Varied reactions make impact of medical device tax uncertain

Response to the 2.3 percent medical device excise tax has ranged from medical device companies threatening to lay off employees because of it to companies blaming the tax for layoffs (and laterdenying it) to congressmen in the Democratic and Republican parties passing legislation to repeal it.The 2.3 percent tax, which took effect Jan. 1, is expected to raise an estimated $60 billion over the next 10 years to help fund the Affordable Care Act.In 2012, Medtronic, which has its spinal division based in Memphis, estimated the tax would cost the company around $50 million during its fiscal year. According to areport from ModernHealthcare.com, Medtronic CFO Gary Ellis said the tax was “a little lower than we expected” due to a provision in the final rule that said existing inventory is not subject to the tax.Ellis adjusted his previous assertion and estimated the company’s tax hit would actually be closer to $25 million.On the other hand, at least 48 smaller device companies across the United States have announced their intention to pass on extra costs to hospitals, according toMedical Device Tax Watch, a website launched by the Healthcare Supply Chain Association.No Memphis companies are on the current list, but the situation around the excise tax is constantly changing, and device companies’ responses continue to change as well.On Jan. 31, Smith & Nephew Orthopedics announced it was laying off 100 employees, including 63 in Memphis, as a response to the tax. The company released a statement directly attributing the layoffs to the tax:
“The nearly $30 billion tax on medical devices that took effect Jan. 1, 2013, has impacted a number of companies across the U.S. Smith & Nephew is not immune from this added expense burden, unfortunately, and in order to absorb this cost burden into our business, this has meant less than 100 positions have been made redundant across various departmental functions in our Tennessee and Massachusetts sites.”A week later, the company’s CEO Olivier Bohuon directly contradicted the statement, saying the local media that covered the layoffs — and ran the company’s official statement — were “dead wrong.”The bottom line on the excise tax is that the bottom line for device companies big and small is about to change drastically.In an interview with MBJ in February, Dan Matlis, president of Axendia, a Yardley, Pa.-based life sciences and health care analysis firm, said it best.
“There are a lot of statistics and prognostication, and companies are expecting a higher tax bill,” Matlis said at the time. “Even if you’re a larger company, $100 million is still $100 million.”
Source: Michael SheffieldStaff writer-Memphis Business Journal