According to the late, great David Bowie, “the stars look very different today”. After two years of collecting the 2.3% Medical Device Excise Tax, the tax has now been suspended for all of 2016 and 2017 when President Obama signed the Consolidated Appropriations Act of 2016. The tax was expected to raise almost $30 billion over 10 years from manufacturers in order to help pay for “Obamacare”. This should help the US medical device market over the next few years, claimed research and consulting firm GlobalData.
While representatives from both parties in Congress, especially in states with large amounts of medical device companies, like Minnesota, Indiana, and California, wanted to repeal the tax in principle ever since it went into effect in January 2013, they were unable to find an offset for the amount the tax was supposed to generate. It’s still unknown how the projected $30 billion over 10 years to be raised by this tax will be replaced.
These savings are supposed to shore up R&D and staffing resources that medtech companies battling the tax claimed were being impinged upon. According to watchdog group MapLight, a nonpartisan research group that tracks money's influence on politics, the medical device industry spent 5 years and more than $110 million lobbying Congress and federal agencies to repeal the medical device tax. In addition, the group says, that top manufacturers and their trade group also donated $19.5 million to House members since Oct. 1, 2012.
So, now let’s see how much of these savings gets spent on recruiting talent and R&D efforts. Companies like Masimo have pledged to increase investment in infrastructure and R&D in response to the tax moratorium. Others, like NuVasive, plan to build new manufacturing facilities. NuVasive’s new facility in Ohio is expected to add 300 full-time positions. And, Sterigenics International committed more than $80 million in capital investments in the past year including expansion to increase capacity by 30 percent in one plant and tripling sterilization capacity at another.
However, in the past couple of weeks, companies have been announcing layoffs in large numbers. On January 19, Johnson & Johnson announced that it will cut 4 to 6 percent of its medical devices workforce, about 3,000 jobs, over the next two years as part of restructuring. On January 8, Abbott Laboratories announced it was closing a California vascular device manufacturing facility and laying off 144 employees. And, C.R. Bard plans to close three plants in Minnesota by the end of 2016, meaning layoffs for 185 employees.
Recently, GE Healthcare, which moved to the UK in 2003, has announced that it will be moving back to the US early in 2016 to new headquarters in Chicago, IL. But Ireland’s finance minister in October said the country would halve its corporate tax rate to 6.25 percent for innovative companies—ones with earnings tied to patents, copyrights, or other R&D created in Ireland. After Medtronic bought Covidien and moved its headquarters to Dublin, who else will follow?