Experts Dismiss Price Hikes As Common Device Tax Balancing Measure

Article preview from "The Gray Sheet" - October 15, 2012

Existing market pressures make widespread price increases an unlikely company strategy to balance the impacts of the oncoming 2.3% device excise tax, sources say.

 

Experts Dismiss Price Hikes As Common Device Tax Balancing Measure

Article preview from "The Gray Sheet" - October 15, 2012

The notion that companies can offset the impact of the 2.3% device excise tax scheduled to take effect in January by enacting pricing increases is unlikely to play out in reality, in most cases, industry watchers say.

Given anemic market growth trends, “most medical device companies will be unable to pass the device tax on to their customers due to a lack of pricing power,” Mizuho Securities analyst Michael Matson told “The Gray Sheet.”

“There may be some product categories where this does happen, but I think these will be few and far between,” he said.

Larry Biegelsen, an analyst with Wells Fargo, generally agreed. He noted that in markets without significant pricing pressures there could be some opportunity for price hikes; he cited as an example situations where a novel product is on the market with no direct competitors, such as Edwards Lifescience’s Sapien transcatheter aortic heart valve. Edwards did not comment on the matter.

Biegelsen also suggested that, in aggregate, the 2.3% tax would be a “pretty small” charge for large companies.

“Premier worked closely with Congress to design the device tax,” the rep explained. “Unlike taxes on drug companies, device tax implementation was delayed three years to give manufacturers the time to adjust to the tax and allow GPO contracting processes to access the power of competition to keep costs from being passed on.”

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