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ACA’s 2013 medical device tax has already killed jobs & expansion plans

Posted by Jessica Hartman DeVore on Thu, Apr 19, 2012 @10:02 AM

The Patient Protection and Affordable Care Act (ACA) includes a new 2.3% tax on the U.S. sale of medical devices beginning in 2013. The tax was included to raise $20 billion in revenue to partially offset the cost of the new, $1 trillion health program. The 2.3 percent tax is imposed on revenue, not profits, so that the tax applies to devices regardless if they are sold at a loss.
This particular financing measure is now the target for repeal by a growing number of Members in Congress because of its impact on patient access to life-saving therapies, American jobs, and medical innovation in the United States.

Regardless of how the Supreme Court rules on the ACA, there are many claims about the tax that are inaccurate and do not reflect existing realities about its impact.

Jobs and investment will suffer
 
Claim: The new tax will not shift employment offshore because the tax does not create an incentive to move production overseas.
Reality: Even without going into effect until 2013, the device excise tax has already caused companies to lay-off workers, grow device manufacturing jobs outside the U.S., reduce investment in research and development, and eliminate capital investment in new U.S. facilities. The device excise tax applies to the sale of medical devices in the U.S.

This is on top of our federal tax rate at 35 percent and state and local taxes. Combining these U.S. taxes with a slow and cumbersome approval process, the excise tax adds tremendous disincentive to companies wanting to stay in the U.S. and compete in the global marketplace. Compare Ireland’s tax of 12.5 percent of profit and Canada’s national tax of about 15 percent of profit for most companies to the existing U.S. tax rate of 35 percent that many companies face.
 
Tack on the new federal tax of 2.3 percent of sales, which equals about a tax of 15 percent on profit for most companies, and U.S. manufacturers in 2013 will pay a tax of about 50 percent for every dollar earned. Companies operating outside the United States will be at a distinct competitive advantage as those taxes start from a significantly lower base.
 
It’s disingenuous to say that that level of taxation will not lead companies to locate new factories and research and development arms outside of the U.S. Foreign manufactures have a clear price advantage by paying a tax bill that can be half what a comparable U.S. firm will pay. Academic claims that the tax will not have an impact on U.S. jobs is naive and does not match reality. Medical device companies have signaled a warning for several months now.
 
Here are just a few examples:
-Stryker Corporation announced a layoff of 1,000 workers due to the tax
-Boston Scientific built a $35+ million research and development center in Ireland instead of North America
-Boston-Scientific is also girding for a $100+ million charge to earnings in 2013
-Zimmer plans to lay off 450 and take a $50 million charge against earnings
-Cook Medical has shelved plans to build a medical device factory annually in the U.S.
 
No windfall for the device industry
 
Claim: The ACA will insure millions of people and therefore device companies will benefit from new business through the sale of more devices.
Reality: Reducing the number of uninsured will not increase the number of patients seeking medical devices. Most of our medical technologies are either used today by patients in emergency situations or by elderly patients who are already insured by Medicare. There will be no windfall for our industry just because more, non-elderly patients have access to insurance.

 
Here’s why: In the emergency room today, patients receive our technologies regardless of whether they have health insurance or not. These devices that are used in this setting include drainage catheters, tracheostomy tubes, intubation devices and myriad of other devices to maintain life. Federal law requires that all patients in need of emergency services be treated regardless of their ability to pay or whether they have health coverage. The ACA does not change this paradigm.
 
Further, the administration has stated that the demographic group that will most benefit under the ACA are the non-elderly. Young people tend not to be in need of stenting or other vascular or organ repairs for aging related conditions. Most of the patients that use our products are elderly and today they are either treated in the emergency room without regard to health insurance or covered by Medicare that already reimburses hospitals for medical devices.
 
This analysis is borne out in Massachusetts, which has a similar universal health care approach. Internal analysis shows that medical device sales did not increase beyond the increase expected prior to enactment of the Massachusetts new health law.
 
Devastating impact on medical innovation

Claim: Tax will have little effect on medical innovation.
Reality: The device excise tax will have a real and serious impact on medical innovation in the United States as research, development and manufacturing move overseas as a result of the existing tax and regulatory systems in this country. While the medical technology industry has helped to fuel the U.S. economy in recent years, its position as a global leader may erode over the next decade.
 
This will no doubt affect: 1) the ability of Americans to access future break-through medical advancements; and, 2) the growth of U.S. jobs. In the future, China, India and Brazil will experience the strongest gains in developing next-generation products. Without changes to U.S. policies, gains may lead to an exodus of capital, jobs and research away from the U.S. toward these growing markets. (Source: ’Medical Technology Innovation Scorecard: The Race for Global Leadership,’ PwC, January 2011.)
 
The economics of this highly competitive sector are not static and several policies have driven American medical device companies to seek clinical data and launch new products outside of the United States. The new, 2.3 percent excise tax on the selling price of a device will leave companies no choice but to reduce research and development and capital investment in the U.S. It will lead companies to migrate to lower cost tax jurisdictions and tax start-up companies, whether those firms have profits or not.
 
The new tax will force companies to limit research budgets to test new products and ideas – the lifeblood of growing device companies. When these resources are curtailed, patients pay the price with more limited medical treatment and a reduced chance of survival.
 
In addition, the tax will limit capital investment in new facilities. Boston-Scientific projects a $100+ million annual hit to earnings from the tax. Cook estimates it will cost $20 million a year ’ about what we had planned to invest annually in new factories across the Midwest, factories such as the plant that opened 1n 2010 in Canton, Ill., or the expanded plants opened in 2009 in Spencer, IN.
 
