Healthcare Technology Featured Article

September 27, 2012

Medtech Makers Say Device Tax will Cripple Business; Others Disagree

Medical device makers are incensed at the requirement that they may now have to pay a 2.3 percent tax on every item they produce.

In June, the House of Representatives voted to repeal the tax, but the Senate has not yet moved on, and the tax is set to start January 1.

The tax is slated to raise $29 billion over 10 years, which would pay a fraction of the new costs of providing medical insurance to more than 30 million Americans who don’t have it.

The defense the manufacturers put forth was that it would stifle innovation and cut jobs. But speech therapy devices maker Glottal Enterprises’ CEO Martin Rothenberg said

that “using the 2.3 percent medical device tax to justify layoffs is ‘nonsense’ and little more than a political strategy to attack the Affordable Care Act.

The medical device tax isn't going to result in lost jobs if industry stakeholders play it right, Rothenberg wrote in a letter to the editor of the Syracuse Post-Standard.

Rothenberg said he did the math and concluded that “the tax would result in marginal increases in product prices” and "zero effect on sales" if the company could successfully market an effective product. "It would surely not lead us to lay off employees or shift to overseas production," he wrote, in the letter.

Rothenberg's letter came in response to comments made by his home state's Rep. Ann Marie Buerkle (R-N.Y.), who pronounced the device tax as a job killer.

Buerkle had cited Welch Allyn's decision to cut 275 jobs, which amounts to 10 percent of its global workforce, in order to cut costs – and survive – ahead of the levy taking effect January 1.

"In claiming that it would significantly affect our sales, it is obvious that Buerkle is just using this issue to further a right-wing political agenda and attack the Affordable Care Act," Rothenberg wrote. "Either that or that she didn't take the time to do the simple math needed to understand the effect of the act."

But other companies are jumping on the bandwagon, as well. Medical device companies Zimmer has laid off 50, Hill-Rom Holdings, about 200, and Stryker, more than 100, all  citing the tax as a primary justification for layoffs.

How will the companies make up for it? Raise prices, of course, according to industry surveys. But that won’t work for all medical device makers, as medical devices such as those in the cardiac rhythm management market, face pricing pressures and may prove difficult to overcome.

Edited by Brooke Neuman

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