Michael Barbella, Managing Editor10.12.16
The medical device tax continues to disappoint, even in (near) death.
Its latest failure is not all that surprising, considering the controversial levy never quite lived up to its formidable reputation during its lifetime. From the moment of its 2010 birth (via the Affordable Care Act), the tax was vilified, loathed, feared, and repudiated—essentially, it was doomed to live a life based solely on perception.
That impression was largely crafted by an industry outraged by an ACA mandate to help fund health insurance coverage to more than 25 million uninsured Americans. Years before the 2.3 percent levy even took effect, medical device executives predicted it would kill jobs and undermine innovation by moving manufacturing to offshore locations with more favorable tax rates.
“The levy on device manufacturers would inevitably force layoffs across the country,” U.S. Rep. Tom Price, an orthopedic surgeon representing Georgia’s Sixth Congressional District, wrote in a June 2011 op-ed article posted to his political website. “...removing barriers to innovation and entrepreneurship are imperative to growing our economy. Those are just the kind of jobs created at medical start-ups, small businesses, and corporations. They are the jobs that will not be created or which will be lost if manufacturers have to send even more tax dollars to Washington.”
Battelle Technology Partnership Practice officials agreed with Price. In a report commissioned by the Advanced Medical Technology Association (AdvaMed) and released the following year (2012), Battelle estimated the device tax would cost the industry 39,000 jobs and more than $8 billion in economic output. The Hudson Institute forecast greater bloodshed, predicting up to 43,000 jobs lost.
A steady stream of layoffs attributed to the tax seemed to substantiate those doom-and-gloom projections: 1,000 job cuts at Stryker Corp., 100 at Smith and Nephew plc, 120 at Welch Allyn Inc., 200 at Hill-Rom Holdings Inc., 800 at St. Jude Medical Inc., and 900-1,000 at Boston Scientific Corp., among others. Exacerbating those losses was the levy’s impact on future growth—Orthopediatrics Corp., for instance, nixed hiring four additional product development engineers in 2014 to pay its $300,000 tax bill, while Cook Medical abandoned its five-factory expansion plan (each facility would have employed 300 people).
Naturally, the medical device industry dramatized the carnage, even though some of the cutbacks may not have been genuine offshoots of the tax.
Several industry analyses have found that medtech job losses over the last few years were not directly related to the tax, since companies could pass the costs on to consumers through higher prices. The Congressional Research Service concluded the tax was having fairly minor effects on employment, changing payrolls by no more than two-tenths of 1 percent. The agency’s report also called the levy difficult to justify, noting that such excise taxes are typically put in place to discourage a particular behavior, for example, smoking.
Another review, conducted by medical device consultancy Emergo Group, attributed only a small percentage of job losses to the tax. Of 685 senior managers surveyed last year, 14 percent said they cut staff in 2014 due to the tax; another 29 percent raised their product prices to compensate and 57 percent made no significant changes to either their fees or personnel. AdvaMed, for the record, deemed the study flawed.
“While some politicians and groups will try to pin any job losses solely on the medical device excise tax, we may never know the true impact on industry employment and innovation,” Emergo senior regulatory analyst Stewart Eisenhart wrote in a Feb. 13, 2015 blog, shortly after the firm released its survey results. “Other factors are also at play: currency fluctuations, market demand, mergers, etc. Clarity may come in time...”
Clarity may indeed have come, had the levy survived long enough to provide adequate perspective to researchers. But late last year, President Barack Obama suspended the device tax through 2017 as part of a compromise $1.8 trillion spending package that prevented a government shutdown.
The suspension gave medtech firms a two-year break on their financial obligations to Uncle Sam, a reprieve many companies are planning to use to replenish staff and/or reinvest in products and R&D. Endourological treatment technology developer NxThera Inc., for example, intends to expand both its research and sales staff over the next two years. “It [tax suspension] absolutely means additional money that we can invest in both of those areas,” NxThera CEO Bob Paulson told NPR this past winter.