Wages from those jobs ripple through and strengthen the local community. This new device excise tax will deny patients access to life-saving medical technologies because companies will be forced to move jobs and research facilities overseas. It is fool-hardy to believe that U.S. companies will be able to compete globally when their competitors do not face the tax and regulatory burdens here in the United States. We are already seeing the impact of the medical device tax and this is just the beginning if this tax is not repealed. Americans deserve access to these break-through technologies.

MEDCITY – Devices
April 16, 2012
By Kem Hawkins (President and CEO of Cook, Inc.)

Tags: hospitals, healthcare suppliers, IDNs, integrated delivery networks, medical devices, market research, Center for Medicare and Medicaid Services, Affordable Care Act, ACA, market forecasting, sales

Follow Up Calls

Posted by Stan Schroeder on Thu, Feb 16, 2012 @03:45 PM

In my 20 years of medical sales experience, one of the most common mistakes I see sales professionals make is having follow-up calls that are not what they should be. If you are calling someone who has done business with your organization in the past but you don't know them well - or it is your first time personally calling them, make sure you are well prepared.
 
And do yourself a favor - put as much pre-call planning into your phone calls as you do your personal visits for the best results. There really should be no such thing as a "cold call" any more with key people in an organization since you can do so much research before you call. If they have any authority - they expect that you have done your homework.
 
Here is an outline I might use to call on someone I don't know well....
 
Good morning _____, this is Rob Bahna with Resuscitation International.
 
I have been working with other ________ departments (or title you are talking to), discussing some ideas that have helped them deal with some of the unique challenges they are facing today with SCA victims. We have seen some outstanding customer satisfaction and positively affected patient outcomes.
 
I would like to ask you a few questions to see if some of our solutions might make sense for your department.
I would like verify some of the information I have been able to learn about your facility and
make sure I understand them from your perspective as the ____________(title)?
 
Ask about them…..

 
I understand you have been a _________ for 5 years. What are the biggest changes you have seen in that time as it relates to how your responsibilities have evolved? Where do you find yourself spending a lot of time where you didn’t use to?
 
Besides yourself, who else do you involve in the important process of purchasing medical supplies and equipment?
 
Sell Your Company
 
Jane, we know it is important for you to know who you are doing business with. Resuscitation International has been servicing the emergency medical supply and equipment needs of pre-hospital professionals for 10 years. We have a proven track record of being an industry leader. We are proud to have more than 100,000 agencies and professionals rely on RI.
 
OR

 ______, as you are well aware, over the last 10 years we have seen a shift in acuity levels. You are being asked to do higher levels of care in many situations with less resources, especially in today’s economy. RI has been in business for over 10 years – and we can help you deal with these challenging times.
 
Determine Your Customer’s Objectives
 
Make them stop and think – ask high gain questions that differentiate you and are not only situational.
 
 
1) What Criteria do you use to evaluate your potential suppliers (business partners)?

2) How do you prefer to place your orders?
 
3) Which company do you currently order your supplies from today?

Do you order from more than one company?
 
4) Could you please share with me what your experience has been with Resuscitation International?
 
If they do not volunteer it – ask them
 
5) It looks like you have not ordered from us in the last ______, could you share with me some of the reasons?
 
 
Engineer Agreement to Demonstrate Product-Program
 
 
________, I appreciate you taking the time to share this information with me. Based on your feedback, and some recent changes we have made it (whatever areas kept them from ordering from us – or things they like about others) we believe we can make your job of ordering easier and be very competitive from a price perspective.

When do you normally place your supply orders? What do we need to do to earn a shot at your next order?
 
If my pricing is competitive, would there be any other reason that would prevent us from doing business together?
 
Best of Luck. Be proud to put your signature on everything you do. Or don't do it.
 
Rob Bahna
Vice President of Sales
Resuscitation International

Tags: selling, Essential Healthcare Management, hospitals, healthcare suppliers, teamwork, medical devices, brand management, market research, priorities, sales, business growth, Management, strategic thinking, business development

New Executive Directors expand EHM expertise

Posted by Frank Ripullo on Thu, Jul 07, 2011 @05:55 PM

The medical supply industry is growing and a wave of companies are acting quickly to claim a share of the market.  The most successful suppliers are aligning with seasoned professionals who can spur demand for their products and services with key healthcare decision makers.  We know working within integrated delivery networks and group purchasing organizations is a delicate process.  At EHM, we use our expertise in business development and marketing to help our clients maneuver through the healthcare maze.

We have recently expanded our diverse business development expertise by adding two highly experienced, results-driven executive directors to our leadership team.  Espen Kateraas brings 16 years of experience in the global medical supply industry.  He has developed, launched, and marketed medical devices in markets around the world, including Europe, South America, and the Middle East.

Joining Kateraas is George M. Mathew Jr., a marketing expert in the medical supply industry.  Before joining EHM, Mathew was a product manager, responsible for the launch and growth of several major branded and generic drugs, diagnostic tests, and medical devices.  Mathew brings valuable experience in a variety of functions including brand management, strategic marketing, operations, sales, business development, market research and forecasting.

We are excited to introduce Kateraas and Mathew to the EHM leadership team.  Please read our press announcement to learn more about our new executive directors.  Vistit: www.essentialhm.net/media/ehm-news/

Tags: Essential Healthcare Management, marketing, EHM, healthcare, healthcare suppliers, gpos, IDNs, integrated delivery networks, medical devices, brand management, market research, GPO, Espen Kateraas, generic drugs, branded drugs, diagnostic tests, market forecasting, George M Mathew Jr, kateraas, sales, business growth, Management, strategic thinking, business development