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ObamaCare Tax on Medical Devices Prompts Pre-Emptive Layoffs

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Medical device manufacturers have been preparing for a new, and potentially costly, expense in the new year. President Obama’s Patient Protection and Affordable Care Act, also known as ObamaCare, becomes effective in January, and it subjects all such companies to a 2.3 percent tax.

The federal statute phases in health care reform in stages. The basic goals of the act are to provide broader medical coverage for all Americans, while reducing the debt required to sustain federal health care programs. One of the sources of funding for the statute is the medical device tax.

Of course, device manufacturers are up in arms about any additional tax they may be forced to pay. Fiscal conservatives say that although 2.3 percent may seem like a small amount, this fee is levied on a company’s gross, or total, sales and not just its profits. For smaller manufacturers, that can take a serious bite out of earnings, they argue.

Zimmer, Stryker Cut Hundreds

As a result, some device makers have already announced layoffs to offset the tax. Zimmer Holdings, which makes a variety of kneeĀ  and hip replacement implants, cut 450 jobs this year, partly in anticipation of a $60 million tax bill, MassDevice reports.

“The transformation program’s more far-reaching than just the device tax, but I think that the device tax is probably a big catalyst in the company looking at the transformation program,” said Zimmer spokesman Garry Clark.

Stryker Corp., which also manufactures popular hip implants and more than 50,000 other medical products, laid off 5 percent of its workforce with the goal of saving $100 million — its anticipated tax bill in 2013.

The Advanced Medical Technology Association (AdvaMed) estimates that 43,000 jobs in the medical devices field will be lost because of the tax. AdvaMed says those jobs will move overseas so companies can avoid the tax.

Lawsuits Also Cut into Profits

Other industry leaders say some medical device manufacturers are blaming the tax for problems of their own making. Both Zimmer and Stryker already face decreased revenue in 2013 because of the many lawsuits over defective products.

Zimmer recalled its Durom Cup hip implant, and Stryker recalled its Rejuvenate and ABG II modular-neck hip stem systems after the grinding of the metal parts caused early failure of the devices. Patients may be forced to undergo painful corrective surgeries. In addition, studies have linked the metal shavings that are produced to poisoning of the bloodstream and surrounding tissues. Patients implanted with specific models from Zimmer’s NexGen knee replacement line have reported some of the same complications and may require revision procedures as well.