The medical device tax set to take effect next year as part of the Affordable Care Act will see all medical device companies pay a 2.3% levy on U.S. sales. But the tax is likely to strike some companies a lot harder where it hurts the most: the bottom line.
More MassDevice coverage of the med-tech tax
A MassDevice.com analysis shows that the tax could have a disproportionate effect on the profits of at least 10 of the largest medical device firms – including 1 of the biggest names in the business.
Even as lobbyists scurry to limit the damage to their clients, the effects of the tax are already being felt on the street, as companies announce layoffs ahead of its implementation.
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To get a sense of the revenue the 2.3% revenue tax will generate, we pored over the annual reports and filings of 49 companies selected from our Big 100 book of the world’s largest med-tech players to isolate domestic revenues for fiscal 2011.
Our analysis shows that the following companies are likely to take much larger bottom-line hits than their peers in the med-tech industry, such as Boston Scientific (NYSE:BSX), which could see more than 21% shaved from its earnings:
| Company | 2011 profits ($M) | Estimated device tax hit ($M) | 2011 profits after tax hit ($M) | % change in profits |
| Integra LifeSciences (NSDQ:IART) | $28 | $14 | $14 | -48.7% |
| Hanger Orthopedics (NYSE:HGR) | $55 | $19 | $36 | -34.2% |
| Cantel Medical (NYSE:CMN) | $20 | $6 | $14 | -30.4% |
| Cantel Medical (NYSE:CMN) | $244 | $65 | $179 | -26.6% |
| Zoll Medical (NSDQ:ZOLL) | $31 | $8 | $23 | -26.3% |
| Merit Medical (NSDQ:MMSI) | $23 | $5 | $18 | -23.3% |
| Boston Scientific (NYSE:BSX) | $441 | $93 | $348 | -21.1% |
| Hologic (NSDQ:HOLX) | $157 | $31 | $126 | -19.9% |
| Analogic (NSDQ:ALOG) | $18 | $3 | $15 | -18.6% |
| Greatbatch (NYSE:GB) | $33 | $5 | $28 | -15.3% |
But for some companies, the bottom-line blow will be much easier to absorb. That includes another of the Bay State’s med-tech giants, Covidien, and its projected 4.3% profit hit:
| Company | 2011 profits ($M) | Estimated device tax hit ($M) | 2011 profits after tax hit ($M) | % change in profits |
| Abbott (NYSE:ABT) | $4,728 | $57 | $4,671 | -1.2% |
| Allergan (NYSE:AGN) | $935 | $13 | $922 | -1.4% |
| Danaher (NYSE:DHR) | $2,172 | $57 | $2,116 | -2.6% |
| Siemens (NYSE:SI) | $6,145 | $162 | $5,983 | -2.6% |
| Johnson & Johnson (NYSE:JNJ) | $9,672 | $262 | $9,410 | -2.7% |
| Fresenius (NYSE:FMS) | $1,071 | $30 | $1,041 | -2.8% |
| Covidien (NYSE:COV) | $1,868 | $80 | $1,788 | -4.3% |
| Sirona Dental Systems (NSDQ:SIRO) | $122 | $6 | $116 | -4.8% |
| Becton Dickinson & Co. (NYSE:BDX) | $1,271 | $63 | $1,208 | -4.9% |
| Varian Medical (NYSE:VAR) | $399 | $22 | $377 | -5.6% |
Legislators and opinion leaders from areas with high concentrations of med-tech firms are lining up behind efforts to repeal the tax, led by Rep. Erik Paulsen (R-Minn.).
"This analysis shows the devastating effect the new medical device tax will have on device innovators all over this country," Paulsen told MassDevice. "The fact is, we have already heard from manufacturers who are laying off employees and are outlining plans to take their operations overseas in anticipation of the new tax. Exciting new start-ups that aren’t even profitable will see their growth stifled by this onerous new tax. There is no room for this dangerous tax at a time when we should be doing everything we can to promote American made products, services, and innovation.”
In Ohio, which also boasts a significant medical device cluster, the editorial page of the Columbus Dispatch weighed in with its own attack on the levy, saying it "is already killing jobs and hurting U.S. businesses."
And inside the Beltway, the device industry’s trade groups are up in arms over the tax. Mark Leahey, president & CEO of the Medical Device Manufacturers Assn., told MassDevice that a repeal measure spearheaded by Paulsen is likely to come up for a vote on the House floor over the next few months.
“Your analysis demonstrates the importance of repealing this device tax sooner rather than later," Leahey told us. "Given the data that’s being generated and the reports from the companies about the impacts [of the tax], we’re confident that members of Congress in the House and Senate will recognize the importance of repealing this legislation. Even Democrats who supported the health care law are recognizing that there are certain targeted provisions that have unintended consequences. This is a bill that will enjoy bipartisan support because of the impact [the tax is] having on innovation and job creation.”
