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Joe Hage
🔥 Find me at MedicalDevicesGroup.net 🔥
May 2015
Tax leads to lay-offs, frozen R&D, no raises
88 min reading time

As originally shared by John Eckberg

Senate Finance Committee Hears Industry Testimony On Impact Of Medical Device Tax
A top executive of medical device manufacturer B. Braun Medical Inc. recently told U.S. senators that the medical device tax should be repealed, citing the negative impact the tax has made on the company, and the medical device industry in…


Laurence Spitz MBA
Just felt the sting!
Looking for new opportunities.

Chris Carles
Without a doubt, the Medical Device Tax impacted the industry and manufacturers made decisions and took action based on that impact. But it appears risky to testify in front of the Senate that there was a direct correlation between the tax and subsequent lay-offs, frozen R&D and a stoppage of pay increases. One would think the prudent question to industry would be, “If the tax is repealed, should we anticipate new incremental hiring, rising R&D investments and cost of living pay increases?” And what happens if those don’t materialize?

John Eckberg
Hi Chris, Well, at this point, midway through an industrial diaspora not seen since the textile industry bailed out of the south and the auto industry headed west for Japan and Korea, companies are simply trying to stay alive – or in the case of start-ups, find black ink. Impact is a weak word. Harm is more like it, particularly when some thinly profitable companies saw their entire 2012 earnings wiped out by this dumb and punitive tax. Of course, it played into the hands of global giants, which are now picking off U.S. companies for a pittance, since value is usually a metric of free cash flow and this tax crushes free cash flow. And because these days M&A is a euphemism for R&D, as you surely know.

They are still high-fiving in the hallways at those global giants, which built automated plants in no-tax zones like Costa Rica or Singapore. I saw the other day in a story in the Tico Times that medical device exports from Costa Rica are up 50%+ year over year. Near as I can tell, the only risk involved in testifying before the Senate is that the IRS may come with personal and corporate auditors in tow. Otherwise, truth is truth.

Hugh F. McCann, Jr
Dangerous tax policy
Keep it up and live with outcomes……

Jerry Robinson
The tax is not good….

But it is only a (small) part of the total problem. Seriously folks,,,, you can do the math and count, right?

Hugh F. McCann, Jr
Lower C rates to 17%
Reduce S rates and/or pass MRA
OR scrap the current tax system and replace with a national sales tax
Reward investment in the HOMELAND
Grow healthcare
Embrace the demand and employ people

Mark McCarty
If Debbie Stabenow speaks for Democrats, it should be assumed that Democrats want offsets. That might be a serious sticking point.

Jerry Robinson
Ignore the “republicans or democrats” talk… Just concentrate on the problem – as Hugh says…..

ANYTHING you do with the tax/incentive process is going to be GAMED by TRUE EXPERTS… it’s like playing cards with a true card shark… AND you let them make the rules… and you PAY them for it… and if that is not enough.. CLOSE YOUR EYES and make your play… so think outside the box.. you have to – or you WILL NOT SURVIVE…

Here are some suggestions…

1. – seriously… boot management that has no clue what you are actually building and why it matters… This kills companies and technology with devastating effectiveness…

1. – FOR devices imported – and software – ASSIGN a 0 value for tax basis. So… go offshore and make it/develop it/finagle the tax basis all you like.. when it CROSSES the border – it does so at a 0 value. Build it in the US? then you have real cost… Park your trademarks and IP offshore and use the technique to shield profits? then you can pay some tax…

1. – US Gov’t should support on shore companies.. don’t spend US support monies offshore. Nothing wrong with this…

I can’t see this really happening… I know.. but it means – quite likely – 10’s to 100’s of millions of jobs HERE.. instead of padding false cost and shielded offshore “profits”…

If you design and build in the US… aren’t you TIRED of the deck being stacked against you? Don’t you want your kids and family to have a chance to find a job? instead of hoping to find a low wage job supporting Importers?

These are not complex questions.. SOME of the solutions above are already in practice here.. how about making it more universal???

Mark McCarty
The idea that the opinions of the two parties on the question of offsets is trivial is laughable. It is the debate. It’s not peripheral, and it’s not A debate. It is THE debate, period. If you don’t solve that, you’ve got nothing, and the device tax will stay right where it is.

Hugh F. McCann, Jr
The offset is worker participation rates up ticking.
More people working…..more velocity of money. More taxes on personal income.
…..improve U6.
Healthcare DEMAND is increasing as folks are living longer with new innovation.
This sector could really goose the economy.
Can’t ship the aging and sick to Siberia. They are us…..we all hope to live a long life….if we are lucky.
Embrace the opportunity.
Encourage the innovator and risk taker!

Stella S.
Duuhhh! Why do you think WE KNOW OBAMA wants to destroy the US from within?

* He wants to give amnesty to 40 Million illegals (which include a serious portion of them being terrorists) and pay for them out of our taxes since they do not pay taxes and they already have food stamps and Section 8 housing.

* Then he raises taxes on business and the rich (who by the way, own the businesses)…so if they have income of say $1MM, 33% goes to taxes, 33% goes to salaries and employee benefits and 33% to operations…when Obama wants to raise the tax to what amounts to 48% to 50%…is the business going to stop operating? No. However, everyone is going to be a part-timer and millions of people are going to be poor.

* Supermarkets are businesses so when they raise the taxes, so will the price of food…did you notice the huge increase in price in lunch meats? Kids are going to go hungry and schools will not have enough food to feed them all, why? Because when you bring in all those illegals and support them with food stamps and section 8 housing, there is nothing left for US Citizens and legal residents.

_____________HOW TO FIX THE ECONOMY AND GET OUT OF DEBT_______________

* SEND BACK ALL THE ILLEGALS — all the money in food stamps and Section 8 goes back in the economy.

* SEND ALL FEDERAL PRISONERS TO THAT LARGE, DESERTED ISLAND OFF THE COAST OF ALASKA. They will have to fish for their food, build igloos for shelter and you do not even need guards because there are no trees for them to escape on and the water is too cold for them to swim. All that money goes back into the economy.

* Last year, $1.6 Trillion was lost to counterfeit. This year, it is supposed to get to $1.8 Trillion. DHS was presented with a SECURE WAY TO STOP COUNTERFEIT FROM COMING IN on August 25, 2009, in DC. A woman named Therese Randazzo was sent by DHS to a meeting involving the inventor, a CBP High Level Officer and several other IT, ICE and other officers. They all said that unfortunately, under this administration, CBP and ICE came under DHS. She did not give the courtesy of an answer, yet for the next few years she traveled all over Europe, accomplishing nothing except enjoying hundreds of stays in luxury hotels, enjoying expensive meals, super expensive clothes, etc., all paid with our taxes. What was her job? Who knows, except it had to do with nepotism and lobbying. Get rid of counterfeit. This same technology was presented at the EU and they suggested applying for a $16MM grant for proof of concept. So, stop counterfeit from coming in and manufacturing and jobs come back, kids or people do not go hungry the economy improves significantly.

* Stop foreign aid and if certain areas in the Middle East threaten us, then do the same as we did to Japan. Drop a few drone bombs to terrorists centers and “end of story”. It worked in Hiroshima, etc., and there were no more Pearl Harbors attacks.

* Have all politicians from city, county, state and federal undergo a 25 year background check and pass a neurological lie detector test since they are so used to lying that they can easily pass the one based on blood pressure indicators. If it is found they have been embezzling or getting kickbacks from lobbying (which means bribery), then all their assets get confiscated to pay for what they got and all that money goes back into our economy.

* Do a financial audit on everyone working at the White House, the Senate and Congress, their relatives and close associates. You will be amazed as to how much money goes back to the economy.

* Reduce the taxes on business and reduce them even further on start-ups for the first 3-4 years of their operations. This will allow them to contribute more to the economy in the way of jobs, doing business with others, etc.

SIMPLE, NO?

Laura T. Smith, BSN, RN
Well i guess pass costs off to the already burdoned taxpayer.

Stella S.
You got it Laura! Even though it may seem humorous, I cannot understand how murderers, rapists, etc. in Federal prisons have access to gyms, movies, internet, 3 good healthy meals a day, etc., when there are millions of good, hard-working people (US citizens) who cannot afford 3 meals a day, much less a gym, movies, etc. I bet there wouldn’t be that many criminals if they knew they would end up in that island off the NW coast of Alaska instead of a cozy prison with all kinds of perks (smile). Besides, can you imagine all the money that would be saved (smile)?

Jerry Robinson
Stella.. I think you are really off base. Republicans and Democrats BOTH have created the mess we are in, wouldn’t you agree?

It’s why you should drop the people and politics out.. and concentrate on solutions…

Reducing taxes…. won’t solve all problems.. it’s why there are HUNDREDS of billions of $$ parked off shore… It won’t solve the GE problem.. where billions in profits were made – no taxes were paid… and they got a $2 billion refund check to boot…

So.. define the Disruptive Innovation path – and follow up by figuring out how to do it.

Stella S.
Let’s see who is right and who is wrong around the end of June or at summer’s end.

Paul M. Stein
I always worry about how throwing out large percentage increases work to inflame the villagers. Increases, by definition, are also a reflection of what the scene was beforehand. From the article, it states, “due to the medical device tax, the company’s federal tax bill increased by 29%”. That 29% figure does indeed seem huge, but remember, it was only due to a 2.3% bump. So, in the context with what the original pre-tax number was, they must not have been paying much to the Feds to begin with. To that point, if my calculator is correct, if an increase of 2.3% on sales equals a 29% increase, then their original corporate tax rate was approximately 7.93%. That seems pretty low, with the total tax rate in the end being 10.23% with the excise…still pretty low. Am I way off here? Were my calculation assumptions too simple?

My point is, as professions, we need to assess and digest the bigger picture before running screaming into the night.

Stella S.
Paul, you are talking about ONE R&D, basically non profit situation. The big picture is the raise in taxes in general, throughout the entire country, what it is doing to business and we cannot afford to pay even more taxes to support illegals, etc. If some people want to help illegals, give federal prisoners comforts of home and by doing so, prevent R & D of new technology by taxing the innovative entities to death, let the money come out of their own personal and private pockets. Otherwise, we will end up not a third world but a seventh world country. There is an old saying my dad used to say: “If someone is sinking in quicksand, you can try and help them but from a SAFE distance, by throwing them a rope but do NOT get too close or you will sink with them!”

Hugh F. McCann, Jr
MRA is a pending tax provision I co-authored.
Manufacturing Reinvestment Account Act
It is languishing in both the House and Senate.
Read up and please support this bill.
BTW: I am owner and CEO of a closely held job shop with a 3M$ annual payroll.
I speak from decades of experience.

John Eckberg
Paul Stein, With all due respect, your calculator is not correct. Hang with me please. Here’s how the tax equation works. Most companies pay about 28 percent to 32 percent after deductions for job creation and research and development. The amount of a 2.3 percent tax on the top line when applied to earnings or EBITDA (which is a quaint concept and now obsolete for this sector) is on average a 30 percent increase, that is, a 2.3 percent top line tax on average equals about 9 percent more in taxation and 9 percent is a 30 percent increase. “Average” is what’s deceiving because for a global giant that is diversified (50 percent of revenues come from financial services, of the half that is left, 50 percent of that comes from automotive or white goods and of the half that is left, which is medical device sales, half of that comes from overseas sales and not taxable) they may pay this tax on just 12.5% of their top line.

Executives at J&J are still high-fiving in the hallway over this tax because their domestic competition must pay the tax on 100 percent of their revenues. Those smaller companies are immediately devalued and pretty soon the board of directors will say, time to cash out. Time to sell to a company based in Ireland or the UK or Switzerland. It’s a dumb ass tax, as Sen. Hatch pointed out, at every level of analysis. What I don’t understand is this: I am not God’s gift to deep thinking and if I can figure this out, how come Senators from both sides of the aisle cannot? Or maybe they can … so what’s that imply?

John Eckberg
And as for off-sets being trivial, of course they are trivial. That’s a canard, just like the tsunami of new patients and new customers that never materialized. A true phony issue. Senators did not seek offsets for what, $80 billion in tax credits for wind energy last year. No offsets for the Medicare fix. Offsets are phony concerns that bend with the political wind. To claim otherwise is typical of those who have beltway blindness.

Hugh F. McCann, Jr
John, excellent explanation.
BTW: there is @2Trillion parked on offshore balance sheets.
Reminder: S rates are as high as 39.6
Add in state taxes, local taxes…..why risk capital?
Set up shop in Ireland…..and the golf is great!

Paul M. Stein
Thanks, John. I’ve seen your explanation before. Unfortunately, with most news articles, there is very little background information for those who wish to evaluate and digest the content more closely. The article only gave us a single number, a percent increase in total taxes, and we don’t know at all how that figure came about. And so, I tried to work backwards from just that one figure. Basically, my point is that mathematically a large percentage can be calculated when one is talking about fractions of small numbers. This is seen in science all the time, and alarm bells go off for no good reason. In this case, I felt that it was more than a bit sensationalist to go to Congress with a ready-to-be-blasted 29% increase when, if one looked closer at their initial state, and actually also their final case, they were pretty well off.

John Eckberg
So Paul Stein offers a decent point. Percentage increases are sometimes reflective of what did not exist beforehand and nothing more.

That suggestion is a good example of how those who quietly support this medical device tax lob grenades at issues cited by those who support repeal. So let’s look at the trend of Costa Rica exports. As an aside, this tax was debated and then signed into law with the complicit acceptance of the mass media, lefties who almost always worship at the altar of the progressive wing of the Democrat party.

From 2009 and 2013, medical device exports from Costa Rica grew by 65 percent, according to PROCOMER. Then from 2013 to 2014 device exports grew by about 20 percent more until finally, last year to this year, it grew by 50+ percent.

It’s an industrial diaspora plain and simple. Same numbers pretty much hold true for Mexico, Singapore and Ireland.

But unlike previous diasporas of industry from the U.S. to elsewhere (textiles and automobiles), this time the mass media just doesn’t care and, in fact, pretty much encourage it by simply not covering the issue. Particularly the beltway media that doesn’t know Indiana from Iowa. Speaking as somebody who spent 30 years working for a major metropolitan daily newspaper, that is, of course, the ultimate power of the press – the power to ignore.

Hugh F. McCann, Jr
What is the underlying reason for the tax? To pay for ACA? Claw back to pay for a mandate?
Many or most medical devices/procedures can only come to market if agency approved and if insurance policies or the Federal Government agrees to reimburse for the device.
Without reimbursement most innovation remains in the concept stage.
Most startups cobble together early investors, if lucky attract additional investment and ultimately hope to cash out at the appropriate time.
The bigger players scoop up the best of the best.
Then the product is often made in a lower taxed country.
Not good….unless the U.S. can print money in perpetuity.
We can’t survive as a country on cheeseburgers alone.

Mark McCarty
The tax is to pay for health insurance exchange subsidies, and the rationale is that industry would benefit by means of more patients needing more medical devices. I know everyone knows all this already, but I sincerely doubt whether the authors of this portion of the Affordable Care Act, which includes Max Baucus if I’m not mistaken, looked beyond the Peter-to-Paul question.

Jerry Robinson
Gee, John…

Let’s not get into the discussion of Democrat religious practice.. That’s for somewhere else… :>

I think you are making a point that – as I have held – that the relative effects of tax and overhead (ie, non-employee) are like a chain.. A chain is only as strong as it’s weakest link, and the device tax hits at – perhaps – the weakest link..

The effect is not in money – it is the “straw that broke the camel’s back” – or at least has the effect of breaking the chain.

So it pushes small companies OUT of business – and STOPS other small start ups from getting rolling…

I have seen LOCAL medtech companies out to hire “senior engineers – 10+ years experience” for about $13 an hour… and you know what is going on there, right? The blame is not caused by the med device tax… it’s H1B maneuvering – and the push to offshore. So the med device tax will ALSO get a lot of “attention” – when something else is going on.

Your conclusions seem pretty accurate to me..

Paul M. Stein
Interesting numbers regarding Costa Rica. Regarding percentage increases, from 2009 to 2014, that seems like fairly steady, healthy growth to get to something that might be fairly significant. So, to all of a sudden get a 50+% increase from that…that’s huge.

I hate the industrial diaspora, the layoffs, the reorganizations, the mega-mergers with their inevitable fall outs, the cutbacks in R&D, etc. as much as any of you and other posting here. I’ve seen the rapid decline of a once thriving sector in the past decade, and it truly makes me sick. And, I know that the excise tax has contributed to this.

The thing is, repeal is a political issue, and there are many lines of thought to consider regarding that goal. The tax does bring in necessary money to help run our government, so, unless people can come up with ways to either raise taxes elsewhere or cut expenditures, thereby making the excise tax income unnecessary, it will remain. That means hard thought and hard choices on all sides. And that means clear heads, focus, and compromise. So, if all of that cannot occur, then nothing will happen. The real hard fact is that if one does not come along with a set solution to the declared problem, then that person or group is ignored.

John Eckberg
Hello Paul, That’s a thoughtful response but you exaggerate. Truly the device tax brings in probably less than 2 percent of the annual operating budget of the U.S. and less than 2 percent of the cost of the Affordable Care Act, which was a noble initiative. So, it’s a rounding error. And the reality is that none of the revenues from the device tax are actually earmarked for ACA spending.

The revenues just go into the black hole of the deficit financing by the treasury. That’s another angle the media has not reported. It doesn’t fund the ACA. Monies go to the treasury. Nobody blinks an eye at $80 billion in alternative energy credits or the doc fix – particularly nobody in the medical mass media – but a rounding error of $2 billion from our nation’s most innovative industry and it’s no way no way no way – where’s the offset. So, wave good-bye to yet another industry…

Paul M. Stein
Jerry brings up what I have been saying for quite some time. Much of the decade or more decline has been due to poor internal strategic decisions that have forced a positive feedback of even more bad decisions to have finally gotten the industry to such a cliff’s edge that 2.3% can shove it over the precipice. The major problem with that argument, and I see it, is that there are only stories and anecdotes to consider from people internal to those companies. There are no hard numbers that can be pointed to as with the financial ramifications of the excise tax itself.

So, what is there left to do? We need to form some common goals for the industry and how to get there. [HINT: Because of their failure, DON’T, DON’T look to the traditional “leaders”, the Medtronic’s, the St. Jude Medical’s, the Boston Scientific’s, the Stryker’s, the J&J’s etc. of the World for that. They had their time, and that was in the past. Their stalled product lines illustrate that they aren’t the ones to either lead or offer up any logical ideas forward.]

FACT: The U.S. medical device industry is a shining star regarding the balance of trade with the rest of the World. It is also a fact that emerging market countries see U.S. medical devices as top quality and their own home-grown efforts as crap.

We need to look to help startups and aggressive mid-sized companies to move the Industry upwards again. Tax relief is the logical way to do this: modifying the excise tax to cover profits only, massively increasing SBIR’s/STTR’s, and breaks for initial years of operations. Yes, all of these will be negative fiscally, but the payoffs down the line will be massive…MASSIVE, if history indicates anything. AND PATIENTS WILL BE BETTER FOR IT! Wasn’t that the real reason why most of us got into this business in the first place?!

The trick is to, again, come up with hard thought, clear heads, focus, and taking everyone into consideration.

Paul M. Stein
John, totally agreed, but money is money, and, however small or lost in the black hole or the bigger picture, $2B is $2B which has, in a very short time, gotten used to being part of the huge equation. The repeal of the tax is losing steam for whatever reason. One cannot simply lament the loss of another industry. That’s defeatist. We’re talking Washington, where no one can figure their way out of a wet paper bag. Offer solutions. FIND THE OFFSET.

Joe Hage
Just think of the tickets I’ll sell…

John Eckberg and Paul Stein meet – for the first time anywhere – LIVE and IN PERSON – at the 10x Medical Device Conference!

See them Monday, May 4 reception at the Hilton San Diego Mission Valley!

Jerry Robinson
OFFSET… is just another word for dumping incompetance from one place to another…

This process went in – in the US – in industry after industry.. The empty buildings and flat slabs left over a the only ghosts of remberence there is in so many areas…

Textiles.. shoes.. THESE ARE TECHNOLOGY AREAS.. just like MedTech is… So to think we immune to the same kind of insane management and government schemes, is just… well as Einstein said… “stupidity”…

I think – to survive – as designers and engineers and industry professsionals – we must figure out how to disruptively innovate in an era of massive ignorance.. I don’t have soltuions for this ….. I am just a motivated engineer – and looking for answers… (so.. I listen to Prairie home Companion, too…).

Our wealthy ARE dumping massive funds into politics now.. but It only seems to be for the purpose of fattening their own pockets.. Where are our Carnegies? our JP Morgans? Not there.. so we have to be creative on our own…

John Eckberg
Paul Stein, Well, frankly, and it pains me to write this because I do think you raising issues moves the debate along…but you are wrong again. The repeal is picking up steam: I lost track but 279 co-sponsors in the House and only 218 needed to kick it to Senate. Now that Harry Reid is irrelevant, the Senate will likely have a vote. Our President, truly, does not have a dog in this fight so why would he veto. He had this dumb ass tax land in his lap. It doesn’t shrink or change his ACA in any manner or fashion and is, in fact, not a part of the ACA but is a corner of the Patient Affordability component. Also, it came out of a closed door Senate caucus led by a Senator who is now our Ambassador to China. Even Dems like Sen. Schumer have told med device execs that he favors repeal and plans to be a vocal part of that effort. Yes, politics can change everything but, as Jesse Jackson always said, Keep Hope Alive. Meanwhile, in the ten minutes it took for me to type this message, another $30,000 job equivalent disappeared from a company’s books into the black hole of federal spending. Thanks, Joe Hage, too, for enabling this exchange.

Hugh F. McCann, Jr
Liz Warren is against the tax.
Massachusetts/MIT breeds MED DEVICE startups….
She understands the danger from a thousand cuts…….
The demand for healthcare will explode. Embrace this sector.
Multiply US jobs, worker participation rates and velocity of money.
I have experienced a lot of change in 40 years…..I hope the 535 understand what’s at stake.

Paul M. Stein
John, yeah, I see your point, but the repeal “tide” is tricky. The numbers are getting there, but at the same time, I’m just not seeing this as an huge agenda issue for the new Republican majority. Why they haven’t jumped all over it and brought legislation up for a vote by now I just can’t comprehend. They should have been working on this for years now and should have had something in their pocket in January. The thing may be that if a showdown does occur, there might be a retreat by some of those we might have earlier been depending on, citing those pesky fiscal reasons as an excuse. In the end, I think the veto would hold. That is why we can’t just demand a repeal, for whatever logical reasons, but, at the same time, help to work on covering that $2B shortfall. Then, with no logical reasons left to oppose the repeal, it should happen.

Oh, and Joe, I think that the meeting of the minds will be a relative non-event…sorry. I think that time has ruined what might have been a potentially exciting opportunity, say, back in early 2013. Over the past couple of years, John and I have learned a lot regarding the other’s opinions. I think that the major reason for our initial collision was that we came from two very different places in corporate America. Our experiences and jobs were so different. I, for one, felt that I saw all the issues and had all the answers based on what I personally have seen and been through. In those two years, I have received quite an education, and, being, hopefully, a good scientist, I have taken all that new evidence to form new “theories”, quite different from my original ones. Hence, from the debate forum you have worked hard to create, we have understood more of the facts from the other’s viewpoint.

Yes, there still is a way to go between us, but I think that is more in terms of trying to bridge methodology. John is the public relations guy and I’m the find-a-solution guy. Whether we could ever totally come together is a TBD.

Anthony Zelinko
The idea that a business, high tech or other wise could operate with an added burden of 2.3% tax on gross sales on the surface doesn’t seem that bad to either the ill informed or non business owner. In fact it exceeds some upstart’s R&D budget.

It’s beyond my comprehension how the framers of the ACA didn’t see the repercussions, lost jobs, moving companies off shore, killing med device innovation for small companies.
I have consistently reiterated the damage this tax has and does cause for the last four years it’s like screaming at a brick wall.
And yes I have a number of viable tax revenue increasing options that equate to fairness across the board.

Hugh F. McCann, Jr
The value of the cash transacted US economy is HUGE.
A consumption/transaction tax in lieu of a tax on INCOME, HARD WORK AND success would snag all the cheaters. Tax receipts would soar.
AND this would by definition be a defacto tax on cheap imports from currency rigging regimes employing slave labor.
If a business deals in cash…..it ain’t all going reported. Don’t be naive.
Lower C rates and S rates to ZERO. The world will set up shop in the HOMELAND.
Provide Medicare to everyone and assign progressive deductibles. Employment would surge. Everyone is getting older and demand is going up, up up.
The free market will chase deductible dollars and drive down costs. Great!

More worker participation, more velocity, more family formation, more cash flow to the treasury.
Raise the gas tax and link to Chained CPI. And fund infrastructure improvements.
I hope this is a specific defined path to longer term prosperity…..with OFFSETS.

Celso Odilon Zambon
Pharmix registration and distribution of medical equipment in Brazil

Dan Stipe
John Eckberg, you don’t advance your argument when you write things like, “this tax was debated and then signed into law with the complicit acceptance of the mass media, lefties who almost always worship at the altar of the progressive wing of the Democrat party”.

Here is a study by Emergo Group, “Outlook for the medical device industry in 2015” http://www.emergogroup.com/resources/research/annual-medical-device-industry-survey

You’ll have to scroll down a ways to get to the device tax information.

John Eckberg
Hello Dan Stipe, How many reporters do you know? Personally? I know dozens or more and I guess my response to your point is this…Oh well…

Sometimes the truth about the media doesn’t help a cause, but it doesn’t mean that what I’ve opined is not true. And, as an aside, I’m here to spread truth because it’s tough to shake off 30 years as a journalists. I’m not here any longer to convince anybody one way or another because, frankly, people are going to think what they want to think and believe about this issue regardless of what I write on a LinkedIN chat string. As Commissioner Joe Hage would point out half of the members of this group don’t even live in the U.S. so they don’t care about the tax one way or another.

Regardless, the only people who matter at this point in this debate are a handful of Senators and their staffers.

The media has been overtly slanted in their coverage, if they cover the issue at all. Reporters never challenge the consistent red herrings of pro-tax think tankers. Sometimes they even quote backers and not name them because they are former Senate staffers. A Bloomberg columnist did that the other day, which is pretty outrageous journalism, more akin to whack-a-mole than reporting.

They never challenge the basic and false premises of the tax, that more patients means more revenues for companies, a tax on one is a tax on all (ignoring that companies base factories in low tax regions to avoid U.S. taxes) and never question the need for the revenues in the first place, particularly since the ACA is now apparently coming in about $100 billion under budget. No, pro-tax folks get a pass. The industry gets grilled, if it gets coverage all all.

As for the study you cite and previous studies from them, the Emergo Group spokesmen always put a cheery slant on their surveys.

For instance, analysts belittle or dismiss findings like 14 percent of companies will lay off workers as a result of this tax as something that is insignificant. Well, when there are 8,000 companies in the U.S. in the space (some say 15,000) that means more than 1,100 firms furloughed employees because of this tax. Let that number sink in. Four lay-offs per company and that’s more than 4,000 households slammed right there but the number is probably far more than four per firm and the ripple impact in towns of factories closing will be even more significant.

Why didn’t they follow up and ask how many lay-offs have occurred, for instance? That question simply isn’t asked. Wasn’t asked last year. Wasn’t asked the year before…

And the survey on its face belittles the impact of the tax: 24 pages and only one question about an unusual tax that is likely to lead to tens of thousands of layoffs in the U.S., according to AdvaMed. Why only one question? It tells you something when a dog doesn’t bark.

As an aside, I vote Democrat and hope California Gov. Jerry Brown runs for president with Michelle Obama as VP to guarantee that he wins.

Dan Stipe
John Eckberg, don’t take this personally, but you’re just not credible when you issue blanket characterizations such as the mass media are almost all left wing progressive democrats and “Emergo Group spokesmen always put a cheery slant on their surveys”. I’ve been following this tax debate since it started. The fact is, the sky has not fallen as was predicted on this forum and elsewhere. Yes, there have been job losses in the medical device industry and that is unfortunate. There have been job losses in many other industries as well. Don’t get me wrong — I’m not a proponent of the tax. I think it was poorly conceived. But it is not resulting in the dire consequencies industry advocates had been predicting.

John Eckberg
Hello Dan Stipe, Thanks for your perspectives. I would think that telling the truth about the coverage would add to credibility but I guess truth is in the eye of the beholder. In reality, yes, the sky has fallen. Costa Rican employment in this space has grown from 7,499 to 12,329 between 2007 and 2011, the last year figures are available. The same trajectory in Mexico and Ireland and the UK. And those figures are nearly four years old. Exports were up year-over-year by more than 50% from Costa Rica. Major companies love this tax and maybe that’s why you think the sky hasn’t fallen. What’s not to like if the global giant is diversified: a tax on 10% of your revenues while the smaller company pays it on 100% of their revenues. Anytime a tax claims 25 percent or 35 percent of an industry’s 2012 profits, that is the sound of the sky falling.

Hugh F. McCann, Jr
U6 is 20%
Not good

Jerry Robinson
John… we have been through this issue… over and over again. You keep repeating the same story – as if it is the ONLY factor in what is a genuine, fatal disease to this industry. So.. even though you have ACCESS to all the information – it is not getting discussed…

That’s a problem – don’t you think?

Our Industry is being DRIVEN offshore – I think we both agree.. it’s a DISEASE at work… but you are ONLY fixated on one part of the problem…

LET’s assume for a minute.. that this TAX is repealed… totally and absolutely… does that mean that “hurrah – we’re saved” is the new mantra?? NOT by a long shot…..

It doesn’t address the “Double Irish accounting tricks.” the Parking of offshore profits and job exporting subsidies…. these are all MAJOR parts of what is destroying our industry…

It doesn’t address a sometimes insane FDA/Insurance/Reimbursement/Purchasing process… These are all KILLER things…

So.. just for a minute – if you were to say that the device tax IS a part of the problem.. is it 100% or may be 5%? or 7?.. how much of the problem is it?

I have watched too many indusries destroyed over time – to even remotely focus on just one problem that did it… Post WWII – this insidious problem was set up and has burned American and other NA jobs in the tens to hundred’s of millions of people.. Seriously – the overall problem is a large part of why small towns are dying – jobs are gone… Like Hugh says… U6 is 20% – not good…

You HAVE been around long enough not to drink the “cool aid” of those who really benefit by our economic collapse. Don’t you agree??

Jerry Robinson
Stella….

You put your finger on a BIG problem – that we don’t talk enough about… the effect of Counterfeits.. I am convinced that failure to understand how this process works is what sent the US car companies into bankruptcy… while smarter motorcycle companies survived and prospered….

Profit – in the car business.. used to be from repair parts.. not the new cars… Counterfeits and imports killed that business aspect…

Hugh F. McCann, Jr
Kool-Aid
Ha ha
Smarter Tax Policy would be a great downpayment for economic growth
The U.S. must ultimately compete…… We all get it.
But let’s not make things more difficult.
The 535 better start getting realistic.

