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Medical Device Tax Blamed for More Layoffs, Potential Offshoring


Posted by Shana Leonard on September 5, 2012

The medical device tax strikes again—or at least is serving as the scapegoat for another round of industry layoffs and justification for moving operations abroad.

Medical device industry giant St. Jude Medical announced last week that it planned to realign its product divisions into two new operating units. The Implantable Electronic Systems Div. will encompass the former cardiac rhythm management and neuromodulation divisions while the Cardiovascular and Ablation Technologies Div. will be composed of the former atrial fibrillation and cardiovascular divisions. Approximately 300 employees were laid off as a result of the reorganization, according to the company.

“The reorganization we have announced…is part of a comprehensive plan to accelerate our growth,” Daniel J. Starks, chairman, president, and CEO of St. Jude Medical said in a press release. “We are focused on reducing costs, leveraging economies of scale, maintaining the highest level of quality, and funding our entire portfolio of new growth drivers.”

The company further noted that the reorganization will yield an estimated cost savings of $50 to $60 million in annual pretax expenses as of 2013. “This is another piece of fallout that we can attribute at least in large part to the medical device tax,” Thomas Gunderson, senior analyst at Minneapolis-based Piper Jaffray & Co., told Bloomberg.

Starks has publicly opposed the impending medical device tax, opining on an earnings call in July that it would have a “meaningful negative impact” on some companies. "We think [the tax] will have more impact on businesses than is generally appreciated. That's a cash expense paid every 15 days starting in January," he said at the time. "We think that the medical device excise tax with that new cash outflow every 15 days will have unintended consequences. We think that it will reduce the level of investment that medical device companies have available. We think that reduced level of investment is going to impact jobs and result in reduced jobs. We think that the reduced level of investment and increased outflow of cash to this excise tax will impact company valuations."

Another medical device influencer that hasn’t exactly been shy about his opposition to the medical device tax is Cook Medical president Kem Hawkins, who made a point of illustrating the potential impact of the tax on local business while promoting the opening of a new plant in Illinois last week. Hawkins proclaimed to the Herald-Times of Bloomington, IN, recently that the chances of opening any additional plants stateside would be bleak unless the tax was repealed. He added that plans for five additional U.S. manufacturing facilities had been put on hold until the impact of the tax was assessed, and the company would likely look to set up shop overseas, instead.

"We will be protecting our employees in the U.S. and looking abroad for growth," Hawkins told the paper. "We have been working diligently in all our states with plants to try and have people understand there are consequences for these actions." --Shana Leonard


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