Cutting jobs over device tax is “nonsense,” says medtech CEO

MassDevice.com coverage of medical device tax

The medical device tax isn’t going to result in lost jobs if industry stakeholders play it right, according to speech therapy device maker Glottal Enterprises’ CEO.

In a letter written to the editor of the Syracuse Post-Standard, Martin Rothenberg 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.

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

Buerkle had cited Welch Allyn‘s decision to cut 275 jobs, which amounts to 10% of its global workforce, in order to cut costs 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."

Welch Allyn is not alone in citing the tax as the catalyst for workforce cuts. Medical device companies Zimmer (NYSE:ZMH), which laid off about 50, Hill-Rom Holdings (NYSE:HRC), which cut about 200, and Stryker (NYSE:SYK) which cut more than 100, have all cited the tax as a primary justification for layoffs.

Rothenberg claimed that the tax would spur a nominal price increase on his products, which he could partically offset.

"Our company is currently putting out a new, unique medical device with a wide potential market among speech pathologists and otolaryngologists that will sell for about $350. The tax will add at most about $8 to the price," Rothenberg wrote. "In fact, since approximately half of our sales are outside the United States and therefore exempt from the tax, the tax on U.S. sales would be covered by a price increase of about $4."

Many medtech players expect to raise prices to make up for some of the costs of the tax, according to industry surveys, but pricing pressure on some medical devices, such as those in the cardiac rhythm management market, may prove difficult to overcome.

In addition, hospital groups have challenged the expected price increase, calling on the IRS to implement rules preventing medtech companies from hiking prices in response to the tax.

Rothenberg’s not the 1st to challenge the prevailing rhetoric on the medical device tax, a 2.3% levy on all U.S. sales of applicable technologies. A report released by Bloomberg earlier called out the medtech industry for its claims against the tax.

"Just about everything the medical-device industry says about the tax is either untrue or exaggerated," according to the report. "Lawmakers shouldn’t be so gullible, even when – perhaps especially when – industry lobbyists produce studies seeming to back their claims."

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