Although employment statistics show many companies following NxThera’s lead—medtech hiring activity has rebounded considerably in the first half of 2016—analysts are hesitant to link the job gains to the device tax suspension. David Fortier, managing director of global life sciences for ZRG Partners LLC, attributed the historically high employment spikes to a strengthening U.S. economy and companies’ “inability or unwillingness” to develop internal talent.
An EP Vantage report, meanwhile, credits industry consolidation for burgeoning staffing levels, contending the “single greatest trend behind staff changes is without a doubt M&A activity—even activity first announced some years ago.”
The data from both ZRG Partners and EP Vantage, however, contradict the results of Medical Product Outsourcing’s latest salary survey, which showed fewer firms expanding and more organizations scaling down over the last year. Sixty percent of respondents documented growth at their companies, down 4 percent from 2015, while 12.4 percent reported downsizing, up 7.4 percent compared with the previous survey. Twenty-seven percent recorded no change, roughly on par with the 30 percent who responded accordingly in 2015.
The downsizing might help explain workers’ overall insecurity: Fewer poll participants feel secure or very secure in their jobs this year—65.1 percent compared with 82 percent in 2015, and more are troubled (15.5 percent admit feeling somewhat insecure or very insecure in their current positions). More workers also are indifferent, with 19.4 percent labeling themselves “neutral.”
With professional anxiety and corporate downsizing on the rise, fewer workers are pledging allegiance to their employers. Twenty-seven percent of the MPO survey respondents vowed to leave their respective companies in the next two years, up 5 percent from 2015, while 41.8 percent remain devoted to their jobs, down 8.2 percent from last year.
Possible contributors to the drop in devotion are government regulations, deal flow, financing troubles, and communications issues, according to survey responses.
Particularly frustrating to medtech professionals are internal politics (cited by 31 percent of respondents); the regulatory process (19.4 percent); inadequate project funding (12.4 percent); poor pay (10.9 percent); lack of advancement (7.7 percent); shareholder expectations (3.1 percent); and merger/acquisition fears (2.3 percent).
Compensation, actually, continues to inflame the masses. More workers expressed dissatisfaction with their pay this year (33 percent) than in 2015 (29 percent), although many still believe their salaries adequately reflect their level of responsibility (46 percent vs. 50 percent last year). “I am being asked to do more with the same job title,” one respondent noted.
“Someone quit and I was asked to take over their job responsibilities,” griped another pollster. “I was told this would last for three months and it has been 10 months with 0 percent compensation for my work.”
And so on.
“Who on the planet is not doing more?” asked one respondent.
And so on.
“I am being asked to do more with the same job title,” replied another.
And so on.
“[I’m] asked to do more for the same salary,” someone else said.
The latter retorts most likely originated from the 31 percent of MPO survey respondents who are not receiving a raise this year. However, not all hope is lost: Fewer workers are experiencing wage freezes and more are being rewarded—even minimally—for their efforts. The survey data shows 3.1 percent of respondents either already received or expect to receive a 1 percent bump in pay this year (compared with 2 percent in 2015), 15.5 percent received/expect a 2 percent salary hike (14 percent last year), 25.5 percent received/expect a 3 percent boost (23 percent in 2015), 8.5 percent anticipate a 4 percent raise (4 percent last year), 4.7 percent received/expect a 5 percent increment (5 percent in 2015), and 7 percent received/expect a 10 percent increase (4 percent last year).
Base salaries appear to be rising as well, despite employees’ grievances with their compensation. Fewer earn less than $15,000 annually (2.3 percent) and more collect between $15,000 and $75,000 (28.7 percent); most bring in between $75,000 and $150,000 every year (47.3 percent), while 14.7 percent take home $150,000-$200,000 and 7 percent earn more than $200,000 annually (down 2 percent from last year’s results).
Money doesn’t guarantee happiness, though. Many device workers—regardless of their compensation levels—are finding job satisfaction in non-material ways, through concepts like creativity, diversity, innovation, new technology, freedom, travel, challenges, autonomy, and product development. Yet the most rewarding is the opportunity to help patients. As one respondent noted: “[It’s] the people I work with and the fact that I know what I do makes a difference.”
