What GAO Found
The Patient Protection and Affordable Care Act (PPACA), as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA), contained a number of provisions intended to increase the availability and affordability of health insurance coverage while also controlling costs. To help finance these coverage expansions, PPACA included a 2.3 percent excise tax on the sale of certain medical devices in the United States after December 31, 2012. GAO analyzed information on net sales and profits for 102 medical device companies before and after implementation of PPACA provisions. This analysis does not infer a causal relationship between these provisions and changes in companies’ net sales or profits, because any changes could be due to other factors, such as mergers and acquisitions, the introduction of new products, and product recalls.
Specifically, GAO’s analysis found that 102 medical device companies reported net sales and profits that increased overall from 2005 through 2014 (in constant 2014 dollars), but results varied by company size.
- Net sales increased overall for these companies from about $95 billion in 2005 to about $136 billion in 2014—about a 43 percent increase over the period and an average annual increase of about 4 percent. Among these 102 companies, the 30 large-sized companies accounted for at least 95 percent of the total net sales in each year.
- Net profits for the 102 medical device companies also increased overall from about $11.4 billion in 2005 to about $16.5 billion in 2014—about a 44 percent increase over the period and an average annual rate of increase of about 4 percent. The 30 large-sized medical device companies experienced an overall net increase in profits over the period, from $11.8 billion to $16.9 billion (43 percent), an average annual rate of increase of about 4 percent. In contrast, the 35 medium-sized and 37 small-sized medical device companies GAO reviewed each experienced overall net losses in each year.
Most of the 102 companies reported uncertainty about the full impact of PPACA in their 2014 financial disclosure statements submitted to the Securities and Exchange Commission (SEC), and some companies reported likely impacts from the medical device excise tax, reimbursement changes, and coverage expansions. Specifically, 75 of the 102 medical device companies reported that they were uncertain about the law’s full impact on their businesses. While the full impact of PPACA was unclear to many of these companies, more than half of the 102 companies noted that the medical device excise tax may have an impact on their businesses or has already impacted it. Additionally, more than half of the 102 companies reported that changes in reimbursements for medical devices or other cost controls resulting from PPACA have had or may have an impact on their businesses, and 15 of the companies reported that they were uncertain about how coverage expansions resulting from PPACA might impact their businesses. Industry trade group representatives GAO interviewed also said that the medical device excise tax and changes in reimbursements have had the greatest impact on their member companies.
Why GAO Did This Study
GAO was asked to examine trends in medical device sales and profits over the last decade, including before and after the implementation of PPACA. In this study, GAO examined net sales and net profits from 2005 through 2014 reported by certain publicly traded companies whose primary revenue source is from medical devices and how these companies reported being affected by PPACA in public financial disclosure statements. GAO adjusted 2005 through 2014 net sales and net profit data obtained from SEC to constant 2014 U.S. dollars for the 102 medical device companies reporting this information each year during the period and analyzed trends. GAO defined categories for company size based on a review of 2013 market capitalization—that is, the total combined value of the company’s stock—and the company’s SEC filing status. In addition, GAO reviewed these companies’ 2014 financial disclosure statements from the SEC website to determine if and how they described being affected by PPACA and also interviewed representatives of three medical device industry trade groups to obtain their perspectives on the effects of PPACA.GAO reviewed 2014 financial disclosure statements because, in addition to being the most recent year available, 2014 was the year after which many PPACA provisions went into effect. The inclusion or absence of a discussion of the impact of PPACA on medical device companies in public financial disclosure statements does not provide a comprehensive assessment of the impact of PPACA because companies have discretion over the factors they choose to report. The results of GAO’s analyses are not generalizable to all medical device companies because GAO obtained data that excluded medical device companies that are not required to submit financial disclosure reports to SEC, such as private companies that have a limited number of shareholders or do not have stock listed on a U.S. stock exchange.
GAO is not making any recommendations. SEC provided technical comments, which GAO incorporated into the report as appropriate.