Jerry Robinson
The 535 aren’t seeing 40% of their staff being off shored – and a large percentage of the rest being restricted to 30 hours or less, having benefits eliminated, and haveing wages currently paid cut by 40% or more.

they have no downside to do anything – different or not….

I believe that IF you are going to do a startup in this area – then you REALLY better understand the landscape – and don’t get stepped on by elephants…. or donkeys….

John Eckberg
Jerry, yes of course you are right on all the above. My efforts are solely at the tax for now because it is the dumb thing that reasonable people can and will fix.

Jerry Robinson
any fix is good step…

If you *COULD* fix this one thing… there are fatal government backed faults still in place… some – ok.. a very few – will wildly profit – and the vast majority will utterly fail – with the loss of hundreds of thousands of jobs – if not more…

At the University level.. they are so REMOVED from this type of thinking.. that when the crash occurs – they will be so totally surprised. If Cook Group is out of business and gone… or the whole industry works are offshored… then people have no jobs, students have no motivation to study these arts… universities will have no *American* students… and therefore no need for professors in the subject… You see this happening over and over… yet the admin and faculty are so utterly clueless… This kind of process is a continuing problem…

so… tackling ONE THING you might fix – I guess is a very good idea….

My dad started fighting this problem… in the 1930’s…. the problem hasn’t fundamentally changed…

Paul M. Stein
Jerry, you are so right about the university system in the U.S. It’s turned into a money-machine business, and everything is warped to find the sources of the greatest amount of money. This means accepting more foreign students, shifting to adjunct instructors, and working to gain grants only on the hottest of todays topics. What this has led to is a degradation of another once proud sector of the American scene.

Anthony Zelinko
I’m glad Paul touched on the dysfunctional path that Universities are taking. This tax should be an eye opener for America yet it will remain or viewed as a business sector partisan arguement.
Problem here is to understand the real ramnifications of such a tax you need knowledge in many areas. Examples include, business operations, tax law-codes-havens. Now manufacuring costs, alternatives, limitations, import restrictions etc. Ok in summary you have to be “street smart”. They don’t teach that. It comes with years of experience and keen observation skills. Few people have it and fewer recognize those that do. Unfortunately their voices get drownded out by the many who are less informed and think in a linear fashion.

Hugh F. McCann, Jr
Dynamic analysis vs static analysis
The 535 as a group have little knowledge of entrepreneurship and risk taking
They are insulated from the real business world
For them it is a zero sum game .

Paul M. Stein
If the 535 really want to understand their true role in America’s future, they need to do a self-analysis regarding their own capabilities and leadership issues. What am I thinking?! Never mind…

John Eckberg
Karl, You keep mixing up apples and zebras. Tell all the people who have lost jobs in NC and CA and MN and a dozen other states that this is going to be ok because Apple is doing fine. Wha? It is a tipping point tax. It takes rates to 45 percent for the average company that must compete against companies based elsewhere and pay far far lower taxes. The rate is far more confiscatory for other unfortunate firms. It makes existing small companies takeover targets. A job that might have been created at $65,000 a year vanishes every 40 minutes from the balance sheet of a US company since 2013. That’s is just one consequence of a tax of 2.3 percent of revenues on medical device companies based in the U.S.

Karl Schulmeisters
There was a claim made that the tax rate was killing R&D. I pointed to lots of R&D where that is not the case. And no it does not take rates to 45% for the average company. The numbers just don’t work out to support the claim. And no the tax is not killing $65k jobs every 40 minutes. That also is not a supportable claim.

the 2.3% tax is being passed on to the consumers (because they have had 4 years of prep time to renegotiate their contracts. PEoD is a fact and it is empirically measured. The data just do not support the claims you and Jerry are making.

Yes people have lost jobs. For a lot of reasons including the fact that the recovery got crippled for political reasons right as it was accelerating. Even if you set corporate taxes to zero, you would not see these jobs saved. Tax policy is a tiny portion of the cost of a job.

John Eckberg
Karl, no, You pretty much have not offered one fact, study or report to support anything you contend. Only opinion, which you are entitled to do. Like noses, which gauge smell tests, everybody has one. VC for start ups has plummeted in this space, tens of thousands of jobs have been created: in Costa Rica, Brazil, Singapore, Ireland and the UK because of a tax on revenues of device companies in the US – companies moving there to avoid at least the high US base tax rate though not this tax.

Assume revenues of $10 million. This tax claims off the top $230,000. Then, the company, which has average profit margins of 6% of revenues for $600,000 needs to deduct that amount so now the company, owned by somebody who has struggled for seven years or maybe 10 years to find black ink has no choice but to see those profits turn into $370,000. Or profits stay the same and the cost of the tax comes out of R&D or sales commissions or layoffs or frozen salaries or a bit of all the above.

Eventually if not sooner the owner throws in the towel, sells the company and then gets a better return with an annuity . That’s how it goes and has gone for two years now.

Jerry Robinson
Karl…

John and I certainly have disagreements.. He sees the 2.3% tax as a serious ill to eliminate. I see it as one more camel on the a straw’s back (I do mix metaphors… spice of life… ). All together – they increase patient cost (and it certainly does….. like the $0.02 aspirin marked up to a patient at $15 to $19) That markup is bad… it raises the cost of medical care for everyone – and hurts the patient….

John and I are not wrong because with disagree with you.. John is an expert in this field and travels A LOT to speak with people about the 2.3% problem. His numbers are on target – and he sees and knows people directly impacted by the whole slow motion train-wreck of government subsidized industry crashing.

I have been involve in company start-ups, engineering, and management for 38 years, now.. Funny you should mention Apple – as I started designing Apple Hardware products BEFORE they had sold their first 1000 Apple IIs. I have massive painful, exuberant experience in technology at Intel, TI, Micropolis, Newtek, and a host of other bleeding edge design projects. Oh.. I also spent the last 4 years completing my PhD focused on Wireless communications, the effects of disruptive innovation, and Medical Device growth. That includes competing in multiple Business Competitions – at the graduate level…

The point is – we are experts in our fields. The TRUTH is that what we have said – I think is pretty much right – because that is what reality is.. it’s what the numbers say.. We don’t personally gain – if the results are match what we say, either…..

Opinions – are fine.. that is what makes a better whole.. But don’t form that opinion and disagree with anything that might make you change, especially if it might be right. You MUST keep an open mind… – if you want to stay in this field… and you HAVE to recognize that there are profound influences going on – that are NOT rooted in rational “MBA class” type policy.. dig out all the impactors…..

The point – is…

Jerry Robinson
Karl…

I point out that SOME companies have 3-5 year lockins with large medical insurers and health organizations. Not all of them.. and new devices are not in the list, either… HOWEVER.. if you are in a company – on the BRINK of going out of business, hiring people, just tossing in the towel, or abandoning either the US or the business altogether – then even a STRONG wind can take you out.. the 2.3% effect is MUCH LARGER – it hits to the heart of the money your company makes.. it’s nothing more than a “smash and grab” by the feds.. Just in the same boat as other fed programs like the “Asset Forfeiture” theft happening.. and this is all a lot of money, too..

AN EXCELLENT case study is the Google Cell Plant near Ft. Worth. It started up – ran for a while – prospered – and then shut down.. WHY? COGs is not a factor here, at all… it’s just an arbitrary, abstract B-School concept – that may occasionally rationally describe a chaotic (that’s math) process that has islands of stability in streams of complexity.

The destruction of American Industry has been happening a long time… how it works is something a good session of Google Scholar can start unraveling.. But it’s not something that fits in this small forum. A companion research could be WHO PROFITS in this scenario? that is a good, fertile place to study…

Oh… People want jobs here.. If there is a – where you can start and minimum wage – and use it to move on up.. people will do it – GLADLY! so don’t dismiss what people want and are willing to do – if they see possible progress…

Jerry Robinson
R&D…

Math is simple.. in the software development world – it works different than for hardware development.. when you do a product with BOTH ELEMENTS… then it gets more tricky..

For a DEVICE world – for new development..

R&D money comes straight from the bottom line.. out of previous profits.. It’s also where “ignorant” bean counters look to cut first… If they DO cut the budget there – or don’t do development – then it is just a matter of time till the company is OUT OF BUSINESS… one way or another…

So the R&D money comes FROM the bottom line.. ie, profits.. IF there is less profit… then there is LESS R&D.

It’s very simple math.. Getting around the simple math is complex.. Right?

“Jobs killed for political reasons”… don’t think like this.. it is false and inaccurate.. The INDUSTRY does not cease to exist because Politicians pass a rule against it.. (except for slavery, debtor’s prisons and such…).. JOBS and industry gets killed because of rules, taxes, policy, and regulation. THESE are the things killing industry..

Example: WHO profited by general acceptance of the “Double Irish” accounting methods? But the IP off shorring of IP and rights? Who is profiting? then you can ask “what were the names of the people who BENEFITED by this? You can track people down.. I have…

Karl Schulmeisters
John I gave you the citation to the medical device PEoD.
I’ve given the pass through examples in other threads

the fact that the device tax was known as an issue 4 years ago is a matter of Congressional Record and a google of the News will show that.

What more citations do you need (do I really need to show you evidence of Apple’s Google’s Amazon’s nd Microsoft’s R&&D success?)

Jerry there is a lot of hardware R&D in the USA as well. ALL of apple’s hardware R&D happens in the USA, most of Google’s Android hardware R&D does as well. The leading Drone R&D is in the USA, the leading Genomic sequencing hardware R&D is in the USA…

and Double Irish with a Dutch sandwich hasn’t been legal for coming onto a decade.

the smell test

BTW COGS in Ft Worth absolutely is an issue. Labor costs for low Value Add work is the issue

Burrell (Bo) Clawson
The tax issue on medical products is a pure sales tax and is absolutely crazy as a dis-incentive for new product development.

Jerry, “lean manufacturing” has been discussed for a long time, but there is a corporate manager mentality that gets in the way of many managers from acting on new “leaner” technologies.

I have seen it over and over in 40 years that managers don’t want to rock the boat for good products or enhancements. They often view changes as being “too small” to advance their careers or their retirement package. In other words, they want the magic bullet, that they can take credit for which happens instantly with minimal cash and gets them great kudos and a new position higher up the management ladder.

Jack Welch had it right with 5 simple words anyone could understand: “Change before you have to.”

I did a production ready, tooled product and proposed that patented advanced snap joint closure as a simpler, safer less costly design/manufacturing technique for commodity respiratory filter housings to two major medical companies. One of them makes a about 20 million filters per year of a given pulmonary function testing filter.

The new technique would save $.11 per filter on materials alone and about $.20 per filter when capital equipment & overhead costs are plugged in and it would pay back capital equipment in 6 months. That means they could save $3-4 million in costs per year.

Neither manager wanted to hear about such things. They want “BIG” deals. Well, do 5 of these small improvements and you have a damn good extra chunk of change in the bank.

My guess is that Bruce A. Heugel of BBraun and others like him don’t realize what projects get turned down by his staff some times without anyone even analyzing the numbers. I realize BBraun does a lot of contract manufacturing where they don’t design a product, but BBraun often works very early in development of projects with design inputs to offer cost reductions.

Jack Welch had insight that a lot of managers today don’t seem to have. I think managers need to seriously look at what Jack said and did. Then they need to see if they can’t start making more improvements.

Jerry Robinson
Let’s start here….
“and Double Irish with a Dutch sandwich hasn’t been legal for coming onto a decade.”

Apparently – the effects of these rules are working just fine for financial structure artist…
http://www.bloomberg.com/news/articles/2010-05-13/american-companies-dodge-60-billion-in-taxes-even-tea-party-would-condemn
By all means – read through the Bloomberg report….

There is a lot more about this PARTICULAR MECHANISM… freely available…
http://en.wikipedia.org/wiki/Double_Irish_arrangement

from the Wikipedia post… ” the Irish government announced that companies which incorporate in Ireland must also be tax resident there. This counter-measure is proposed to take effect[needs update] in January 2015.[4]”

January is not a decade ago… and the methods used to shield profits just tend to shift about a bit.. the technique is a $60B++ a year shield against US Taxes..

So… you might modify this comment…

“the smell test”… don’t know what that is… I wash my sox…. get few complaints… and my puppies still like to play with the socks… would you like to explain?

Yes… a lot of R& D is done here… the Integrated Circuit was invented down the street by Jack Kilby at Texas Instruments.. I spent 5 +/- years there – working on cell phone and tablet reference designs among other things.. I know a good bit about hardware design… TI and Radio Shack used to dominate the world of personal computers… That’s all gone.. Apple built here in Dallas.. gone.. There are LOTs of inventive and innovative things invented, designed, developed, or invented here in this area.. AT&T, Samsung, and Blackberry have major facilities here… So… there is a lot of work still here…

NEVER – in all of the list of companies I have seen go bust locally or move offshore – have I seen the COGS word used…

You really have not commented to the FACT I mentioned earlier… that you are getting an EXPERT commentary from John and myself… (yeah.. you too Bo…). We profoundly disagree with your assertion… Studies back it up – in detail…

So.. how about… doing some objective research… with an open mind…

Jerry Robinson
Oh… the tax game is one of “bumps in a rug” – if blocked here… then move there… Malta is the next one up… Greece will figure it out (they are motivated) too…

“Using the “check the box” rule, Irish subsidiaries of US companies can avoid running foul of the “Double Irish” ban by simply by moving their holding company from non-EU tax havens like Bermuda and the Cayman Islands to EU tax haven Malta.

They can then funnel royalties through this Maltese company and enjoy Malta’s very low rate of tax, even if only a minor “management and control” part of the business is performed in Malta.”

http://www.independent.ie/business/irish/new-loophole-to-replace-the-double-irish-tax-strategy-30728951.html

Karl Schulmeisters
Jerry, what companies say publically and what gets said in the board room are often different things.

Yes all those companies built in TX. BUT that was while what they built had enough value add to justify the salary levels of the workers there. today that value add (except perhaps for Apple which still manages to overcharge) is not that great.

And there is no ‘expert’ commentary here. what we have is annecdotes about certain companies leaving.

and yes there is the issue of taxes moving companies. But dropping US taxes will not have any of those jobs coming back Because the marginal tax impact (less than 35% for companies that export) is well below the value add calculations of per worker profitability (which tends to be 5x – 10x over cost)

John Eckberg
Hello Karl, At the risk of turning this exchange into Prufrocks tedious argument of insidious intent, the reality is that cumulative taxation totals at least 45 percent for US companies in this space (30% income tax plus 6 percent local/state plus this infernal device tax, an amount that equals on average 9 percent and that’s 45 – although many companies have it far far worse, particularly companies with thin profit margins in a competitive space, competitive because of foreign manufacturers) and that 45 percent is something of a death knell and death spiral.

I keep waiting for you to be right about something and it’s frustrating; there’s no pass along because contracts last for three to five years in this space thanks to GPOs and IDNs and, finally, labor costs are pretty much a wash between Ireland and the U.S. by now Costa Rica and the U.S., too. No, it’s taxation that’s driving companies to avoid the U.S. base tax rate by heading to near-shore locales.

Looks like you are right about one thing: those jobs that are gone probably are not coming back although future jobs can be created here at home if only our lawmakers follow through on what four of five Senators want: repeal of this tax.

John Eckberg
No, your facts on wrong, Karl. device tax applied in 2013. yes, global companies took steps starting in 2010 to dump North American factories but since only 2& of the companies in this space have more than 500 employees, the vast majority of firms have no choice but to stay and sell in U.S., which is half the world market anyhow. By the way, labor represents about 10 percent to 7 percent of the cost of doing business in manufacturing, sort of the nit on the back of the tick of costs. Your shenanigans with numbers have no credibility. The 30 percent corporate rate I cited already has the job creation and r&d credits baked into it. Without a doubt new devices are universally introduced outside of the U.S., that is true, but it has nothing to do with ward of state criteria.

Karl Schulmeisters
John this has turned into a Prufrocks argument. No actual full numbers have been laid out and not one of the things offered is fully real. Best example being that the 45% tax rate cited simply isn’t true. Not all states have business income taxes, and with export and R&D tax credits a medical device company can easily have an EFFECTIVE tax rate lower than that of Ireland or Switzerland.

my point still stands. No evidence has been offered that actually directly shows job losses do to the Medical Device tax. And many corporations are using it as a convenient scape goat.

Karl Schulmeisters
>>No, your facts on wrong, Karl. device tax applied in 2013.<< 1. - 2009 == 4yrs. right on the average of 3 and 5. And by now - almost 6 years after the tax was announced, it would clearly have no more effect. 1. there was no "dumping of North Am factories" that could not be accounted for by the worst economic GDP crash in human history. Coincidence isn't even correlation much less causation. And the USA is nowhere near half the world market. EU has 506 million people, Japan has 127 million people And the top 10 % of India and the PRC make up and additional 250million customers. USA is roughly 1/3 of this. In fact there is a reason that Medical Devices often first launch in the EU - part of it is the First In Man... which you still have not addressed. And while labor is 10% of mfg... you are ignoring what percent it is of Research.

John Eckberg
Hey Karl,
Where are you getting this 2009 year because it’s wrong… A google search. It’s wrong. The thing was talked about. Then it was signed into law and later the tax implementation was delayed for a pretty long time and in 2013, collection started. You are right, companies had time to get ready. That’s why employment in this sector in places like Costa Rica blew up from 7,500 to well over 12,500 jobs. Of course those new plants are automated and will produce product far cheaper so this year and next year those products are being sold into the U.S. at rock bottom prices.

Many of the factories in the U.S. did not actually until 2010, long after the economic crash.
And, again, you don’t know what you’re talking about. Yes, I suppose (who cares) your population numbers are probably close but in reality, those other nations do not correspond to the size of the world medical device market., I’d prove it with a citation, if I cared, but it’s so obvious that anybody who knows even a little about the device world knows that the U.S. market represents about half of all devices sold worldwide.

And people do not build factories to manufacture new products in the EU for first in man reasons but for country of origin reasons, that is, some nations, like China, will not allow devices to be sold there unless it’s also approved by the country where it originates. And since the FDA has a hurry up to go slow maybe someday as SOP, manufacturers build elsewhere because they need to sell into China, for instance, and a number of other nations.

John Eckberg
And to review: corporate taxation in the U.S. is roughly 30 percent, assuming two to three points credit for job creation and r&D (but in reality it is usually 35 percent) then add state/local taxation, which can crest 6%, and finally add in the 2.3 percent tax in the ACA, which amounts to a 9 percent tax, on average, on earnings/profits and you have, viola, a tax rate of 45 percent of earnings.

To purloin/flip your favorite phrase: it simply is true…

Karl Schulmeisters
John the tax was in the original law in 2009.
.
which means that from that point onwards vendors would have been writing contracts to pass that through when it came to be implemented.
.
anyone who didn’t do that deserves what they got due to their own failure to do adequate business plannng

John Eckberg
Hello Karl – No, what was in the 2009 law was a 5 percent tax, which would have just about claimed all of the profits from every average medical device company in the US. And it took last-minute negotiations to get Sens. Baucus and Reid to lower that so only 30 percent of companies’ free cash flow got confiscated.

While you might shrug off that level of taxation, companies recognized that the new Senate was hopelessly befuddled when it came to analysis of balance sheet concerns so many did not hesitate to shift production to foreign shores. Even if you were right about baking increases into a product price, with 40 percent or more of hospitals operating in the red, there are no longer any notable price hikes in this space – not with foreign competition routinely offering lower prices to Group Purchasing Organizations and Independent Delivery Networks because Costa Rica and Singapore have zero tax zones.

I know a business owner in Skokie, a catheter company, and about 50 people work at his firm. He said this tax was like being forced to hire seven workers who contribute nothing to the payroll. Others found this tax forced them to go back to investors or banks to get a loan to pay this tax.

Karl Schulmeisters
And since it was in the 2009 law there is no reason given the PEoD of 0.2 in medical devices – that it does not get passed on to the cnsumers.

I already explained where the “operating in the red” mostly comes from: namely politics. Those hospitals are invariably in the states that have refused the Medicaid expansions

And your anecdotal claim is meaningless unless we get to see the guys books

John Eckberg
Yeah, Karl, you’re right. Everybody who founded a business or leads a business in the medical device space is making up lies about how this tax has slammed their balance sheet. And the four of five Senators who want this tax repealed – what do they know? As an aside, that .2 you allude to has nothing to do with supply and demand because price inelasticity in this sector has everything to do with lengthy contracts, as I have pointed out repeatedly. Maybe the biased analyst at the Congressional Research Service who released and re-released her report three times over 18 months can call up her buddy Jon Gruber and get some more talking points that you can use.

Jerry Robinson
The 535…

They are making money on the collapse of US Industry… not just the Med Device industry… Just look around – the EMPTY SPACES tell a story…

You, I, and we ALL KNOW – that the 535 won’t do anything as a group – until this whole catastrophe hits them personally… They won’t do anything… until they lose 40%+ of their staff… or until the staff has the salaries lowered to $60K or less… That’s where the H1B line is… if LESS than that.. then its OK to fire legal US workers – and replace them with H1B folk… If’ that process is OK for industry, then it’s OK for Congress….

Ditto on the lawyers earnings as well.. Off shore the legal work – or replace with H1B staff… it will save a lot of $$ – and I think they will do a better job. Right??

Until THESE kinds of things happen… then EXPECT no “deus ex machina” from the 535 and crew. It just won’t happen.

John Eckberg
Hello Dan Stipe, I understand how whiny it sounds to blame the media’s apathy for part of the problem. But the fact is, the mass media doesn’t care and when they do write about the issue, the industry is the pinata.

Here’s an example: in the past three months I have logged more than 3,000 miles driving around the Midwest to mid-sized markets and more than a little expense, dropping off media packets at TV stations and newspapers along the way: Cleveland, Chicago, Columbus, Cincinnati, Nashville, Memphis, St. Louis, Peoria, Toledo, Grand Rapids, Kalamazoo, Ann Arbor.

In each of the major markets, probably six outlets both TV and newspaper on average. So that’s probably 50 media packets. Packets include information of locals involved in repeal on some level or another – up to 200 in some markets. You know how many folks have written or aired a story: one. Just one – God Bless Andrea Tortora in Peoria, who wrote about it for a business journal in Columbus.

That’s what I mean by media indifference. As to why they don’t care, I’ll leave it to you to ponder.

Dan Stipe
Thanks, John. I do agree, the failure of the media is half the problem on this and other issues. The other half of the problem is “the 535”. Unfortunately, I have to agree with Jerry Robinson’s analysis on that.

Karl Schulmeisters
I’m dubious of the claims made here and in Senate testimony. Given that the medical device tax is a 2.3% excise tax – for that to be increasing a company’s net federal tax bill by 29% suggests that there is something awfully odd about the tax games the company is playing.

Secondly as I have posted previously on this subject, although intended to not be “pass through” capable – the reality is that there are already companies that simply increased their net price by 5% and seen no change.

Given that we know the Price Elasticity of Demand for most medical devices is well below unity (according to Mathematica Policy Research it is 0.2, so a 5% increase in price results in a loss of .21 units of volume) – the idea that the tax cannot be passed on to customers doesn’t pass the smell test.

I have no doubt that the Braun VP was correct that his company’s revenues declined. I just find it hard to reconcile the numbers he is claiming, with the actual numbers involved in the tax.

NOTE, the tax may well be bad for the economy and for device MFGs, but I see no legitimate evidence of this having been shown. So I do not think its a media apathy problem. I think its a lack of credible evidence problem.

I am open to being corrected – but if we are going to operate in the medical field where precision of evidence is demanded – we need to be just as demanding of accurate information on the tax and business side as well.

Jerry Robinson
Dubous is one good place to start….. Seriously skeptical is a better place to start…

I have a sense of what John’s point has been….

1. – increasing cost on something – gets marked up substantially and passed on to patients… so a 2.3% TAX slapped on top of an expensive thing – gets SERIOUSLY marked up and slapped on patients… It is a fact that a $0.02 Asprin will commonly be marked up to $15 or $19 to pass on to the patient.. HOW does that improve the health care system or reduce patient cost? Are patients going to have to FIGHT about every single piddling cost they are hit with? a 2.3% tax gets burried off page in the billing sheet – Patients pay – but don’t know it…

1. – Offshoring is being pushed by other factors.. accounting scams are just the tip of the iceberg… It’s easy for a company to blame the tax – whether or not other things are subsidizing the rush to move everything offshore…

1. – fraud… yeah… this is a big one.. A US company wants to pay an engineer $13 an hour for senior level work – can’t find one… hires an H1B – and then blames the 2.3% tax for “causing” the problem.. One company up the road in Plano – paid out well over $30M in fines for doing this.. and it did not even slow them down…

1. – Many companies had contracts – that did not allow price changes to reflect the tax. dumb to do this… but it hit them pretty hard. Not everyone had this happen – but to use your smell comment – the results stink… BIG COMPANIES liked how this worked out – to their advantage…

1. – the 2.3% tax hit a weak point in the cash flow chain.. like any chain, it is only as strong as the weakest link… not every dollar in the process is the same…

These things all said.. I think the 2.3% tax is just one of the MINOR reasons that the business is being destroyed in the US. And it IS BEING DESTROYED… The 2.3% tax might be the EASIEST to fix.. but it won’t slow down CEOs when they can make another buck – short term – by going offshore…

Paul M. Stein
Karl, please see my tax analysis way above. Yes, I agree with most of your analysis. Still, however, with careful consideration of the wide span of medical device company economics, from the Giants to the mid-sized to the diagnostics to the barely profitables, there are many who are doing just fine with the tax, many that are totally unaffected, and many that are truly affected. It all depends, and an observer and commenter cannot focus solely on that particular sector one personally knows about and say that is the way with everyone everywhere. Over the past two years, this medical device forum has educated me and many others about this fact.

Regarding Congress and the Press, it seems that what was “hot” two or even one year ago can drift into something of little note. This happens all the time. These people have gotten “used to” the tax being in place, and so it has become a non-issue for them.

Karl Schulmeisters
I read your analysis above, and it’s buys into the numbers game being played by some. for example FICA is a federal tax on salaries that is in part paid by the employer.
.
and your accounting ignores that aspect…
.
Given the dubious history of recent Congressional “findings” including the recent Sense of The Senate votes on AGW. .. It’s hard to take much of any such testimony more seriously that the old testimony of Frank Zappa being questioned by AL Gore in the music labeling controversy

Paul M. Stein
Jerry, great points. You bring up many of the points I have been stating over the years regarding the industry “leadership”. What truly, truly troubles me is the severe lack of gonads, and brains, with the companies that have the most money to produce the next blockbuster devices to treat unmet medical needs. Rather than invest in anything new, they work their MBA accounting magic tricks to do whatever they can to strrrrrrrrreeeeetch what those long before them produced to maintain profitability the best they can. These agonadal anencephalics try the best they can to tout their non-“strategy to increase shareholder value”, but, in the end, are only gutting the Industry from the inside.

This is certainly off-topic from John’s important Discussion point, but there are many, many other topics to also discuss regarding what is going on with our once proud Industry. Perhaps someone might wish to initiate one on corporate “strategy”.

Karl Schulmeisters
I would agree that polemics about the politics of the US tax system really are not particularly on topic. The thing to recognize is that much of the testimony before Congress is choreographed to bring out what the chairman or majority of the committee wants to get into the news cycle.

The point that Jerry makes about companies attributing to convenient scapegoats (like the 2.3% excise tax) all manner of ills is an important one. When we know that the Price Elasticity of Demand is so inelastic (0.2 is incredibly inelastic – its almost non-existent) then claims that this cannot or is not passed on to the patients’ bills and instead is borne by the companies themselves does not pass the smell test.

Similarly market dynamics suggests that you are not going to see 10x markups. Why? Because if you do a 10x markup and you have more market-share than me – I will do a 5x markup and take some of your share. Your response will be to match my markup and very quickly we will stabilize on a pretty straightforward pass-through of the cost. This is basic micro-economics.

The problem of companies with long term fixed price contracts is real for those companies and their shareholders. But that’s one of those MBA optimization decisions someone made in the past. And that’s why corporate boards have hire/fire authority over the CxO suite – to impose some responsibility for the consequences of such gambles.

It is also unrealistic to expect that companies with solid businesses and cash flows to “risk it all” on a risky blockbuster. That’s what startups and Venture Capital is for. In fact in Europe Venture Capital is instead called “Risk Investment”…. which much more accurately reflects what it is.

Startups are where you will see most of the next big blockbuster devices. This is how the system works – particularly with technology. Innovation happens in startups and then those startups are either successful enough to start a new category – or they get absorbed by a larger org that can integrate the product into their existing line.

Hugh F. McCann, Jr
So, each and every tax (payroll, property, federal income, state income, local, etc, and now the 2.3) must be factored into pricing model to meet profit goal and return on risk…….
Mmmmmmm
Move to Costa Rica. Or buy a hotdog stand…..a cash business. $$$$
Nah, dying of a thousand cuts is not a good US growth strategy.
Yes, hearings are setups….that’s the game. Political palava is a series of half truths. That’s the game….but in the larger context, some of us who actually MEET a US payroll and risk our own capital, are a little sensitive.
BTW: I like Zappa. Cool dude. just Don’t eat the yellow snow…..😝

John Eckberg
Here are facts about harm rather than uniformed opinion: company has $1 million in revenues and industry average profits of 6% on those revs. That is $60.000 in 2012 before tax implemented. Then the tax is applied (and paid every two weeks as sales occur, think about that). It is 2.3 percent or $23,000, leaving profits of $37,000 for owner. Owner throws in towel and sells to giant company based in Ireland. Giant company lays off sales and marketing staff and shifts production to Costa Rica or to Ireland. Supporters of tax fill up LinkedIn chat string with opinions. Once employed workers go on unemployment. Funds raise by tax not earmarked for ACA but go into black hole of federal spending. Process is repeated countless times.

John Eckberg
I should add that three and five year contracts are not “optional” like other sectors. GPOs demand them as do IDNs

Jerry Robinson
math is right… as an example…

You didn’t even mention the REASON that the Irish holding company can buy the US company – at a discount – is primarily due to tax/accounting subsidies under US law. There are so many reasons pushing this small company offshore – and it is REALLY SMALL – that you do not mention…

Also.. whatever the $1M company makes – is free for counterfeit . knockoff – and they CAN”T defend themselves effectively – due to lack of knowledge or cost.

Unemployment only lasts so long.. “Food Stamps” – are limited..

You would think… that with all the $$ spilled to universities and such.. that there might be some actual studies and research on this process.. An actual quantification of job loss and costs…

Paul M. Stein
John provides a remarkable example. He cites just one dinky company example, but what needs to be realized is that there is a much wider monetary range of companies that will fit into this “on-the-edge-of-existence” model; at least on an order of magnitude. There are an awful lot of companies that fit into this model.

Karl Schulmeisters
John arguing hypotheticals gets us nowhere. I’ve asked if anyone has actual industry data that is credible, and so far have not seen anything.

Jerry Robinson
Karl….

