The new medical device tax that became law on January 1st, 2013 is causing a great deal of heartburn for medical device companies, particularly small to medium sized companies with limited financial resources.  The device tax was created to offset costs associated with the implementation of Obama Care but many feel that the tax unfairly targets device companies affecting profits, new product development, and for some companies survival.  Ultimately tax payers who use these devices may  bear the burden of the tax.

The tax, which is 2.3% seems somewhat trivial to the average person, but look deeper and you will quickly discover that the tax is much more burdensome to device manufacturers than one would think.  The tax is applied to medical device gross revenues instead of profit which creates a big deduction from the bottom line.  Small companies with low profit margins and start ups that are not yet profitable are particularly vulnerable to the new tax.  For all device companies this means fewer dollars available to pay salaries, buy needed equipment, or fund new product development.

There are many ways in which device executives will attempt to soften the blow of the new tax.  Many will be forced to cut costs which may include fewer employees or reduced benefits for those still working.  Some may focus on international sales where the tax is not applied, leaving U.S patients without access. Others may pass the tax onto consumers in the form of higher prices.

Another strategy that is likely to be employed by many device companies is moving production (or at least a part of production) offshore.  The low cost of labor and low cost of production that follows is an attractive solution.  Offshore manufacturing gives companies the ability to maintain profit margins and avoid other less attractive strategies.

Many small, medium, and large device companies are without sufficient knowledge of offshore manufacturing.  They do not possess the contacts or expertise needed to be successful in offshore production.  It would be wise for these companies to select a contract manufacturer with offshore experience to help them.  When selecting a contract manufacturer it is important to select a company that has vast experience in offshore manufacturing, excellent supplier relationships, experience with medical device production, and a quality system in place that meets the needs of your business such as Globalink Manufacturing Solutions.

To learn more about what we can provide your company please visit us at Globalinkmfg.com

Medical Device Tax Impacting Manufacturers