Its latest failure is not all that surprising, considering the controversial levy never quite lived up to its formidable reputation during its lifetime. From the moment of its 2010 birth (via the Affordable Care Act), the tax was vilified, loathed, feared, and repudiated—essentially, it was doomed to live a life based solely on perception.
That impression was largely crafted by an industry outraged by an ACA mandate to help fund health insurance coverage to more than 25 million uninsured Americans. Years before the 2.3 percent levy even took effect, medical device executives predicted it would kill jobs and undermine innovation by moving manufacturing to offshore locations with more favorable tax rates.
“The levy on device manufacturers would inevitably force layoffs across the country,” U.S. Rep. Tom Price, an orthopedic surgeon representing Georgia’s Sixth Congressional District, wrote in a June 2011 op-ed article posted to his political website. “...removing barriers to innovation and entrepreneurship are imperative to growing our economy. Those are just the kind of jobs created at medical start-ups, small businesses, and corporations. They are the jobs that will not be created or which will be lost if manufacturers have to send even more tax dollars to Washington.”
Battelle Technology Partnership Practice officials agreed with Price. In a report commissioned by the Advanced Medical Technology Association (AdvaMed) and released the following year (2012), Battelle estimated the device tax would cost the industry 39,000 jobs and more than $8 billion in economic output. The Hudson Institute forecast greater bloodshed, predicting up to 43,000 jobs lost.
A steady stream of layoffs attributed to the tax seemed to substantiate those doom-and-gloom projections: 1,000 job cuts at Stryker Corp., 100 at Smith and Nephew plc, 120 at Welch Allyn Inc., 200 at Hill-Rom Holdings Inc., 800 at St. Jude Medical Inc., and 900-1,000 at Boston Scientific Corp., among others. Exacerbating those losses was the levy’s impact on future growth—Orthopediatrics Corp., for instance, nixed hiring four additional product development engineers in 2014 to pay its $300,000 tax bill, while Cook Medical abandoned its five-factory expansion plan (each facility would have employed 300 people).
Naturally, the medical device industry dramatized the carnage, even though some of the cutbacks may not have been genuine offshoots of the tax.
Several industry analyses have found that medtech job losses over the last few years were not directly related to the tax, since companies could pass the costs on to consumers through higher prices. The Congressional Research Service concluded the tax was having fairly minor effects on employment, changing payrolls by no more than two-tenths of 1 percent. The agency’s report also called the levy difficult to justify, noting that such excise taxes are typically put in place to discourage a particular behavior, for example, smoking.
Another review, conducted by medical device consultancy Emergo Group, attributed only a small percentage of job losses to the tax. Of 685 senior managers surveyed last year, 14 percent said they cut staff in 2014 due to the tax; another 29 percent raised their product prices to compensate and 57 percent made no significant changes to either their fees or personnel. AdvaMed, for the record, deemed the study flawed.
“While some politicians and groups will try to pin any job losses solely on the medical device excise tax, we may never know the true impact on industry employment and innovation,” Emergo senior regulatory analyst Stewart Eisenhart wrote in a Feb. 13, 2015 blog, shortly after the firm released its survey results. “Other factors are also at play: currency fluctuations, market demand, mergers, etc. Clarity may come in time...”
Clarity may indeed have come, had the levy survived long enough to provide adequate perspective to researchers. But late last year, President Barack Obama suspended the device tax through 2017 as part of a compromise $1.8 trillion spending package that prevented a government shutdown.
The suspension gave medtech firms a two-year break on their financial obligations to Uncle Sam, a reprieve many companies are planning to use to replenish staff and/or reinvest in products and R&D. Endourological treatment technology developer NxThera Inc., for example, intends to expand both its research and sales staff over the next two years. “It [tax suspension] absolutely means additional money that we can invest in both of those areas,” NxThera CEO Bob Paulson told NPR this past winter.
