Medical device makers concerned about impact of health-care reform

Posted April 15, 2010

WESTLAKE, OHIO (April 15, 4:10 p.m. ET) — U.S. health-care reform might prove popular among the uninsured, but it’s shaping up to be less popular among the medical device community.

The potential impacts of reform had been on the medical market’s radar screen well before President Barack Obama signed the Patient Protection and Affordable Care Act into law on March 23. And although the exact costs of the bill — which will be phased in over several years — are unknown, medical device executives already see some potential downsides.

“I’m not a fan of it,” industry veteran Len Czuba said of the new law. “There’s going to be added cost to device makers in the form of taxes. And if their profits are affected, who’s going to want to invest?”

Czuba was interviewed at the Plastics in Medical Devices conference, held April 12-14 in Westlake.

“There also are going to be added costs for employers to have insurance. And when that happens, the first things companies usually do are freeze hiring and cut heads,” he said.

Health-care reform “may have good intentions, but you have to realize it’s going to be expensive,” added Czuba, who is president of Czuba Enterprises Inc., a consulting firm in Lombard, Ill.

At injection molding firm PMC LLC of Cincinnati, President Lisa Jennings said she is concerned about increases in both business costs and competitive pressure that could result from the new law.

“Everybody’s concerned about risk. And, unfortunately, any cuts in spending could come straight from research and development,” added Jennings, whose firm entered the medical molding field about four years ago, and now supplies medical devices and surgical instruments.

But since the reforms don’t go into effect immediately, Jennings said there is a chance for change “before it goes into play.”

“We really don’t know all the details right now, but between the new taxes and other areas, we’re going to be impacted one way or another,” she said.

Atek Medical President Chris Oleksy, who spoke at the event, estimated the initial tax on makers of medical parts to be about $2 billion. But he added that “something had to be done” to change a system that saw the ranks of U.S. citizens without health insurance grow from 31 million in 1987 to 47 million in 2006 — an increase of 51 percent in just 20 years.

“People in Washington and others affected by this were concerned that we can’t go another 20 years and have a 50 percent increase happen again,” said Oleksy, whose firm is a unit of injection molder Atek Cos. of Minneapolis. “If the uninsured are treated in an emergency room, where do those costs go? It’s not a model that’s sustainable.”

Oleksy added that the need to take costs out of the system because of the reforms will lead many medical manufacturers to redesign their products in order to reduce material costs.

Short-term effects of the new law could be increased demand as more people enter the health system, but also downward pressure on pricing, according to Larry Johnson, healthcare marketing director for PolyOne Corp., a leading compounder and concentrate maker based in Avon Lake, Ohio.

Those lower prices — as well as increasing demand in developing parts of the world — eventually could lead some medical manufacturing to exit the U.S., Johnson said. R&D spending also could be reduced as companies’ healthcare costs increase.

“R&D is an investment, and investments have to pay off,” he said.

Cleveland-based manufacturing giant Parker Hannifin Corp. also might be affected by the new legislation. But Dale Ashby, vice president of innovation and technology for the firm’s sealing and shielding group, said he’s “more optimistic than pessimistic” about potential outcomes.

“I’m concerned about the possibility of higher costs,” Ashby explained. “But I also see opportunities for home health care and other products and technologies.”

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