7 min reading time

Big thanks to everyone in this forum who ever visited no2point3.com and/or asked members of Congress to rollback the 2.3% medical device tax on gross sales. See below for related links.

Among the submitted discussions on the topic, I was most intrigued by one from group member Paul Stein, who writes:

“Now that Congress has put the 2.3% Medical Device Excise Tax on hold for two years, corporate and small business leadership needs to send a bold message to that august group: ‘We were right all along. That onerous tax was a job killer.’

To prove this, there must be a whole lot more to prove that point beyond big talk-no action. The new increase in company income cannot simply go out as bonuses but in retooling or purchases of major equipment and facilities that will directly lead to more employees immediately afterwards. Before too long, I would say within six months, there needs to be a demonstrable increase in the number of new hires.

If this is not done, then every individual who paid for any lobbyist will be shown for what each truly was with those incessant lamentations up through last week…a person crying wolf.

In two years, there had better be a ton of new hires in the medical device industry. Because the new job data generated in those two years will be seen by one and all, and if Congress doesn’t like what is seen, the tax will surely come back.

And if that happens, there will be no doubt as to why that will have occurred and who is to blame. And the industry “leadership” organizations will have zero credibility going forward.

This opportunity cannot be squandered. There isn’t a lot of time to focus on a bright new future for our Industry and to move quickly towards it.”

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While I don’t agree entirely with Paul’s position, it’s an excellent springboard for this week’s discussion.

• Do you expect to see a marked uptick in medical device industry employment? In R&D?
• What will YOUR company likely do with the tax savings?

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Related articles around the Web

Why the Device Tax Suspension Is Just the Tip of the Iceberg, by Chris Newmarker, QMED

Medical device tax suspended in $1.8T federal budget by Varun Saxena, FierceMedicalDevices

Obama signs medical device tax pause into law by Brad Perriello, MassDevice

The Fate of Obamacare by Russ Douthat, New York Times

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Discussions we held in this forum

2015: Tax leads to lay-offs, frozen R&D, no raises
(680 comments) :

2013: Adding Seven to Payroll

2012: Don’t let the Senate outsource your job to China
(I got a lot of heat for this) :

2011: Does anyone see anything GOOD in this tax?
(155 comments) :

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Planning your 2016 training schedule?

See “Comparing Medical Device Marketing + Sales Conferences” at http://medgroup.biz/comparison

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Happy Holidays,

Joe Hage
Medical Devices Group Leader

P.S. Visit our companion site at http://medgroup.biz/MDG-SITE for lists and archived presentations.

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Timothy H ‘Dutch’ Dwight
Vice President Eastern Region
To make this issue even more laughable, the IRS is sharing that they can not find the manufacturers. The IRS is currently unable to identify the population of device manufacturers required to file a Form 720 to pay the tax, the report also found that the IRS mistakenly issued over 200 penalties totaling more than $700,000 against businesses filing Form 720s. Here is the link of the report from the IRS. The result of government regulation is to scare the organizations wishing to bring a new product to market and stop them from investing. https://www.treasury.gov/tigta/auditreports/2014reports/201443043fr.pdf

Bruce Carlson
Publisher of Kalorama Information, Part of Bioinformatics Inc.
I think one of the ways to look at this is small vs. large segments of the industry. More than 80 percent of the industry is less than 50 employees. This would be the target group both for the negative impact of the cut and the type of positive news the group here would seek. At least in my opinion. If large companies are looked to, the Medtronic and now J&J’s may not make good PR for this purpose. Of course the issue is, small device cos don’t make as many announcements so it would take a group like AvaMed, maybe, to gather results from the thousands of companies.

Dan Miller
Executive Search Consultant at Leading Edge Medical
I certainly haven’t heard of or read about any corporate strategies increasing in R&D headcount/investment after the announcement. Nor even general excitement, clamor, and optimism from CEO’s. Hope that it’s still on it’s way!

Joe Moore
Vice President at Reinvent Biologics
J&J just announced 6% reduction of their medical device workforce. Financial Times said of the announcement that profits from that group has been a drag on overall earnings. It’s a changing world.

Allen Charnaw
Quality Manager, Systems at Beauty Manufacturing Solutions Corp
Good news on the two year delay, but the battle isn’t over until fully repealed or the entire law is changed/eliminated.

John Eckberg
Media Relations
And, Paul, what I hope to do is gather stories of individuals who were laid off and have found work because of the repeal. Anybody interested in telling their story? Please reach out to me at john.eckberg@cookmedical.com

Dan Golka
CMO at Med Tech Directory
This is fantastic news. Our industry needs to continue the fight tell this is dead.

