Local medical-device makers stop short of predicting layoffs or outsourcing, but say the 2.3 percent tax on medical-device sales included in the U.S. health care law will certainly be a competitive disadvantage, which could indirectly lead to job losses.
“It will certainly have a negative impact, although we have not examined it closely in terms of what it will mean for us,” said Scott Rader, president and CEO of IlluminOss Medical Inc. in East Providence. “I think it will affect investment and that can affect job creation or the very valuable jobs connected with selling medical products.”
While the medical-device industry often brings to mind giants such as Covidien or Boston Scientific, the implications for smaller, early-stage medical companies like IlluminOss are more often cited as a concern.
Unlike, say, corporate income tax, the medical-device tax will be charged to companies on their gross revenue regardless of whether they are profitable or not.
Even if 2.3 percent doesn’t put a dent in the multibillion-dollar profits of a Covidien, they could be more damaging to a company like IlluminOss, which is still in clinical trials and pre-commercial.
And so the industry alliances that have mobilized against the tax since it was passed along with the rest of the Patient Protection and Affordable Care Act in 2010 have focused on what it might do to the small and emerging players in the medical-device world.
“A lot of these smaller companies who do not have products yet and do not have profits will still have to pay this on their first sales,” said Wanda Moebius, spokeswoman for AdvaMed, an industry trade and lobbying group. “This is an industry dominated by these small companies and they do a lot of research.”
According to AdvaMed, the Unites States medical-device industry exported $5.4 billion more than it imported in 2011, although that margin has been shrinking in recent years. The group, which pegs the number of Rhode Island medical-device jobs at 4,200, estimates that the new tax could result in the loss of 43,000 American jobs.
Worldwide, Mansfield-based Covidien employs approximately 42,000 people and, based on current sales, would pay $100 million in annual excise tax starting in 2013. Last year Covidien had $2.4 billion in operating income from $11.6 billion in sales.
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