Short-Term Gains, Long-Term Uncertainty: the Medical Device Supply Chain in a Post-Obamacare Era
The American medical device industry and its place in the global supply chain are currently in a state of uncertainty, as the repeal of the Affordable Care Act (ACA), aka Obamacare, looms in the near future, as do wider changes to the laws which directly affect it. No one is confident enough to guess what exactly is coming—President-elect Donald Trump and the Republican Party have promised to replace the signature legislative act of the Obama administration, in tandem with its repeal, but as of yet few details of what exactly that replacement will look like have been forthcoming. Recently, Donald Trump has even suggested keeping certain popular aspects of the ACA—such as allowing people to stay on their parents’ insurance plans until they reach the age of 26 and barring insurance companies from discriminating against patients with pre-existing conditions—while many experts agree that it will prove impossible to keep any part of the law in place while repealing other core aspects of it. Meanwhile, the recent announcement that Tom Price, one of the fiercest critics of Obamacare, will head the Health and Human Services Department signals that there is a better-than-not chance that they will seek a full dismantling of the law. The Republican Party has the tiger by the tail, so to speak, and what they do with it will have widespread effects across a number of industries, none more so than that of medical devices and equipment.
That industry experienced some initial post-election euphoria on behalf of health care companies, in regards to the likelihood of looser regulations of medical devices. President-Elect Trump has proposed striking down 2 regulations for every new one put in place, and though no details have come as to how that would actually work, the assumption is that it would apply to all industries across the board, including the medical device sector. However, if the stock market is to be taken as an indicator, that initial euphoria seems to have been overblown, as shares from that industry have fallen short of traders’ initial expectations in recent weeks. Obviously, the market is volatile, especially in this moment of uneasy transition, but it does seem prudent for those in the medical device industry not to let their hopes rise too much in terms of what looser regulation will mean for their bottom line, especially since so much more depends on how the market will react to changes to the ACA.
Whatever ends up happening with the Affordable Care Act, one thing seems certain with Trump set to take office and the Republicans in full control of Congress: a swift repeal of the medical device tax. The 2.3% tax levy on domestic sales of prescribed medical equipment was enacted in 2010 as part of the passage of Obamacare, but has been tabled for the past two years, thanks to an omnibus tax and spending bill. Meanwhile, Congressional Republicans have sought to makes deals with their Democratic counterparts in order to reduce or repeal it. Now that there is no need for such across-the-aisle deal making, the medical device industry can kiss that tax provision goodbye, much to their delight.
For reasons such as those above, a Trump presidency seems poised to benefit the industry, at least in the initial moment, although there are potential pitfalls that it may have to navigate around, if indeed it can. Trump’s promised shakeup of existing international trade agreements may prove incredibly disruptive to a supply chain that is deeply imbedded with health care companies. Higher tariffs and shorter supplies could affect the larger industry similar to how higher prices on goods will directly affect the consumer.
Likewise, a full repeal of the ACA without a comprehensive replacement in hand (no easy task, as evidenced by the strenuous effort it took to pass Obamacare—and that was with the Democrats holding a supermajority), would see a steep drop in the number of people insured, as well as enrolled in Medicaid—a number likely to be in the tens of millions, if not more. That could lead to less spending by hospitals and individual consumers, something that could directly impact medical device providers’ bottom line.
Taking this all into account, the general consensus within this sector, when it comes to bracing for change, seems to be: expect to see a spike in revenue in the short-term, while preparing for possible volatility in the long-run. If indeed that is how things play out in the post-Obamacare era, at least the medical equipment industry is well suited to ready itself. If it manages to prosper, then all the better for it; if it takes a hit, at least it has plenty of bandages on hand.
