ELYRIA, Ohio — In a proactive move to stem the devastating effects of a proposed excise tax on medical device manufacturers, Invacare, the nation's largest home medical equipment maker, has instituted a hiring freeze and suspended merit pay increases and matching contributions to its 401(k) retirement plan.
Both houses of Congress are proposing to levy an excise tax on medical device manufacturers in order to raise $20 billion over 10 years as a way of helping to pay for health care reform. In both versions of the measure, the tax would be on gross sales.
However, manufacturers have no sense of what the actual cost would be. The House of Representatives proposes a flat tax that would be implemented in 2014 based on 2013 gross sales. The Senate bill calls for a percentage that the IRS would calculate based on each manufacturer's gross sales that would be collected beginning in 2011 based on sales from Jan. 1, 2010.
"We don't know what version is going to pass or if it's going to be a combination," said Invacare's Cara Bachenheimer, senior vice president of government relations. "But it's a big deal. It's a significant impact. So this is how we had to do it. We had to prepare for the worst-case scenario."
In its Jan. 8 regulatory filing with the Securities and Exchange Commission, publicly traded Invacare said the cost to the company could be between $12 million and $14 million if the Senate proposal is enacted.
"We don't like the tax at all. We don't think it makes sense … It's not consistent with how taxes are generally administered," Bachenheimer said. Of the two proposals, however, the Senate version is the most problematic, she continued.
"The Senate proposal gives us no time at all [to prepare]," Bachenheimer said. By putting cost-cutting measures into place now, Invacare can help mitigate the effects of the Senate tax should it become effective as proposed.
According to its filing, Invacare will also continue "evaluating all of its available options to offset the impact of the proposed tax on the company's financial results, including possible price increases or cost-reduction actions such as shifting more production overseas, reducing employee benefits or research and development expenditures."
As well, Bachenheimer said, Invacare will continue to fight the tax in tandem with other groups, such as the American Association for Homecare, which held a conference call with its manufacturer members Jan. 13 to share information and define strategies.
"We have a few supporters on this," Bachenheimer said about the effect the lobbying has had so far on Capitol Hill.
Said Invacare in its filing: "The company continues to actively lobby members of Congress in an effort to make the proposed legislation less onerous on medical device manufacturers, and, until the legislation is finalized, there can be no assurance that the tax may not be eliminated, modified or delayed."