We all would like solid research to back up the observations…

University research is frequency sponsored by companies… When those companies are “going away” – then they don’t fund.. They should – but DON’T. You can look for examples of this process as the industries of jazz musicians (1920’s-1940’S) were decimated, textiles, shoes, and the list just goes ON AND ON… – were wiped out. You can see this process in the agriculture industry – broadcast industry… It’s pretty impressive to watch it happen…

In this era of “big data” – it is likely that this information can be dug out of the total data – as John has done in example…

are you looking for the “2.3%” effect – or what the whole of industry is encountering.. You can see a part of what you seek in the “empty building” syndrome.. Here in Richardson, Tx… the telecoms were effectively wiped out.. the office space was empty.. some things moved into the space… but the “well paying” jobs are gone – much of it off shored… and the rising popular local industry is now “insurance claims and support….” at $12-15 an hour, no benefits, and 30 hours a week or less..

So what evidence are you really looking for?…

Hugh F. McCann, Jr
Exactly
Many US business sectors have been permanently destroyed because US tax policy is geared to pay the unfunded promises. Defined benefit pension plans and social welfare.
I authored a tax remedy and fix. This bill is languishing in Congress. MRA
Manufacturing Reinvestment Account Act.
The very high US rates are forcing counter moves by the folks running small and large companies.
Move off shore…..Inversion Mergers.
* on top of all the other taxes adds up to trouble.

I HAVE ALL THE DATA……MY CUSTOMERS production facilities HAVE MOVED OFFSHORE.
This is not a huge problem if ones job is thethered to the Cloud.
Bits and bites and code do not breath, eat or sleep…..
I believe this conversation is all over the map because we all have diverse life experiences.

Karl Schulmeisters
Jerry, John offers a hypothetical. Telecoms are being wiped out by technology change and many of the jobs are also getting automated. But VoIP has eaten away the very lucrative long distance and international market. And while the Telecoms have been shrinking Cisco has been growing.

So the evidence I’m looking for is the actual numbers of a real company – numbers that can be seen for what is the actual Price Elasticity of Demand, what are the real EBIT, what are the real sales volume changes over the last 5-10 years (ie what’s the impact of the Recession).

Not hypotheticals or partial annecdotals. But solid complete data. The same sort of solid and complete data that needs to be collected to prove or disprove something about a medical device itself

John Eckberg
Hello Karl, I suppose you have a point. Hypothetical means nothing to the Doubting Thomases among us. I must point out that when you compare the healthcare industry to the telecommunications industry you are comparing apples to zebras.Here’s a few real world examples of harm from this tax. You can take ’em or leave ’em. My hope is that somebody in this group knows a Senator or a staffer for a Senator and will cut and paste the commentary into a letter or email:

From a North Carolina company founder:
“We are a small med device company with 7 people. We have cut hourly staff hours by as much as 25%. We have shelved plans to hire 2 new people in 2013. We have cut our trade show budget by 50%. Reduced overall marketing budget by 40% Plan to reduce our product offering by 20% in 2013. Will introduce zero new products in foreseeable future. This tax will wipe out 37% of our profit in 2013. I’m hoping that cutting now will save 7 jobs and our business”

Here’s one from a St. Louis entrepreneur:
“I have decidedly “pseudo-exited” from my industry, although still relatively active with one spinal implant. However, I have been presented a new technology which can help shorten surgery time, reduce costs and provide a better method and technology to treat patients with spinal trauma and cervical spine (neck) fractures. Normally, I am willing to take the risks necessary to launch such type of technology. I have done it now twice. However, this time, I am very reluctant to consider the risks given the current hostility from Washington, D.C. towards business and profit motivation. The device tax is just part of it. What is shameful is that we used to live in a nation which rewarded risk-takers. This particular risk would create at least a dozen local jobs not to mentioned the hundreds it would create nationwide. Aside from that, this technology is really a game-changer when it comes to treating patients with spinal fractures and lead to future innovation from competitors to introduce similar technology, which would do the same. Instead, I may do nothing. Recently, a heard a hospital administrator quoted as saying “the ride is over” to one of our representatives. This particular administrator would not allow our current technology into the hospital as a price point whereas we could avoid a profit loss. Instead, the surgeon was relegated and led to use technology from yesteryear, in fact, using the same techniques used from the 1950’s! This is not spin. This is the reality of the current Zeitgeist in the U.S. business economy. It is truth. In closing, I still do not know if I am willing to take these risks for regulatory approval and investment. We will see. But for sure, I am not being encouraged thanks to the policies of our political leaders.”

Hugh F. McCann, Jr
Some countries offer universal healthcare.
National income is taxed to pay for this benefit.
A 2.3 additional uptick/pass through in a price is paid…. By public income. Amortized over gazillions of people.
In the model in this discussion, it is a U.S. based startup with limited working capital. A marginal profit from operations might be gobbled up with the 2.3
Small businesses die from a thousand cuts.
Big guys swoop in, take control of the idea and sometimes produce in lower tax environments.
Given the US C rates are as high as 35%….. Net profits remain on offshore balance sheets.

Hugh F. McCann, Jr
Did I mention I actually own a diverse job shop in the U.S. that is part of the mid tier supply chain and that I meet a multi-million dollar payroll?
I have seen many global trends/changes in 40 years. Many of my customers moved offshore. I have data.
The 2.3 exacerbates the challenges the risk taker must overcome.

John Eckberg
Hello Karl – From a Palo Alto firm:

“We are a very small medical device development company with an excellent history of bringing innovative products to market that improve health through therapeutic devices. With fewer and fewer funding options to bring our novel technologies to light, we can’t afford this additional downward pressure on the collective industry. As a result, plans for our latest project support the economies in Europe rather than in the U.S. due to our restricted options here at home.”

John Eckberg
Hello Karl, I could go on and on like this all day.Here’s what a company founder from San Jose has to say: “We are a start up medical device company, and began selling product in May 2008. We will finish with approximately $30 million in revenues by end of year 2012, and will be profitable within a year. We have gone from 0 – 163 employees. The device tax would have cost us an additional $2 million to fund the company to this point because it is a top line tax. That $2 million represents precious, vital capital for a formative company in hiring employees and building the business to last. Such taxes will drive investment out of medical devices, thus stifling innovation in this critical area.”

John Eckberg
In conclusion, Karl, this is a succinct assessment of the impact on an Atlanta company and it should satisfy your need for dollars-and-cents impact :

“We have lower net margins than competitors solely due to the our choice to keep
prices competitive while keeping 100% of sourcing and production domestic. To put that in
perspective, for one of the products we’ll be releasing for 2013 my domestic cost per unit to do
this runs in the high $40s per unit. My total cost in having it manufactured offshore, including
logistics, runs about $18 per piece. That cost goes even lower if production runs become larger.

“By doing nothing but moving my production offshore we immediately see around a 65% savings per unit – which becomes all profit margin. We had made the decision to forego the additional profit in order to preserve and expand jobs domestically and do our part in getting the economy working again, small as that may be. With this new tax we are faced with 2.3% on gross sales of the products. So for a product we’re selling for $90 that is $2.07 additional cost for every unit. If our margin on that piece after production costs, shipping to client, commissions to sales force, etc…is running about 26% currently it would be about $23.40 on the sale. $2.07 is a 9% tax on our net margins. For one of our products it’s 38%.

“If we move production of that same product overseas we save in the ballpark of $30 per unit in per unit costs. That is still a 100+% increase in profits post excise tax. As a small manufacturer we have to make tough decisions then.

“Do we continue to use top of the line materials and components or try to cut corners in order to preserve margin (although some have definitely taken this path – we can’t stamp our name on that)? Do we discontinue lower margin lines and concentrate on higher margin products only and worry about losing market share to more comprehensive providers? Do we continue to manufacture domestically or do we move production overseas and increase profit in the face of the tax. There needs to be a distinction between those manufacturing domestically, paying decent wages, employment taxes, providing benefits for their workers, etc…and those who bypass our system by off-shoring production.”

Hugh F. McCann, Jr
John and Jerry……I declare you winners in this debate.
TKO
😝
What’s the next step?
Until the 535 wake up we will continue to know what they may never know……that,
They are destroying the middle class.

Jerry Robinson
Cisco is local, here.

Karl… the market is diverse enough – that John and I could come up with LOTs of examples.. but examples DO NOT prove the rule – that’s the diversity part… AS an entire market, I think what John has said is very accurate.

The corporate Diaspora is not limited to a few companies.. it is industry wide… How many Pharma companies do you think are left to make “pills” and such? How many (ie, %) have gone offshore? The tax effect – has been extraordinary…

Suppose we put down… let’s say 10 examples… does that convince you that what John is saying… what I and others are saying… is RIGHT? I doubt it..

Like I said.. my dad started dealing with this problem in the 1930’s – and it’s just gotten worse.. the SHAPE and NATURE has changed.. but it is still the same problem..

You should do your own research. Seriously… that may be the only way to change your viewpoint.. and I think your current viewpoint is off… so it’s to your advantage to DO that RESEARCH. If you are going to hold strong opinion, then make sure you’re right… !!

I have no doubt that John can specify 10 companies as examples.. he sees that the examples would be representative of the problem – but you would likely doubt it.. so… do your own research. Find out.

My only disagreement with John is that I think he only looks at a part of the problem.. . I think the deck is SERIOUSLY stacked against the US Manufacturer… I think the “Double Irish” accounting scams – and related – would drive out the US makers. the 2.3% tax just accelerates the problem..

I – for one – am tired of seeing empty manufacturing companies – and

Karl Schulmeisters
There is a corporate diaspora – but unless you control for the fact that its easier to do “First In Man” studies in the EU because the State in places like Germany or France can authorize such treatment if you are a “ward of the state” and in a coma – you don’t really have a case to make.

As for manufacturing – the issue is Value Add per hour worked. overseeing pill making machines is fairly low value add. High value add mfg is actually coming back on shore.

And I suspect that the examples offered are not going to have those points disambiguated. which means that you are not meeting the same proof standards that you are used to meeting for efficacy and safety points.

This is a long way to say – Its Complicated, and I don’t see that complexity being addressed in this discussion.

Jerry Robinson
It’s interesting…

What to do – is first know who supports US Manufacturing and development.. It’s not an assumption of the “usual suspects”, that’s for sure… The strongest proponents of “make it here” – are often folks who have come from other countries and cultures.. As John points out.. you DO NEED TO KNOW what an offshore mfr cost is.. and then to ALSO know the intangibles.. There are always “associated” cost… make it offshore? then shipping & communications & risk & counterfeiting are just a starting place.. You need to understand the cost differences.. and then figure out how to solve what you can here first…

Are you making physical devices? software apps? combos? that matters – and is a complex issue… you may be WANT to build offshore – and ship from a base in Asia via Alibaba, for example. There are good reasons to do this..

So this is the first thing… UNDERSTAND how to build here.. UNDERSTAND how to build “there” and then understand how to get your device in the target customer’s hands.. PICK the best solution.. be world class….

Jerry Robinson
you can’t meet every point you raise in a short forum like this… not enough space..

separating by value is a misnomer.. There is always more money freed up by moving the high value stuff offshore.. at first glance.. so IP, Accounting, Ownership.. these things get moved..

You might look at the history of those industries “wiped out” – to see the effects of what we talk about.. shoes.. textiles.. generic manufacturing of all kinds.. when the plants are gone – then the skills are gone with them.. Too simple? then add Hard Disk Drives, Computers, etc, etc..

Where do you think Cell Phones are made? Samsung and AT&T are local here.. Texas Instruments (cell phone chips) – still has some presence… but the Cell phone manufacturing is gone – and this was a high value thing…

The is issue is not Value Added per Hour.. Those pill making machines do matter where they are… Case in point: Flu Vaccines are made… where? offshore.. if you NEED MORE IN A HURRY… they are not here to do it… this is true for a lot of industries…

John Eckberg
Most of this discussion is by necessity driven by what ifs.
Here’s commentary that is directed at what is. A guy in Georgia writes: “I have lost my job due to this tax as well 50-60 people at Remington Medical, Inc. My past employer is moving to Dominican Republic.”

Hugh F. McCann, Jr
Good people losing good jobs…..collateral damage from forces that they can not control.
Onerous tax policy contributes to this job destruction.
Ultimately this is a dangerous trend.
I am very very grateful that I have a job.
Good for low wage, low tax, no tax countries….bad for US families.
Sad. From an American Citizen’s point of view.
Particularly since the innovation was home grown.

Paul M. Stein
The issue of being “it’s complicated” can probably never, ever be completely discussed because it’s all dependent on the particular corporate strategies of a wide range of individuals in a wide range of small to monster-sized companies. What one can only be left with are a bunch of stories, told in the press or to colleagues only or that will remain completely untold except in the board rooms, to try to collate into bins of “causes” of just another industry’s destruction. The 2.3% excise tax is simply one of those things that led to thousands of varied decisions that led to thousands of varied results over several years.

Those numbers make it very, very difficult to point fingers at specifics. But, tough times call for tough measures, and if we wish to change things, the tough work falls onto us to convince those we wish to influence regarding that one thing.

Jerry Robinson
Collapse and disappearance of whole industries should give you warning that something major is going on…. Subsidized destruction of US Industry – by a whole collection of techniques – of which the 2.4% tax hit is just one thing – should tell you something terrible is going on..

If you are interested in just ONE ELEMENT (other than the 2.3% SCAM) – then:

The “double Irish” accounting scams HAVE BEEN detailed with SPECIFIC COMPANIES in mind… when the US loses a factory with 5000+ people working in it – to be moved offshore and “Irish Accounted” – then that is significant. When you look at the TAX Accounting aspect – then you really start seeing a few PIECES of the SCAM at work… It is impressive in it’s simplicity – and simple in execution.

Hugh F. McCann, Jr
Wall Street and Bankers DO NOT CARE.
Gotta goose up shareholder value….AND generate fees.
Taking the short term view to prop up 90 day “guidance” and “funding” underfunded pension plans has tilted tax policy in favor of the social welfare contract. Not gonna work in the EU or US.
This comes at the expense of needed robust reinvestment in industries and jobs that maintain economic growth…..and stability.
The 2.3 just adds to the mess.

John Eckberg
I’ve long believed that there is not much sadder in commerce than an entrepreneur giving up. Here’s what the president of a company in Chicago wrote: “All the big companies can show you their large numbers, layoff employees, move production overseas, but what about the small and start up companies? We are a small company, if we would have been liable to pay the 2.3% Medical Device Tax on sales for 2011. It would of amounted to 82.8% of our Net Income. We will also incur administrative cost to implement the tax that is not included in the 82.8%. This tax will dissolve companies…”

Karl Schulmeisters
Again this simply isn’t true. With a Price Elasticity of Demand of 0.2 this cost can be passed onto the customer. So I simply don’t buy the “82.8% of our net income”. It just doesn’t pass the smell test. If you can pass your COGS increase – and this is just a COGS increase – onto your customers, then its simply not credible that you fail to do so.

as for the offshoring of jobs – yes it is a Value Add issue. And cutting taxes even to zero will not bring those jobs back. Because Taxes on Net Income are a trivial portion of the COGS for those products. Salaries are typically the largest item.

So that means that either the jobs retained are no longer “good jobs” since they no longer pay good wages but instead pay Vietnamese wages for cotton weaving or FoxConn wages for electronic assembly.

Now if you want to subsidize companies to do business here, or strengthen unions and tariffs so that you have a craft environment like that of Germany and France – go ahead and argue that. But the notion that a drop in tax rates will return the jobs simply isn’t supported by any credible economic theory that I know of or any actual data

John Eckberg
Hello Karl, I don’t understand what you don’t understand about price inelasticities in this space. When there are 3-year and 5-year contracts, prices tend to not fluctuate with CPI or anything else. Matter of fact, they tend to go flat or go down, particularly as competition from companies based in Switzerland that manufacture in Singapore sell to GPOs and IDNs in the U.S. This is not a pure supply/demand equation. There’s no “pass through” simply because that’s what happens in other sectors. Something like 40 percent of hospitals operated in the red last year. There are no price hikes in this space – period.

No, those jobs are not coming back, but R&D and future investments and jobs can be here in the USA as long as the tax rate is not 45% or more of revenues. There’s no “pass your COGS” onto hospital purchasing groups these days. And you can’t dismiss testimonials like this one – well, maybe you can but reasonable people don’t – simply by trotting out a tired cliche like “it doesn’t pass the smell test.”

Jerry Robinson
When Google built Cell Phones in Ft. Worth, they found that employee costs was just a minor part of the process.. they did get benefit for paying a bit more to employees, too.

I am not for subsidizing companies to do business here.. That means
* not using taxpayer money to float bonds for Ocean Port improvements..

* not using taxpayer money to subsidize transport of containers from vessel via roads to trains or to tax abated warehouses.

* not using tax money (indirectly) to fund rail roads and improvements (ala Mr. Rockefeller) for train container transport…

* not using tax payer money for subsidizing warehouses – for big box stores…

* circumventing IP rights by playing games with ownership and rights…

* not subscribing to the “double Irish” type accounting scams…

You get the picture? governement ALREADY subsidized the ever living crap out of larger business, as it is..

Yep… low wages aren’t good. But you have to start somewhere – to learn how to work and also to work your way up an economic ladder… NO JOBS is worse than low compensation jobs.. but minimum wages are MUCH BETTER than living on Food Stamps and government medical help…. as if a lot of people have a choice..

You are right about cutting tax to ZERO will not bring a lot of jobs, if any back here. If someone makes a fist and pokes my nose – then I could think of the profit tax as just one of many fingers making my nose bleed.

You keep mentioning the “price elasticity of demand comment”… That MIGHT apply if price was the ONLY thing going on here… but it ABSOLUTELY is not…

This argument was mad in the 1850’s too, – and commentary did not hold true then, either…

Hugh F. McCann, Jr
The value (to me) of this discussion has disintegrated.
In my world our customers are looking for cost reductions.
Not “pass throughs”…..the market forces are expecting LEAN manufacturing.
When the mil rate goes up in my community I can not write a letter to my customer and pass on my property tax increase.
Someone is very mixed up in this thread. Or inexperienced.
John, excellent input. 😄
We need a new topic.

Jerry Robinson
The bounce – does bring up the topic of Innovation – particularly disruptive innovation – to get out of the quagmire…

Jerry Robinson
one comment Hugh…

LEAN manufacturing.. means more efficient processes throughout.. that also wants a LEAN accounting structure, LEAN corporate decision making.. LEAN regulatory structures and LEAN development…

“Cut out the Middleman” is a manufacturing rule.. GET RID of the leeches and parasites is a also a good strategy..

Hugh F. McCann, Jr
Jerry, you are absolutely correct
A Lean culture addresses waste…….and the opportunity cost of THE status quo.
Lean can lower cost of goods sold….create capacity and generate additional profit.
We share a portion of profit with our employees and also reinvest a significant % back into CAPEX.
Cutting edge technology coupled with Lean helps us remain competitive.
Section 179 and the MRA bill I co-authored is a great tool to accelerate reinvestment in our company/country….with pre-tax dollars. This bill needs industry wide support as it will accelerate reinvestment into the US economy. Maybe John can help?
MRA:
CAPEX
BRICK AND MORTAR
JOB TRAINING

The velocity of money and resulting potential job creation will contribute to worker participation rates.
More folks working, more taxes paid.

Karl Schulmeisters
Jerry, if you have 3 and 5 year contracts, you don’t go out of business because your profits were adversely affected for a few of those years (remember the vendors have known about the excise tax for 4 years now and would have priced that into any new contracts they drew up and any old ones would have at most 6 more mos to run on them.

So no there is no 3-5 year lockin on these prices.

And a company that is based in Switzerland still has to have a US subsidiary to sell through and that sub is paying the device tax on its US revenues.

Nor is R&D taxed at 45%. Google, Microsoft, Amazon, and Apple all seem to be able to manage just fine under the current tax regime and they spend heavily on R&D.

what I’m hearing is a lot of whinging but still no credible data.

And while you might believe that you can get American workers to work for Vietnamese wages – when Nike tried it, they found they couldn’t get workers.

These things have all been tried and they failed. Heck even the venerable Lincoln believed in using government money to build ports. Because in fact he realized that ports benefit everyone.

The reality is that we are going through a 2nd Machine Age Revolution. And as with the Luddites – there is a lot of economic displacement as a result. That’s why you are seeing folks like Bill Gates, Warren Buffet, Nick Hanauer and others argue that we need to do what CA did so successfully recently:

Use tax policy to reduce wealth inequality.

You may not agree with that, but economics says that’s probably our best option. Numbers don’t lie

Yes there is a pass through of COGS. Price Elasticity of Demand is Price Elasticity of Demand. And it is 0.2.

Which means that if you add 2.3% increase to your end product, your sales volume drops by 0.5%
Hardly catastrophic.

Hospitals are a different matter. A large part of those operating in the red are in the states that opted out of the medicare expansion http://familiesusa.org/blog/when-states-reject-the-medicaid-expansion-they-hurt-hospitals-too

No, those jobs are not coming back, but R&D and future investments and jobs can be here in the USA as long as the tax rate is not 45% or more of revenues.

Karl Schulmeisters
businesses dont like taxes. people arguing a political point wil spin the data to fit their agenda.
.
hence anecdotal claims are not persuasive. I expect the same level of evidence we demand in efficacy trials

Jerry Robinson
Karl and John… there really IS a point to discussing this topic. One piece of that is the public perception versus “jobs” reality of the 2.3% effect… It matters…

Karl.. when people point out things that are, indeed, facts – and can be solidly backed up… It is probably a good idea to (a) concede the point and (b) think about how it might change your position.. WE ALL are thinking, seriously skilled people here..

Let’s list what we (You and I) can agree from your comments…

1. – AGREED = “what companies say publically and what gets said in the board room are often different things.” AMEN to that, for sure…

1. – AGREED = DROPPING formal tax rates on US companies “WILL NOT HAVE AN EFFECT” on job coming back. That is my opinion, too.. I say this BECAUSE of all the other factors involved in building products here… THESE are also job killers… Want to discuss them? we can….

1. – IF… IF.. you ask for examples – then don’t ignore them and repeat your previous – unsupported – comments.. bad debate tactics..

1. – DISAGREE… = You stated that the accounting scams ended a decade ago. In fact, they did not. One set of Irish Accounting scams ended early in 2015 (links provided)… yet the scam moved down the road to Malta… SAME OLD… SAME OLD… you made no comment on this…

1. – DISAGREE… = You made the point that this 2.3% MINOR IN COST.. minor in effect… in some instances – YOU ARE RIGHT.. but for the MOST PART – you are probably wrong.. One big reason is that you are ASSUMING that MedDevice companies are all making this large profit.. when, in fact, most really aren’t.. MANY companies are SMALL.. THEY may NOT be making ANY PROFIT – perhaps breaking even or losing money… YES.. companies DO LOSE MONEY SOMETIMES>….. then they MIGHT GO OUT OF BUSINESS… and many do..

Don’t you know your Dr. Lorenz? Small early factors and affect outcomes in very big ways..

1. – you are hung up on tax cost… that’s not the problem.. you have to successful BEFORE YOU GET TO THAT PROBLEM.. and it’s the IN BETWEEN STUFF that ALSO force companies offshore.. TO list a few.. Cost of Litigation/Legal in the US…. effects of depreciation… (example below).. load cost of medical/government retirement costs.. business resources not being efficiently organized…

I am interested in small companies – and start-ups.. 2.3% is a PITA type cost.. when in development or early production – there ISN”T money that just pops out and pays this… It’s a real problem.. and can easily kill a product or create a serious problem..

Experts… you said… ” there is no ‘expert’ commentary here. what we have is annecdotes about certain companies leaving.” This is a “Drivel” statement…

Harvard and other business schools use CASE STUDY to consider business problems.. it’s how they teach. it’s where you apply THEORY to reality and see how it works out.. John’s examples are representative – and if anything – are conservative.. THERE IS NO U.S. DEPARTMENT of COMMERCE GROUP that studies this.. not that I have ever seen.. SURELY – you are aware of how morally bankrupt US Trade Policy was through DECADES.. up until Regan Admin times..

Expert… Dr. Brown defines an EXPERT as someone who has 10,000 focused hours on a subject.. SO… Karl….. what is YOUR DEFINITION? Brown based his definition on a lifetime’s research. SO.. many of the folks posting here – are INDEED experts.. that;s why I get my PhD in this subject area…

I think you do have somethings of merit to discuss and present.. If you don’t listen to other informed EXPERTS – or think about what is said.. then you are a TROLL.. I think your contribution is much better than that.. but you’ve seen how TROLLS work, right? don’t go there…

Hugh F. McCann, Jr
Thank you Jerry.
A friendly discussion morphed into a debate.
As a closely held company and bit supplier to the medical device industry I invested in (by my standards) a very expensive converting press. Delivery next week.
At 66 yrs old I had no choice but to push all my chips in and make a bet that the ROI makes sense.
I did my homework. Made my best assumptions and guesstimates…..flow charted everything and recruit input from smart people.
Yet, it is a risk.
I made zero taxable income last year after many years of earning 6% Net before taxes.

Hugh F. McCann, Jr
Karl, my goal is to reduce my COGS and drive unit cost radically down. To do this I needed a loan. But I had no downpayment…..so I saved after tax dollars until the loan to value ratio made sense to the bank.
Ok.
The tax rate I paid, Federal and State, was 47% effective. Yes that is exactly accurate.
CT is an amazing place and (realistically) is bankrupt…..the government compounded it’s fixed costs and commitments to the point where it is pitting citizen against citizen, political party against political party……CT like other Blue states is functioning in the danger zone…..
Can’t control that which is now reality…..lots of drama.
Tax policy that chips away at scarce working capital and UCC-ing my life to the max can be unnerving. One must be brave, very brave and have guts to take on these risks.
My point: you are a very smart man. My suggestion is to keep your mind open to those of us in the trenches who meet a multi-million payroll and try to be good leaders in a challenging global arena.
It is humbling.
DONT EAT THE YELLOW SNOW…..Zappa

Jerry Robinson
Frank was my hero too….

CT used to be a manufacturing paradise… everyone benefited… A LOT of that is just gone now.. off shored and shutdown.. what’s left is being manipulated to paying an ever increasing amount – and that is very hard to do.

People would rather spend energy and $4 to manipulate what’s left of manufacturing – rather than really address core problems.. Personal advantage usually seems to be the common reason. I would like to see the situation change – but we all have to dance around this issue…

Hugh F. McCann, Jr
I co- authored a tax policy for manufacturers.
Manufacturing Reinvestment Account Act…..MRA
Languishing in committee in Congress.
Check it out online.

Hugh F. McCann, Jr
Jerry,
CT State legislature believed that they could tax tax tax, create social programs, mandates et al and that these taxes and cost of compliance and PUBLIC defined benefit pension plans would/could be absorbed by PRIVATE business and the working public.
Until the point when global market forces pressured COGS …..resulting in the closing of many business sectors.
CT destroyed an economic base that was the envy of the US.
Pass through tax strategy is delusional.
There are many unintended consequences.
COGS can/will drop with reinvestment in software and hardware……improving productivity.
There is a path to rebuild our economy but it will require a sound tax strategy coupled with best practices….LEAN.
MRA
Call the 535.

Karl Schulmeisters
Jerry testimony before a political body or anecdotal evidence is not “fact”, and that’s what has been presented as fact here.

Yes there are companies that do not or cannot take advantage of the various tax reductions like the R&D and Export business tax reductions – and that is in fact a problem. But those also are not companies who move overseas because by definition they don’t have an overseas business.

It is also “fact” that the device tax was on the books long enough for contracts to be negotiated to pass that cost through

It is also “fact” (as cited references on) that the PEoD for medical devices is 0.2 – which shows that you can easily pass the cost on and not lose business.

The rest is basically political position statements (such as CT is bankrupt as are most Blue states when the data shows that per capita GDP production, and Federal tax contributions etc are better in “blue” states than most red states – if you want a source I can point you to the conservative Tax Foundation).

This is not a forum for political discussion on manufacturing policy in general The issue here is whether the MFG Device Tax is causing job losses. And given the PEoD and the long lead time, it simply does not make logical sense that the two are connected. And political assertions about it are not “fact” in any way

Karl Schulmeisters
you guys can continue to present anecdotes and political testimony. and I will keep asking for open books that show how a company that wisely planned for the device tax in its contracts and leveraged its PEoD is losing jobs.

and the conversation will go nowhere. Because in all these posts that has not been addressed – and I assume that if you could address it, you would have by now.

The realty is that this Congress is so politically divided and the whole of the PPACA is such a political football that regardless of the testimony before Congress, the likelihood of anything changing before 2017 is very low.

Low enough that as a businessman I would not count on it except as changing for the worse.

Hugh F. McCann, Jr
Businesses success does not move in a linear direction. Business success is not guaranteed. A gazillion decisions must be made in real time to remain in business.
There must also be a distinction between an established business with 1,000 employees and a startup in the fragile stage and having <50 employees. Each will make decisions based on through the prism of its business plan. In my view, startups and emerging killer medical apps are like seeds.....not all grow and become mature trees. Any extra tax can cause a tipping point and defensive decision. Big companies might consider react entirely different than a small company. There is NO logic. No firm set of rules. It is visceral. Businesses die off or move for a thousand reasons. One might be tax policy within a state or sector or country at large.

Hugh F. McCann, Jr
Karl,
If you are looking for a nice tidy path to a logical conclusion….it ain’t gonna happen.
No one really can predict each and every outcome…..but SOME businesses are struggling and an extra cut (2.3) doesn’t help.
My CT example is perfect. Young folks and businesses are moving out of state because of a million or billion cuts. FACT
BLUE states are particularly vulnerable because of unfunded union contracts and extreme inner city poverty.
Eventually the Flash Card Math doesn’t add up.
GDP per capita is not useful….In CT: GE, UTC, HEDGE FUND MANAGERS skew the per capita math. I have lived in Fairfield County most of my life, one of the wealthiest on the planet…..until one goes to Bridgeport (where my company is located) and most folks live in poverty. Both are in Congressional district 4.
At the end of the day, ACA made a guesstimate….an assumption that the 2.3 would benefit society more than it would damage the medical device sector. They may have made a bad bet. Without an industrial base there is little opportunity for the middle class.
I belive the entire healthcare sector is an opportunity….the population is aging rapidly, science is developing new killer apps…..embrace this trend and employ our people.
BTW: anyone have any thoughts on how to automate changing a bed pan? Some things still require manual labor. What is the value of having YOUR bedpan clean ?
HUMBLING.
😜

Karl Schulmeisters
Hugh – you are making a political economic argument in general. That has not been the subject under discussion. there are plenty of places to have political economic discussions. I don’t see this thread as being the appropriate place for such.

the 2.3% medical device tax is part of an overall package that is highly political That means that if you want to win your case on facts, the facts need to be very solid and incontrovertible – rather than purely politically selected. The latter being pretty much what you get whenever you try to change a politically controversial issue in a highly divisive political environment (congress).

The PPACA is a restructuring of the medical economy. That means there will necessarily be winners and losers in the pre-existing market. That’s not inherently bad nor is it inherently good – tt just is. And no matter what changes you make this will be true.

So if you want to show that the 2.3% device tax is NET bad policy, you cannot build it from anecdote. It has to be broader data – like Price Elasticity of Demand data. And it has to also decorrelate things like the recent economic downturn.

