Medical Device Maker Tax to Hurt Jobs, Says Industry-Sponsored Study
Posted
Daniel Riordan-driordan@timesuniononline.com
A study commissioned by a medical device trade association predicts that without the repeal of a tax slated to begin in 2013, the medical device industry could lose more than 43,000 jobs nationwide.
Diana Furchtgott-Roth and Harold Furchtgott-Roth were commissioned by Advamed, a trade association for medical device makers, to study the effects of a 2.3 percent excise tax passed as part of the Affordable Care Act of 2010.
Diana was Chief Economist of the U.S. Department of Labor from 2003 to 2005. Harold was Commissioner of the Federal Communications Commission from 1997 to 2001, and Chief Economist of the House Commerce Committee from 1995 to 1997.
More commonly known as Obamacare, because it was signed into law by President Barack Obama, the bill contained a tax on device makers like Warsaw-based Zimmer, Biomet and DePuy that would be on companies’ gross revenue rather than profit.
The study asserts that taxing gross revenue will hurt companies that take losses to put money into research and development.
The study said that the tax would cause U.S. device makers to move overseas.
In fact, the number of projected jobs lost, 43,000-plus, is based on a table that correlates the shift in production offshore and job losses.
The study estimates that with no shift of production to foreign countries by U.S. companies, the industry would still lose between 2,532 and 23,518 jobs.
In the study, it states that even without a shift in production, jobs will be lost because more taxes result in higher costs for the device makers as well as consumers.
The purpose of the tax is to raise an estimated $20 billion dollars between 2013 and 2019 to help offset the cost of providing health care to uninsured Americans.
The study notes that for device makers, labor costs per employee of more than $81,000 are well above average compensation for the American economy.
“Zimmer shares the view of the medical device industry that it must be repealed by 2013. We believe it’s an innovation and job killer,” said Zimmer spokesperson Garry Clark.
Clark said Zimmer is looking at the potential plans should the tax not be repealed.
Zimmer employs 8,500 and in Warsaw about 2,600.
"We’ve been plugged in with Advamed," said Clark.
Those refrains were echoed by Zimmer competior Biomet.
"We're not going to predict what may or may not happen," said Biomet's Bill Kolter, corporate vice president with the company.
"We have been consistently and vociferously opposed to (the device tax)," said Kolter.
"It's incomprehensible to us that at a time when the government is attempting to focus on job creation it would attach a tax to an industry that is highly innovative and has created strong employment over the years. And one that also delivers tremendous economic value to the health care system by addressing the number one source of disability in the U.S.- bone and joint disorders," said Kolter.
Biomet employs 7,600 people worldwide and almost 1,600 at its facility in Warsaw.
While declining to go into specifics on what Biomet would do if the tax is not repealed, Kolter did say the tax would require Biomet to review all discretionary spending.
Kolter said Biomet has worked with both senators Dan Coats and Dick Lugar. The Indiana senators have co-sponsored Senate Bill 17 which would repeal what the bill calls a "job-killing tax on medical devices."
Biomet is also working with Indiana representatives on a similar bill, H.R. 436, in the House of Representatives.
At a recent event at the Saint Regis Club in Warsaw, Congressman Marlin Stutzman touched on his desire to repeal the tax.
In the audience that day was Biomet co-founder Dr. Dane Miller.
And at least in Indiana, the repeal of the device tax has bipartisan support.
Congressman Joe Donnelly, a Democrat representing Indiana’s 2nd district, has co-sponsored the house bill.
“Last week, I decided to co-sponsor The Protect Medical Innovation Act of 2011, H.R. 436, which would repeal the medical device tax that is set to go into effect in 2013,” said Donnelly in a written statement to the Times-Union. “The medical device industry provides good-paying jobs to nearly 20,000 Hoosiers, and its long-term health is critically important to the economic future of our state.”
Both Biomet and Zimmer have had layoffs in 2011. Biomet estimated in June that it would cut 21 jobs in the United States in a re-organization plan and up to 80 worldwide. Zimmer did not make public the number of positions cut.
As for the third major orthopedic company in Warsaw, DePuy saw some changes at the top when Andrew Eakdahl took over for David Floyd as president.
A request for comment from DePuy was not immediately returned. Unlike Biomet and Zimmer, DePuy, which is a part of Johnson and Johnson, doesn't have a local media contact for such matters.
Floyd was recently named CEO of Warsaw-based OrthoWorx.
Floyd said the timing of the push for repeal of the tax is driven at least in part by Advamed’s study.
Advamed authored and OrthoWorx was a signatory on a letter sent to both the U.S. Senate and House of Representatives July 18 asking for repeal of the tax.
OrthoWorx is not a lobbying organization but Floyd said it can help drive public policy when it fits within the scope of OrthoWorx.
Floyd released a statement with OrthoWorx’ stance on the issue:
“Our primary concern is the economic vitality of our community and the quality of life that comes with that. We see the medical device tax as a direct and significant threat to Warsaw and Kosciusko County, and believe that the recently released study ‘Employment Effects of the New Excise Tax on the Medical Device Industry’ bears that out,” said Floyd. “The economic impact study that OrthoWorx released in April documents that the combined effects of the orthopedic industry generate 13,000 jobs locally, which is 43% of the county's employment. A new tax that almost doubles the tax burden on the orthopedic industry should deeply concern all of us, particularly at a time when unemployment levels are already high.”
