Meaningful Use, The Affordable Care Act, Sequestration, and Medical Devices

The Healthcare ecosystem in the United States is changing dramatically due to significant regulations and legislation. Though Obamacare gets the most attention for its impact on patient care and healthcare coverage, legislation such as the Meaningful Use Regulations passed in 2009, followed by the passage of the Affordable Care Act in 2010, and the most recent Sequestration may have a profound impact on the opportunities for developing medical devices and medical device investors.

The following series breaks down how these pieces of legislation may become catalysts – for better or worse – in disrupting the medical device industry. This introduction will outline major themes related to Meaningful Use, Affordable Care, and Sequestration, upon which our series will be based.

Meaningful Use Regulations for Providers:

Put very simply, ‘Meaningful Use’ is focused on comprehensive provider use of electronic healthcare records.  Diagnostic, monitoring, and treatment related devices must become integrated devices compatible with EMR/EHR systems if they are going to fit into the evolving front line.

Meaningful Use requires providers to utilize electronic medical records and communication systems in a structured, phased-in timeline achieving the following objectives:

  • Higher accountability
  • Efficiencies
    • Faster
    • Better
    • Cost verification related to outcomes
    • Patient satisfaction and engagement
    • Internal and external communications efficiencies
    • Overall Providing better quality of care

The Affordable Care Act

Medical device companies welcomed 2013 with a 2.3 percent device tax as part of a $20 billion tax included in The Affordable Care Act passed in 2010. While the 2.3 percent tax may not sound punitive, it is a tax levied on total revenues – regardless of whether the company is profitable or not. Some companies may actually end up owing more in taxes than they generate from operations.

On February 26, 2013 in Washington DC, Mark Leahey, President and CEO of the Medical Device Manufacturers Association (MDMA), issued a statement regarding the Senate Budget Committee hearing examining the impact of ACA on medical devices:

“While the medical device tax has only been in effect for two months, the devastating impact of a policy that thwarts innovation and patient care continues to mount.  More jobs have been lost in this high-tech, manufacturing-based industry, and sadly more will come until this policy is repealed.  In addition, companies are shelving plans to open new facilities and are moving manufacturing overseas to address this tax…”

AdvaMed’s  Infographic – The New Deficit Reduction – shows how repeated reimbursement and funding cuts, new taxes, and regulatory changes are affecting medical devices’ already thin profit margins.

Sequestration

The FDA stands to lose 5 percent of its 2013 budget five months into its fiscal year, making it feel more like 9 percent. Although the agency claims to have no plans for furloughs or lay-offs, slowing approval processes are likely at a time when the need for more efficient technologies is greater than ever.

Sequestration freezes the FDA’s access to an estimated $82 million in user fees paid to the FDA by companies when they submit their initialregulatory applications. A user fee is essentially revenue to the FDA that does not come from congressionally appropriated funding – i.e. tax dollars – thus furthering the concern of slowing approval efficiencies.

FDA user fees came about in 1992 when Congress passed The Prescription Drug User Fee Act (PDUFA) authorizing the FDA to collect fees from companies that produce certain human drug and biological products. Since the passage of PDUFA, user fees have played an important role in expediting the drug approval process primarily by paying for staff allowing more reviews and approvals of new drugs and medical devices. The inclusion of FDA user fees in Sequestration will make up $82 million of the estimated $209 million to hit the FDA according to Office of Management and budget figures.

Sequestration will also cut approximately $2.4 billion from the NIH’s budget this year, affecting 27 institutes and centers.

Adam Dion, GlobalData’s analyst covering Healthcare Industry Dynamics, explains NIH’s importance:

“Private companies typically won’t invest in research endeavors… the NIH supports roughly 432,000 jobs across the US and fuels about $60 billion in economic output each year… it’s been estimated that every $1 of NIH funding generates about $2.21 in local economic growth…”

So, despite this puzzling and troubling news, what growth opportunities remain?

  1. Point of Care technologies

This sector expects an influx of 20-30 million new patients and a hammered frontline of paraprofessionals needing to triage patients and treatment more efficiently, and more swiftly. BBC Research predicts Point of Care diagnostics will grow from $13.8 billion in 2011 to $16.5 billion in 2016.

2.       Telemedicine, Medical Home devices

According to an American Medical News article  BCC Research predicted the global telehealth market is expected to grow from $11.6 billion in 2011 to about $27.3 billion in 2016.

3.       Disposable devices and accessories

In June of 2012 a new report released by Freedonia projects the US disposable medical supplies and devices to increase an estimated 4.3 percent annually to $46.7 billion in 2016. The same report predicts the demand for disposable medical devices and supplies will continue to increase as hospitals, outpatient and other healthcare facilities implement stricter infection prevention standards and safeguards on one side while reimbursement/costs pressures complete the squeeze on the other side.

Within every season of change are opportunities for growth…the challenge is to find the opportunities first!

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