Layoffs: Medical device companies cut 7,000 jobs in 2012

Layoffs illustration

High-ranking medical device makers cut about 7,000 American jobs in 2012, representing about 1.6% of the industry’s total U.S. workforce, according to a Reuters report.

Some of those cuts include layoffs at Boston Scientific (NYSE:BSX), St. Jude Medical (NYSE:STJ) and Stryker (NYSE:SYK), some of which were explicitly blamed on the impending medical device tax hitting the industry in just over a week.

Industry lobbying groups have warned that about 43,000 medtech jobs may be lost as a result of the 2.3% medical device excise tax taking effect at the start of 2013, but many of the layoff decisions made in 2013 were unrelated to the new fee.

Layoff measures in 2012, which included more than 2,000 cuts in a span of 2 months, were frequently the result of company overhauls and acquisitions, although the tax did play a feature role.

In recent months, Stryker has announced that it’s on track for the 1,000 layoffs it planned to conduct before the end of this year in anticipation of a $150 million tab for compliance with the medical device tax.

Stryker initially announced the layoffs in November 2011, saying at the time that the reductions, which represent about 5% of its workforce, should free up capital for strategic investments and growth "despite the ongoing challenging economic environment and market slowdown in elective procedures."

Last month GE Healthcare (NYSE:GE) announced that it planned to lay of about 10% of its Vermont workforce, but declined to disclose how many jobs that would be.


Read more of MassDevice.com’s coverage of the medical device tax.

Also in November medtech giant St. Jude Medical (NYSE:STJ) announced that it will terminate 500 employees, representing 5% of its global workforce, as the company undergoes a massive overhaul. That was in addition to about 300 layoffs the company announced in August.

In October healthcare giant Abbott (NYSE:ABT) cut 550 positions and said there would be more layoffs over the next year.

Although some medical device makers blamed the tax directly for their layoffs, including Stryker and Welch Allyn, which announced in September that it will shed about 10% of its global workforce, or 275 jobs, to compensate for the device tax, analysts suspect that industry layoffs are inevitable in the face of sinking sales, Reuters reported.

Medical device maker Covidien (NYSE:COV) explicitly stated in May that it’s 200 layoffs and decision to shift some production overseas were entirely unrelated to the tax.

"While we believe the medical device tax may hurt investment in innovation and research & development, Covidien has never cited the device tax as a reason for laying off employees or transferring production to other locations," a company spokeswoman told MassDevice.com at the time.

"It’s easy to blame the tax, but it’s something that would have happened eventually at these companies," Frost & Sullivan analyst Venkat Rajan told the news wire.

"This [tax] is not what started the deterioration of the environment, but the tax is out of their control, so they can point to it as a catalyst and cry foul," Morningstar analyst Alex Morozov told Reuters. "They don’t want the public to realize that what they should have done is cut infrastructure a long time ago."

Some medical device makers have similarly cried foul on the implication that the tax alone would drive cuts. In September Glottal Enterprises’ CEO Martin Rothenberg told reporters that he had done the math and concluded that the device 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.

And Rothenberg certainly wasn’t the 1st to cast a wary eye on industry warnings of tax-related layoffs. A report released by Bloomberg in June called out the medtech industry for its claims against the tax, saying that the alleged costs to jobs and innovation are "either untrue or exaggerated."

"Congress may well withdraw the medical-device tax," Bloomberg wrote. "If it does, it won’t be because the industry mustered a strong economic case. It will be because it’s too easy to pull the wool over lawmakers’ eyes."

Device makers, on the other hand, have maintained that the tax will undeniably affect U.S. jobs and innovation and threaten the U.S.’s leadership in the global medtech market.

The industry is still actively lobbying to either delay the tax from its January 1 implementation date or repeal it altogether, hoping to wedge the tax into fiscal cliff negotiations in Congress.

"The tax is a very significant factor, but also should be placed in the context of the other challenges," AdvaMed president & CEO Stephen Ubl told the news wire.

Although analysts sought to temper arguments that the tax was the driving factor in a general financial down-shift in the medtech industry, they noted that the tax "will only exacerbate the problems the industry already faces," Reuters reported.

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