John Eckberg
Media Relations
Hi Paul, You have always articulated your perspectives with clear vision and passion and this time you are, indeed, spot on. This industry needs to gird itself for the fight that is to come. We need to show growth in hiring, probably for R&D; growth in bricks and mortar for the buildings to house those researchers and scientists; and impact on communities from that activity. The problem, of course, is that global giants generally recognized as U.S. companies but with HQs in low-tax nations used this tax as an excuse to set up automated factories and HQs elsewhere. It’s a Pandora’s Box thing: those jobs are not coming back. When companies close plants built in 1952 that employed thousands of North Carolinians through the decades and then reopen them in places like the Dominican Republic, those new plants will be automated and offer much lower costs. Wish I knew the answer.

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
John, a recent QMed comment by Chris Newmarker stated the same exact things you did http://www.qmed.com/mpmn/medtechpulse/1-huge-question-around-suspended-device-tax . His piece was, at best, full of non-committal “could’s” and “perhaps’s”. Yes, it’s very early post-suspension, and it takes some time to turn this medical device industry battleship, but I’m not very hopeful, and I see the tax coming right back if those who fought so hard against the tax don’t now fight with the same vigor against corporate complacency.

John Eckberg
Media Relations
It’s dumb to think those jobs that are gone, and there are tens of thousands of them, are going to come back. Once the $40 million factories are up and running in Costa Rica or Singapore, those jobs are gone and gone for good. R&D is another matter. Anybody who still thinks this tax is irrelevant is in denial. Big companies, those that are diversified, got taxed on a sliver of their revenues. It drove down free cash flow at companies with a domestic market. It makes the smaller companies take over targets.Pretty simple cause and effect stuff, really.

Nick Ayers
Vice President, Commercial Development Europe / ROW
With regulatory burden increasing, using this saving and putting it back in development is a good idea that will benefit patients and payers alike.

Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
Bard and Abbott, most notably, have announced a few hundred layoffs and site closures after the announcement of the two-year hiatus of the tax. Not a great way to start off proving the tax was a “job killer”, guys. Congress will be keeping very close tabs on all activities for the two years after the suspension and compare them to the two years before. This will be a simple plus-minus analysis, so, Industry “leaders”, don’t mess this up for those who really got smacked by the tax.

Susan poses a point that I stated since the beginning regarding layoffs, that the tax could not be directly pointed to by any outsider as a cause. There are an infinite number of reasons for corporate types doing what they do. I am hoping that soon there will be a huge revving up of new R&D with an associated massive hiring. If there isn’t, and the layoff status quo continues, then what I said about three years ago, and what Susan says now, is affirmed…poor corporate strategy is to blame, period.

Chuck M Calvert
Execution is the competitive Advantage.
S/He increases sales above quota by 2.3%, a rock star! A 2.3% Mfg cost is huge, Yet 2.3% to stakeholders, it’s nothing if moving to the UK. Laissez-faire, is subject to the view, looking through glass, a of car or the office. Regardless of the title, Dad is still my favorite. Happy New Year!

Susan Otterson
Technical Publications ▪ writing, design, production
Companies have used the tax as a convenient excuse for layoffs. Now that it is going away, will they rehire? No, of course not.

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(Royal Links Overseas Manpower Consultants (India Leading Overseas Manpower Consultant)
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Paul M. Stein
Chief Scientist, Inventor, and Entrepreneur – Dedicated to the Treatment of Critical Unmet Medical Needs
Timothy, your article was a few years old. Anti-humanity is more than a little over the top. Please provide a few specific examples of that besides a way to provide health insurance to an extra ten or so million American citizens. One needs to understand that a President has very little power to do things of substance according to our Constitution. Most power falls to Congress. They pass the laws and the President enforces them. Let’s blame Congress a bit more for the current state of affairs.

Joe Moore
Vice President at Reinvent Biologics
Some financial commentators estimated that a 2.3% tax on sales translated to around 15% of net profit for a typical company. Companies have already made the adjustments in response to the tax. In the orthopedic world, those CNC machines have left Warsaw and are in production in China. They are not coming back, and neither are the jobs for the people who operate and support them (estimates range from 30,000 to 42,000 medial device industry jobs) My personal opinion is that the damage is done and likely irreversible. ObamaCare goes deep into the red without the support of the tax revenue. Pushing back the tax is only possible by the multiple times the mandatory coverage deadlines have been pushed back. Without a something close to a complete repeal of ObamaCare, the tax will happen. I expect most companies will continue down their current budget and forecast path, and be will fine with taking a 2 year bump in earnings (and the accompanying 2 year bump in bonuses and stock options).

Timothy H ‘Dutch’ Dwight
Vice President Eastern Region
Here is a great article from orthostreams – Shine a light on the anti-humanity of this Administration. http://orthostreams.com/2012/11/obamacares-silent-job-killer-usatoday-column/ . I implore those who disagree to share with us your insights.

Kristina Port
Government/ Healthcare Advocacy
Anyone know what the cost of lobbying is to the 2.3% device tax savings?

Susan Otterson
Technical Publications ▪ writing, design, production
When companies pay taxes, it gets passed on to the customer. If you work for a med device company you know this is true.