Device tax: Jobs, R&D likely sacrifices in the face of tax burden, survey shows

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Massachusetts medical device executives forecast job losses and budget-cutting for research & development efforts, as the industry nears the launch date of a 2.3% medical device excise tax.

Half of the 42 senior executives surveyed in the Bay State said they would slash R&D budgets and 25% said they would cut jobs at home and outsource manufacturing to lower-cost areas.

"We warned 2 years ago that medical device companies would be forced to deal with this tax by preparing for job cuts and reductions in R&D spending," MassMEDIC president Tom Sommer said in prepared remarks. "The U.S. leads the world in developing and manufacturing medical products, it doesn’t make sense that on 1 hand the government is promoting exports and manufacturing jobs, while on the other hand it is implementing policies that will cut jobs in this sector and harm its competitive advantage – the development of innovative medical technologies."

Only a quarter of respondents said they had a plan in place to comply with the tax, which goes into effect in 2013. Moody’s Investor Services estimates that the levy could have a net impact of more than $650 million on the 20 med-tech companies it covers.

Nearly 45% of survey participants said they plan to pass on the cost of the tax to their customers by raising prices. Nearly 40% said they would assume the costs internally, according to a press release.

The MassMEDIC survey isn’t the 1st to issue an ominous forecast for the tax, which Cook Group chairman Stephen Ferguson called "a bad idea that will only get worse with time."

Cook blames the tax for its decision to put the kaibosh on plans to build 1 new U.S. factory a year in the U.S.; and orthopedic giants Zimmer Holdings (NYSE:ZMH) and Stryker Corp. (NYSE:SYK) have both announced layoffs directly tied to the expected cost of the revenue tax.

A February survey of 180 device industry executives found that more than half planned to increase prices for their products in order to fully or partially offset the effects of the tax, according to Emergo Group.

Opponents of the tax have found some support for repeal in the GOP-led U.S. House of Representatives, but repeal efforts in the U.S. Senate have been lacking. A vote for repeal is considered highly unlikely, as Democrats aren’t eager to begin taking apart President Obama’s landmark health care reform bill.

Nonetheless, a vote on a repeal measure headed by Rep. Erik Paulsen (R-Minn.) may hit the House floor this year, Paulsen told MassDevice in an exclusive podcast interview. The bill had 228 co-sponsors as of mid-February, more than enough to pass.

Last month, industry lobby AdvaMed revealed plans to frame repeal efforts as tax reform, hoping to divorce the industry’s beef with the legislation from arguments surrounding health care reform.

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