Unless you do that, you are just part of the shouting crowd making political arguments

Burrell (Bo) Clawson
Any tax on total income a company gets means that startups who often face years of no profit, still wind up paying an extra 2.3% on sales which makes the lack of profit even worse. That is a pure, non-political fact.

If a 2.3% tax is OK on medical devices, just how long will it be before the US Congress proposes a 2.3% extra tax on all sales of physical objects?

Hugh F. McCann, Jr
True.
In every discussion there may be an intersection of political policy bent, social policy objectives and emotion….I get it.
ACA is an example of all three.
So here we are. An innocent question and subjective review of a real social and business emotion.
We can’t rely on computer models to find the answer….junk in junk out.
Business conditions in my 40 years ebb and flow like a sine curve. There is no business prediction model that can anticipate the good times and the swoons.
Entrepreneurs and CEOs must rely on experience, data, supposition, visceral instincts to play out the hand dealt. It is tricky.
My respectful point is: adding 2.3 to the confusion is NOT helpful.
CT IS BROKE. The U.S. is broke.
CT just released a politically motivated budget that will raise taxes DRAMTICALLY and cream the working class and business community. In FACT, they are going to apply a sales tax for CPA services.
The very service that we pay for to ensure we are in IRS compliance! R u kidding me!
Businesses can’t “pass through” every tax on the governments wish list.
There is an inflection point where market forces react.
I do know this from experience. The U.S. industrial base was gutted. Middle class jobs were lost.
People are worried sick.
YOU ARE looking for accurate data to meet your need for a balanced logical equation. Static.
Decisions and policy have dynamic repercussions.
WE AGREE TO DISAGREE. No harm….😄

Hugh F. McCann, Jr
Bo, the answer is SOON.

Burrell (Bo) Clawson
The US can NOT tax its way to prosperity.

If the government wants more money to spend, it must find ways to increase business activity, so a minimal level of taxation produces more taxes.

You can’t do it the other way around or eventually government collapses the economy. It has been done in other countries and the US appears to be at the same deficit levels of countries who run into deep trouble.

The WDC government with its new policies has now had the weakest recession recovery from what I’ve ever seen and now government heads in various positions appear to be literally inciting riots by sympathizing rioters and deliberately (ordered by who?) not bringing in the National Guard.

It sure seems like the US government actions are playing a direct hand at pushing economic activity down and WDC power up over both businesses and people with a return to low 1970 era job participation rates.

Continue on this course and the States will have no choice but to call a Constitutional Convention. States will have to take back power from WDC to save their economies (business) and people’s income.

Hugh F. McCann, Jr
Read my FED bill that I co-authored online:
Manufacturing Reinvestment Account Act
MRA

Karl Schulmeisters
Burrell you are making two assumptions for which there is zero evidence

a) that companies cannot pass the tax onto the buyer – with a Price Elasticity of Demand at 0.2 this is just a false assumption

b) the issue of the USA “taxing its way into prosperity” is a political assertion that is contradicted in many situations (such as how CA recently dug out of a deficit AND became the #1 jobs creator) So its hardly a factual statement are really has no bearing on this particular discussion.

you can rail all you want against the ACA – but it is the law of the land because

* Obama is not going to be impeached in the next 18 mos

* the Senate will never get a 2/3 veto majority override to eliminate the ACA

* by the time 2017 rolls around the PPACA will be sufficiently entrenched that removing it will result in the same sort of signs we saw before “Keep Government out of my Medicare”…

so if you want to start a thread about the evils of the ACA – please do. I being a pragmatic engineer and an entrepreneur with a business to build really don’t care. I see the ACA as here to stay and I want to focus on what is actualy factual and viable.

Burrell (Bo) Clawson
The ACA is, has and will be changed, so there is no question change is in the works, just as it has been with SS & Medicare.

California is hardly out of a mess, given that their unfunded liabilities are so massive.

What is basically undecided is whether the citizens blindly allow the government to control the citizens or the citizens secure control of the government. Then if 50% effective tax on GDP with all forms of government is not enough according to WDC, then would 60% be OK. And once wasteful programs expand and 60% is OK, then why not 70% since WDC knows how to run everything. Right?

Hugh F. McCann, Jr
Bo,
California top marginal rate for a S Corp is 13.3
Add that to the top Federal rate of 39.6
Add in 2.3
Mental health tax
Property tax
Etc
MOVE!!!!
Karl, please don’t believe that California is in balance and flush with cash.
The rising tide of the stock market and the expectation of stability in equities is a HUGE HUGE HUGE piece of DATA that goes into the balanced budget equation and political talking points.
California’s unfunded promises go out for a hundred years……
This Blue State is in trouble over the longer haul.
How about another Blue State…Illinois.
Bankrupt.
Business folks makes decisions…some defensive. Including moving to Mexico or Costa Rica.
Read THE WEALTH OF NATIONS…..

Hugh F. McCann, Jr
We will see if ACA actually works over time.
In theory prices must go up as the 2.3 and ACA and minimum wage are pushed (politically) higher.
When the dust settles…..How many Main Street businesses will collapse?
How does ACA capture contributions when 20% (my guess) of the economy is a cash economy ?
A huge chunk of earnings flys under the IRS radar screen. So no social security.
ACA is hugely flawed. It will be difficult to Rube Goldberg a fix.
The 2.3 is not the answer….it gums up the means of production….a national sales tax on consumption to fund government and healthcare sector, with progressive deductibles might be worth consideration. Eliminate income taxes. Period.
A consumption tax would be a defacto tax on cheap manipulated currency slave wage imports….and would snag the underground cash economy. Ha

So, the 2.3 represents a link in the tax scheme chain…..a weak link.
The real money is in M&A activity…..and IPOs.

Karl Schulmeisters
Hugh – if you want to argue political economics, please take it to another thread.

Burrell – it is true the ACA will change – but not likely before 2017 and if there is any change before 2017 its going to be tiny given the political divide over it. Its possible that the 2.3% device tax will be repealed but it is unlikely – because any repeal has to be “revenue neutral” and that means
either
* cuts elsewhere, which will not have the necessary 2/3 override of any veto

* Tax hikes elsewhere, which is unlikely to pass the majority of the Senate, much less the House.

So if there isn’t likely to be major change before 2017 and the device tax is not likely to go away given the less than persuasive evidence that was presented –

My takeaway is that we might as well just start doing business under the current scheme.

As for the rest about CA – again – take it to a Political Economy discussion please

Burrell (Bo) Clawson
CA and states like it are simply ones which have mortgaged their citizens future earnings.

The only thing a company can typically do is come up with better solutions for the marketplace and make better cheaper products. All else is musical chairs.

Karl Schulmeisters
again take it to another thread please

Hugh F. McCann, Jr
Ah, mmmmmm
Everything discussed has a political link.
And thread.
In fact you referenced the word….
Karl, you make it so much fun to challenge your authority. 😄😃😜😛
In fact I do it while watching the golf channel.
Most of every viewpoint view you share is opinion….great!
This thread is about ideas, competing viewpoints and sometimes banter.
I think you enjoy it when folks fold into your positions….but you telegraph annoyance when folks push back.
Karl, exactly how many people are actually following this mind numbing diatribe?
I assure you (and me) our discourse will not address world peace or famine.
Every discussion can be viewed through the prism of political self serving points of views.
You mentioned that businesses do not like to pay taxes….really?? Ha ha no kidding.
No new ground broken here.
Elizabeth Warren will have a lot of influence over the 2.3
Sunny day today…..great day to enjoy life!
Watch some Golf!

Burrell (Bo) Clawson
Hugh, another way to say it is that “Every discussion can be viewed through the prism of” economic results. Unfortunately for you and I, economics counts. In WDC, that is unfortunately not true.

Stella S.
Totally agree! Only idiots or uneducated low lives would not see the effects of raiding taxes on small and big businesses!

Stella S.
John, all I can say is: You are one smart cookie and should run for high office!

Hugh F. McCann, Jr
I would VOTE for John !
Thoughtful and sensible
Great communication skills

Joseph Schwartz
Karl, you said “My takeaway is that we might as well just start doing business under the current scheme.” What do you think other companies are doing? The tax has been in effect for two years now and every company that makes medical devices sold in the USA, are paying that tax and dealing with it. This includes the companies of the CEOs who are testifying before congress. The point of their testimony is to highlight what they have been driven to do (in their opinion) to deal with this tax. The fact that you refuse to give any credence to their testimony perplexes me. Your constant siting of elasticity of demand, despite being shown it does not show the whole picture, indicates you have an ideological basis from which you are arguing, that is just as strong as those you claim are being political, you just don’t go into the specifics of your ideology. You come across as having a strong Marxist view of companies, despite being an entrepreneur yourself. One has to wonder if you are actually what you claim to be. I don’t mean to be so personal, but you seem to want to voice your opinion and shut down anyone who has a differing opinion. There have been, and likely would have continued to be, lay-offs and M&A, before the tax, but to insist the tax has no effect on these activities strikes me as having your head in the sand. Statistics will eventually show the trend of increase but these statistics take time to accrue. Will Obama-care and this tax become entrenched, that is likely, it is very difficult to overturn any tax once passed, but is that any more relevant than the discussions you are trying to shut down? I don’t think so.

Hugh F. McCann, Jr
Joseph, you have arrived at the same observation as I and others have…..this open minded discussion and sharing always morphes into diatribe. This ruins the friendly interaction. “Winning” should not be the objective….it becomes annoying. Some folks need to be “right” to find happiness.
Condescension is not a good quality…..
It is beautiful day to enjoy life.
Peace.

Dan Stipe
This thread has been completely politcal from the start — Obamacare took my job. If I understand it correctly, Karl’s argument is that no one has presented any hard data that clearly shows the tax is the cause of job losses and cuts in R&D. The tax is certainly getting the blame, but no one has shown cause and effect. Many anectdotes and claims of “any idiot should know …”, but no proof of direct cause and effect. I think that’s Karl’s point.

Joseph Schwartz
Yes, and how do you prove direct cause and effect, one can certainly view trends and correlate them to tax law changes, etc. but one cannot isolate the effect from other influences to prove direct causality, so is this discussion useless? Does everyone agree that taxing something is a reverse incentive or is that a point of disagreement as well?

Obama-care (I refuse to call it ACA because it is anything but that) proposes to increase demand by increasing the number of insured, while it adds a tax that provides an incentive to produce less of a product…conflicting forces. Both of those goals by supply and demand principals would lead to higher prices, which conflicts with the name of the act, affordable care, as usual, under government influence, becomes less affordable. Unless, of course, you are poor, in which case everything becomes free or nearly so. When you make something free, you increase the demand for it which leads to long waiting lines, rationing and higher costs (increased demand, restricted supply) So for those of us that can afford to pay, it becomes less affordable. At some point individuals go from being able to afford to not being able to afford. When too many people get to the can’t afford category the whole system collapses.

An unrelated point concerning the difficulty in repealing a tax, is everyone aware that we, in the US are still paying the tax to fund the Spanish-American war? Another analogy is toll bridge fares, instituted to recover the cost of construction, but once that is recouped, there is always something else to spend it on.

Karl Schulmeisters
Well there’s a whole mathematical area of study of correlation analysis. Without which the CPU you used to post this could not have been designed. So its quite possible to come up with that sort of analysis. but it requires much deeper delving than I see any of those opposing the tax doing.

as for the PPACA (I choose the formal name since I have no desire to argue political viewpoints) – its
* the law of the land

* not going to change before 2017 because

* –> Any change has to be revenue neutral

* –> The Dems in the Senate are not going to allow a benefit cut get past cloture

* –> The GOP in Congress are not going to allow a tax increase to get to the House floor

* By 2017 it will be relatively entrenched law so changing it politically will be hard as you point out about the Spanish American War tax.

So as a businessperson, I don’t care what the beliefs about the PPACA are – I know that going forwards the PPACA is the law of the land and I just need to deal with it as it is.

Burrell (Bo) Clawson
Greece had intrenched government policies with 1 of 3 workers working for the government a couple years back. Now with impending bankruptcy of the government and massive problems in society along with rampant tax avoidance, it looks like Greece defaults on its debts shortly.

So much for the value and continuance of entrenchment.

Karl Schulmeisters
Burrell please take your political polemics to another thread

Hugh F. McCann, Jr
I will translate for Karl. He doesn’t always communicate as well as he should.
What he means is please stay on point.
Now all we need is an algorithm for who will win the Super Bowl.
Brady was suspended for 4 games…..what might be the cause and effect…..?
Please lighten up…..logic comes in many forms and flavors.

Hugh F. McCann, Jr
I took a few minutes to review Karl’s consulting companies web site.
It has provided me insight.
Looks interesting…..
He specializes in aggregating high level data so a client can make a better informed business decision.
A white paper predicting the medical device industry vis a vie political policy and disruption might be useful.
But at the end of the day, the entrepreneur must apply data, instincts and visceral survival skills to remain viable.

Joseph Schwartz
Karl, It’s the law of the land and we just need to deal with it. I ask again, what do you think the CEO’s who are testifying are doing? They are dealing with it and they are telling congress the cost of dealing with it is too high. They will continue to deal with it, and perhaps forever, but the point of the testimonies is to persuade congress that the cost is greater than the benefit. So what is your point? You don’t like the way they are dealing with it? You don’t believe them? I’d like to know what is your take? From what I have read so far, it sound like you just don’t believe them and that they are just using the tax as an excuse. Is that about right?

Burrell (Bo) Clawson
Karl, with all due respect, when the US government regulates the medical industry with the FDA across the board, & the insurance systems with Medicaid, Medicare and Obamacare, there is no way to separate government actions and medical company actions are they are all interrelated.

Medical device companies have to get FDA clearance and once they get clearance they need to get a Medicare payment code. Failure to execute those means no business. Get those approvals and then you start sales with low volume and certain losses, but you still pay extra medical device taxes.

The title of this thread is “Senate Finance Committee Hears Industry Testimony On Impact Of Medical Device Tax” on Medical Device Companies. Government and business are thus intimately connected.

John Eckberg referenced Bruce A. Heugel, senior VP and CFO, B. Braun of America, during a Senate Finance Committee noting that their profits dipped 29% due to the medical device tax.

Politics and business are directly connected and there is no doubt. That is what this thread and the testimony in the Senate was discussing.

Hugh F. McCann, Jr
Joseph, Karl would like data to support a conclusion. He believes emotions cloud perceptions.
He needs static analysis…..a cleaner equation and answer to complex problems.
In reality every challenge in society can not be settled in this way….hence, my question: who will win the Super Bowl?
In emerging market verticals business decisions are influenced by many external factors….in aggregate. Including aggregate tax policy, cost of capital….and including human capital and COGS.
A dynamic analysis coupled with real life experiences sometimes trumps raw data.
THE 2.3 Coupled with a myriad of other moving parts gets thrown into the stew.
Any and all disruption changes the expected outcome.
No one can predict the future with 100% certainty.
That’s why some folks are cut out to be entrepreneurs while others freeze up with analysis.
And sometimes paralysis.

Dan Stipe
Hugh just made Karl’s point: “THE 2.3 Coupled with a myriad of other moving parts gets thrown into the stew.”

Exactly — a myriad of other moving parts. Yet most in this thread are arguing the industry’s problems are all due to the tax.

Jerry Robinson
how about some real research…

What would Medtronic state that the MAIN REASON and the CONTRIBUTING REASON for their “offshoring” is? Would they LIE? Obviously – they went offshore for some reason.. there should be BEFORE and AFTER business snapshots to answer the question…

What is the “real” estimate of job loss from this decision?

I realize that this move is for many reasons… First among equals is that the CEO will get more money…. but what – without the lies – are the other reasons?

Burrell (Bo) Clawson
Dan, I think few people see “the industry’s problems are all due to the tax.”

The MedDev 2.3% is just another disincentive.

In the retail world, if a gas station has to pay higher taxes (under consideration right now) or higher wholesale costs, then they raise prices.

In the medical world, the government sets reimbursement prices for medical procedures that cover a large subset of care. That has some bearing on the fact that a significant percentage of hospitals are in the red; unprofitable and that number was about 50% in 2009. Don’t know what it is today, but hospitals have fixed reimbursement for a significant % of their costs, yet their costs keep going up, partly due to such things as purchasing costs.

As I noted, the only way I see medical device makers moving forward profitably is to seriously innovate/invest in better, less costly products. It is tough and it won’t likely make any manager stand out to take on reengineering an inefficient product, but it has to be done and done continually.

Hugh F. McCann, Jr
Go on line and open up: MassMedic.com
This is a large group with opinions, real life experience and maybe insight.

Hugh F. McCann, Jr
Medtronic and other companies in different sectors employed a tax strategy to avoid double taxation.
US tax code for C corps is as high as 35%
Ireland much lower.
Inversion.
Businesses particularly multi Nationals have 2Trillion$ Parked on offshore balance sheets. They would like a terrioritorial tax system wherein taxes are paid in the country the products were produced.
With today’s goofy system, if they repatriate profits they incur the wrath of the IRS at 35%…
The 535 are the problem. They know the deal and can’t move off of political stubbornness.
Put me in charge…..👍

Burrell (Bo) Clawson
So, if you own or manage a company with international sales, it is best to keep income overseas and then use that money profitably. That could include new facilities to develop and make products overseas, so the profits don’t come back to the US and get taxed twice.

That strategy in itself results in jobs being either created or exported, depending on how you look at it.

The failure to reignite growth in US jobs after the last recession/depression is real and our labor participation rate is now as bad as the early 70s with almost half of adults out of the labor force.

The fact is that taxation causes capital to move and jobs with it. Time to fix the problem.

Karl Schulmeisters
>>What would Medtronic state that the MAIN REASON and the CONTRIBUTING REASON for their “offshoring” is? Would they LIE? << Few businesses like any tax and since they have now used the tax to raise prices - getting the tax repealed will increase the bottom line directly. Note I disagree with your characterization that anyone is "lying". Spinning ambiguous data is a time honored tradition in politicized Congressional testimony. >>In the medical world, the government sets reimbursement prices for medical procedures that cover a large subset of care.<< Actually it doesn't. In fact the Government under the ACA is forbidden from competitive price imposition. Again - this is all moot. nothing is going to change for the next 2+ years because of how the political and legal structure exists. as for the rest of the political discussion of general corporate tax policy - please take it to another thread. It is off topic here.

Hugh F. McCann, Jr
I am a vendor and manufacturer to the medical device sector.
If my suppliers raise my raw material…..in most cases I can not raise my prices.
I either must accept lower margins, become more efficient or walk away.
The discussion regarding taxation from my point of view is that of the accumulated effect of aggregating many levels of taxation and mandates. Government gums up the means of production…..at some point some companies may elect to “tap out”….or move.
The 2.3 is contributes to the overall business decision…..
I know. I deal with these challenges every day…..for decades.
Check out MassMedic website…..2,000 unhappy members. They can’t all be liers, or over reacting.

Hugh F. McCann, Jr
But we must agree, changes are coming to PelosiCare.
Two years will evaporate….quickly.
As my father reminded me many times before he passed……we all run out of TIME.
The 2.3 may have to increase to 4.6 to fill the short fall in the model.
Let’s see what participation rates are in two years….my guess is tens of millions of people in the US will go uninsured. I have NO DATA….just a gut feel.
Sometimes waiting for data, graphs and spreadsheets and then reacting…..is TOO LATE.
Taxing the means of production with AN ADDITIONAL 2.3 is silly.
If a company is profitable it will pay a progressive income tax.
Did you read my bill? MRA
WHY NOT TAX TEXT MESSAGING WHILE DRIVING? now that would fund exchanges!!!!

Hugh F. McCann, Jr
Bo, you are absolutely right!

Karl Schulmeisters
again if you want to talk business taxation please go to a business economics forum.
.
the question here is if the medical device tax itself is affecting job creation.
.
there is no independently coraboratable evidence of this. And there isn’t much of a political path to having it be changed anytime in the next 2 years

Hugh F. McCann, Jr
You mean job loss?
R&D loss?
Isn’t the 2.3 a tax on business?
Two years is a short time….yet PelosiCare might never be repaired or changed.
What’s your point? Oh, sorry, you need to see independent evidence……how independent? Can evidence be gleaned from say, MassMedic? Why not call them?
Not sure you will see full impact of 2.3 for years…..are you willing to gather data and review data after the election? I would be interested.
I think your company should provide a study…..it would be useful. But you may have to interview 2000 device companies…..some might be cranky. Remain objective!
Hey BTW: what’s wrong with improving the bottom line? Isn’t that the goal?
Please remember that mature larger multinationals are in a different category that a startup.
Apples and oranges….
If you do not hear from me tomorrow…..no worries. I am traveling all day.

John Eckberg
Hah, “If you want to talk taxation please go to a business economics forum” that’s a good one – as arrogant as it gets, since taxes, thanks to the medical device tax now approach 50% in this sector but yeah, sure, a business economics forum, hah.

Speaking of reading, I read this today: ” NUMBER OF THE WEEK: 40 percent. The average combined federal and state tax rate paid by most U.S.-based firms, according to a Wall Street Journal op-ed by James Freeman today, entitled “The Tax Takeover Craze.” Freeman claims this is “roughly double the average in Europe and Asia,” and is the driving force behind the continuing trend of companies moving their headquarters overseas.”

So tack on another 9 percent tax, which is what a top line tax becomes for a medical device company, and you have a 50 percent tax rate for this industry, which must compete against price of products made in Costa Rica by companies based in Singapore and Ireland.

John Eckberg
I quite counting at 10,000 lay-offs but here are a few headlines from recent years: Boston Scientific – 2,400 announced “blames device tax for massive job cuts”; Abbott Laboratories, 1,700 laid off; Medtronic, 1,150 announced “plans to boost footprint on Puerto Rico; Kinetic Concepts – 427 announced; Zimmer Holdings, 450 announced “axes jobs to cut costs ahead of med tech tax; CR Bard – 54 announced; GE Healthcare, 180 announced, to eliminate 2 percent of jobs in Wisconsin; Hill-Rom, 200 announced; Covidien – 783 Announced – to shutter South Carolina plant, to slash 183 jobs in NY plant closure; Stryker, 1170 announced “could move all manufacturing outside of the U.S.”; Becton Dickinson expected medtech tax to cut 3 % from next year’s bottomline.

Then, of course, in brief – Accuray: 143 announced; Osteomed, 40 announced; Theragenics, 139 announced as Galt Medical’s Texas plant closure means 139 layoffs; St. Jude – 800 announced; Smith & Nephew 870 announced, eliminating 800 jobs restructing already felt in Memphis; Welch Allyn, 275 announced; Hologic, 170 announced “expecting $25 M impact of device tax; Nuvasive , 200 jobs; Johnson & Johnson 4 plants moving oversears as healthcare giant has big plans for Puerto Rico; Volcano 800 jobs lost overseas.

So those are the ones I captured back when I thought lay-offs mattered and would motivate lawmakers to repeal this tax. Now, I realize, lack of R&D and lack of new treatments/cures in the pipeline for loved ones of lawmakers is what’s really going to turn the tide.

And, to Karl, your honest skepticism, if that’s what it is, is much appreciated because it serves as a nice foil for the truth.

Hugh F. McCann, Jr
To Wit: ha ha
Here’s another part to consider: Publicly traded companies do not give a hoot about…..
Elastic vs inelastic…..just show me the MONEY.
The game is shareholder value….in this context taxing the means of production has an accumulated effect on business decisions and shareholder expectations. COGS is one half of the equation and the Bottom Line is king.
Ah, yep, businesses like to avoid taxes, drive profit growth and scale….include me!
My hope is that innovation and investors can find a welcoming environment here in the US to grow jobs, velocity of money and national prosperity.
The 2.3 does Not Help meet this outcome……
Check out MassMedic
A Mecca for innovation in this space…….smart folks.
Have a nice day!

Joseph Schwartz
Karl said “Again – this is all moot. nothing is going to change for the next 2+ years because of how the political and legal structure exists.

as for the rest of the political discussion of general corporate tax policy – please take it to another thread. It is off topic here.”

First, I’ll respond to the 2nd quote, you keep insisting the 2.3% tax is not the problem, that CEO’s are spinning the data, so when others on this thread being up the other taxes companies have to pay, you insist they go elsewhere to discuss that part of the problem. You can’t have it both ways. Either accept the “political” discussion or stop insisting the problem is more than the 2.3% tax!

Better yet, the first quote: if the discussion is “Moot”. Then you go elsewhere. Stop commenting on this discussion. Did somebody die and make you the monitor?

John Eckberg
Hey Joe, Karlnis doing his thing and that is okay. I understand your frustration because for many, this tax is personal, it is a dumb tax at every level of analysis and it is likely driving any star-ups under water. And, truly,I might not be so sanguine about the tax if I worked at a form that had just laid me off. The beauty of this forum is that all are welcome, nobody is anonymous and opinions are like noses – everybody has one and every in America has the right to have one. I say: opine away, Karl

Hugh F. McCann, Jr
……sometimes the smell can waft…..ha ha
Agree with John…..bring it on, all welcome.
Respect, open mindedness and a tad of humor.
We are not going to learn without listening….even if the LOGIC is mind numbing.
That’s why I have the golf channel on….a diversion that helps me realize these opinions are just opinions.
My fear is another important economic sector may crumble….and that is not good…..and my nose smells a hint of trouble.

Burrell (Bo) Clawson
Joseph, good points, and there are no “Moot” points in a startup, which is where most innovation comes from.

“CEOs” which Karl refers to are like the BBraun, BD, Baxter type guys, some of whom I’ve met.

>>Startups are an entirely different matter, because they typically have none of the resources and capabilities of mid size or public companies.

I can tell everyone something absolute from personal experience after starting over half a dozen respiratory product startups with shareholder/s over 4 decades,

Taking an extra 2.3% off my startups when they were still “in the red” would have made life much, much, more difficult. In all cases we had little excess cash from the typical 2 shareholders. It’s called bootstrapping. It was more than once that we got down to less than $0k in the bank. That would have been worse had we had a “partner”, called the IRS, who took 2.5% off of the value of what we shipped.

In effect startups often act as a bank, because the distributors we dealt with typically paid us in 60-90 days. That made our cash position even worse, yet we would still owe money on products shipped, but not paid for.

Getting funds from a bank was impossible for such small startups and getting investors of one type or another would likely have wound up losing control of a company … if we could find an investor.

Go to an investor today and your spreadsheet better note the 2.3% tax on shipments from day one.

Hugh F. McCann, Jr
GREAT POINT!

John Eckberg
Bo, One interesting but real element of this tax is impact on cash flow. I had a start-up exec frame it this way (most of what I write comes from the real world, I’m not smart enough to think this stuff up) A simple break down: you project $12 million in annual sales and have $1 million a month in sales. So this tax must be paid every two weeks: that’s $12,500 tax bill due on the projected $1 million and it’s paid each and every two weeks. End of the month, that’s $23,000. But revs may not arrive for 90 days or 60 days. So at the end of two months, your company owes the IRS $46,000 on revenues you may not even have. Chews through VC like hot scoop through ice cream. Makes no sense – (sort of like my previous post with all the typos and whatnot in it).

Burrell (Bo) Clawson
John, when it is your money in the startup, it is just plain gut wrenching scary!

Hugh F. McCann, Jr
Bo, another great real life point….non entrepreneurs can’t feel the anxiety.
It is easy to sit on the sidelines and be an authority….it takes guts and courage to push the money chips into the business.

Burrell (Bo) Clawson
Hugh, all of the time it was “our money” and sometimes it was “all of our money we had.”

Joseph Schwartz
Sorry guys, I take this personal as well as Bo, even though I have no VC invested. What Venture Capitalist wants to invest directly into the government? Not many, I think. Even Liberals, who claim rich people should do so, don’t when they fit the description of rich. The company I work for is being gobbled up by a bigger one, and I, as John alluded, don’t know if I will still be employed in a month. Most of the analysts claim this latest round of acquisitions is driven by the tax. I don’t know if they have hard numbers to back that up, but the numbers John listed are hard enough for me. If I had the opportunity to testify before congress, as a lowly employee, my testimony would be the same as the CEO’s…that the tax hurts growth and job creation.

My anecdote is the founding of Biomet, my employer, who, incidentally, left the company now acquiring us, due to their resistance to innovative ideas, so four partners got together, and working from a garage (it’s true-we even have a company tee shirt saying so) these guys worked with the help of their wives, hiring help when needed…one engineer now working for the company was hired as a draftsman when in high school. He was going to take a job at a grocery store because Biomet could only offer him a 6 month position. The problem was not that they would not need him longer, but only had $ to pay him for 6 months. There was a 2 year period when the founding partners drew no salary, because there was not $ to draw from. If the 2.3% tax existed then, I seriously doubt that there would be a Biomet today, and they brought a great deal of innovation to the market…including pioneering the use of Titanium for joint implants. Innovation is likely part of the answer, but then, the tax is a disincentive to innovation!

Burrell (Bo) Clawson
Joseph, if I had my way in a Constitutional Convention commandeered by the 36 states to call such an event, I would propose that a basic requirement for legislators in Congress to be required as mandatory to run for office in WDC.

“All persons running for Federal congressional positions must have started and actively participated daily in a startup/small business venture for at least 4 years.” (I agree this would be refined to prevent con jobs, run by their brother or whoever … as people who run for such offices are sharp cookies.)

Once the winners of those elections go to Congress, they will never again think of the Federal Government and particularly the IRS in the same way again.

Burrell (Bo) Clawson
Some people may say “But, Bo, you are talking about only the founders.”

When you run a small business, the people you work with are virtually like family, you count on them, worry about them and advise them and try to keep them on the right track and advancing their skills.

People think entrepreneurs are heartless, but I’ve not seen that. It is painful when you have to lay people off and it is often done far later than it should have been as we are inherent optimists.

Joseph Schwartz
I like the idea of the requirement…makes me think of the founding father’s and their distrust of big government. But the idea of a constitutional convention scares me. I think the outcome would be much more Marxist than our current government. After all, our government schools have been teaching that capitalism is evil, for years now, and that thinking is firmly embedded in the minds of many of our citizens. Just look at all the anti-corporation comments posted here.

Burrell (Bo) Clawson
Joseph, I am a little bit more optimistic. Since Mesoptomanian times, the world has run on commerce. Unless a country constantly looks at its commerce-business environment with respect to its trading partners, it is missing out knowing whether it business environment it regulates is doing better or worse. Worse means you lose employees and revenue, and both are serious.

Right now in the US we have the lowest labor participation rate since the 70s and no one in WDC wants to talk about it. All they want to do is tout the misleading “unemployment rate,” which has to qualify as the largest spin story in the nation (5% unemployment or so vs 50% of the public available for work not working.)

Karl Schulmeisters
Again it is a MISREPRESNTATION to say that the 2.3% Medical Device tax “takes 2.3% off the revenue” of the startup. Since that cost is easily passed onto the customer and there has been plenty of lead time to incorporate that cost into any long term contracts – any company that has not passed it on to their customers is basically one that deserves to fail for lack of financial planning.