Although employment statistics show many companies following NxThera’s lead—medtech hiring activity has rebounded considerably in the first half of 2016—analysts are hesitant to link the job gains to the device tax suspension. David Fortier, managing director of global life sciences for ZRG Partners LLC, attributed the historically high employment spikes to a strengthening U.S. economy and companies’ “inability or unwillingness” to develop internal talent.
An EP Vantage report, meanwhile, credits industry consolidation for burgeoning staffing levels, contending the “single greatest trend behind staff changes is without a doubt M&A activity—even activity first announced some years ago.”
The data from both ZRG Partners and EP Vantage, however, contradict the results of Medical Product Outsourcing’s latest salary survey, which showed fewer firms expanding and more organizations scaling down over the last year. Sixty percent of respondents documented growth at their companies, down 4 percent from 2015, while 12.4 percent reported downsizing, up 7.4 percent compared with the previous survey. Twenty-seven percent recorded no change, roughly on par with the 30 percent who responded accordingly in 2015.
The downsizing might help explain workers’ overall insecurity: Fewer poll participants feel secure or very secure in their jobs this year—65.1 percent compared with 82 percent in 2015, and more are troubled (15.5 percent admit feeling somewhat insecure or very insecure in their current positions). More workers also are indifferent, with 19.4 percent labeling themselves “neutral.”
With professional anxiety and corporate downsizing on the rise, fewer workers are pledging allegiance to their employers. Twenty-seven percent of the MPO survey respondents vowed to leave their respective companies in the next two years, up 5 percent from 2015, while 41.8 percent remain devoted to their jobs, down 8.2 percent from last year.
Possible contributors to the drop in devotion are government regulations, deal flow, financing troubles, and communications issues, according to survey responses.
Particularly frustrating to medtech professionals are internal politics (cited by 31 percent of respondents); the regulatory process (19.4 percent); inadequate project funding (12.4 percent); poor pay (10.9 percent); lack of advancement (7.7 percent); shareholder expectations (3.1 percent); and merger/acquisition fears (2.3 percent).
Compensation, actually, continues to inflame the masses. More workers expressed dissatisfaction with their pay this year (33 percent) than in 2015 (29 percent), although many still believe their salaries adequately reflect their level of responsibility (46 percent vs. 50 percent last year). “I am being asked to do more with the same job title,” one respondent noted.
“Someone quit and I was asked to take over their job responsibilities,” griped another pollster. “I was told this would last for three months and it has been 10 months with 0 percent compensation for my work.”
And so on.
“Who on the planet is not doing more?” asked one respondent.
And so on.
“I am being asked to do more with the same job title,” replied another.
And so on.
“[I’m] asked to do more for the same salary,” someone else said.
The latter retorts most likely originated from the 31 percent of MPO survey respondents who are not receiving a raise this year. However, not all hope is lost: Fewer workers are experiencing wage freezes and more are being rewarded—even minimally—for their efforts. The survey data shows 3.1 percent of respondents either already received or expect to receive a 1 percent bump in pay this year (compared with 2 percent in 2015), 15.5 percent received/expect a 2 percent salary hike (14 percent last year), 25.5 percent received/expect a 3 percent boost (23 percent in 2015), 8.5 percent anticipate a 4 percent raise (4 percent last year), 4.7 percent received/expect a 5 percent increment (5 percent in 2015), and 7 percent received/expect a 10 percent increase (4 percent last year).
Base salaries appear to be rising as well, despite employees’ grievances with their compensation. Fewer earn less than $15,000 annually (2.3 percent) and more collect between $15,000 and $75,000 (28.7 percent); most bring in between $75,000 and $150,000 every year (47.3 percent), while 14.7 percent take home $150,000-$200,000 and 7 percent earn more than $200,000 annually (down 2 percent from last year’s results).
Money doesn’t guarantee happiness, though. Many device workers—regardless of their compensation levels—are finding job satisfaction in non-material ways, through concepts like creativity, diversity, innovation, new technology, freedom, travel, challenges, autonomy, and product development. Yet the most rewarding is the opportunity to help patients. As one respondent noted: “[It’s] the people I work with and the fact that I know what I do makes a difference.”