On Dec. 31, 2012, a 2.3 percent medical excise tax is scheduled to go into affect, impacting the revenue of medical device manufacturers. According to Chris Klassen, vice president of supply chain for Surgical Care Affiliates, the response from suppliers will vary — but surgery centers should expect to see an impact on their pricing, as some manufacturers choose to pass the cost on to their customers.
"It's unclear what the impact will be, but we expect some manufacturers to pass the cost increase along," he says. "It could be a good opportunity to implement some cost-saving initiatives if you can monitor the impact."
According to Mr. Klassen, medical device manufacturers have been aware of the upcoming tax for months and will almost certainly react in some manner to the change. "Many manufacturers have made preparations by cutting costs, etc," he says. "Some may just absorb the additional cost and not pass an increase along, but passing it along may be necessary for some."
Here, he offers five ideas for preparing your ASC for the impact of the tax.
1. Contact your suppliers immediately. Mr. Klassen recommends that surgery center leads reach out to their key suppliers now to determine if the excise tax will be passed on to your facility. "It's budget season right now for many facilities, so they should be determining how this will affect their budget for 2013," he says. The tax may specifically affect lower-cost items, where the manufacturer has lower profit margins. "If the manufacturer has less capacity to absorb the cost, there's a higher risk they'll pass it along to the consumer," he says.
Mr. Klassen recommends discussing any pending pricing actions with suppliers and addressing the excise tax specifically. He says the first quarter is a common inflationary period, so now is a good time to review and set pricing expectations with suppliers.
2. Monitor your purchasing more closely. Monitor your purchasing as the medical excise tax is implemented, Mr. Klassen says. Search for price changes in areas where you spend significant dollars, and look at your purchase history as well as your invoices. Mr. Klassen says invoices are particularly important — and an area that many ASCs overlook.
"Look at the invoice price you're paying, because it is possible pricing actions may not be updated on price lists, POs, etc," he says. If you see something that looks wrong, contact the supplier to see if you can negotiate a lower price.
3. Look at your contracts. To determine the potential effect of the tax on your prices, look at your supplier contracts for language on cost increases. Some contracts include language that prohibits the supplier from increasing prices without re-negotiating with the facility.
For example, the contract may specify fixed pricing through the term of the agreement or include scheduled increases. "Some may have language that stipulates certain events can trigger cost increases, such as CPI-U fluctuations or commodity-related cost adjustors," Mr. Klassen says.
4. Talk to your GPO. Many surgery centers have a GPO partner that may be able to clarify contract language and help resolve pricing discrepancies. "Hopefully you're coordinating between the manufacturers and the GPO," Mr. Klassen says. Approach your GPO and ask their advice on how to handle the tax's effect — they are a resource and you should use them as such.
5. Use the change to increase cost awareness and savings. If you're seeing higher supply costs coupled with lower reimbursement, it may be time to talk to your surgeon partners and staff about a lower-cost supply alternatives. Take the price increase to surgeon partners and staff to identify savings opportunities, especially with procedures where supplies are a big-ticket item.
Learn more about Surgical Care Affiliates.
"It's unclear what the impact will be, but we expect some manufacturers to pass the cost increase along," he says. "It could be a good opportunity to implement some cost-saving initiatives if you can monitor the impact."
According to Mr. Klassen, medical device manufacturers have been aware of the upcoming tax for months and will almost certainly react in some manner to the change. "Many manufacturers have made preparations by cutting costs, etc," he says. "Some may just absorb the additional cost and not pass an increase along, but passing it along may be necessary for some."
Here, he offers five ideas for preparing your ASC for the impact of the tax.
1. Contact your suppliers immediately. Mr. Klassen recommends that surgery center leads reach out to their key suppliers now to determine if the excise tax will be passed on to your facility. "It's budget season right now for many facilities, so they should be determining how this will affect their budget for 2013," he says. The tax may specifically affect lower-cost items, where the manufacturer has lower profit margins. "If the manufacturer has less capacity to absorb the cost, there's a higher risk they'll pass it along to the consumer," he says.
Mr. Klassen recommends discussing any pending pricing actions with suppliers and addressing the excise tax specifically. He says the first quarter is a common inflationary period, so now is a good time to review and set pricing expectations with suppliers.
2. Monitor your purchasing more closely. Monitor your purchasing as the medical excise tax is implemented, Mr. Klassen says. Search for price changes in areas where you spend significant dollars, and look at your purchase history as well as your invoices. Mr. Klassen says invoices are particularly important — and an area that many ASCs overlook.
"Look at the invoice price you're paying, because it is possible pricing actions may not be updated on price lists, POs, etc," he says. If you see something that looks wrong, contact the supplier to see if you can negotiate a lower price.
3. Look at your contracts. To determine the potential effect of the tax on your prices, look at your supplier contracts for language on cost increases. Some contracts include language that prohibits the supplier from increasing prices without re-negotiating with the facility.
For example, the contract may specify fixed pricing through the term of the agreement or include scheduled increases. "Some may have language that stipulates certain events can trigger cost increases, such as CPI-U fluctuations or commodity-related cost adjustors," Mr. Klassen says.
4. Talk to your GPO. Many surgery centers have a GPO partner that may be able to clarify contract language and help resolve pricing discrepancies. "Hopefully you're coordinating between the manufacturers and the GPO," Mr. Klassen says. Approach your GPO and ask their advice on how to handle the tax's effect — they are a resource and you should use them as such.
5. Use the change to increase cost awareness and savings. If you're seeing higher supply costs coupled with lower reimbursement, it may be time to talk to your surgeon partners and staff about a lower-cost supply alternatives. Take the price increase to surgeon partners and staff to identify savings opportunities, especially with procedures where supplies are a big-ticket item.
Learn more about Surgical Care Affiliates.