>>First, I’ll respond to the 2nd quote, you keep insisting the 2.3% tax is not the problem, that CEO’s are spinning the data, so when others on this thread being up the other taxes companies have to pay, you insist they go elsewhere to discuss that part of the problem. You can’t have it both ways. Either accept the “political” discussion or stop insisting the problem is more than the 2.3% tax!<< I'm not having it both ways. the "political" aspect of the discussion is the ideologically based claims that do not have a sound basis in data AND VALID LOGIC. It is the FAILURE to incorporate the mendacity motive of both the setting and those offering the testimony that is what makes the analysis political. As does the stuff about the "founders" (about which the very conservative Robert Bork once said "[I]t is naive to suppose that the [Supreme] Court's present difficulties could be cured by appointing Justices determined to give the Constitution its true meaning," to work at "finding the law" instead of reforming society. The possibility implied by these comforting phrases does not exist.... History can be of considerable help, but it tells us much too little about the specific intentions of the men who framed, adopted and ratified the great clauses. The record is incomplete, the men involved often had vague or even conflicting intentions, and no one foresaw, or could have foreseen, the disputes that changing social conditions and outlooks would bring before the Court.") There simply is insufficient evidence to draw the kinds of conclusions being asserted about them.

Karl Schulmeisters
Oh and I’ve been involved in about 9 startups over the last 30 years, some successful, some not. Too much of what has been posted here is studiously leaving out relevant information.

For example while it is true that the USA has the lowest workforce participation rate in 70 years it is ALSO true AND RELVANT that

* The American population is currently the oldest it has ever been

* We are coming out of the greatest GDP crash in recorded human history.

Failing to include those factors in the analysis of workforce participation rates is hard to justify.

and that’s just one example why this comes across as a political polemic rather than a discussion of whether a particular economic policy is net net harmful or beneficial.

Burrell (Bo) Clawson
Karl, you make good points. Lots of things are fuzzy in their import because of the complexity of “business.”

It is obvious that getting rid of Glass Steagall and Congressional involvement in mortgages & derivatives were behind much of the “greatest GDP crash.”

It is argued that the US Government should have never allowed Fannie Mae and Freddie Mac to get involved in the mortgage mess which made for institutions “too big to fail” meaning that the taxpayers picked up the bad costs.

Proper risk analysis and loss limited concepts which are apart of business decisions are the sort of things which should be mandatory in Congress but unfortunately, we get lifer legislators that want to prime their electorate before their next election.

If we had proper governance on the above matters we would have had a normal small downturn and small losses and their would have been no need to tax medical devices 2.3% “off the top.”

Karl Schulmeisters
I’ll refer you to the rather comprehensive joint committee analysis on the cause of the Great Recession. the issue we are discussing is the effect of the device tax BY ITSELF .
.
and I just don’t see anyone addressing the point that medical device pricing is less elastic than gasoline. and that something so inelastic means any increase in COGS can be passed through. and an excise tax is essentially an increase in COGS
.
I’m open to being shown to be in left field on this but so far it’s not been successfully addressed

Burrell (Bo) Clawson
Karl, I agree there are reports upon reports on the economy and government actions and we can’t do anything about them here, nor will a Med.Dev. company even think about it.

Just one fact related to price elasticity.

Buying groups (ala Premier and Novation) have long multi-year fixed price contracts and many device suppliers get their hospital business through these. In the end, the real world competition and the bundled contract deals limit how fast a company can raise its prices.

John Eckberg
“Officials decried a bankruptcy filing by El Paso Children’s Hospital as “a slap in the face to all El Paso County taxpayers,” though the Texas hospital’s CEO said it was the facility’s best option in order to continue serving the community, the El Paso Times reports.”

So I wonder how those mythical COGS increases are going to work out down in old El Paso – and at the other 40 percent of the hospitals in the U.S. that operated in the red last year. I’ll answer that question: forget about it.

Burrell (Bo) Clawson
The only good side is that it is not the 50% that were under water a few years earlier. Of course that may mean that a lot of underwater hospitals in the intervening years essentially closed their doors.

That is what happened to about 5 small hospitals of Pacific Health in So. Cal., where I know the Chairman who worked to sell them all off. They were too small to survive on the Medicare & Medicaid reimbursements when a “glitch” occurred.

These are anecdotes, indeed, but everyone knows how bad the numbers are at nearly half the hospitals in the country and those hospitals have to fight every cost increase.

Karl Schulmeisters
>>Buying groups (ala Premier and Novation) have long multi-year fixed price contracts and many device suppliers get their hospital business through these. In the end, the real world competition and the bundled contract deals limit how fast a company can raise its prices.<< But I addressed that. The Medical Device Tax was made public in mid 2009. It went into effect in Jan 1 2013. that's 3.5 year lead time. So it is true that anyone that signed a 5 year contract the day before the device tax became official public proposal in Sept 2009 had potentially a 1.5 year period of inelasticity within those contracts. And since the Dems AND the GOP both were proposing medical reform plans in the summer of 2008 - there was ample warning to the whole of the medical establishment to write in escalator clauses into any long term pricing contracts they were going to sign That said - anyone writing a device sales contract while the ACA was being negotiated in Congress that did not write into the contract a price adaption clause - was basically being a poor businessperson And I don't believe in setting public policy based on the mistakes of poor businesspersons. Do you? So the number of contracts not able to re-negotiate their price is a red herring. Its a small part of the community that is subject to this window is not a basis for making public policy. >>Officials decried a bankruptcy filing by El Paso Children’s Hospital as “a slap in the face to all El Paso County taxpayers,”<< Simple question. Did Texas opt to receive enhanced Medicaid support from the Federal Government? If not - what effect would that have on hospital profitability?

Jerry Robinson
Karl…. you ask a question – at the end… so do some research… (I live in Texas). It cost the state MORE to do it the way they are operating… it’s a choice… and NOT related to the 2.3% tax, at all….

You can point and label people as “bad businessmen”…. quite like being out in a rainstorm and getting hit by lightening… or blown away by tornado… You can complain about the bad idea of BEING in a storm.. but it brings NO SOLACE to the widows and orphans left behind…

Jerry Robinson
Karl…

So far you ignored several points that I brought up…

a – you were WRONG on the double Irish accounting tricks having “gone away a decade ago”…

b – you said “I disagree with your characterization that anyone is “lying”.” Ha… where HAVE you been? know anything about Healthsouth? The Aids Drugs scams in South Florida? etc…. ? there are a lot of examples of what companies have done – where it is to their advantage to lie in a LARGE WAY… No… not everyone or every company does.. but tolerance of this behavior makes it harder on every other company.. By ALL MEANS… do your own test and get a DEFINITIVE answer from Medtronics… go read the 10Ks…

c – When you DISPUTED that real answers for people hurt by this tax exist….. then JOHN provided some examples….. and you labeled then “anecdotes” – therefore they did not matter…. WELL… This is what POLITICIANS DO.. Argue BOTH SIDES of a question – even though they conflict – and then claim MORAL HIGH GROUND… I agree with you… let’s not be a POLITICIAN HERE…. ENGINEERS (and quite a few others) believe in setting a DEFINITION and then MEASURING QUALITY by adherence to that definition…. So… MAN UP, define the numbers, and then stick by them…

d- You are NOT RIGHT – because you said something.. OTHERS are NOT WRONG because they disagree… stop wiggling and realize that there are expert opinions – that are right – being said here.. I DON’T agree with everything – that doesn’t make me wrong.. it just means that there are MANY THREADS at work here…

A LOT of companies aren’t making much money….. or are trying a new product… or competing against offshore companies that KNOCK OFF their products… etc, etc. They don’t pay much income tax. Start-ups and new ventures are notorious here.. the 2.3% tax is absolutely a job killer and a product killer in that space… The least offensive STRAW can break the CAMEL’s BACK – to use one saying… Doesn’t mean that the OTHER STRAWS were not a problem….

Jerry Robinson
OK… here is an example….

Suppose… someone’s CLOSED FIST hits my NOSE at a pretty good velocity… OUCH!… Now.. I could complain about the particular FINGER that hit my nose…. but it could have been another finger or a thumb just as well.. When that FIST is from a LOVED ONE or a FAMILY MEMBER… that is particularly galling.. But when you are FLAT ON YOUR BACK – and recovering from being KNOCKED OUT… you might be right to start complaing about that particular finger – moving into my NOSE SPACE and a wicked, fast velocity…

John rightly attacks the 2.3% problem… It’s a problem is you MAKE piles of cash to tax (which your competitors don’t pay) AND it’s a bigger problem if you are NOT making much cash – or are losing money… It’s the cash flow killer… (so.. get creative and figure out ways around this nasty problem – right??)

I COMPLAIN about ALL OF THE FINGERS hitting my nose – because I WANT TO DO THINGS IN A STARTUP AND I MUST UNDERSTAND THE LANDSCAPE.. you can not afford to be stupid or lack business creativity in this market, at this time..

I think you need to read some REAL case examples.. and see that NOT ALL COMPANIES PLAY ON THE SAME LEVEL PLAYING FIELD.. they DON’T… you BETTER understand how to play against a stacked deck.. because it IS STACKED AGAINST you and your company…

Time to get educated… the examples are there… and you aren’t paying me (an expert in my area) or Bo, John, and Hugh (experts in their areas) to take time to teach you.. learn for yourself..

want examples? Just say so.. I can post a quick 5 or so – without even much thought…

Karl Schulmeisters
Jerry, the “examples” John offered are still just anecdotes and not data. Engineers look for independently verifiable data. Independently being the key. And that has not been offered.

I’m not wiggling. I’m asking for

a) an answer to the fact that with a 3-4 year lead time to negotiate long term contracts and a PEoD of 0.2, how is it that any company did not arrange to pass the tax cost onto the customer?

b) how if the cost is passed onto the customer there is any impact on cashflow?

Lastly in a startup cashflow matters for only three reasons:
* funding additional growth

* setting the valuation of the company based on a multiple of revenue since that sets the price of the next financing or acquisition round

* covering Salaries and COGS.

So for #2 – perversely having a forced increase of 5% across the board (ok 4.5% to cover the cost of the pass through of the tax) – you increase the valuation of the company by 15% And that is a good thing for startups.

Now as to the answer to the question of whether Texas chose to accept the Medicaid expansion – I knew the answer. Its called a leading question. as has been documented over and over again
http://familiesusa.org/blog/when-states-reject-the-medicaid-expansion-they-hurt-hospitals-too http://www.healthcarefinancenews.com/news/community-health-centers-hurt-states-rejecting-medicaid-expansion
that 50% rate of hospitals operating in the red is almost exclusively coming from states that opted to reject the Medicaid expansion.

So please Jerry. offer some independently verifiable data and valid logic so that we can have a discussion as to what the verifiable effect of the device tax actually is. You insisting that the tax is a job killer is a variant of Begging the Question logical fallacy http://www.nizkor.org/features/fallacies/begging-the-question.html ( Nizkor is a good site if you want a handbook on logical fallacies). So please lets have a civil and VALID discussion.

Hugh F. McCann, Jr
My question:
How many antidotes will it take to build critical mass?
An entire trade association? MASSMEDIC
Using the punch in the face metaphor…
How many shots in the face before the accumulated impact causes a knockout, a concussion OR DEATH?
Are we willing to wait and complete a scientific experiment before we conclude that one really good shot will knock someone ……or an industry out?
PROTECT YOURSELF AT ALL TIMES!
The 2.3 is a punch in the face.

Hugh F. McCann, Jr
Anecdotal
IPhone trickery ha

Hugh F. McCann, Jr
BTW
ACTUALLY pledging ones own capital is a higher level of risk taking than using other people’s money.
Cash flow is an issue
I know FROM EXPERIENCE
PEOPLE that work for me EXPECT to be paid so they can feed their families
Working for startups is a bit different than being the person who is the last line of defense
Wanna lose sleep?
Pledge your house. And then explain to your wife.

Karl Schulmeisters
I know from experience that cashflow is important for precisely the reasons I cited and not much more. And a 2.3% tax that you can pass onto your customers doesn’t prevent your employees from receiving their salaries.

Done the pledge the house – and the 401k. assuming I haven’t is jumping to conclusions for which you don’t have evidence. Nizkor would characterize that as a Strawman fallacy http://www.nizkor.org/features/fallacies/straw-man.html

And yes the whole point of Trade Associations is to argue for their members to improve their business case. getting an additional 5% to the bottom line is clearly a benefit to the members of the MassMedic trade association.

And the punch in the face metaphor would be characterized by Nizkor as the logical fallacy of either Misleading vividness http://www.nizkor.org/features/fallacies/misleading-vividness.html or Appeal to Fear http://www.nizkor.org/features/fallacies/appeal-to-fear.html Either way its a reasoning fallacy

Hugh F. McCann, Jr
Businesses like punches accumulate.
Cash is king.
When the cash runs out…..its time to get out.
Given you have, as you shared, met a payroll, 401K et al …..many, many times you must have been extremely successful. I congratulate your success.
The Blue State of MA is considering a tax credit to offset the 2.3
I must conclude that they believe that 2000 small and large companies are important enough to the local economy is LISTEN TO THEIR CONCERNS.
At the end of the day, great. It is a democracy.
It really doesn’t matter what you or I think. Palaver.
This I do know…..YOU HAVE NOT CONVINCED SOME OF US IN YOUR AUDIENCE.
The 2.3 is not helpful….on any level. My view.
I am an advocate for small business policy including taxation. MRA
And I fall on the side of advocating for the folks in the medical device industry.
Just curious: I see on your bio you have lived in many countries….and read the letters of recommendation characterizing you as brilliant and usually “right” for all your positions.
Is that important to you? To make and win your point? WELL,
We agree to DISAGREE….and that is a static analysis.
No worries…..be true to your beliefs.
ALL GOOD.

Hugh F. McCann, Jr
Business taxes like punches accumulate…….

Karl Schulmeisters
again that businesses have a favorable political hearing is not evidence that there is compelling data for the proposition..

I find it curious that you choose to go back to the logical fallacy of the “punch metaphor” instead of addressing the issues I have raised

Jerry Robinson
I raised the “punch” metaphor..

Just to illustrate that there are multiple things ( of which the 2.3% problem is significant) hitting the startup or small business owner in the face. This 2.3% does not help a business..

Why is this curious?

YOU mentioned Politics.. Lets NOT GO THERE, as you suggest….

OH… BTW… you still need to comment on the issues I raised… It won’t kill you to say “Hey… I was wrong on some issues….”…

Hugh F. McCann, Jr
…..fallacies come in many flavors.
You are NOT convincing.
Karl, it really doesn’t matter what I think or you think….no one cares.
I think thats funny…..and logical.
😜
Your issues are….your issues.
The accumulation of tax policy can KNOCK OUT business sectors….
ACA is flawed.
Again, we disagree……no worries.
Do you ever watch ESPN or the Golf Channel?
Gotta go…….

Jerry Robinson
Cashflow..

Some companies – get paid on a 90 day basis… For many companies, it’s worse – a much longer time-frame. IF YOU GROW.. then proceeds are ALSO what you grow with…

If you want to PAY EMPLOYEES – then that money comes out of a bank. You write a check or make a direct deposit to an employee… Cash must be in the bank.

If you are making a 2.3% payment – long before you GET PAID, then that takes money out of a bank. If you have piles of cash or don’t grow… then you are right on the cashflow issue… the cashflow is not substantially impacted. MOST BUSINESSES have times that are MUCH MORE DIFFICULT… some months are very hard. other months may not be hard.. So in the “tough” months – you are hurting… Many other business are operating on a LEANER cash model.. sometimes, too lean..

Surely you are familiar with issues of start-ups, small business, and real world operations… right?

I wouldn’t hire Nizkor. He couldn’t get an academic job in this town, either. So why would you quote him? not relevant…

Hugh F. McCann, Jr
Jerry,
What does Karl’s main lifeline, Nizkor, say about BELOW THE LINE COSTS?
Last I looked there is a huge list of bills I must pay, some variable, to stay solvent.
For me the costs are difficult to predict over one year. Stuff happens. More cash is required.
Most companies require a LOC facility and juggle paying variable and fixed bills on time.
Earth to theorists…..there are many above the line costs AND below the line costs…..fixed and variable. Indirect and direct labor costs. Ground control to Major Tom. Commencing countdown, engines on……another cool tune.
Throw in global currency manipulation, capricious poltical and tax policy, election cycles and the goofy armchair theories…..it is amazing the little entrepreneur can survive the early years and gain critical mass.
The accumulation of tax punches can cause brain damage….I have the battle scars…..and still standing
BTW: I have been invited to address the graduate students at UCONN School of Enginerring this fall.
New experience for me…I am not an engineer but I am extremely confident these young folks will enjoy my story. Life Experience matters….pass it on!
Ashes to ashes…..dust to dust……
Ha
Nah, the 2.3 is NOT helpful.

Karl Schulmeisters
yes Jerry that’s what accts receivable lending is for. So you have a 20% interest rate on it. OK. so the net cost to you will be:

* of 2.3% or roughly 0.45% that in turn divided by 25% (90 day period) so you are looking at an additional cost of 0.11%. ie instead of earning $1,000.00 on your transaction – you give the bank 20% and the additional cost of borrowing on what you owe the feds costs you 0.1%.

so instead of earning the full $1,000 you earn $798.90 vs $800 without the tax. Sorry that’s not going to bankrupt anyone.

And Hugh – its not worth responding to personal attacks. Please return to a civil discussion

Hugh F. McCann, Jr
……condescension comes in many flavors…..keep Nizkor out of the conversation.
Muddles civility…….thank you.
Now pivot to: below the line costs that suck up cash flow.
Cash is king…..
The 2.3 adds to the challenge.

Joseph Schwartz
Karl, you crack me up! Just borrow money at 20%, it won’t hurt your bottom line, that’s what bank loans are for; just pass it on to your customers. Oh wait, wasn’t the intent of AFA to LOWER the cost of healthcare? Seriously? Sounds counter productive to me. Your arguments are bordering on the absurd now. As was proven with the housing crisis, banks will often loan you more money than you will ever have the capacity to pay back. When you have to borrow money to pay taxes, those taxes are beyond confiscatory.

Hugh F. McCann, Jr
Rule #1: NEVER GUM UP YOUR BALANCE SHEET
Rule #2: read rule #1
An old farmer once told me: don’t go dig a hole you can’t fill up later…..a very wise piece of advice.
The farmer dropped out of school…..sometimes common sense trumps mind numbing diatribe.
Really gotta go. I am developing several new exciting business apps…….$$$$ 😜
Have a sparkling day!

Karl Schulmeisters
Joseph – Accounts Receivables is the common way to deal with deliverables that are 90 days out if you cannot make payroll. Of course if you CAN make payroll the cost to you is the average opportunity cost of the 2.3% over 3 mos.

Arguably that is the net ROI of the stock market which is 2.25% – so that’s an extra cost of 0.05%..

if your company is going to go bust because of a net increase in your COGS of 0.05% – then you really aren’t doing very well.

Frankly it would be nice Joseph if you did not take this into the realm of ad hominem the way Hugh has. and instead stayed on the issues.

Accounts receivables lending is standard practice. All I showed was that the extra cashflow impact of it has no bearing on whether or not you can make payroll.

It is absurd to suggest that I brought up the issue of having to wait 90 days to get paid. All I did was point out how small companies deal with that cashflow issue. If in fact you did not know that, I would recommend you learn about it before you try and start a company.

Dan Stipe
I commend Karl for keeping his emotions out of his contributions to this thread and on trying to keep the topic focused. The 2.3 tax is bad on many levels. It should be obvious that any additional tax will be a burden especially to start ups and small companies. What is not obvious is that the 2.3 tax is the cause of the layoffs and R&D cuts it is being blamed for in the sector as a whole. As has been noted, businesses contract and expand due to any number of factors. Because the ACA is such a political bombshell, subject to much misrepresentation and propoganda — death panels anyone? — credibility of argument has been lost. Thus, the burden of proof is higher. To date, no one has shown that proof. Absent that, the effects of the tax remain speculation. I’ll join the camp of the vocal majority on this issue when I see an independent economic analysis on the effects of the 2.3 tax that supports their argument. I’m sure that analysis is underway. In the meantime, hoping to bring some actual data to the argument, I pointed to one study by the Emergo Group (I am not insinuating that they are necessarily independent, although I don’t know why they would want to spin their data), but that study was disparaged.

So, 2.3% medical device tax — bad for our industry in general? Yes. Awful job-killer? That remains to be seen.

Karl Schulmeisters
Well it is an extra burden. Because absent a negative PEoD, there will always be some effect. The question is how much. And I think I’ve been pretty solid in showing that the numbers say that its not a significant factor.

A particularly telling point is that no-one has been able to address this directly and most recently folks have resorted to arguing by analogy …. without first establishing that the analogies (punches and holes in the ground) have any mapping to the issue at hand. – or by going off on tangents about accounts receivable.

I personally think that if we are going to fund the ACA, there are better and more efficient ways to do it. but the reality is that its not going to change before 2017. And having states piecemeal catering to interest groups to attract business at the cost to other states seems to me a lousy way to run a railroad

Joseph Schwartz
Duh, net 90 days wasn’t the issue, borrowing extra money to cover taxes was. and as far as this statement goes…”if your company is going to go bust because of a net increase in your COGS of 0.05% – then you really aren’t doing very well.” What startup is doing that well the first few years? OK, I have not started my own company yet, when I do, it won’t be in medical devices, the cost is too high. Yet it is my understanding that most startups operate in the red for the first few years. Your attitude seems to be, so what, add some more red to the equation, it won’t hurt. That is what I think is absurd. You keep saying pass the cost on, and most companies will do that when possible. Yet many people in the med device industry keep explaining to you the difficulty in passing it on, yet your refrain continues, pass it on…makes me think of a Bible camp campfire song refrain. Pass it on, pass it on. Are you listening? I do agree with your statement, there are better ways to fund this. The question of whether or not it should be funded, is of course, a topic for a different discussion.
Dan and Karl, maybe I missed this is you spelled it out earlier, but the data you keep calling for, just what would that look like?

Karl Schulmeisters
>>Duh, net 90 days wasn’t the issue, << again - please be civil. And yes it was. Your CLAIM was that Net 90 somehow meant that the 2.3% tax which was due the month of the sale was a cashflow issue. Except its not. >>Yet it is my understanding that most startups operate in the red for the first few years. Your attitude seems to be, so what, add some more red to the equation,<< Read what I write, not what you believe I write. I have pointed out that because the Price Elasticity of Demand is 0.2 (you might want to learn what that is before you start a company) a medical device company can pass the whole of the 2.3% onto its customers with essentially 0 drop in sales. The people in the industry who are explaining how hard it is to pass on are not saying that you cannot pass it on. Therefore how "hard" it is is not relevant. The data I would want to see is a study using Correlation Analysis that decorrelates factors like the recovery, and the easier First in Man in the EU, and the impact on home equity as the reduction in ALL startups, from the numbers of market size and startups .

Jerry Robinson
>>The data I would want to see is a study using Correlation Analysis that decorrelates factors like the recovery, and the easier First in Man in the EU……”

Fortunately… I have had a lifetime of watching the 3 Stooges, Marx Brothers, and many versions of Ginsu Knife commercials to figure out what you just said…

a – The issue is not the EU… the 2.3% applies to the US.. EU – doesn’t matter in this case…

b – Jobs lost… we DO need a good, objective analysis on this. It is something that matters…COSTING patients more (eg: $0.02 aspirins are marked up typically by hospitals to $15-19 in their billing) – does not help people – AT ALL.. HOW MANY jobs are lost along the way with this markup. By the TIME THE PATIENT SEES THIS…. HOW MUCH MORE IS THE MARKUP IN $$$$?

c – there are MANY medical device companies… some big, some small, some are startup or have “startup like projects”. ONCE SIZE CLEARLY DOES NOT FIT ALL.. POE may not matter to some companies – to OTHERS – it is a critical cost addition and cost impact…

IF YOU write a check for $100 – but only have $99.99 in your bank account, then your BANK will likely BOUNCE YOUR CHECK… At least mine will… IF YOUR BANK DOES NOT BOUNCE YOUR CHECK – then that might be because banks may operate differently.. JUST LIKE MEDICAL DEVICE COMPANIES MAY HAVE DIFFERENT CIRCUMSTANCES…

d – some people in the industry HAVE said they can not mark up the 2.3% tax to their customers for contract reasons. They are not lying, and don’t need to make up this fact. This is, therefore a RELEVANT issue. I POINT OUT that there are many other factors they must overcome… IE – the FIST in the NOSE analogy.. John has pointed out that the 2.3% tax problem is the one that “should be and could be” fixed first.

I am concerned with startups – and the effect on new company projects… A significant company – may do a project – and they MUST factor the 2.3% effect ON THAT PROJECT. It’s a problem

This is not a EU discussion –

Oh.. you HAVE been wrong on at least one issue – the “Double Irish Accounting Trick (now NEW – from Malta… ). You don’t acknowledge this.. so it is possible that you are off base on some other contentions.. right?

Jerry Robinson
Why is it Important to “pound” on this issue? why does it matter?

Well….. by 2050 – there will be 9 billion people in the world. Nigeria will be more populous than the US. The supply of trained medical staff, doctors, and nurses will not keep up with the demand – and location effects will hinder care efficiency…

Our “Medical Device” tech development – now – WILL MATTER A LOT THEN.. MedTech and Apps are a FORCE MULTIPLIER for medical care… more efficient, less costly, more widely distributed… This is not an idle observation, either…

so.. I post… Bo posts… Hugh posts… John posts… In the long run – the little things we do today can and will have big impacts later.. (Thank you Dr. Lorenz!)

John Eckberg
Simply put: no GPO no IDN no hospital operating in the red will accept price increases. Hospitals doing fine are not going to accept them either. Price hikes cannot be simply passed along to customers to compensate for the 2.3 percent tax. It’s a convenient myth or profound ignorance to think and repeatedly state otherwise. Three- to five-year contracts keep prices illiquid. Nothing can happen until 2017? That’s another sadly uninformed opinion. Last count 282 Congress Members want this repealed – 218 are needed to pass the repeal. Why would our president support this tax? It wasn’t his idea. He has no dog in this kennel. So far, 40 of those Congress Membeers are Dems. The repeal will pick up steam. It’s a dumb tax on every level of analysis, has led to tens of thousands of lay-offs and lost-opportunity jobs and it will be repealed

Karl Schulmeisters
Jerry – I really wish you would stay on subject. Its very difficult to follow all of the tangents including how the 2.3% tax in the USA for the next 3 years has anything to do with Nigeria in 2050 (given that our financial forecasts struggle to go more than 3 years out).

And John you are wrong on the price increase. A hospital in the red in particular cannot afford not to be able to perform particular procedures. Simply saying something that the data shows is not true (both corporations admitting to passing the tax on as well as the broadly developed Price Elasticity of Demand – though I’m curious what Jerry thinks POE refers to ) is hardly a well reasoned argument.

It is made less reasoned by accusing others of being “uninformed”. Again for something to be validly reasoned you need to include all of the relevant facts. the ones you have left out are

* 1) The tax law of the land requires that any new law (and a law eliminating the Device tax is a new law) be revenue neutral.

* 2) The House does not operate alone – it also has to get through the Senate and the WH

* 3) The WH has the veto pen

#1 means that if you want to repeal this law you either have to
* a) raise taxes elsewhere

* b) cut services elsewhere

* 4) The House won’t do (a) and the Dems in the Senate won’t allow (b) to get to even a debate on the Senate well.

Note also on #1 – As of February the House had voted 56 times to repeal various components of the ACA. and not once has it gotten to even a vote on the Senate floor. This won’t change.

and I have pointed this out before.

So again, rather than engaging in name calling – perhaps it would help to address all the issues raised

similarly calling it “a dumb tax on every level of analysis” really is just hollow rhetoric since we have yet to see actually ANY solid and valid analysis that shows it to be such on even one level.

Jerry Robinson
Let’s try just one topic per post, then…

1. days ago you said:

>>and Double Irish with a Dutch sandwich hasn’t been legal for coming onto a decade.<< This is, of course, false. Links were posted, too. This refers to accounting actions and technique. You were asked - multiple times - to comment on this.. perhaps to admit that "on this item" - you were incorrect. So.. stay on the subject - and respond to this single, direct point.

Jerry Robinson
Karl… you said…

>>Jerry – I really wish you would stay on subject. Its very difficult to follow all of the tangents including how the 2.3% tax in the USA for the next 3 years has anything to do with Nigeria in 2050 (given that our financial forecasts struggle to go more than 3 years out).<< The point is that world populations are projected to hit 9 billion by 2050. Medical health support will not increase as a percentage compared to the population. Medical Device builders will make products that serve as a FORCE MULTIPLIER for medical professionals. This "should be" why people here should continue to care . Weakened companies - or companies put out of effective business - by this tax - will not be here to support medical professionals in 2050. THE 2.3% TAX WORKS AGAINST people and companies that develop medical devices. Increasing the cost to CONSUMERS - (ie, patients) does not improve the quality of medical care. This is bad. REMEMBER - leave the politics out of your response... How is increasing medical device cost - by a substantial amount - going to help patients? Please avoid long words inspired by strong spirit in your response!

Jerry Robinson
Forum artifact encountered. I typed “12 days ago” – ie, thirteen days.. just as a correction..

Karl Schulmeisters
Double Dutch – may still be legal in the USA – but it is not for EU based corporations. So the tax calculations change. While I was in error extrapolating that to the US – it still has nothing to do with the 2.3% device tax – and you have not shown that it does. Double Dutch has to do with internal transfer payments.

Now as to Nigeria – all technology is a “force multiplier” – that still has nothing to do with the mechanics of the Device tax.

you then go on to make two assertions (so much for sticking to one point per post) that you have yet to support with a full set of facts and valid logic:

* 1) The 2.3% works against people and companies that develop medical practices:

* 2) Increasing cost to consumers does not improve the quality of Medical care

#1 – as I have pointed out before and you did not address, an increase of 4.5% of EBIT revenue to a startup (the pricing amount increase necessary to offset the 2.3% excise tax) increases their valuation by 13% (valuation is based on 3x+ of your EBIT revenue) . That makes it easier to pay off the VCs successfully and thus increases the likelihood of startups getting in the game.

Remember how the VC game is played: they put in say $1,000,000 and expect to be able to take out $10,000,000 in 3-5 years. The cost of developing the device is not increased by the excise tax, so your development cycle is just as effective as before. But then when you go to make sales -the whole market has moved up in 4.5% on the pricing. Thus you generate 4.5% more EBIT revenue.

I’m befuddled as to how making more revenue “works against” companies innovating on medical devices.

#2 is also demonstrably false. The quickest example is the “Medicare Doc Fix”. Had Congress not voted to increase reimbursement to care providers, fewer consumers (patients) would have received services and thus the quality of their care would have gone down.

Thus you have an example where increasing the cost to consumers improved the quality of medical care.

Now – #2 may not apply to Medical Device markets. Or it may. But given the “Doc Fix” example, you need to actually show which it is. And since we have seen the Device Tax being paid for more than a year and not seen any data on a decrease in the quality of medical care – I don’t see how you can just make this blanket assertion.

