18 June 2012

Healthcare Law Threatens Medical Device Makers and Suppliers

Story first appeared in MarketWatch.

In the battles to come for health-care companies and their stocks, the future is about so much more than the Supreme Court.

No matter how the high court rules in coming days on the industry’s landmark legal overhaul, analysts say, the nation already has locked itself into a do-or-die mission to rein in the skyrocketing cost of care.

And the way those efforts are unfolding, the sector’s medical-gear suppliers — providers of everything from implantable heart defibrillators to tongue depressors — could end up paying the price for decades of out-of-control inflation.

Doctors, hospitals, insurers, and even patients, have all taken up the cause at a time when health-care inflation outstrips overall cost-of-living increases by 3 to 1.

The consumer is emerging as a force now that insurers and employers are forcing them to shoulder more of the costs.

For many years, industry analysts say, health-care inflation ran amok partly because neither consumers nor doctors had much incentive to consider costs. After all, third-party insurers were footing the bill, leaving those who administered or used health care with little skin in the game.

Now, however, doctors and patients are minding the costs with greater scrutiny. That means medical-device makers and suppliers of health-care equipment — which feasted for a decade and nearly doubled their margins — will end up being the target of the rush to rein in costs.

That trend seems unlikely to alter course, regardless of how justices rule on the 2010 overhaul to the health-care system, analysts say.

It is considered remotely possible that the high court will throw out the entire 2,000-plus-page law. But the biggest steps they are likely to take is to repeal the mandate that all individuals obtain insurance while also striking down the requirement that carriers cover everyone, regardless of past medical histories, analysts say.

Expected to remain intact in the law is the 2.3% excise tax on makers of medical devices and suppliers of equipment. It was included as many companies in the sector saw their profits jump sixfold in the decade before the health law was passed.

The list of companies in this realm covers a broad array of manufacturers of products used every day in all U.S. hospitals and private medical practices. It includes giant conglomerates such as Johnson & Johnson JNJ, on down to specialized firms such as Medtronic Inc., St. Jude Medical Inc., Boston Scientific Corp., Stryker Corp. and Edwards Lifesciences Corp.   

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