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November 25. 2012 6:24PM

Medical device tax will lead to ripple, firms say

Manufacturers of medical devices are bracing for the new Obamacare excise tax set to hit these companies with a pre-profit 2.3 percent tax next year, but it's consumers who will pay the price in the end, industry insiders say.

"It is certainly going to add cost to our structure," said Jake Elguicze, vice president of investor relations at Teleflex, a Pennsylvania-based company that has a manufacturing plant in Jaffrey.

"I think that for companies of all sizes both large and small, it's going to affect companies in different ways," he said. "Both are going to try to offset it as much as they can."

Companies will do that by pushing "it back to customers in increased pricing," Elguicze said.

Teleflex is a large manufacturer of medical devices, employing about 11,000 people worldwide and pulling in $1.6 billion in revenue a year.

"Essentially it's going to be adding about $15 million of additional expense to our income statement on a pre-tax basis next year," Elguicze said.

According to an Advanced Medical Technology Association study, the proposed excise tax on the medical device industry would result in the loss of 43,000 jobs and further impede medtech innovation.

Manufacturers across the country announced thousands of layoffs following President Barack Obama's reelection earlier this month because it made a repeal of the Affordable Health Care Act and this new tax unlikely.

Teleflex has no plans to lay off workers because of the tax right now, Elguicze said; the company will simply pass the cost on to consumers.

The concern for a large company like Teleflex that focuses on manufacturing is that the smaller manufacturers, which are known for their innovation, will suffer, he said. Teleflex relies on the research and development of these small startups, and these startups rely on venture capitalists who want to see profits, he said.

"Because it's a tax that's based on revenue as opposed to profitability," he said, "I think the fear is that there is a lot of good that comes out of small medical device companies, and with more costs thrown upon them it's going to be harder and harder for them to sprout up and make a go of it. . I think the view in the industry is this is going to stifle innovation."

Tim Steele, owner and founder of Microspec in Peterborough, says his small company would not be directly affected by the medical device excise tax since Microspec manufactures components for medical devices, not the finished products.

Overall, the industry is expecting a squeeze because of the new tax, which under the Affordable Health Care Act is to be used to pay for the cost of the uninsured, he said.

"That tax will certainly impact the industry I'm in. And I certainly know what it's going to mean for my customers who make these products. Everyone is talking about medical care costs going up, and here is something that is making them go up even faster," Steele said. "I figure the government thinks the medical industry is one of the few industries that worldwide continues to grow, so they can tax it. But is it good for the consumer? No, it probably is not. . The insurance companies are going to have to pay it. Insurance costs are going to go up. Doctor's visits are going to go up. And the hospitals mark everything up. It's essentially a multiplier effect."

Employees could be hit as well, he said. "I know one place they will try to save money is doing more with less employees. I'm already seeing that happen for other reasons."

Steele said the tax is a disincentive for people to start companies and could cripple medical device innovation.

"There is a buzz about the medical device tax and what we are going to do with it," Steele said. "What's really going to happen? I don't know. That's up in the air."

mpierce@newstote.com



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