(I do hope the term “assertion” is not too long a word for your perspective”)

Jerry Robinson
Karl…

* tax was a US topic. Thanks for admitting that on this topic, your “Irish Accounting – Double Dutch trick” comment – was in error. the “bump” in the rug has moved from Ireland to Malta. If “My company” does not do these things – then “my company” is at a competitive disadvantage against another company that DOES DO these things. Wouldn’t you agree? If some other company reduces it US tax burden by 95%, though these tricks, then “my company” finds it much harder to compete – do development – hire people or anything else.

That is my point here.

NO.. I did not speak to the 2.3% tax – per se – with my comment. I am not GOING to show that. but I can comment, – following – posts.

Jerry Robinson
Let’s comment on your “assertions”:

a – >>Increasing cost to consumers does not improve the quality of Medical care<< I can talk about the US. Medical Costs have increased in the US much faster than people's income. A additional medical cost dollar spent - means that the dollar can not be spent elsewhere... like on food, housing, transportation, or other things. For a LOT of people in this country, money is in short supply. The USDA (FY2015 - May 2015) says that 46,145,439 people receive Supplemental Nutrition Assistance (ie, government food aid). The rise in health care cost - means that the additional money has to come from some other area of person's life. Dental care is frequently the place that suffers first. The US is about 4.65 of the world population. MOST People in the world are living on much less per day. Their device costs is not going up for the 2.3% number - but getting them care in the first place is a challenge. US companies work at this - they do, you would have to agree.... but when the R&D and development budgets are taking a "hit", then it makes it harder to address this need. John, I, and others have addressed the impact to cashflow and operations. So there are two points of impact. FIRST - INCREASED consumer medical cost does not help people - it costs them more. SECOND - there is a long term development effect and an overall worldwide impact due to R&D - Cashflow impacts. These are NOT good things for the consumer.

Jerry Robinson
continued…

b – on your #2… let’s leave politics out of it. your idea – and a good one, right?

I can observe that adding “congress” anything – just getting them in the loop – will drive up costs – because ANYTHING congress does will encounter costs. they get money to pay their bills, too – right? that’s more cost…

Jerry Robinson
So….

HOW IS THE 2.3% tax related to the :”Double Irish” accounting schemes & other associated tax avoidance schemes?

They are related…

Here is the analogy.. Go to a hospital – any hospital. They WELL UNDERSTAND that when a patient has one illness, it will stress their immune system and disease fighting ability.. it makes it EASIER for another disease to kill the patient. THIS HAPPENS A LOT…

Corporations have health, too.. IMPACT one part of the business, i.e. hit it in the profit center, and you will severely stress the corporation. This applies to Universities, Research groups, and really any organization. THEN… a more stressed Corporation is subject to damage from OTHER, partially related impacts. you see this ALL THE TIME…

The “VISUAL ANALOGY” – is that a Corporation has a number of Threads… They can be organized as independent – discrete threads… OR they can be twisted together to form a type of “rope”.. Ropes have a history thousands of years long. Ropes can share stress among the strands. They are STRONGER than an individual thread – and more resiliant to stress…

Not familiar with this? Then it’s time to bone up on “Antifragiility” – (bless you Nassim Taleb) and learn more.

Jerry Robinson
WE live in a world of complex relationships. This actually means something – and has a lot of historical and mathematical basis.

In any organization, there are relationships between threads. Weaken one part – and others also become weakened. This is how things really work… If you aren’t familiar with this,,,, well… you should be – to understand the interplay…

Corporation design an business management ala 1930’s – 1950’s does not fully apply today… there are more factors to consider.

Jerry Robinson
VCs and your assoicated math…

VCs and such only fund a small, small percentage of companies in the US. Still, there is some activity…..

For 2014, there were 789 deals… out of a current space of 16,424 US Medical Devices companies. VC economics – applies to only a few (percentage wise) companies.

FOR THE PEOPLE – I know in North Texas – looking to start up a medical devices company, all of them want VC money. Few expect to get it. The economics space you live in does not apply.

VERY few start-ups could get receivables factoring – at any price. Few can expect big money to start.. This is the CREATIVE SPACE where DISRUPTIVE INNOVATIONS are most likely to happen. ASSERTING THAT BIG MONEY FINANCE applies to these people and companies – is JUST WRONG…

These finance numbers may work FINE for the space you are in… It’s a fact that there are MANY ways of being successful and to finance here.. BUT.. If I want to startup a company – and have the “perfect medical devices product” – your financing theories simply do not apply. It’s a different space..

For people looking to do Cell Phone Medical Apps and Devices.. it is a completely different world – in finance and development. For ALL of those folks.. 2.3% matters – because of HOW IT IMPACTS development, cashflow, and growth.

>>Venture capital (VC) funding for the Life Sciences sector – Biotechnology and Medical Devices – increased 49 percent in dollars but declined 18 percent in deals during the fourth quarter of 2014, compared to fourth quarter of 2013, according to the MoneyTree™ Report from PricewaterhouseCoopers (PwC) LLP and the National Venture Capital Association (NVCA), based on data provided by Thomson Reuters. The report, entitled “Biotech funding surges,” shows that VCs invested $2.8 billion in 202 Life Sciences deals during the quarter, versus $1.9 billion going into 245 deals in the fourth quarter of 2013 and $1.7 billion in 197 deals during the previous quarter in 2014.

Overall, investments for full year 2014 in the Life Sciences sector rose to the highest level since 2007 with $8.6 billion invested into 789 deals, a 29 percent increase in dollars but a 3 percent drop in deals compared to 2013. Biotechnology investment dollars rose 29 percent compared to 2013 to $6.0 billion, while the number of deals decreased 4 percent to 470 deals, making it the second largest investment sector for the year in terms of dollars invested, behind the Media and Entertainment sector. The Medical Devices industry finished 2014 up 27 percent in dollars to $2.7 billion, and the number of deals remained relatively flat in 2014, compared to 2013.<<

Jerry Robinson
JOHN….

Just for jollies… IF your devices have the 2.3% tax applied to them – in sales to the HOSPITALs… then HOW MUCH can you expect the HOSPIATAL to mark up that amount and apply to the patient?

* is a company impact.

WHAT IS THE TOTAL % patient impact??

Karl Schulmeisters
Jerry again you are not staying on topic

* the ACA net net, device tax included has been bending the Healthcare cost curve downwards (I can give cites if you need it)

* ROW is not affected by the 2.3% since that is revenue outside the US (whence the Double Dutch originally came from)

* You’ve not addressed the fact that a universal rise in EBIT revenue creates incentives for Med Dev innovation

your cashflow analysis has been mathematically incorrect and I’ve shown it as such. So you cannot validly say you have addressed it.

>>I can observe that adding “congress” anything – just getting them in the loop – will drive up costs << again, other than for the purpose of assessing what the politics of actually carrying out changes are - please leave the political haranguing to another thread. You statement is provably false and just looks uninformed and ideologically driven Living in a world of complex relationships is why Correlation Analysis was invented. The relationships between the pathways in your CPU are so complex the human mind cannot comprehend all of them wholistically. And yet we can use Correlation Analysis to identify electron bow-wave interference problems vs parasitic capacitance problems and apply the appropriate solution. so citing "complexity" is a copout. It basically says you cannot prove your point with facts and math so you want the leeway to use logical fallacies of one or another sort. as for your assertions about how startups finance * The point that most startups are financed by home equity is one that I made a long time ago. The effect of the Great Recession on home equity is why you have fewer startups and hence fewer public VC deals. QED not related to the Device Tax * PUBLIC VC funding is not the same as ALL VC funding. in fact mostly you will see Angels and Incubators doing the initial heavy lift in return for equity. VCs actually only show up at Series A - which is the third round of funding so you expect roughly 9% of the initial startups to have made it that far. * just saying that 2.3% matters demonstrates typing ability and not much more. I spend a lot of time with Cell Phone Med App / Device innovators. 2.3% tax on revenues is nothing to them. Because a) they can and do pass it through b) since it only applies when they get revenues, they are in the steep part of the cashflow growth curve c) it has zero effect on development d) it has POSITIVE effect on growth since it increases the EBIT Revenue by 5% - and EBIT Revenue is all a startup cares about. This latter is curious because it is something neither you nor John have addressed in any of your analysis - which suggests to me you either do not understand how startup finances and financing works, or you are leaving off relevant facts to slant the argument. Have you been personally and directly involved in startup financing? because from your CV it looks like you have been on the engineering and consulting side. Which is where you will hear complaints but you won't see the books. I've been involved in startups as an engineer and I learned my lesson about understanding the books in my second one. I was an engineer there and left the books to others as I had in the first. And the company melted out from under my feet. Every startup since then I've made sure I understand the books BEFORE I get in and during. That's 6 startups since then directly, and consulting to about 40 others in various fields including medical device design, mHealth etc.

Jerry Robinson
well… comments are getting longer….

I agree that “Obama Care” has had an effect in (a) reducing the rate of cost increase and (b) in many cases started forcing overall cost downward. I think the numbers, as the become more available, will show this – just as you seem to think, also.

I DO insist that the 2.3% device tax DOES affect the ROW performance of companies… If MOST of the medical device companies have a strong presence in the US, then a negative 2.3% impact in the US – by extension – affects operation in the ROW. If I am a manager in company, that encourages me to push product sales in the ROW – which we can both agree – is a good thing overall.

Among the people and company innovators I have know over the course of many years, I WOULD NOT tie EBIT to the word “innovation” at all.. If anything, it works to make them think of more ways to get around this 2.3% ball of worms.

The “congress” comment was NOT about politics. Do not get distracted. IF there is an INCREASE in company or government operating cost, then someone has to pay it. If the government is picking up this nasty cost (even when bringing in revenue), then that is money that could have gone to REAL R&D. You can spend money on one thing – or another. RIght?

You could argue that this 2.3% tax would bring in tens of billions of revenue over the course of years in effect – and you might be right. But that money comes from PATIENTS – in one form or another – and that ADDED COST IS BAD. Making health care more affordable – is the goal. Not just a political slogan.

AS COST PRESSURES INCREASE – it serves to INCREASE THE PRESSURE FOR DISRUPTIVE SOLUTIONS. (C. Christensen)

I have no clue whatsoever what you were trying to say with “Correlation Analysis”… I will need to drink more, first…

Complexity describes the pathways that change can occur in.. You comment is unrelated.

On Startup funding… my point was that VCs do not provide the majority of funding for these. Most startups never get to Series A. I think – just my opinion – that cell phone type solutions are going to EXPLODE in popularity – and won’t go the VC route… at all…

I’m glad you spend time with startups. I assume that you charge them, right? For the time you spend – and the time that the strartups spends – in DEALING with the 2.3% tax cost effects – and compliance… It’s a PITA. If no 2.3% – then no COST for compliance and consulting advice.

Saying an increase on tax, a substantial expense of time and energy to account and comply, and the added hassle of another set of government intrusion – is a “good thing” – is just plain goofy.

EBIT is most certainly NOT ALL A STARTUP Cares about… SOME MAY.. MOST DON’T – it’s not the main prority..

Just for grins – do your own Survey Monkey study of the 16K US Med Device companies and the 700-900 startups per year.. just see where in the list of concerns – that EBIT really matters..

I am glad you looked at my CV… I have been on the Engineering and Consulting side – a lot.. I have also been on the management and accounting sides too.. I have been DIRECTLY INVOLVED with startup finance – specifically for small company and low resource type companies. I am glad you know books.. these days, we use computers… setting up Quickbooks and such are lots of fun compared to the “old days”…

I absolutely agree with your startup – books priorities!!! That approach will keep a lot of companies alive and enable them to grow. TOO MANY TIMES – companies don’t do this..

I look at the approach a LOT of Kickstarter efforts make.. and the business side just makes me CRINGE…

Jerry Robinson
If EBIT is all a startup cares about, then they will likely fail.

You MUST be aware of all of the diverse issues that can KILL your business.. because at the end of the day – your company may do a good job – have original IP – and be ethical in your dealings – yet not everyone follows those rules… Surely you know this?

Patent Trolls, crooked competitors, crooks of all stripes, offshore funded competitors, counterfeiters.. the list is fairly long.. You have to know how to play in the international marketplace – but it will be the biggest and most important marketplace soon..

Karl Schulmeisters
Any startup that worries a lot about Patent Trolls, crooked competitors and offshore funded competitors will fail. Yes there are other financial numbers besides EBIT that a startup cares about:
MRR/ARR, Churn . Pretty much anything else is noise. In fact a prominent VC has identified a “Quick Ratio” that it uses for prefiltering of MRR/Churn. And if your MRR/Churn is less than 4.0 they won’t even look at you.

No startup can afford to fight a court battle with Patent Trolls nor even Patent violators. If they are faced with such, they need to either give in, or be bought out by a large “white knight” with deep pockets. The most recent prominent example of this is the NEST Thermostat. The main reason they sold out to Google was because Honeywell was bringing a very serious patent infringement suit. And by selling to Google, they essentially acquired a sheaf of patent lawyers to fight Honeywell.

And no, you do not necessarily need to know how to play in the international marketplace. There are a host of Medical Devices I see in Europe that will never make it to US shores but which will be successful startups nevertheless. Sure they would be more profitable if they were able to sell into the USA, and that is part of our product pitch to them, but for many that’s a post Series B goal.

Nor can a startup care about crooked competitors or the funding sources of competitors. Because there is nothing they can do about it. I have someone I know very well and closely who is CEO of a startup who’s patent Google took, changed not much more than a dozen words in the patent and resubmitted it, apparently gambling on the fact that a startup cannot afford to fight Google in Patent Court (the reason being that over 50% of the traffic flowing through Google infrastructure uses code that is an infringement on the patent that this startup invented and has been licensing for some 5 years) . The startup can effectively do nothing except hope to sell out to Amazon or MSFT or Intellectual Ventures (a patent troll) ie someone who has the pockets someone who has the deep pockets to fight Google.

So while they paid attention to the “crooked competitors” but because they are a startup, there isn’t much they can do about it.

So all those things that you mention are distractions to a startup from the startup’s core mission:

Grow sales volume to a self-sustaining level that pays off the “risk capital” invested in the company (be it bank loans, F&F investment, Angels, incubators, VCs or the lottery). And that payoff is based almost exclusively on EBIT and EBIT growth (MRR and Churn are numbers that document EBIT Growth) .

Since you are on the Engineering and Consulting side, you don’t seem to have been involved in the growth and investment and financing side (setup up the books is not the finance side). EBIT is the focus. everything else flows from that.

And your continued failure to address that the 2.3% Tax COMBINED with a PEoD of 0.2 actually increases the EBIT and MRR/Churn numbers for a startup and thus increases their likelihood of success (and thus benefit to patients because patients get new innovative treatments faster). simply insisting that the 2.3% device tax is bad is not an argument.

If you want to understand multivariable correlation analysis – here’s a decent place to start
http://tx.shu.edu.tw/~purplewoo/Literature/!DataAnalysis/Methods%20of%20Multivariate%20Analysis.pdfhttp://www.jmp.com/support/help/Correlations_and_Multivariate_Techniques.shtml

Jerry Robinson
Are you still located in Paris? Is that helping EU based companies to deal with international growth or business issues? Isn’t that just the opposite of what you advocate above?

If you start a US Med Device company today, you MUST be thinking of how to be an international company in many ways. Would you ACTUALLY argue against this? Since it seems to be what your own business is about??

Karl – your “pigeonholing” of my experience and skill set is wrong. It’s also a classic debate tactic that if you CAN NOT defeat the opposition argument – then attack the debater or their credentials. So.. in this case.. not only are you incorrect on my skill and experience set – YOU “Babelize” (ref. Douglas Adams) commentary on your arguments…..

For example.. Before you MAKE a profit – to pay non core expenses and such – you have to BREAK EVEN.. There is NO PROFIT till you DO BREAK EVEN… Every Med Device company has this burden of accounting time, cash, cash flow, and legal risk – associated with complying with this tax rule. ALL OF OF THAT COST AND RISK – works AGAINST a more efficient and less costly patient medical care situation. What is so hard to understand here? it’s just plain, simple math. Math does, after all, have a GOOD BIT OF USE IN ACCOUNTING… and you DON”T NEED abbreviated technical terms to understand it.

Oh… BTW… dealing with legal issues – Patents and IP for eg. – does not have to cost a fortune. That is a choice issue on the part of those involved in patent disputes. There are a lot of Patent disputes that do not involve Google.. and for your info.. Nest was sold for WHOPPING PILES OF CASH.. that may also have had something to do with the company cash out process..

In all of these posts… I have only seen that you admitted that you “may have been wrong” on “some matters” only once. It’s always someone else that “is wrong” – and it’s always them… You also seem to be skilled in debate tactics. But the forum should not be about “debate tactics” or “political bullying”.

There are about 16K plus medical device companies – and some number of startups in the US. ALL of us here – exist in a climate where our Gov’t does not support us in the same fashion as exists in many countries. WE have to deal with a variety of issues and concerns. While your discussions probably DO describe some companies – it CERTAINLY does not describe all.

I don’t need to comment further here on this topic. The skills of experts with decades of experience and solid knowledge simply should not be attacked and belittled. I went back and read the posts.. Try this yourself. It’s one thing to disagree – it’s another to mount a bullying opposition.

&*********************

I maintain…

First – the 2.3% tax does hit many companies hard – first in cash flow: second, some companies are stuck EATING the tax and it’s effect, Thrid it drives up patient medical cost in the long run (bad for patients); adds a additional cost to accounting, regulatory compliance, legal tax risk, and a box of worry for no good reason. It’s bad.

Second – there are many OTHER serious issues hitting US business – it’s just like a Fist that hits your nose – has many fingers on it. The Double Irish Accounting scames, IP Offshoring scams, foreign government subsidization and support of thier countries exports – scam; the equipment and tax credit scams for large business… MANY ISSUES.. These are just a few of the problems – and serve to weaken companies – just like multiple diseases can weaken a patient and cause them to die.

Third – if you operate a Med Devices company in the US – you BETTER be aware of how your competitors operate – and the possible “crooked” and fraud issues at work. These can put you out of business – before you know what’s happening…

Karl Schulmeisters
Jerry, you still have not offered a shred of verifiable evidence to support your position other than biased congressional testimony.

feel free to keep rehashing that and not addressing the factually supported points and issues I have raised. I’m not going to rehash them, I think I’ve done an adequate job of citing them and using valid logic to assemble them

Jerry Robinson
I have offered NO congress testimony. check the posts.

Don’t think I will repost, either.

Joseph Schwartz
Karl said: “the ACA net net, device tax included has been bending the Healthcare cost curve downwards”, yet still insists that POE shows that the tax can be passed on (a price increase right?). Since the tax is included in the analysis, something else is being cut, jobs? R & D? Your own argument seems to be proving the congressional testimonies correct.

It doesn’t add up, something must be missing from the correlation analysis soup.

Mathematics can prove any point based on what one includes or excludes from the analysis.

If I had the time, I would include POE in Multivariate analysis and see it if proves to be a significant factor. Perhaps someone else could do me the favor?

Is condescension more civil that the use of the expression “duh”?

Karl Schulmeisters
>>arl said: “the ACA net net, device tax included has been bending the Healthcare cost curve downwards”, yet still insists that POE shows that the tax can be passed on (a price increase right?). Since the tax is included in the analysis, something else is being cut, jobs? R & D? Your own argument seems to be proving the congressional testimonies correct.<< Not at all. the prediction was that the cost curve would bend downwards because we would have more pre-emptive/earlier intervention care which costs less. We would have that because more people covered means they go when they see first symptoms rather than when it is too painful to bear. And we know that the cost difference between early and late stage treatment can be in excess of 5:1. So if we move 5% of the public to earlier intervention (17 million is roughly 5%)... we would expect to see at least a 2%-3% drop in expected growth rates: * From 2000 - 2010 healthcare spending rose on avg 7.8% YoY * Latest data shows it at 3..9 % http://www.nytimes.com/2013/01/08/us/health-spending-growth-stays-low-for-third-straight-year.html?_r=0

* – 3.9 ==> 2.8%…. hmmm right smack dab in the middle of the predicted range.

Mathematics works just fine It isn’t condescension to ask for actual verifiable facts and valid logic

John Eckberg
Karl, I don’t know about anybody else but when a guy says this tax went into effect and started being collected in 2009, as you repeatedly have asserted, when a simple search shows the first day of collection was January 2013.

And when you detail scenarios of EBIT, which I guess you mean is Earnings Before Interest and Taxes, which, of course no longer exists for this sector since taxes now are imposed on revenues so there is no longer any sort of “before” in this paradigm, well, your credibility is shot and nothing else you contend has much if any merit at all.

This tax has killed jobs, driven global companies to relocate manufacturing from the US to low tax or no tax zones all over the world and patients are going to pay the price because innovation has suffered. This tax has also killed supplier jobs, led to unprecedented consolidation and represents a 30 percent tax surcharge for the average firm

It can’t be passed along because GPOs and IDNs refuse increases.

Started being collected in 2009? I would have thought you would have at least looked that one up.

Karl Schulmeisters
John it seems you did not understand what I wrote. I said that the ACA went into effect in 2009 complete with the Medical Device Tax provision as it stands today. Thus every medical device MFG had 2.5 years to renegotiate their long term contracts to pass on the cost of that tax. IE when the tax began to be collected as per the law.

So please don’t misrepresent what I said. If you don’t understand what I wrote please ask

As to GPOs and IDNs refusing increases. I have no doubt some did but that is the point of using the Price Elasticity of Demand to look at that likelihood. And with a PEoD of 0.2 the number who refused and were not replaced by additional sales to their competittors can be calculated.

that calculation is that for a price increase necessary to cover the excise tax and the tax on the incrase (5%) the amount of sales you will lose is 5% x 0.2 ===> 1%.
a 1% drop in sales volume is indistinguishable from normal business fluctuations

EBIT is EBIT. doesn’t matter if the tax is an excise tax or anything else. For fast growing companies – particularly startups – EBIT is what matters for valuing their ROI. Because they sell for between 3x and 10x their EBIT depending on their growth rate. (normal industry growth rates get you 3x). So a 5% increase in pricing actually increases EBIT. So it means that a startup or fast growing company BENEFITS from this tax rather than is harmed by it.

As for the rest of your assertions. Its clear you believe this. It is also clear that you have not provided independently verifiable data to support those beliefs.

Jerry Robinson
Gee…

You seem pretty focused on this math… I disagree, but that aside for the momement..

HOW MUCH will consumers see their MEDICAL DEVICE bill increase? Won’t be 2.3%…. not in a world where hospitals mark up $0.02 aspirins to $15-$19….

So if you want to LOOK at the effect – then HOW MUCH more will consumers pay on the average… How much will their bill go up?

You asserted that this tax is not significant – so what will be the effect? For a device – say $100 – then how much more will a hospital patient expect to pay?

Karl Schulmeisters
When Math and independently verifiable data contradict anecdote – I go with the math and data.

as for costs to consumers – I’ve already presented the research above that net costs of healthcare are decreasing.

now on the specific question of the cost of a device? If the hospital used to pay $100 and there is no additional state or local excise tax – they would pay $102.35 after the price increase to offset the device tax. The 5 cents is the tax on the offset increase. According to your hypothetical.

Jerry Robinson
Karl…

You are in favor of real numbers.. facts… verifiable.. So am I.

You KNOW.. that Hospitals don;t just pass through costs. They mark it up.. OK…

HOW MUCH – is the average markup going to be for your device tax? Med Device companies will ALSO mark up the price they have to charge – to cover their expense.. and the hypothetical 20% YOU SAID they would have to borrow to cover the tax… This tax is a REAL company cost increase as well as TAX Company accountants, lawyers, and tax personnel will spend time.. so the Hospital cost – WILL be more than $102.35.

Just to PICK A NUMBER – without a lot of analysis… let’s say that the COST to a hospital is about $105. Yeah.. . you could argue the number up or down.. but fair enough…

SO>…. what will be the PATIENT EFFECTIVE COST INCREASE??? WE do live in a world, at least in the US, where Aspirins (or equivalent) may cost $0.02 but be marked up to the patient at $15-$19 each. I don’t like the numbers, but hey… this does happen – and the markups are not consistent.

So get specific with some verifiable numbers and cases…

What is the honest cost increase expectation? Don’t respond with a dodge… .

John Eckberg
Karl,
No, you are wrong yet again. EBIT has been eliminated for this sector. I guess EBID and EBIA is still viable sort (Depreciation and Amortization) of but EBIT or Earnings Before Interest TAXES – not any more as this is a tax that is paid every two weeks right when the sale is made, not when the revenues arrive. So, and I feel like I am repeating myself but I guess some people need the repetition, taxes are no longer paid after earnings are ciphered. I hope this clears it up for you. Maybe you can explain it to your buddies Jon Gruber or Zeke Emanuel or whatever Senate staffer has been feeding you those long-winded and not-so-relevant obfuscations.

Karl Schulmeisters
Let me see if I understand your perspective: You seem to believe that EBIT means you don’t actually pay taxes or inter.

I’m not sure where you got that definition. Its very much not the definition that the VCs I spent about 3 hours listening to and talking to today (all hardware VCs that carry some medical device investments) use.

To these VCs EBIT is simply your revenue BEFORE you pay your taxes and Interest. So it doesn’t matter if you pay them daily, weekly, monthly, quarterly or yearly. Why do they use this calculation? because it is a measure of market success before you start doing your taxes and other issues.

And a company that has been around long enough for capital depreciation to be an issue on the bottom line is no longer a startup. So the VCs don’t care.

So you may well have some VCs or Angels that are willing to invest in a startup run by someone who does not understand EBIT. But I can tell you that your idea of EBIT is basically not informed by the facts.

And you can repeat this as often as you like but the VCs in NY or SFO are not going to agree with your … shall we say… “unique” view of what EBIT is and its relevance to investments in startups.

Karl Schulmeisters
Here John.. is a nice introductioon to what EBIT is and why it is used http://en.wikipedia.org/wiki/Earnings_before_interest_and_taxes

Jerry Robinson
John’s point: The 2.3% tax is paid Long BEFORE many companies get paid. The TAX is paid BEFORE REVENUE… VCs are concerned with cash flow, for the few VC funded startups that happen every year…. FIgure about 700 startups – out of 16,000+ companies… that’s about <5%.... right? ANY revenue is after TAX is paid.. different model... You get paid, right? Suppose You get paid for ONE month of work - on June 15. John's observation is that for medical devices - some companies would be paying tax on 90-120 days before income... IE, that is YOU paying your income TAX NOT on June 15 when you are paid.. but on March 15 prior... or even December 15 of the previous year. Cashflow is annoying... Not all companies are in this situation - but for those that sell on terms to large companies - it can be common. What is so hard to understand about simple math? all of the VCs you "mention" should understand math, right?

Jerry Robinson
Anyway… back to my point…

What would be cash impact to the CONSUMER of this 2.3% tax? does it get marked up – like an Asprin? is it something else? for sure – it is not FREE….

Karl Schulmeisters
And if that was John’s point then it profoundly misunderstands how startups are run financially. VCs are only concerned with cash flow from two perspectives:
* Burn Rate – IE do you have enough runway to launch the product. As one of the VCs I was speaking with yesterday said

“we want to see you build ONE device. Because if you can show us that you can deliver one device into customer hands, we will fund you to make the next 500 or 5 million devices”
* EBIT. because EBIT is what is used for valuation of the company for the purposes of the next round or for an acquisition/sell out.

So 2.35% increased EBIT (because if you pass the cost through to your customers it first gets counted towards EBIT) means a 7%-23% increase in valuation (3x – 10x EBIT is what a typical valuation is). So that’s actually going to INCREASE the interest of VCs.

As for paying for COGS log before you get paid – that’s basically how all small MFG goes. So whether the payment goes to the vendor of surgical steel billets, to the CNC miller, to the vendor of polyethene beads or to the IRS – its just a COGS.

If you are going to talk about revenue based models you are no longer talking about device innovation but about already launched successful companies. Those companies have very solid cash flow practices, so passing on the 2.3% tax to their clients is no different than passing on a 2.3% increase in the price of polyethelene beads. The Price Elasticity of Demand says that net net there is no measurable negative impact on bottom line revenue.

Again your example of being paid Net 90 (Net 120 is so rare that its not worth talking about but the same rules apply) is standard MFG practice. And that’s where the Accts Receivable Lendng comes into play. And whether you are using ARL to pay your steel vendor and your CNC miller – or you are paying your steel vendor, your CNC miller, and the IRS – frankly is a bookkeeping issue.

Because even on Net 90 with a 20% APR from the bank on ARL, your actual Interest paid is 5%. 5% of 2.3% is 0.11%. if 0.11% added cost is going to make your product unprofitable, it means that you have some serious other pricing and cashflow problems that removing the 0.11% cost is not going to solve. Problems that will in fact keep VCs (like the ones I spoke with yesterday ) from investing.

So yes, it is simple math. And straightforward business practices. And exactly what the VCs expect.

as to the increase in cost to the consumer – I’ve already answered that. But I’ll answer it again:
* the ACA has bent the cost curve down by about 3.5% NET

* the cost of the medical device itself is invariable small part of the net cost of the treatment

* but even if we assume ad argumento that it is a major cost component of the procedure the net math looks like

0.965 x ( Orig_MedDevCost x 1.0235 ) ==> 0.988 Orig_MedDevCost

IE roughly a net 1.2% cost savings to the Consumer. So even in the cost too the consumer your math doesn’t work

Jerry Robinson
Your math sounds wonderful – just as some salespersons at a Used Car lot talk about vehicle reliability.. You “do” have to start somewhere, after all… but when you buy that vehicle with 120K miles and get it home.. it’s not the car sales person who dumps a quart of oil in your vehicle every month & cleans the driveway.

So… let’s suppose you sell products for 6 months.. at the end of that time – with getting paid at 90 days – that means 120 days in common practice – then you have to support the tax effect for about 4 months… so… say 2.3% of sales + the cost of accounting/interest/liability/risk, etc.. that could reasonably be – and exceed 5%. So.. you have a 20% load +/- on your company to support the 4 month tax cash flow effect..

As was pointed out… in the US, there are over 16K medical device companies and only 700 or so start-ups doing medical devices.. That means that the START-UP effect is only <5% of the total corporate group space.. How many 2014 VC funded startups in France? Accountants - who love to divide things into ever finer pieces - frequently look at EACH product or piece of the business separately.. sometimes the accounting part of a the company - will act as an internal VC type funder - which does tend to support your approach more.. When anyone looks a a product line - and sees this 20% cash load.. OF COURSE they get concerned... IN PRACTICE.. the CASH LOAD of this 2.3% tax (carefully look at all the numbers) can EQUAL the material cost of the product - or greatly exceed it. That should of concern to ANY person concerned about profitability or product sales growth.. If "I" am a VC, then I might look at a SOFTWARE/APP company - and compare it to a HARDWARE oriented DEVICE company - and it is MUCH EASIER TO JUSTIFY the Software company funding - or even a project level funding... At least in the US. If I were NASTY about things.. I would try to come as CLOSE to "Giving away" the medical device - and make up for it in monthly services or supplies sales.. You know.... just like Cell Phones have done.. (and been wildly successful at).. This changes my business model for new development - right?? This 2.3% tax makes for an increased difficulty in doing products and doing new medical device development.... I see this pretty clearly.. the math is also pretty simple... So I would expect to "walk around" these kind of issues with a much better set of planning than what you are stating... Clearly... I should obtain your customer list and offer my services - since I have a more flexible and non "hide bound' - ie "non-traditional" approach to growing the business. RIGHT?? :>

Your COGS observations may apply to traditional suppliers.. but in an international, extremely agile manufacturing marketplace – it simply has been super-seeded beginning in the 1970s – and is not now the domain of the most rapidly disruptive product innovations today…

Anyway… back to my point…

What would be cash impact to the CONSUMER of this 2.3% tax? does it get marked up – like an Asprin? is it something else? for sure – it is not FREE….

