WASHINGTON — B. Braun Medical and other makers of medical devices cried foul over a 2.3 percent tax imposed on their industry by Obamacare, saying it could force them to cut jobs, move overseas and stop growth.
Seven months since its implementation, the companies largely have absorbed the tax without cutting profits or passing along costs to consumers, independent analysts say. Instead, the industry has used layoffs, frozen salaries, restructuring and other cost-reduction methods to mitigate the pain.
Industry groups and local manufacturers, like B. Braun and Olympus, continue to press hard for repeal of the tax. They've succeeded in convincing Democrats that represent them, ones who voted for the health care law, to support their effort.
"The general consensus has been … the companies, at least the larger ones, are offsetting it through restructuring programs to retain levels of profitability to maintain where they are now," said Bloomberg Industries medical device analyst Jason McGorman.
St. Jude Medical, for instance, a $14.7 billion Minnesota-based company that makes heart devices, in August 2012 laid off 300 employees to reduce pre-tax operating costs by $50 million, or about what it must pay in new taxes. And Stryker, a $26.6 billion Michigan-based company that makes orthopedic implants, cut more than 1,000 jobs to make up for the $100 million it would pay in the new sales tax.
B. Braun, the Lehigh Valley's largest manufacturer and eighth-biggest employer, absorbed the cost by freezing hiring and raises, and by cutting research and development, senior vice president Bruce Heugel said.
The German company, which is private and does not disclose its total worth or profit margins, will pay an extra $20 million this year in taxes, Heugel said. "We've wired millions to the federal government, so I have to take it from someplace," Heugel said. "This isn't a small tax, it's a huge tax."
While larger companies have taken steps to maintain profits in the face of the tax, small businesses, which make up most of the medical device industry, have no where to cut from.
"Where it is a little more onerous is with the smaller companies," said Matt Taylor, a medical device analyst with Barclays Bank in New York. "It is a tax on sales, if you're a growing company that isn't making a profit, that could be harder to offset."
AdvaMed, the DC-based trade association for the medical device industry, in July announced that U.S. companies had paid $1 billion because of the tax, which is projected by Congress to bring in $1.7 billion in revenue during 2013 and $30 billion over 10 years.
The tax applies to all medical devices, from bedpans to pacemakers, but not to "over-the-counter" items like contact lenses or hearing aids.
The levy is one of many ways Congress had the health care sector help cover the cost of the 2010 Affordable Care Act, commonly known as Obamacare. The tax is justified, proponents said, because as millions more Americans receive health insurance under the law, sales of medical devices also will grow. Further, they said, the industry was profitable enough to absorb the additional tax without too much pain.
"Thanks to the health care law, this industry will continue to thrive due, in part, to their access to an expanded customer base for medical devices," the White House said.
The medical device industry continues to oppose the tax, and spent more than $30 million last year lobbying Congress on it and other issues, according to data from Opensecrets.org.
From the start Republicans also opposed the tax, as GOP lawmakers have with virtually all facets of Obamacare. Now more Democrats are calling for its repeal, especially in states like Pennsylvania, which is the fourth largest supplier of medical devices in the country, according to Pennsylvania Bio, a state-based organization promoting biotechnology and medical devices.
According to Pennsylvania Bio membership, there are 177 medical device developers and manufacturers in the state, and seven are located in Lehigh and Northampton counties. They include larger companies B. Braun and Orasure, both in Bethlehem, as well as several startups located at Ben Franklin Technology Partners.
There are a handful of other companies subject to the tax that are not on Pennsylvania Bio's membership list, including Olympus America Inc. in Center Valley and Boas Surgical in Allentown.
U.S. Sen. Bob Casey, D-Pa., and U.S. Rep. Allyson Schwartz, D-13th District, a candidate for governor, are among the Democrats pushing to end the tax, although neither has specifics for how to recoup the lost tax revenue to pay for the overall health care law they support.
In 2012, a political action committee for the leading medical device trade association gave Casey $3,000 and Schwartz $4,000 for their re-election campaigns. Republican Sen. Pat Toomey of Pennsylvania and Rep. Charlie Dent of the Lehigh Valley, among the most vocal opponents of the tax, received $1,000 each from the Advanced Medical Technology Association [AdvaMed] PAC.
In March, the Senate voted 79-20 to repeal the medical device tax. There is pressure in the House to do the same. Legislation to do away with the tax has 260 cosponsors, including Schwartz and every Pennsylvania Republican congressman.