any potential change in returns to their clients, equipping them with the insight necessary to effectively minimize losses and boost profitability. 
 
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About the author:
Anna Son is an industry analyst at IBISWorld, covering the health care and social assistance sectors. She holds a bachelor's degree in business administration and a minor in marketing from Pepperdine University. Anna can be reached at annas@ibisworld.com, and the research featured in this article can be found at www.ibisworld.com.
 

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