John Eckberg
Hello Karl, Thanks for the link. What is it about BEFORE that you don’t get? There’s no Earnings BEFORE anything any more for this sector, unless you count taxes having to be paid BEFORE revenues arrive as Jerry pointed out. It’s a dumb tax, imposed for punitive reasons, and it’s dumb at every level of analysis. There’s no pass-through because half the hospitals in the U.S. operate in the red and GPOs and IDNs refuse price hikes. Pretty simple. Don’t need 13 paragraphs or a finance degree to understand it.

John Eckberg
Hello Karl, And as for nothing happening on repeal until 2017, well, that’s not true either. 18 Dem Congress members just wrote letter urging GOP House leadership to bring repeal up for a vote. On the Senate side, minority leadership recognizes/expects that the otherwise noble ACA is coming in under budget by about $200 billion (plus or minus 50%) so the so-called pay for is not going to be needed since this tax represents less than 2% of the cost of the ACA – that is, a rounding error. Nice finance breakdown you offered, I must say. That’s probably hard-won knowledge, too.

Jerry Robinson
but…

let’s not confuse the issue with Politics.. no need to, after all… Congress giving up Taxes is not the way things “usually work…

Karl Schulmeisters
John I will feet you back to what EBIT actually means and how it is used. and yes it comes from being engaged in the startup world for decades.
.
as for Congressional politics.
* the House won’t raise taxes
* Senate won’t cut program features
* WH will veto any program réductions.

The whole thing is deadlocked until the Senate or WH changes party control. the earliest that happens us 2017

John Eckberg
Hello Karl, As a guy who covered many Fortune 500 companies for a major metro newspaper for 15 years from SEC filings to one-on-ones with CEOs whose companies posted from $26 billion to $70 billion in annual revenues, proxy fights, 14dEFs, phantom stock options and other ledger legerdemains and editor or author of three business books, well, I am puzzled. I don’t understand what you don’t understand about the B in EBIT. It means before and now, thanks to some arrogant Senate Dems, who pretty much have been unelected from that August body, the concept of EBITDA has been eliminated for this sector.

Yesterday the House introduced HB 160. It has a metric boatload of bi-partisan support to repeal this dumb tax. The measure will sail through the House, repeal backers recognize, and the only question is whether it will do so with a veto-proof majority. Then lickity split to the Senate and finally, with the help of divine Providence onward to the President for his signature because the money simply isn’t needed with the ACA coming in maybe $200 billion under budget. When that happens, you and I will go our separate ways.

But until then EBIT is no more for this sector so in the interest of truth, please stop pretending that EBIT as a concept has meaning for US medical device makers, who now pay on average a tax rate that surpasses 45 percent of earnings and must compete agains companies that are based in Switzerland, manufacturer in Costa Rica and sell to US GPOs products that carry a tax rate of about 11 percent maybe.

And that’s the truth.

This sector needs a new acronym thanks to this tax: Earnings After Excise Tax But Before Interest Corporate Tax, Depreciation and Amortization or EAETBBICTDA for short.

And give my regards to your pal Zeke Emanuel, please

Karl Schulmeisters
John I’m a bit confused as to how covering carve-outs, preferred-stock convertibles, and monte-carlo based options valuation provides insight into the world of startups.

Perhaps this clarifying question might help you;

the B in EBIT does stand for “Before” but in what domain does the “Before” refer to?

The fact that you are arguing for using a different standard means you KNOW you are wrong in your application of “before”… and the reality is that EBIT(shorthand for EBITDA) is what VCs and Angel investors use… and thus the Excise tax INCREASES the success rate of startups.

Now as to HB160.its actually HR 160 http://thomas.loc.gov/cgi-bin/bdquery/D?d114:1:./temp/~bdidQa::|/home/LegislativeData.php| and its not even made it to the floor of the House much less the Senate

BUT. it doesn’t matter what the House does. not in the slightest. because
* unless it has a filibuster proof majority support in the Senate, it cannot even make it out of Senate committee

* to repeal the device tax the revenue MUST BE either replaced from another source of revenue OR an equivalent reduction in services must be made

And The senate Dems are not going to allow reductions in Government services except military spending. and senate GOP isn’t going to allow reductions in military spending.

Meanwhile the House will not allow another source of revenue.

So HR 160 is going nowhere.

Dr.Mohamed Ibrahim
Dear Sir or Madam,

I am the owner of DevicesCo.com & MedicalDevicesCo.com .

Devices Co = > Stands For Devices Company or Corporation.

Medical Devices Co = > Stands For Medical Devices Company or Corporation.

DevicesCo.com & MedicalDevicesCo.com are Short domains and easy to remember.

If you are interested in DevicesCo.com or MedicalDevicesCo.com please let me know.

Regards,
Dr.Mohamed Ibrahim

Jerry Robinson
John was pretty clear – that for his segment of the medical device products business… that B does stand for BEFORE.

If your VCs do NOT understand that impact on CASH FLOW, then they are not “real” VCs. Yes… there are VCs who don’t understand math… May you always have them as customers…

So Karl.. just remember… “B comes after A”… just like in this tax: “Before income – is different than After income”…

It’s like in REAL LIFE… you would PAY for your ice cream one day… and 3 – 4 or even 6 months later actually get it to eat. This, as any kid would know, is BAD.

Karl Schulmeisters
John is being misleading. the “before ” is not temporal (as in only until you actually pay your taxes) but sequential in calculations.
.
ie the valuations of startups are based on a calculation of annual earnings before you subtract ITDA from that number.
.
it has nothing to do with when the calculation is made. that’s why he said that he wants to make up a new measure….because using the existing calcs results in my being right
.
as for cash flow. …to the extent it affects burn rrate VCs care….and to the extent it shows clean books they care.
.
but for purposes of investing I have yet to meet a VC or Angel that considers cash flow for valuation.
.
and I don’t think you know any either

Karl Schulmeisters
as for NET 90 on COGS. that’s nothing different from any non software startup. try again

Jerry Robinson
Well Karl….

Let’s expand the story… just a bit..

VCs look for – hopefully – successful startups… perhaps disruptively successful startups.. that’s kind what the math for VCs favor…

The CORE REFERENCE for disruptive innovation – is from Clayton Christensen’s book – “the Innovator’s Dilemma”… in that book, the case set of study comes from Disk Drive Industry experiences… WIkipedia lists about 223 (+/-) “defunct” HDD makers – since 1956. There are about 3 companies left doing HDDs today.. so….. 3 winners out of 226 companies total… This can be how brutal disruptive innovation space can be… really – it’s even more brutal than the numbers indicate…

If you do a study (as I have) of HDD makers – since they are CORE to the story of how Disruptive Innovations work – then you start to ask questions… “WHY did each company die? What killed them off?” Each company, as you would surmise had LOTS of accountants that thought about things like EBIT.. and such… BUT.. why did these 223 companies die or exit the industry?

If your VC or ANGEL does NOT consider things like Cash Flow – or have a MATURE understanding of how cash flow – and therefore any potential growth works… Then they WOULD NOT SURVIVE in the HDD Innovation space.. Lots of VC’s did not survive, either..

You keep discussing the “value” of a startup or company… fair enough.. BUT IF IT DOES NOT SURVIVE – like 98.6% of the HDD makers did not… then the “VALUE” is Zero… in fact, it may cost money to close the place down – and sometimes the VC operators go to JAIL.. as did the clever VC managers running Miniscribe did..

So.. I actually DO ascribe some importance to your analysis.. It’s a starting place for trying to start and build a company.. you have to be able to ANSWER questions on this analysis – to figure out a cash out or growth strategy.

But it is only JUST a part of the solution..

Med Device design and production are on the very CUSP of transitioning in a disruptively innovative way… Taleb writes QUITE a bit about this… So does Philip Tetlock and Christensen. It’s where our fractal reality hits the pleasant consideration of linear accounting methods. I think that – very quietly – many med device tech and application tech solutions are crossing into that chaotic, turbulent space of disruptive innovations.. Tipping Point – says Gladwell.

One project I worked on fall-summer – was as CTO of a med device company startup. The idea was to replace a $8500 med device -with a cell phone add on – and utilize cloud / phone analysis to improve accuracy – and save lives. The projections were that about 50 million+ of these type devices could be sold – when cost was below $50 for the med device solution…

VCs get scared off from this type of aggressive disruptive solution in the med device market place.. you can see why… Risk is high – and growth has to be incredibly well planned.. So I am sure you can offer your services and analysis to such folks in the nice “near linear space” of sustaining solutions… MAKE SENSE?

It really depends on the VC or Angel – as to how aggressive they want to be – and what their ultimate objectives are… I felt that LIVES SAVED and BIRTH DEFECTS AVOIDED was a substantial element of valuation.. it is, but it’s also a separate piece than what you describe….

As far as what I know or don’t know… well.. we have never met and certainly never talked outside this forum.. we probably won’t, either. so your “thinking” could be in error. (accuracy of experts issue.. see Tetlock and Berlin….).

Karl Schulmeisters
You are mistaken. VCs look only for a business plan that they think has a reasonable potential of 100:1 growth in 3 years. they in fact typically avoid “disruptive” technologies particularly in hardware, unless you can show a track record of market attraction and growth.

why? because disruptive technologies typically take longer to achieve market potential than someone going in and making an improvement on an existing technology that was seen as disruptive some years back.

From the perspective of “survival” VCs and Angels are only looking at a 3 year horizon. They really don’t care if the company actually survives 4 years or 5 years out.. They are playing a statistical game:

* of companies fail to break even. 70% of companies fail to create any meaningful value. So VCs start out with the assumption they will lose 90% of their investments. of the remaining 50% of the remaining 10% will make market returns (boring) 20% will make their predicted 10:1 growth rate and 20% will exceed 10:1 but not 100:1 and 10% will exceed 100:1 growth.

Of the 5% (original investment) that make or slightly beat market – the VC will force a sale and will take as much of the sale proceeds towards their 10:1 ROI as possible. So that means that if you gave the VC 20% of your company and you manage to grow your company 300% in 3 years (not too shabby actually) the VC will force the sale (or the next round of VC funding) – of which they will then take 2/3 of the proceeds since they get to take their slice out of the value first (that’s how they write the contracts).

So they really don’t care about long term sustainability when they make their initial investment. They care ONLY about growth in the 3-4 year time frame.

The challenge that med devices face is precisely that they are on the cusp of disruptive transition. It is the very fact that there is disruption about to happen that makes VCs unwilling to invest. There are some that are aggressive – but mostly what they are investing in is the “team” and neither the technology nor the market analysis.

And if something is disruptive and succeeds – a 2.3% excise tax would be such a meaningless low percent of the pie that it would appear as a noise function (if you put in $2 million and get back $500 million or you get back $488.5 million, you really don’t care that much. You’ve made 24400% profit vs 25000% profit.

and if a company is going to go under on cashflow because of a 2.3% excise tax, then it is nowhere near able to sell for even 10x your orginal investment so you write it off as a loss.

Jerry Robinson
Karl….

IF someone disagrees with your position or math – then WHY are they “automatically” mistaken? Becasue I DO DISAGREE with your math and depiction of VCs.. IF you ARE familiar with both sustaining and disruptive innovations in the market, THEN you MUST be familiar with the fundamental nature of the “Accuracy of Experts”… so.. go to Amazon and pick up Taleb’s, Tetlock’s, and Christensen’s works.

There is a STRONG DIVERSITY of VCs and their motivations. Not solely the NARROW ONE that you describe. ALMOST CERTAINLY – a few VCs will fit your description – and the “do” want that 24,400% or 25,000% ROI that you mention. PEOPLE also enter the Powerball lottery and have illusions of “get rich quick” casino playing.

For example.. Miniscirbe was a Colorado Hard Disk Makers… they were VC funded.. not being happy, the VCs ejected management from Miniscribe and installed one of their own boys as CEO. This “clever young VC” decided it was OK to ship bricks, falsely identified as Disk Drives, to distributors at the end of the year – so as to inflate profitability and sales…. It worked once, so it was tried a few more times.. The VC Hero was caught, and selected senior management went to prison. IF ALL VCs were alike, then does that make them all Felons in Waiting? Don’t you think that is absurd…????

I have found that there is a tremendous diversity in “self identified” VCs.. among them HAVE been a mix of con artist, outright crooks, scammers, and narrow “get rich” quick artist… These folks have no business confusing the poor folks that are looking for financial help.

I hope you find your VC to “bill”. Real VCs are a lot more mature. Not all of them look for that 1 out of a 1000 fabulous winner.. They are a lot smarter.

Jerry Robinson
You are ABSOLUTELY right about the FACT that we are on the CUSP of major, disruptively innovative change. TRADITIONAL approaches to medical devices – may still work – but are going to only a few postions – in a sea of new type approaches and solution. Just the nature of things…

FOR THE MOST PART … Traditional VCs and their approach – will not apply to the “new flood” of devices and apps.. already, things are quickly heating up.

There isn’t really a place for “would be VCs” who view Med Device investing as something more reliable and safer than buying Powerball Tickets.

I hope you can RAISE YOUR RATEs… seriously… and charge such folks WHOPPING PILES of cash to figure out where to invest… it’s a good strategy…

The SERIOUS people – like Gates and Khosla are way beyond that level of juvenile thought.

Jerry Robinson
Here is another currency for you to think about…

Figure out something to help children have a better life… could be a medical device…. then SCALE the function for kids in the majority of the world. That’s another form of economic success – and the VCs sometimes think this way.. Khosla does.. and has acted accordingly…

VCs looking for the “powerball” win may find a place at the table …. but it is not the “most important” or “most valued” at all… Start thinking long term…

Karl Schulmeisters
Jerry attacking me personally foes nothing to refute the math.
.
these numbers have held true over 3 decades in industries as diverse as automotive, HealthIT, aerospace, oil and gas, Bob software, telecom, video, and B2C
.
I can point you to reams of sources. but Google can do that too.
.
the bottom line is that the device tax does not hurt startups and established companies ought be sufficiently compétant to manage around it.

Jerry Robinson
Karl…

I disagree with your position – and have no personal comments here.

I DO say that VC funded med device startups are not the majority of such startups – for either devices or apps.. That’s the numbers…

I also say that the Med Device tax – 2.3% does impact companies – and that has been shown over and over… you quoted VC type rational to disagree – for such you may be perfectly right.. but a LOT of companies are feeling these effects and many have nothing to do with VCs. So – on the whole – that math is invalid for the complete group of med device companies.

In business.. we talk about the value proposition.. cash is really only a part of that story – and not the whole..

Jerry Robinson
Earlier – I brought up this point:

“What would be cash impact to the CONSUMER of this 2.3% tax? does it get marked up – like an Asprin? is it something else? for sure – it is not FREE…. ”

No one wanted to answer this question – lots of comments were made about this 2.3% effect – and impact being “minor” or “major”. No one wanted to deal with the “consumer” or “patient” side of this issue…

So.. . I turned to Google – and looked up stories to get realistic answers….. I think this is significant.

First – there is the surreal markups that Chargemaster impact… the $0.02 aspirin marked up to $15 or $19 comes into that category.. so it is VERY REALISTIC to wonder how much effect that extra 5% of med device charge gets to the patient?

The Atlanta Journal-Constitution in 2009 saw hospital markups of 157-709% (AJC.COM). Items on a hosptial bill are typically billed out for as many different items as possible. Research show that by billing items discretely – that you can bill out more money. One Doctor used to conduct training boat Cruises to show how to break up billing – and increase revenue by as much as 400%.

So the patient impact for this extra 5% of cost – is about 12.85 – $35.45 per $100 of original medical device cost. Is this a killer problem? may be not.. but the medical device may cost a lot more.. One meter I worked on was $8500. Using this markup number… that is a patient impact of $1092.25 – 3013.25. Considering that the cost has continued rising since 2009, it is likely more today.

The extra cost – does have an impact… for those making minimum wage – this is a LOT of extra hours to work.. it matters…

Karl Schulmeisters
and again that’s not a whole stick analysis.
.
the tax finances par of the ACA and taken as a whole the ACA has been documented as bending the cost curve downwards.
.
if you want to analyze the net cost tto the end consumer you have to take it as a whole or analyze the whole ACA in detail.
.
but you can’t do piece wise analyses and draw valid conclusions

Jerry Robinson
A lot of people are not covered by ACA.

That aside – cost is the number… Additional cost to to a medical device – at a hospital – will get passed on to the consumer. Prices do get marked up. This is absolutely fair to say…

there has been research on HOW MUCH THAT cost is…. and average numbers. These number differ wildly at different hospitals…

The Gov’t has a list of things – and what charges might be…. there are other lists, as well… asking an insurance company – what the markups are – is very direct to do – but you might not get information.

I picked a device – just as an example of how this markup would work. Of COURSE is does not represent all devices.. or all hospitals, at all.. but it is a reasonable case in point.

Actually.. with Big Data what it is…… I think you COULD do some extremely accurate analysis of these numbers… and that the direction that the market is heading… Disclosure – and competition.

I agree that the ACA bends cost downward… I don’t need to analyze it…

IF you DID do the full data analysis -then that is the basis for a GOOD STARTUP to sell shopping services to patients…

good idea, you think??

Karl Schulmeisters
regardless of whether you are covered by the ACA or not, the net reduction in healthcare inflation exceeds the rate of device price increase.

and it is NET cost that is at issue. After all if your device costs go up 2.3% but your net bill goes down 23%… the 2.3% doesn’t matter.

Yes prices get marked up. but a 2.3% wholesale increase typically is a 2.3% retail increase, its just that the cost basis at the retail level is higher.

and again, picking singleton examples when you are talking about broad policy is not vlalid reasoning.

As for the startup idea – I’m not convinced. Most folks don’t understand and are not interested in understanding statistical analyses. I could be wrong. Its just not a startup idea I’m interested in pursuing

Jerry Robinson
People definitely do not study statistics as a recreational activity.. at least those I know do not…

I gave you a source for the study.. there are a LOT more sources – for different studies with similar numbers… cost increases are NOT just passed through… where do you get that idea?

also… I quoted source – for numbers… I don’t see your source… can you provide? how does that affect an individual device’s markup?

The healthcare inflation rate may be reduced.. but that does not equate for overall cost reduction.. inflation rate and costs are not the same..

where do you get your assertions??

Karl Schulmeisters
I’ve cited the pass through source a long while ago in this discussion

Karl Schulmeisters
the study you cite is hospital markups…..which is not relevant to the question of the device tax in and of itself

Karl Schulmeisters
That Hospitals don’t always charge their COGS http://northdenvernews.com/colorado-hospital-bills-not-related-to-actual-costs/ is not new news. http://bmjopen.bmj.com/content/4/1/e004017.full

But that’s not related to the device tax being a bad or good idea

Karl Schulmeisters
but you asked for some links on pass through:

http://www.healthcarebusinesstech.com/medical-device-excise-tax-2/
>>Some are even including the 2.3% tax on customers’ invoices. Some of the manufacturers that are doing this include:
◾Solar Biologicals, Inc., in Ogdensburg, NY, a laboratory supply manufacturer
◾Cadwell Laboratories in Kennewick, WA, a diagnostic and monitoring products manufacturer, and
◾Codonics, Inc., in Middleburg Heights, OH, a medical imaging and information management device manufacturer.
<< http://fas.org/sgp/crs/misc/R43342.pdf
>>The estimates of the
economic effects of the tax, presented further in the report, suggest that the tax will probably not
reduce profits, but will likely be passed on in price.<< (note this last is the original FAS economic analysis of the tax) http://www.modernhealthcare.com/article/20121208/MAGAZINE/312089973
>>Hospitals will likely pay higher prices for some medical devices as manufacturers seek to pass through the cost of an impending excise tax to providers.<<

John Eckberg
Hokum. All hokum. GPOs, which buy for 5,000 of the what 10,000 hospitals in this space will not allow any price hikes. The rest of what you write about passing on increases is fairy tale anecdotes.The other pervasive canard is that millions of new patients under the ACA will translate into millions of new sales. Patients were already getting life-saving devices under law because clinicians could not turn them away. Inelastic pricing is true but the reason is because of GPOs, IDNs and hospitals at or near red ink refusing any increases. Med devices have held steady as a cost of healthcare at about 6 percent for 20 years. While a convenient shipping boy, device companies have not been at the vanguard of exploding costs. Nice of you to explain the pricing nuances faced by a handful of start-ups, which are a fraction of the 8,000 device companies out there, Karl.

John Eckberg
Hello Karl, My evidence is common sense, and, well, frankly, common knowledge…and make that whipping boy instead of convenient shipping boy, please…

Karl Schulmeisters
I notice John you have yet to offer any sporting evidence your your claims.
.
by your logic these organizations should be getting the products for free since they dictate everything to the sellers. It just does not work that way. Note your comment:

>> Med devices have held steady as a cost of healthcare<< IOW there has been a YoY increase and that increase dramatically exceeds the current rate of healthcare inflation (by about 2.5%) in fact it exceeds it by more than the device excise tax. It is true that startups are a fraction of the companies out there - but both Jerry and you have been focusing on startups as to how "innovation is harmed" by this tax. I've shown that not only is it not harmed, but given how VCs do valuation - the tax actually helps. As to the other companies, they have processes in place to manage how to deal with COGS increases. and they have roughly 2.5% with which to play with. - seems to me there is no harm here either. again, the device tax may very well be a really bad idea. But nothing you nor Jerry have put forth indicates it is a "job killer" Nor have either of you put forth any realistic pathway in the current political configuration by which this tax gets repealed. The structure of the House vs. the Senate is such that on an issue like this, the two bodies are pushing in opposite directions, and it is in the Dem's interest to lend a shoulder to whichever side is losing a bit to keep it stalemated.

Jerry Robinson
Let’s avoid the politics – just as YOU REQUESTED. So… no using the word “Dem” or Rep” in a sentence. Just as you would prefer…

I like your NO POLITICS request… let’s all do this…

Jerry Robinson
Well Karl… you are arguing BOTH sides of a question – and that is a bit confusing….

You report:

“>>The estimates of the
economic effects of the tax, presented further in the report, suggest that the tax will probably not
reduce profits, but will likely be passed on in price.<<" ">>Hospitals will likely pay higher prices for some medical devices as manufacturers seek to pass through the cost of an impending excise tax to providers.<<" There are TWO conclusions from this - that I - and beleve everyone else here - agrees on... 1. - Hospitals will pay more. May be NOW may be LATER... but MORE IS MORE... 1. - Hospitals will PASS ON the cost... MY ASSERTION is that this ADDITIONAL COST will be passed on to the PATIENT - as part of the hospital's normal markup.. which the AJC reported research showed was between 157% and 709%. May be this is right - may be not.. but when prices have INCREASED in the past, then those increases ARE passed on to patients - so there is a history to fall back on.. do you want to disagree with this? That would be a bit absurd, don't you think??

Jerry Robinson
I assert that pointless cost increases to patients are bad. It reduces medical care. This is bad.

This is just my assertion..

If you are going to argue that increasing patient cost to patients – in one form or another – is GOOD, then just say so.

Jerry Robinson
You dismiss John’s assertion that the tax cost jobs. I agree with John.

When you challenged him to give examples – HE DID SO.. and then you promptly dismiss those well defined examples and THEN claim that he offers no proof.

John did not claim that his examples represent and entire industry – and every single Medical Device company. HE DID claim that here were simple examples where jobs were lost. What is so hard to understand here?

Jerry Robinson
The VC math you have quoted.. clearly apply to only a small percentage of startups… Numbers show something like 700+ startups in the med device field last year (not my number – I quote from a report) and over 16,000 Med Device Companies.

In terms of actual jobs, that tiny number of Powerball thinking VCs are looking a companies with only a small number of jobs. That’s just the math.

So this VC type math really only covers a small number of people – even if the math is right.

Startups are DIVERSE – so any one single math description is going to be incorrect – just for diversity reasons…

Jerry Robinson
Karl – you said:

>>the study you cite is hospital markups…..which is not relevant to the question of the device tax in and of itself<< sure it is... Hospitals pay more for medical devices. Hospitals are already stressed for materials and other cost.. If a hospital is in the "RED" or "BARELY BREAKING EVEN", then additional cost hurts their financial position. Either pass the cost onto the patient - or pay from the cost from other areas of hospital services and resources. This is bad for patients. If hospitals pass the cost on - then it cost patients more money. This works against quality healthcare. That's relevant.

John Eckberg
The reason why hospitals and GPOs and IDNs will not accept price increases is because the industrial diaspora created by this tax also led to more factories in Baja, Mexico; Costa Rica and Ireland. Products from those factories end up being taxed at a far lower rate than products from, say, Spencer, IN, because they are manufactured in no-tax or low-tax enterprise zones. I’m not going to waste a New Jersey nanosecond offering citations for any of this, Karl, because it’s obviously true.

Even though products from Costa Rica are taxed via the medical device tax when sold in the U.S., by eliminating the higher base tax rate, those products will be priced far lower than products from, say, Spencer, IN, hence hospitals, GPOs and IDNs go for lowest price. None of those purchasing groups care where a product is made or if an American was employed to make the product.

Jerry has forgotten more about this stuff than I know. Wonder if those folks laid off in Galt, Texas, think this tax was a good thing?

Joseph Schwartz
Here is some math:
1. Medical Device Manufactures Association of 109 medical technology innovators

http://c.ymcdn.com/sites/www.medicaldevices.org/resource/resmgr/Milestone_Documents/FINAL_Device_Tax_One_Pager.pdf

* of companies slowed or halted job creation: That is a net cost in jobs.

* would increase R & D if the tax was repealed. That is a net cost in R &D. How much?

The average response was 14% increase.
That is a study, but will you accept the findings Karl?

1. AdvaMed study done “To provide information on the actual real world impact of the tax in the first year of implementation” A survey sent to all AdvaMed members.

http://advamed.org/res.download/417

Key findings:
* lost jobs

Lost R & D; 30.6% of respondents had to reduce R & D funding
Moved Jobs Abroad: almost 10% said they relocated manufacturing outside the US because of the tax.
* of respondents experienced one or more of the following:

* or cancelled capital investments

* or cancelled plans to open new facilities

* investment in START-UP COMPANIES

* it more difficult to raise capital (START UP COMPANIES

* or deferred increases in employee compensation

Future Impacts: 50% of respondents said they would consider reducing employment (That is a loss of jobs)
* said they would consider reducing R & D investment (INNOVATION)

This is the same as the testimony given before congress, so I guess Karl will reject it outright because it does not agree with his POE numbers.

Jerry Robinson
What Joseph says is what drives a practical pressure for more disruptive innovation… that just means higher risk – and that has it’s own implications.

Sustaining innovation is superior to maintain progress with maximum cost and job savings…

Karl Schulmeisters
#1 is not credible

Its an industry group that is anti device tax and the fact that 72% of companies slowed or halted new job creation in the aftermath of the greatest GDP implosion in human history is hardly surprising and is not being addressed.

#2 is similarly flawed – it offers no methodology or even the questions used in the polling but the fact that they are basing it on “respondents” and also in the same time frame tells us basically not much.

Do some of those respondents believe there is a tie? I have no doubt.
Can they support that in light of the greatest GDP crash in human history and then an active government policy to slow the recovery?

Not in the slightest.

In fact as I have demonstrated, the device tax would logically INCREASE investment in device companies. That it has not suggests there are other factors at work that are not being factored into the analysis.

As I have said before – politically motivated testimony and analysis is not data.

Jerry Robinson
good… add the word “politically” to the list of words not allowed in a sentence…

w/r to your comment… if 109 people were hit in the face by someone’s fist, then would it be “not credible” – because they are “biased”… Where is your certification to make such a judgement?

I OUTLINED how this tax drives up cost for devices.. and you agreed… I GOT SPECIFIC – based on research by the AJC for how much costs are marked up by hospitals – and the cost effect the tax could reasonably be expected to impact patients… Real numbers, and real research… why would you disagree?

You did quote a REPORT – It WAS a report – from I assume lobbyist – “The Medical Device excise Tax” Economic Analysis”…. I know nothing of these folks.. but htey wrote a 33 page report and you REFERENCED IT.. Biased? I have no idea…

NONETHELESS… based on YOUR reference – the LAST THING they say – and conclude (page 29 labelled – 33 of the PDF) is:

“In the end, based on CRS analysis, the job loss related to the tax is far less than the range
projected in these studies. It is more likely to be in the range of negligible, or zero, to a high of
about 1,200.”

That’s an average expectation of 400 jobs lost – right? (0 + 0 + 1200) / 3 = 400.

So… on TWO FRONTS.. – increased patient cost – AND – an average of 400 jobs lost – by this group’s analysis – this 2.3% tax has bad effects. I suspect that the job lost numbers actually much, much higher than this.. since the “Congress Research Service” is a government affiliated and funded research service – and could be partisan. I REALLY don’t know.. but you DID reject congressional related research earlier.

John Eckberg
The CRS report was a mangled mess of incredible contentions and terrible assumptions. How can Jane Gravelle, a presumed unbiased analyst working for the Congressional Research Service, release and re-release and re-release the same report three times without even mentioning GPOs, IDNs and hospitals on the brink of red ink or actually in red ink? Nor did she mention inelasticity of pricing because of 3- and 5-year contracts. So why release and re-release and re-release again? Because she knew that eventually biased journalists and the ultimate hack Robert Pear of The New York Times would tag along and take her bait hook line and sinker. One of the re-releases actually occurred on election day. The temerity of it all is astonishing. About as astonishing as the fact that she still has a job at the CRS.

John Eckberg
Okay, as for job loss, here’s another way to look at the $1.8 billion raised by this tax annually. Where did it come from? The balance sheets of companies in this space. Assume half comes from U.S. companies. The tax has been in place for two years, not six, as Karl claimed once upon a time. So that’s $1.8 billion. But $1.8 billion has no meaning. So think of it this way. It’s a potential 60,000 jobs that might have paid $30,000 each, that’s is, a job that pays $15 an hour and does not require a college degree.

Or it’s 30,000 jobs that might have paid $60,000, about what a new medtech med-engineering grad would make these days. Jobs that pay $60,000 generate another three jobs in local communities in services or supplies. So that’s 120,000 potential jobs not created because of this tax.

CRS’s Gravelle claimed only maybe 1,200 jobs were lost because of this tax. She lives in LaLa-Land. Nothing she writes about the harm from this tax is believable. Nothing she writes about the impact of the tax is credible. Oh, on the other hand, I guess there’s two elements that have a wisp of credibility. She said the tax would have a negligible impact on the ACA (barely a rounding effort when compared to the $1 trillion cost of the program) and she said justification for the tax was tenuous.

