ELYRIA, Ohio — Perhaps sensing opportunity in crisis — or at least crisis for some of its employees — home-health products company Invacare Corp. (NYSE:IVC) warned that the looming specter of a federal medical device tax has prompted it to suspend matching 401(k) contributions, stop merit-pay increases for management and freeze hiring.
Invacare also said the tax could lead it to increase prices, shift more production overseas, reduce employee benefits and cut research and development expenditures, according to a regulatory filing. The tax could result in an annual “impact” between $12 million and $14 million to the company.
Invacare has launched an all-out public relations offensive against the potential device tax, in December bringing out the bogeyman that companies often use to scare the public and politicians about the effects of proposed legislation — job cuts.
It’s entirely possible that Invacare’s threats are more than just political posturing, however. CEO A. Malachi Mixon told the Plain Dealer last December that his firm lost $6.4 million on U.S. sales in 2008 and spent $15 million to $17 million that year on research and development. He said the company’s $38.6 million in earnings that year came entirely from international markets.
The U.S. House and Senate passed different version of the tax in their health-overhaul bills. What the tax looks like in its final form, or if it even exists, will be determined when the two chambers iron out the bills’ differences.
The Senate’s version would impose a sales-based tax on device firms that’s intended to raise $2 billion annually beginning in 2011, and $3 billion beginning in 2017. The tax would not be deductible by the manufacturer and the amount of tax payable by a manufacturer would be determined based on market share, Invacare said. The House version calls for a smaller tax on device makers.
Invacare said it’s lobbying members of Congress in an effort to make the tax less onerous to device manufacturers.
Mixon told the Elyria Chronicle-Telegram that he’d like meet President Obama when he visits Lorain County, Ohio, on Jan. 22, to ask the president to drop the device tax. Mixon made $78,500 in political campaign contributions during the 2008 election cycle to both Democratic and Republican recipients, according to CampaignMoney.com.
Through the first three quarters of 2009, Invacare spent $905,250 lobbying Congress, according to federal records.
In 2008, Invacare reported sales of $1.8 billion. The company expects to issue its 2009 year-end financial information next month.