The world’s only company specializing in making orthopedic equipment for children is slashing its product development budget and freezing hiring as a result of Obamacare’s medical device tax.
“We are a company that is not yet profitable. We’ve only been in the market for 5 years. This is a very burdensome tax because it is based on sales, not profits, and the only way we can pay a tax like this is to cut expenses,” OrthoPediatrics CEO Mark Throdahl told The Daily Caller.
“In terms of magnitude, [the tax] is about the size of our entire product development budget,” Throdahl said. “We have had to reduce our development budget. We’re developing less products than we otherwise would. It has cut into our development expenses. The only way we can trump up the money to pay this tax is to reduce expenses.”
“We’ve not cut people because that’s not our program but we have deferred adding additional positions at the company so as to make room for the expense reductions.”
Indiana-based OrthoPediatrics develops products for children worldwide including “anatomically appropriate implants, instrumentation and biologics for pediatric and small stature patients,” produced with the assistance of its Surgeon Advisory Board, and owns exclusive rights to two of the world’s largest collections of pediatric skeletal data.
“We are focused exclusively on developing orthopedic implants for children. In the operating room our products are being used on the bone…to treat deformities in the legs and the spine. A lot of our products are used for children with cerebral palsy. They reduce discomfort. Sometimes they allow kids to walk for the first time,” Throdahl said. “We are the only company in the world focused exclusively on this.”
Obamacare’s medical device excise tax has already created a job loss of 33,000 people in the medical device industry and 132,000 more job losses are expected with other jobs expected to be outsourced outside the United States, according to a recent report from the industry trade group the Advanced Medical Technology Association. Nearly one-third of the medical device companies surveyed by AdvaMed reported cutbacks in research and development (R&D).
“An excise tax which is what this is — a tax on sales — is used typically for things like liquor and tires, and it’s incredible that the government has levied this tax on medical devices for kids,” Throdahl said, adding that the tax impacts American “global competitiveness.”
“I have spent about a third of my career living and working outside the United States. The U.S. medical device industry is one of the few industries left where our country has competitive advantage. We really are the global leader. It is so maladroit that the U.S. government is burdening one of the few industries where we’re still a leader.”
“The majority of companies in our industry are small businesses. It’s not like you’re tacking a 2 percent tax onto Pfizer. There are hundreds of companies just like ours that are struggling with this tax…The expenses in this industry are enormous. We have 16 surgical systems in the market now. These are very expensive to maintain. We have a direct sales force. We’re selling [products] outside the United States. It will be several more years before we break even.”
Throdahl noted that the tax does not threaten the company’s survival, and that OrthoPediatrics is still growing 40 percent per year and revenues are rising. But he’s afraid of the impact the tax will have on the industry’s overall investment in research and development.
“There is no doubt that nationally there have been headcount reductions in the major firms and a slowdown in hiring, There’s no question that this is having an impact,” he said, particularly with respect to reduced R&D.
“R&D is the lifeblood of an industry like this which is based on new technology.”
The White House did not return a request for comment.