Legislative Haggling Creates Volatility in Medical Market

At this writing, the Senate’s version of the American Health Care Act of 2017 shed new light on the possible future regulatory landscape of the healthcare industry, which constitutes one sixth of the U.S. economy. If passed, the 142-page bill would drop some of the benefits required in the Affordable Care Act (ACA) passed under the last administration.

Both House and Senate versions of the bill would support some of the cost of medical care for lower-income insureds. Furthermore, both bills phase out the funds with which the ACA incentivized states to expand eligibility for Medicaid. Should some version of these bills become law, as many as 22 million people by 2026, primarily those with lower incomes, may find themselves without insurance, according to the Congressional Budget Office. By no longer insuring these individuals the CBO expects savings of $321 billion over a decade.

Included in the Republican healthcare bill are provisions that would have direct consequences for the medical-device industry, including language in the bill that would repeal the 2.3% medical devices tax. Repeal of this tax would make the market for medical devices more efficient, increasing the supply of devices sold, lower prices to consumers, and raise prices for suppliers.

The annual forecast for Total Expenditures of Durable Medical Equipment, maintained by the U.S. Centers for Medicare & Medicaid Services, estimated total annual growth of 5% to
7% through 2025. The proposed cuts to Medicaid in the proposed bill will likely force a significant downward revision to this forecast. Looking at more than 10 years of data, there’s a modest correlation between total expenditures and industrial production of durable medical goods. As such, there is a risk that if this bill passes into law with its current cuts that demand for medical equipment may decline.

The Gardner Business Medical Index peaked during the first quarter of 2017, exceeding 60 for the first time in more than five years. The index’s backlog and new orders components have continued to trend upward year-to-date. The prices-received component of the index, which was a laggard for most of 2015 and 2016, performed much better in the first half of 2017.

Gardner Business Intelligence will continue to monitor the outlook and sentiment within the healthcare manufacturing industry as bills are passed into legislation, providing a new set of market rules and dynamics for the industry’s future.

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Michael Guckes is the chief economist for Gardner Business Intelligence, a division of Gardner Business Media, Cincinnati. He has performed economic analysis, modeling and forecasting work for nearly 20 years among a wide range of industries. Michael received his BA in political science and economics from Kenyon College and his MBA from Ohio State University. Contact (513) 527-8800; mguckes@gardnerweb.com; gardnerweb.com.