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Medtech Companies Should Reinvest in Communities, but U.S. Government in the Way

Reinvestment is crucial to economic growth. How can the U.S. government help, rather than hurt?

Many medical device companies pride themselves on their local reinvestment efforts, which promote job growth and community development. Groups such as Orthoworx, which was established with the help of the Lilly Foundation, are dedicated to education, training, research, and economic development at a local level. Giving back to communities is important to medtech companies, but more and more, the chatter is about how the U.S. government is standing in the way rather than paving the way.

The ribbon-cutting ceremony (August 31) at Cook Medical's new polymer technology plant in Canton, IL. Fast facts:

  • Full operation expected in six months, with 50 to 60 employees on board.
  • Facility size: 60,000 sq ft.
  • Cook invested $19 million in the plant.
  • The plant will supply Teflon to all of Cook's companies around the world.

Photos courtesy of Cook Medical.

Perhaps no president of a device company has been more consistently frank about this issue over the past year than Cook Medical’s Kem Hawkins. Although the company just opened a new PTFE manufacturing facility in Canton, IL last week (at a cost of $19 million), its plans to establish more plants in the United States are delayed until further notice—until the government starts supporting reinvestment instead of discouraging it.
 
Cook Medical previously planned to build a new facility every year for the next five years. “You’ve seen tremendous announcements over the last year from a number of companies that are downsizing their workforce,” Hawkins says. “Our whole reason for stopping our building in the United States is to protect our workforce.” Any money that Cook reinvests will be put into new products, clinical trials, and employee training. Not surprisingly, Hawkins blames the 2.3% excise tax.
 
What should the U.S. government be doing to encourage medical device companies to reinvest in local communities? According to Hawkins, these four changes would significantly change the medtech landscape in America, for the better.
  1. Repeal the excise tax. “It’s a bad tax,” says Hawkins.
     
  2. Fix the corporate tax rate (It’s the highest in the developed world). “It has become more and more expensive to produce products, to invent products, and to withstand the onerous regulatory environment we have.”
     
  3. Fix the onerous and undefined regulatory process. “It is just mind boggling, the regulation that we have to deal with that have nothing to do with safety and efficacy.” Hawkins adds that Cook Medical is working on stem cell technology that it will deliver to the rest of the world but not to the United States due to the hurdles that FDA presents.
     
  4. For a five year period, offer repatriation for free. “We’re the only country that double-taxes profits.” As a result, when a company manufactures a product in Ireland for example, it might leave those profits overseas so that it doesn’t have to pay the tax, and thus reinvests this money somewhere other than America. “Take 5% of the money and, within a three-month period, hire whatever that amount is in employees,” says Hawkins. “Take 5% of $1 trillion; take $50,000 per employees and see how many people would be employed immediately. Let’s do that instead of paying these people unemployment—let’s get them employed and trained. Then they’re buying houses, they’re paying taxes, they’re not getting food stamps.  They have dignity again. They’re buying clothes for their kids; they’re buying health insurance. They’re doing all these things that go right back into the [U.S.] economy.”  
Cook global marketing VP Rick Mellinger demonstrates to a group of employees and townspeople the types of devices that will use the PTFE tubing manufactured by Cook Polymer Technology Canton.
Reinvestment in the local community is important, and as evidenced by Cook Medical’s efforts in Canton, IL, can cause a positive chain reaction. The company decided to establish two plants in the town (founder Bill Cook’s hometown) two years ago, after International Harvester pulled out and took jobs out of the community. In addition to the 300+ jobs generated from Cook’s facilities alone, the company invested about $9 million in a 32-room boutique hotel called the Canton Harvester Inn, $3.5 million into a mixed-use property for commercial space and apartments, and about $4 million in the town’s indoor-outdoor mall, Fulton Square. New businesses have emerged around the town, including a winery and a water park, and the local hospital has invested $40 million in a new diabetes center.
 
“Many companies already do this. You have to look in your own backyard. You want to be a good steward, wherever you live. In our community, we have grown dramatically and reinvested in our community to make it a better place to live for all our employees, and for the citizens in this city and county,” says Hawkins. “But if people on the front end in our country make a decision that they want to take so we can’t give back, then that’s the decision we have to live with. That $20 million [Hawkins is referring to the amount of money that the 2.3% excise tax will take from Cook] we reinvest turns out to be $1 billion or $100 million. It’s exponential by the time it all gets done, because it’s every year. If the government takes and spends it, it’s not creating anything—it’s just gone.”
 
Maria Fontanazza is managing editor at UBM Canon. Follow her on Twitter:@MariaFontanazza.
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