No sector of the healthcare industry is rooting harder for the Supreme Court to overturn the Affordable Care Act completely tomorrow than are medical device companies, which are bracing themselves for a substantial excise tax on their revenues that takes effect next year under the law.
Unlike pharmas, which won a seat at the table with substantial concessions, device makers didn't play ball with the White House and Senate Finance Committee Democrats when they were negotiating the legislation in 2009. The excise tax, which will chomp up 2.3% of their revenues (regardless, device makers note, of whether or not they make a profit) starting next year, was their punishment.
Now one of the biggest device manufacturers, Stryker Corp., has tied plans to slash 5% of its global workforce – in part by shuttering two New York plants – to the tax. Stryker said it will close its West Seneca, New York plant in September, impacting 11 employees, and its Orchard Park, New York facility in December, eliminating 96 jobs there. The firm said it would provide laid-off employees with severance packages, counseling and job placement services. Stryker acquired the plants in 2010 with its purchase of Gaymar Industries, which specialized in support surface and pressure ulcer management products as well as temperature management.
Stryker said last November that it would eliminate 5% of its global workforce as part of an effort to realize $100 million in annual productivity gains to offset the hit when the excise tax takes effect in 2013.
The tax is meant to raise $29 billion over ten years. Pharmas, by contrast, committed to saving government health programs close to $100 billion, mostly by filling in the Medicare Part D prescription drug benefit's “Donut hole.”
Device makers are fighting the tax, having won passage in the House of a bill, dubbed the Protect Medical Innovation Act, that would repeal it. But the legislation will be a much harder sell in the Senate, where Democrats hold a slim majority, and President Obama wields veto powers – at least until next year. Sen. Sander Levin (D-MI) has said pulling the tax “would unravel healthcare reform.”
Device firms will be holding their breath tomorrow morning, hoping the Supreme Court goes there first.