How Does Healthcare Reform Affect Your Customers?

As healthcare reform continues to be implemented throughout the United States, there are many effects that customers will feel which manufacturers and other providers need to be aware of.

The 2.3% Excise Tax

One of the most discussed elements of healthcare reform, the 2.3% excise tax recently implemented throughout the United States means that manufacturers may have to deal with a significant cut to their profit margin, or even raise prices higher than desired.  On the customer side, this means that they will be required to scrutinize the price when purchasing new medical equipment and some may opt to avoid purchasing by enhancing the equipment they already possess.  Alternatives like repurposed or refurbished items may also be pursued to blunt the cost of new items, if the tax is passed along by manufacturers.

Because the tax is intended to be paid by manufacturers alone, and not passed on, some unintended consequences may accrue.  In the longer view, the cost of the excise tax will likely force a rebalancing of internal budgets, potentially cutting investment on research and development for new devices, techniques, and equipment that might otherwise have been brought into the medical market place.  Manufacturing processes may take longer than before if the manufacturer reduces the workforce in response to the tax.  This may be significant for your customers if they have to wait longer for a new piece of equipment to help deal with a specific problem.

Proponents of the tax argue that the cost can, and should be absorbed by manufacturers.  Furthermore, some say that technology advances in most devices are incremental improvements, not revolutionary new breakthroughs. Therefore, a reduction in R&D would have a negligible negative effect.  Which perspective is correct remains to be seen.

Modified Focus

Previously, healthcare providers were often focused on increasing patient volume and assisting as many patients as possible.  Now, your customers will renew their focus on efficiency, quality, and the ultimate outcome of their care.  Among sophisticated providers, this shift is likely to affect the purchasing decisions that they make, and providers may begin to look at purchasing the higher quality equipment (as affordable) rather than the least expensive.

Hospitals can also be expected to redouble the focus on their new mix of payers.  An increase in the number of people with insurance is expected, leading to more individuals seeking care, but the reimbursement rates from insurance companies are expected to decline.

Finally, balancing quality of care and reduced reimbursement from insurance companies is likely to result in a greater emphasis on preventative care where possible.  Healthcare providers will likely be looking to your organization to help with this and produce the tools that they will need to keep people healthy.  Some advanced providers are experimenting with “Wellness” services in this environment.

Investment and Capital

As markets stabilize, some hospitals are once again able to issue investment grade bonds.  However, before spending this capital on equipment or projects, the bond issuing facilities more likely to carefully forecast and analyze the expected benefits of a project under consideration.

Because of recent economic uncertainty, many facilities have delayed capital projects. Increasingly, these health systems cannot defer capital purchases any longer.  While these facilities are ready to purchase this year, the limited sources of capital requires even more scrutiny of the value anticipated from the project.  When spending capital funds, getting the highest quality for the lowest price possible is the norm in 2013.

Conclusion

Healthcare reform will be affecting your customers for years to come.  Smaller profit margins and a renewed focus on quality of care means that most of them will likely be trying to do the best they can with as little as possible, making quality supplies extremely important.

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