Stryker (NYSE:SYK) is expecting the medical device tax contained in President Barack Obama’s healthcare reform law to cost it roughly $130 million a year, according to interim CEO Curt Hartman.
During the Kalamazoo, Mich.-based medical device company’s annual analyst day in Mahwah, N.J., yesterday, Hartman called the 2.3% excise tax "the elephant in the room."
"There’s been wide discussion around what the impact will be on various companies. I would tell you right now, we have communicated that our impact would be somewhere in the [$130 million] range," he said.
To offset that, Hartman said, Stryker and its peers will likely move significant portions of their operations overseas. That’s because of a provision in the tax, which is set to go into effect Jan. 1, 2013, that applies the levy to medical devices that are shipped to trade shows or sent as loaners or replacements, he explained.
"[Y]ou take a product to a trade show, you have to pay the med-device tax on that product," Hartman said, citing the example of a customer sending a device back for repair. "We have to pay a 2.3% med-device tax every time we ship that loaner out the door.
Hartman
"So from a slightly political statement, it is a job-killing bill," he said. "If I want to minimize my tax, I ask [Stryker global quality & operations president] Lonny Carpenter to move all U.S. manufacturing outside the U.S. and set up an arm’s-length transaction at cost plus, and then pay my med-device tax when it crosses the border. There’s been great discussion on this exact point in Washington, D.C. Stryker and other med-tech companies have been very involved in that [discussion]."
The November election will play a role in how the tax shakes out, Hartman said, adding that although the legislation is still in draft form most med-tech companies are preparing for it’s implementation.
"Who knows where the election takes it? There’s a lot of dialogue in D.C. about the device tax getting caught up in comprehensive corporate tax reform next year, or it could get pushed out and delayed," he said. "What we’re doing, and every other player in the industry is doing, is putting the systems in place assuming the Jan. 1 start, because that’s the rule and regulation that’s on the books right now."
