Health care law threatens to cripple medical device companies

Neil Munro White House Correspondent
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President Barack Obama’s health care reform law is already bleeding jobs from the nation’s high-tech, high-wage medical device industry, but Senate Democrats aren’t trying to close the wound, says Minnesota Republican Rep. Erik Paulsen.

The 2010 law imposed a crippling 10-year, $20 billion tax on revenues — not on profits — earned by companies that make medical devices, such as catheters, artery-clearing stents, scalpels and pacemakers.

The tax is prompting American companies to shed jobs, move factories overseas and reconsider niche-market research projects, said Paulson, whose district include medical device companies.

No Senate Democrats are supporting his tax-repeal bill, even though many have medical devices companies in their districts, he said. “They’re the ones digging to protect Obamacare,” he told The Daily Caller.

“The administration will dig in and protect Obamacare at all costs, even if it looks like it is going to cause the layoff of 10 percent of the medical-device workforce, or 43,000 jobs,” said Paulson, who has gathered 218 House signatures for a bill to repeal the tax.

The pessimistic forecast is echoed by Kem Hawkins, president of Cook Medical, a family-owned firm in Bloomington, Ind., that employs 10,000 workers, most of them in the United States.

“Companies are already moving jobs, they’re already moving products, they’re not investing in the U.S.,” he told TheDC. “If we don’t stop it now … it will be too late” to preserve the United States’ leading role, he said. (RELATED: Kagan emails lead to calls for inquiry over her involvement in Obamacare)

Hawkins said he’s free to speak about the damage caused by the tax because Cook is privately owned, and safe from Wall Street sell-offs or stock-pickers’ pressure to cut U.S. employment.

Still, he added, by protesting the law, “we do recognize that we do put ourselves in harms way, especially with the regulatory agencies.”

“We’re trying to represent the patients [and] if you have to be be afraid of your government, you’ve already lost,” he said.

The medical device sector is not the only victim of the controversial law.

The percentage of uninsured Americans has risen from 14.6 percent to 17.3 percent over the same period, Gallup reported. In October, Wal-Mart announced that new part-time employees would not be allowed join the company’s health insurance plan.

Washington has also wrecked other high-end industries.

The U.S. yacht industry was slashed — along with more than 7,000 jobs and federal tax revenues — following the 1990 imposition of a 10 percent “Luxury Tax.”

The U.S. small aircraft industry was hit hard by lawsuits from the 1980s, causing aircraft production to fall from 17,000 aircraft in 1979 to 954 aircraft in 1993, and forcing the layoff of 100,000 workers. Obama’s recent criticism of executive jets also added to the sector’s looses, and Piper Aircraft announced October 26 that it was laying off 150 engineers and workers because it had canceled plans for a business jet.

But other industries have defeated Democratic legislators and allied interest groups.

Silicon Valley united in the 1990s to fend off lawyers who prospered by suing companies when their stock prices fell, the firearms-industry won legal protections via a Supreme Court decision in 2010.

The medical device tax has to be paid starting in 2013, but companies are planning ahead, Hawkins said.

“If you look at all the companies that have announced that they are moving to China, Ireland and Canada, you’d be shocked by the number of jobs that have already left or that are leaving,” he said.

For example, this year Boston Scientific announced in July that it would invest $150 million in a Chinese factory, New Jersey-based C.R. Bard announced 200 layoffs from a factory in Queensbury, N.Y.., Massachusetts-based Covidien announced it would cut U.S. expenses by roughly $200 million per year and also expand overseas, while Indiana-based Zimmer Orthopedics laid off 100 workers.

The 2.3 percent excise tax on revenues has a big impact, partly because the competitive international market means U.S. companies can’t pass the price on to customers, but also because it deeply cuts into profits and deters investors, especially for niche products that have only a few thousand patients, Hawkins said.

For example, the company makes an a high-tech device that allows the body to repair gaping holes in internal organs, such as the intestinal tract. “We don’t sell many of them, and it’s not that big of a revenue for us,” said Hawkins, but it is enormously valuable for American kids and teenage African mothers whose lives are blighted by “anal fistulas,” he said.

The excise tax is just another burden on top of existing hindrances, which include a slow regulatory review process for new products, high corporate taxes, extra taxes on repatriated profits, and constant portrayal of company executives as “crooks,” Hawkins said.

The slow pace of regulatory review is especially painful, because the company needs approval for all of its 16,000 products, he said. In practice, slow approvals ensure that overseas competitors can sell new products into emerging markets faster that U.S. companies. he said.

One obvious solution, he said, is for U.S. companies to move factories and design teams to overseas sites. By moving overseas, he said, “we can still do business, but he problem is, we don’t employ Americans.”

The U.S. government, he said, is “doing everything [it] can possibly do to run medical-device companies out of this country.”


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