So, I guess she got that right.

Jerry Robinson
CRS did state an average of 400 jobs projected to be lost.. Real research will be eventually done on actual job loss – but the POINT in the above postings – was the issue if Med Device Jobs WOULD be lost… and they will…

Karl Schulmeisters
Have I cited the CRS anywhere John? You are attacking a strawman.

yes, many hospitals are in the Red.. thanks to political decisions to opt out of parts of Obamacare in ways that hurts hospitals http://www.forbes.com/sites/brucejapsen/2014/07/20/hospitals-see-troubles-in-red-states-that-snubbed-obamacares-medicaid-deal/ (notice I’m citing the pro business Forbes here).

yes $1,8 billion comes from somewhere – namely healthcare insurance coverage . Which has risen at 2.5% SLOWER rates than in the past 11 years. So NET NET there is a cost savings

And John if you are going to attribute things to what I’ve said – please have the courtesy of being accurate. The Medical Device Tax has been a KNOWN THING since September of 2009. When it went into effect is irrelevant from a business planning perspective.

From a business planning perspective what matters is when business managers knew they would have to adapt to it. And that in fact IS almost 6 years ago.

And no the $1.8 billion does not correlate directly to job cuts the way you make it up as.

Now as to the CRS – you seep to forget who pays the CRS and who sets the terms of their research. It is Congress. And the current Congress has a majority control by a party that seeks to eliminate and repeal the ACA (they have had over 50 votes of complete or partial repeal in the last 6 years).

So citing the CRS is in fact not citing unbiased data. While the CRS itself strives to be non-partisan, they are funded to respond to questions specified within the parameters of the members of Congress.

Thus the question of
* Is there any credible evidence that the Medical Device Tax has substantially been responsible for job reductions or reductions in Venture Capital Investment in medical device startups

is a very different question than say

* Assuming that the testimony of medical device companies is correct – what are the job losses associated with the Medical Device Tax.

And I challenge anyone to show me that the CRS was asked the first question rather than a question closer to the latter.

John Eckberg
Sorry, I assumed you were trotting out that CRS report after reading Jerry’s latest post and did not have time to go back and reread your 37 responses to confirm. My apologies. But as to your points: yeah, there’s cause and effect. Companies in this space have trimmed payrolls, scuttled R&D and shifted production off-shore or near-shore.

As you have pointed out, firms in this space rely on new product pipelines. New product pipelines usually involve new hires. When taxes on average increase by 9 percent for companies in this space, my guess is that most companies forgo hiring new people first – before laying off existing employees. That’s private companies. Pretty sure public companies don’t care about any of this.

And since there’s no way to pass this tax through to customers, it translates into fewer folks on the payroll. So, it sure does correlate directly to jobs not created.

John Eckberg
Pro-Business Forbes? Hah, that’s a good one

Joe Hage
1. comments and still going. I suspect you’re largely arguing among yourselves at this point as few readers will ever get this far. (I didn’t.)

I’ll bet none of those still active on this string will be swayed by the discussion. So, why do you continue, I wonder?

Hugh F. McCann, Jr
Joe, I bailed weeks ago….not productive. But I fully understand positions that conclude that the tax is not helpful to the industry. The diatribe defending the notion that this tax does little or no harm must be refuted. Most folks in the MED DEV sector may/might side with the bad tax theory….as I do. In my view the anti tax reasoning is reasonable. Congress will eventually decide….with a little input from medical device risk takers. Call the 535, plus the President.
Ok. As Commisioner I declare TKO.
Winner: anti-tax point of views. Ha

John Eckberg
Hello Joe, It’s highly educational for me as I can get a full taste of the canards offered by the tax backers. In any event, as I sense you are about to shut it down, thanks for the opportunity.

Karl Schulmeisters
And Joe while I understand the position that the tax is harmful – the diatribe as well as incivil form of discourse that its advocates engage in needs to be challenged.

The Anti-tax reasoning has failed to show any sort of disambiguated factual basis, and anyone who points this out gets attacked personally.

So John.. name something you can prove is a “canard”? because so far I have yet to see you offer a shred of independently verifiable evidence.

Karl Schulmeisters
All Hugh you have just demonstrated is that you engage in ad hominem rather than civil discussion.

Jerry Robinson
People have their convictions – and many can back it up.
Time to close this discussion.

Karl Schulmeisters
People have convictions. So far not one of you has actually backed it up with sources that stand any sort of careful scrutiny. Which is why this is going nowhere until at least 2017. Why? Because its political and currently anything with the ACA that is political is stalemated.

Jerry Robinson
I backed my AJC info with source and numbers… down to the quarter dollar..

You said “no politics” – so leave that out…

Why is it that if experts with decades of experience and FIRST HAND knowledge disagree with you, then they are “automatically wrong”? That’s not civil discussion.

Ya know… you are not a certified authority on this subject… that I can see.. Why would you want us to agree that you ARE that authority?

You may speak with expertise on some particular VC related start-ups – by the way – what what the name of one of these start-ups? But the people who have posted – ALSO have DECADES of experience – and speak of a different group of companies.

Karl Schulmeisters
an “expert” with a direct vested interest in the outcome should always have their logic examined. Particularly the starting assumptions. And no such examination was done here. When I pointed out that the malts is studiously omitted the impact of the Great Recession, no one responded to that.
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instead the same claims were simply repeated.
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over and over folks like Hugh, John, and even you have engaged in personal attacks and repeated misrepresentation of what I have actually written. Or gone off on tangents irrelevant to to question itself.
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that all speaks to an inability to make a clear and cogent case. And the repetition and in civility speaks to the likelihood that no such case actually exists.
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As for politics, it is one thing to analyze the political positions and possible outcomes.
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it is another to rely on and assert political ideologies as factual statements. the latter is what I have objected to.

John Eckberg
Hello Karl, I don’t think you meant what you wrote, that you know “the tax is harmful but the diatribe and uncivil discourse that its advocates engage in needs to be challenged.” I agree with you on that and it’s why I post here so often.

Other things you contend are laughable. A new tax on gross sales that must be paid every two weeks but perhaps months before the revenues from those sales actually arrive is a good thing for start-ups? Helps them? I’d say you’ve got to be kidding but I know you are serious as an acute myocardial infarction, which is what many of your posts give me. You insist that repeal backers offer no sourcing, which isn’t true, so let me offer a few here:

Here’s what one start-up exec from Phoenix wrote just as this tax was being imposed. It’s known in the news business as a source:

“An excise tax based on gross revenue is punitive and spits in the face of capitalism. It will serve only to stifle innovation, destroy jobs, and diminish personal income tax and sales tax revenues at the State and Federal level.”

Here’s what an entrepreneur/source from Livermore, CA wrote: “I am a small, $2 million medical device manufacturer, who employs 12 people, 4 of whom are paid interns. All have gone on to excellent jobs based on experience with us. I am down to 2 now, because the income for 2 of them was taken by the medical device tax.”

This physician is from Newark, CA: “I just acquired a new job after a few months of having been laid off by a company who will be severely impacted by this onerous and punitive 2.3% medical device tax. Politicians who passed this stupid tax just don’t understand economics, health care, or the medical device industry, or in general what drives and promotes cutting-edge innovation, research, and advances in medicine.”

A CEO from Palo Alto: “We are a very small medical device development company with an excellent history of bringing innovative products to market that improve health through therapeutic devices. With fewer and fewer funding options to bring our novel technologies to light, we can’t afford this additional downward pressure on the collective industry. As a result, plans for our latest project support the economies in Europe rather than in the U.S. due to our restricted options here at home.”

This guy is from San Jose: “We are a start up medical device company, and began selling product in May 2008. We will finish with approximately $30 million in revenues by end of year 2012, and will be profitable within a year. We have gone from 0 – 163 employees. The device tax would have cost us an additional $2 million to fund the company to this point because it is a top line tax. That $2 million represents precious, vital capital for a formative company in hiring employees and building the business to last. Such taxes will drive investment out of medical devices, thus stifling innovation.”

And this is the saddest one of all from Saratoga, CA: “Start-up device with product that is 2x more effective than other technologies for disease that kills 30,000 annually in US. Can’t get funding. Will shut down next month.”

John Eckberg
Dear Karl, My guess is you want university studies because you strike me as somebody who puts more emphasis on thoughtful analysis from a professor in an Ivory Hall rather than observations that are grounded in hard-won expertise and experience from the real world. Okay, then google “Costa Rica in the Medical Device Global Value Chain” The study is from a research arm at Duke. And while it doesn’t capture all the harm as the study is only limited through 2013, it does offer plenty enough evidence to show the industrial diaspora caused by this tax.

Note chart on page 25 showing growth and the last paragraph on page 27 detailing major firms relocating “near shore” to Baja, Mexico; then the chart with the crazy growth in Ireland from 2009 onward on page 29 with economic incentives detailed on page 32. Check out, too, the footnote 21:

* jobs created just in Mexico. It’s 17,000 if you include Ireland. See the table of U.S. companies on page 34; a Costa Rica bar chart on page 36.

Costa Rican employment in this space has grown from 7,499 to 12,329 between 2007 and 2011, the last year I can find. The same trajectory pretty much in Mexico and Ireland and the UK. And those figures are a few years old so it is doubtlessly worse by now. News reports show an extraordinary growth in medical device exports from Costa Rica.

Costa Rican medical device exports were up year-over-year by more than 50% from 2014-2015, the Tico Times reported recently, from $97.3 million worth of medical devices in January 2014, to $149.9 million in January 2015. It will be another major jump when 2016 gets reported as new plants will be coming online and devices will start being sold back into the U.S. – about the same time those Ashboro NC workers will be cashing unemployment benefits.

Exports increased by 58% between 2008 and 2013. If you used the years 2009 and 2013, Costa Rican device exports are up 65%! That ought to wake up somebody.

But it hasn’t.

http://www.ticotimes.net/2015/02/23/medical-devices-top-costa-ricas-export-sales-in-early-2015

Hope this satisfies your need for sourcing. I don’t know what vested interests means but suspect it refers to JFK and Tip O’Neill filling their vests with cash on a campaign trip to Arkansas or some place. Yes, I do have a conflict of interest, I suppose, although this tax clearly benefits large diversified companies, but even though there may be a conflict of interest, that doesn’t mean I’m wrong.

Dan Stipe
This has been a very enjoyable thread. Kudos to Karl for remaining relatively level-headed while John and Jerry’s continue to explode, post after post.

Joseph Schwartz
Maybe they just don’t have enough duct tape to keep their heads from exploding.

Jerry Robinson
I like Duct Tape….. I keep it available. I have Duct Tape for indoors, special UV resistant Duct Tape for outdoors…. Colored Duct Tape for writing on & Duct Tape for sticking on boxes for labeling.

I don’t get into crazy stuff like some teenagers do… like making clothing articles and hats out of Duct Tape… or making works of Duct Tape art to put into museums.

I would NOT like to be continuously told “I’m wrong” because I do appreciate the variety of Duct Tape use – by someone else who wants to define a single color and narrow use and definition of Duct Tape. I do believe that if you told WalMart that they had to pay a new 5% effective tax on Duct Tape – due WHEN they bought tape from the supplier – and NOT when it was sold… that that would be a “BAD THING”… less Duct Tape Choice would result… and perhaps less would be sold. My teenagers, who are fashioned challenged, might have less Duct Tape – with fewer colors – for their Fashion Accessories & Hats….

Fortunately, my youngest will graduate High School in 3 days and pass that major transition point in her life. Perhaps her fashion sense will mature… (I hope…) and I will not have to hide my vast, collectors edition of Duct Tape anymore. One can but hope….

$$$$$$$$$$$$$

on the Device Tax issue… I do hope that solid, objective Academic Research will be done on the effect.. but like so many things – it would be well after the fact. Jobs will be gone – medical device companies will be impacted.. and the historical record will be blurred. How much research do you think was done after the textile industry was wiped out? Causes and effects? If you think that industry wipe-out was SOLELY due to cost of manufacturing, then you would be WILDLY mistaken… that part is documented..

To say that the 2.3% tax is small and has little effect – runs COMPLETELY counter to what Dr. Lorenz demonstrated and studied of “how the natural world works”. LITTLE THINGS can have MAJOR EFFECTS in dynamic systems… like the medical devices business.

Is this exploding? As an engineer – I can do that.. but as a bit of an academic and a senior corporate manager – I do that less now…

And you can’t fool me on heads exploding, either… I say Mars Attacks & I know that it’s Bad Country and Western Music that does that… not Med Device Tax Rants… :.

Jerry Robinson
Karl…

I disagree with your position – not you. The position seems to have no mobility or to be able to recognize elements of logic and example – when presented. That’s my opinion.

Expert… A “real” expert means something different than what people traditionally think it means.. Most people think that an “expert” is always right – or nearly right. When actual research is brought to bear on the subject – something else comes up…

First – Dr. Brown (at UT Dallas) asserts that an expert is someone with 10,000 focused hours in a subject. To have any QUALITY meaning at all, you MUST have a supportable definition of what an expert is.

Second – Dr. Tetlock studied the role of an expert intently. He has a web presence with 80,000+ expert predictions – and tracks their accuracy. From this research comes the idea of the “accuracy of experts” study – and how accuracy may be improved. Tetlock – based on Berlin’s research – showed that a general set of skills with focused points of expertise – can be more accurate than a single “siloed” narrow set of expert skills… This really shows up at APPLE and many of the world’s best design schools.. T-shaped or “Pi-shaped” skill sets, as they are called.. Newspaper reporting (like John) are of these type of skills.. This knowledge can be applied everywhere..

For example: you might get a medical diagnosis from a doctor.. but what does the knowledgeable nurse say? If the diagnosis is adverse, then GET ANOTHER OPINION. .

In the world of computing and software – I saw this OVER AND OVER AGAIN.. out of this world, Christensen wrote the core, definitive work on Disruptive and Sustaining Innovation.

Third: If you are an expert – then you MUST recognize that the world is extremely dynamic – and this frequently leads to fractal behavior: in a nutshell, what used to work – may not work anymore.. (ie, GM, Ford vs Harley-Davidson) in marketing and sales… or for another example – how movie theaters actually make revenue.

I appreciate that Karl has major expertise and skills in a part of the Medical Devices world. But it’s a big, dynamic world – and there are other elements of reality at play. No personal disrespect intended – I just see things differently – and am focused on a”yet-small” piece of the market..

Jerry Robinson
The problem, as I can now clearly see is, is that George Bush should have taxed us out of the economic downturn, then Obama would not have inherited the greatest recession since the Great Depression (Roosevelt just didn’t raise taxes enough). Raising taxes would have increased the GDP and attracted all kinds of venture capital and we would have lived happily ever after, embracing this new 2.3% tax as an opportunity to increase our wealth, while spreading some of it to the less fortunate. Have I got that right Karl? (my head is securely wrapped in duct tape (not a hat but as binding, so there should be no possibility of it exploding…but I don’t know about the rest of you)

Jerry Robinson
what other kind of Duct Tape fashionware – headware could you do… I like the miner’s hat idea – but it needs a flashlight…

Karl Schulmeisters
Joseph wwould you like to discuss the issue or make polemical statements attacking political strawmen?

Alan Brewer
Just reading this thread. Interesting, entertaining …for a while.
It would be super in one could get a ‘cliff notes’ version of the most factual and salient arguments on both sides of this thread.
I saw several posts that seemed worth absorbing for more genuine education on the subject and many more that were like adding more charcoal starter to already hot coals.

Joseph Schwartz
Karl, no further discussion necessary, just trying to apply the new understanding of economics I gained from following this thread. Thank you for your insight and understanding.

Karl Schulmeisters
again Joseph if you want to argue strawmen and use Othe forms of invalid reasoning, no one will stop you. But I to me it comes across as the refuge of someone who lacks a cohesive argument to make.
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but if you don’t want to have a civil discussion I can’t make you have one

Karl Schulmeisters
Alan a summary of my points are as follows :
* the testimony of industry advocates before Congress is flawed because
* they are biased to start out with
b) they were mostly selected in a political process by the faction that has openly done the best it knows how to remove the whole of Obama care
c) the data presented makes no attempt to distinguish the employment and market effects of the Device Tax from the greatest GDP crash in human history (on an absolute scale more GDP was lost than in The Great Deprssion)
d) the data presented does not present the underlying methodologies uses (though the hints suggest selection bias and promoting bias )

* The math and economics dont bear out the claims made:
–》a) The Price Elasticity of Demand is such that the increased cost can be passed

Karl Schulmeisters
onto the customers
* because the Device tax is part of Obama care which has bent the cost curve downwards by more than the device tax, the impact on end consumers is still positive.
–》 d) no direct evidence has been presented that the cost curve would be lowered by eliminating the device tax and Collingwood the revenues elsewhere

Joseph Schwartz
The lack of mathematical evidence is frustrating, but that type of study usually only takes place 10 years out. The lack of supporting evidence is not necessarily a refutation of the argument any more than not yet accredited for a college is evidence of un-accredit-able. If your argument that the tax is good for a company (which if find incredible) is valid, then it must be so on the larger scale no?

Karl Schulmeisters
–》e) the economics of startups is that the higher the price they can charge the higher their eventual VC valuation and thus perversely the device tax is good for startups since it pushes all device revenues up and PEoD says the OSS of sales is meaningless.

Karl Schulmeisters
–》e) the economics of startups is that the higher the price they can charge the higher their eventual VC valuation and thus perversely the device tax is good for startups since it pushes all device revenues up and PEoD says the OSS of sales is meaningless.

Karl Schulmeisters
3) Device mfgs had sufficient lead time to incorporate any compensating price increases into their long term contracts since the Med Dev Tax was made public in Sept 2009 but only went into effect 2.5years later

Karl Schulmeisters
QED the claims about the consequences of the Device Tax’s possible adverse effects has yet to be made

Karl Schulmeisters
Joseph iit is true that for subtle effects the research can take a long time. But remember, the effects are being claimed to have happened 5 years ago. plenty of time for such research to actually be conducted.
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it is true that a lack of evidence does not prove the obverse . but the point then is that you lack the basis for asserting that the tax is dumb or has caused job losses. and the failure to do valid research in half a decade is suspicious.
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as for scaling. …no it does not follow at all. the operational environment for different sized companies is nonlinear. that is quite well understood. it’s why startup CEOs are often replaced as part of the VC investment process
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we also know from Mssr Lorenz that most complex dynamical functions (and the economy is nothing if not governed by dynamical differential equations) are non linear

Karl Schulmeisters
BTW Jerry on the issue of “experts”
There is no requirement of 10,000 hrs for expertise. The 10,000 hrs was popularized by Malcolm Gladwell, and he got it from the work of Mihaly Csikszentmihalyi on “flow” aka “optimal experience”. Its not a criterium for knowledge or analytic based expertise. but again, its not at all clear what relevance this has except as a round about ad hominem avoidance of the cited works and interstitial logic I have presented.

This is why I’m including you Mr Robinson in the incivility of the discourse.

As to the Lorenz effect…. The interpretation you give is not one that Lorenz himself gave. The point of the so called “butterfly” effect is essentially a real world extension of Goedelian Incompleteness. Namely that when applying fixed rule, or limited sampling point systems to real world events, small changes in initial conditions CAN result in large scale backend results.

but predicting exactly which direction the effect goes is highly invalid according to Lorenz. So applying this to the 2.3% device tax means that lacking deeper investigation, its quite possible the outcomes are beneficial rather than negative.

Ive given you a logical explanation why for startups the outcomes could be positive and outweigh any negatives. Something that you’ve never directly addressed other than through ad hominem or appeal to ridicule (as John once again devolves into)

Jerry Robinson
It’s good to have a clear understanding of experts… Gladwell, Brown, and these other good folks have a vast experience that makes 10K hours a good starting point.. With that, one can delve deeper into Tetlock’s studies of expert accuracy. It’s quite relevant to our discussion here – as that many people who ARE experts have posted and provided their view points. Medical Device companies are truly a diverse collection. Sorry you don’t immediately see the point.

I feel honored to be “level upped” in your estimation, Mr. Schulmeisters. Thanks!

Ya know… I bought Dr. Lorenz’s book and read his papers.. multiple times… I don’t recall a discussion of Yodeling or of Godel. May have missed it. I don’t agree with your observation of Lorenz at all. I do agreee STRONGLY with the observation that “small changes in initial conditions CAN result in large scale result change”. I have spent a good piece of my day for 4+ years digging into this area.. so do “kind of” have some ideas on the subject.

Given the diversity of medical device companies, some changes MAY indeed be beneficial. Then again, for many companies – it has not proven to be the case..

Your logical explanations – just do not handle the diversity of the observed medical device company universe. with 16K+ companies and only 700+ funded funded start-ups – there is JUST TOO MUCH DIVERSITY to lump everything into one simple, descriptive box. VCs do not set the majority of motivations for business start-ups.. really.. they don’t – not that I have ever seen in any region I have worked in..

One really key thing – missing in our discussions – has been the profound, HUGE difference in a software/application – versus physical hardware type application startup. From a cash flow standpoint, the differences are truly VAST.

Karl Schulmeisters
>>Given the diversity of medical device companies, some changes MAY indeed be beneficial. Then again, for many companies – it has not proven to be the case..<< Therein lies the rub. We do not actually have any evidence that "it has not proven to be the case". At least none that has been presented here. Because what has been presented here is that Medical Device companies have struggled financially in the aftermath of the biggest GDP crash in human history. And that a political presentation has been made that this is attributable mostly to the Medical Device Tax. That's simply not a logical conclusion. Policy inherently generalizes and "lumps" organizations together. It may well be that the law needs to be adjusted to deal with the diversity in Medical Device Companies - but again, so far you have not supported your claim that there necessarily is too much diversity for the current policy to be working fairly and generally positively. on the software vs hardware digression - there absolutely is a difference. That's one of the subjects I was listening about and discussing with the VCs last weekend at the hardware startup conference (about 10% of the exhibitors were health related ) There are differences in terms of how hard hardware is to get to market and the risk that attaches to investing. But it makes no change to how VCs invest. This last makes straightforward sense. Software startups are not as hard as hardware startups. That means they set the standard of ROI for VCs (I include Angels and even corporate reinvestment in the term VCs) is set by the easier ROI -and other claims to investment have to compete positively on that ROI. So how VCs think about investment, doesn't change. Not if you want their money. As to expertise - here's the guy who originally created that idea (from which Czikzenthmihalyi took it) rebutting the claim https://psy.fsu.edu/faculty/ericsson/2012%20Ericssons%20reply%20to%20APS%20Observer%20article%20Oct%2028%20on%20web.doc

As for Lorenz and Goedell – I think you misunderstood me. Never said Lorenz cited Goedell. Rather that underlying the works of both those giants is an underlying commonality in the area of what is an is not derivable and provable in any system being applied to the real world.

Joseph Schwartz
Karl, something happened to your posts in which you respond to me as well as to Alan, making them unreadable. Has anyone else experienced this, or is it just my computer? This makes it impossible to respond directly to your claims. Yet I will respond to what I have read. Despite your claim that the PEoD makes the bottom line more attractive to VC’s is a difficult point to swallow. In this you fall back on anecdotal evidence, the VC’s you talked to. This is just as biased testimony as the testimony before congress that you reject. There are mathematical studies that show venture capital to medical device companies has fallen the past two years. So in this case the credible evidence is against your argument. Now, concerning your outright rejection of the testimony before congress due to who gathered the testimony givers.. Well the committee that is hearing the testimonies is made up of members of two parties, in almost equal numbers. Any member of that committee can call someone to testify. They even have the capability of compelling testimony. I have yet to hear of a CEO of a startup company testifying that the tax made it easier for them to attract venture capital. Why not? Could it be that such examples do not exist? The claim that the testimonies are invalid because they are biased is an invalid argument in itself. This is the process used by congress and the judicial system to arrive at an understanding of the truth. It is such testimony that puts murderers in death row. We listen to testimony of biased people, giving both sides of the story and, based on that testimony, decide which is more credible. The absolute lack of testimony substantiating a particular view point is typically taken as evidence that such view point is invalid. So you may have your mathematical formulae, but due to the lack of credible, real life evidence, I declare your argument invalid based on the principles of our judicial system.

Now, concerning the recession, the medical device industry has traditionally been little effected by economic downturns. Dental devices, yes, but orthopedic, not so much; the pain does not go away just because the economy is poor. If one needs a joint replacement, they generally wait until they can no longer bare the pain, then they have the surgery. I have been with Biomet for 19 years, and though sales grown slows slightly, profitability has been maintained throughout those years. So what was different this time? The severity of the downturn? Funny, no lay offs in this company occurred until the tax took effect. So, did the economy have an effect? Of course, but it was the tax that affected the bottom line enough to force lay offs. Anecdotal evidence, yes, but real life evidence no less.

Finally, the lack of evidence that the tax is dumb and has caused job loss, one can base those claims on the evidence of prior taxes. Are tobacco companies doing better due to the high tax rate? Check your precious PEoD on that one. The result was companies going out of business and consolidation. Wait, isn’t that what we are seeing in the medical device industry?

Hugh F. McCann, Jr
Entrepreneurs are interesting people. Most are very bright, creative and dream of success. Yet the path to success is very tricky….most startups in the business world fail….
Risk takers are very special people for without them and their nutty ideas how would society move forward? These folks rely in part on instincts, visceral gut feel. Not everyone has that ability. Can’t read it in a book. I choose to remain active in my National Trade Association and have served on the BOD And as President. Why? To align myself with my peer group of competitors and suppliers. To glean first hand the pulse of the marketplace, disruptive changes and just having someone I can trust to have lunch with. Good stuff. Good investment of time. Comforting.
Decisions I have made in my business life were based on all these experiences.
The cost of capital, headcount, technology, global market movement…..all factored into my vision and decision. Be careful of looking into the review mirror. I learn from others misteps and hang around with successful people to steal a good idea. I joined the 10x Group to hear and learn. At the end of the day all the cited authors mean zero to what I will do…..the decisions are mine alone.
If my peer group feels strongly about an issue it will certainly grab my attention. In this discussion the 2.3 apparently is a concern. No math will alter my instinctive gut feel. No one really knows the outcome. But my suggestion is wear a belt and suspenders and keep a close eye on the disruption…..tax policy included. Have a nice day. My tee time in 1PM. HA

Jerry Robinson
I’ve been to business competitions for money and presented “my” plans in competition. I have directly seen BETTER plans and projects win – good for them. I have seen lower quality plans do well – because they have an easier and more certain cash out process – win.. that’s also good…

I recognize an impediment – when I see one – in the 2.3% tax.. I ALWAYS wondered about the horrible payment system timing – of WHEN the tax gets paid.. it REALLY affects hardware companies bad… and in the long run damages companies, reduces overall revenues because of the timing, and will cost jobs.

I KNOW that is is just ONE factor in opposition to starting a growing medical devices company.. there are many MORE impediments – also government created in cases – that oppose startups.

I am NOT getting in a citations match here about this. I have things to do. I have companies to move along. I have products to build and test. REAL VCs are known by their thoughts, actions and the results of their companies. If in doubt, look at Khosla. VCs are not all alike – and too many “self styled” VCs mistake this process as just another type of Powerball – where they make all the rules. AVOID SUCH PEOPLE. THEY NEVER HELP – only HURT with the brain dead micromanaging. There is a place for Zombies – and it is not in the VC community.

I am going to stop posting in this thread.. Said enough.. and Duct Tape follies don’t need to play a part here, either.

John Eckberg
Jerry – I for one will miss your missives, then. Industrial designers are second only to architects in my estimation for their smarts, grit and intuition.

Somebody pointed out that companies will benefit from this 2.3 percent tax. Now I can’t quote Kierkegaarde, Kant or Heidegger – can’t quote you no Dickens, Shelly or Keats…but I can quote Homer:

Doh….

Of course it helps major companies: The 2 percent with more than 500 employees. It’s a major barrier to entry for start-ups, a difficult hurdle for existing small firms that now see a significant portion of their earnings confiscated by the government, with no return bump in sales because what, just 3 million have signed up for coverage – about the size of Greater Indianapolis and Greater Dayton combined. The tax doesn’t pay for the ACA by any stretch. Revenues are simply plowed into treasury.

And it devalues companies that soon become takeover targets for global giants based in Ireland, Switzerland and the UK. Also, companies that have Big Pharma arms are going to get slam dunk new sales for heart prescriptions and what not. Lotsa money there.

What’s more, big companies are diversified so they pay this tax on a fraction of their revenues as opposed to homegrown U.S. firms that sell in the U.S. market. Take GE (and these numbers are loosey-goosey because I have no time to deep dive into their Proxy and 14DFE and 10K but the numbers are close to reality for this purpose) Half their revs come from financial services. Of the half that’s left, half probably comes from wind turbines, white goods, areodynamics, idunno; so of the half that remains, it’s medical device sales or diagnostic sales.

But half of those revenues are not going to be taxed because its international sales. That leaves 12.5 of revenues subject to this tax. What’s not to like? A tax on 12 percent of revs and 100 percent of your small competitors? Bring it on, most big publicly traded companies have decided.

Meanwhile, otherwise thriving U.S. companies have a new dumb tax that claims 30 percent of earnings. Since earnings are often a reflection of value, this tax, basically, devalues companies, which then become takeover targets.

And, finally, as for incivility – my guess is you’ve never spent a minute in a debate or discussion in Akron, Ohio. You’d find out what incivility really means if you had.

Karl Schulmeisters
>>Risk takers are very special people for without them and their nutty ideas how would society move forward? These folks rely in part on instincts, visceral gut feel<< They do and 70% fail outright and 90% fail to achieve the goals their gut feel says they will. Which is why VCs do not go by gut feel on the numbers. So going purely with the gut does not have the greatest track record. Its a way of doing things but it isn't a way to demonstrate evidence. We all operate in an environment of incomplete data. But when we assert something as being a consequence of a cause, we need to have more evidence than gut feel. And the inability to offer independently verifiable data speaks volumes. As to the recessionary impact on healthcare. One of the things unique to this downturn was the pervasiveness of the unemployment (regardless of the cause). This meant that there was an increase in the number of uninsured prior to the introduction of Obamacare in 2014. VC investment lags general capital investment because of the risk and the need for growth. So showing a decline in VC investment in medical device startups over the last few years is going to be a lagging indicator. So is corporate hiring. because you try to keep folks on as long as possible. Remember that people getting laid off in 2009/2010 would typically have COBRA for 6-12 mos. So they would be losing their healthcare coverage in 2011. And that would only show up in sales in 2012 and the medical device company response would start in 2013... hmmm odd how that coincides with your experience. >>Well the committee that is hearing the testimonies is made up of members of two parties, in almost equal numbers. << Well that's not quite the case. First off, in the House the mechanics of the House are such that the committee chair and the majority set the rules of debate period. In the Senate there is a bit more comity but in this last election cycle even that has largely gone by the wayside. So even if the majority in the committee is one person - then the party controlling it can, if they are so pre-disposed, hear mostly from viewpoints favourable to their own (both sides do this). And the visceral opposition to the ACA by the party currently controlling both chambers hardly needs to be proven through citation. >>I have yet to hear of a CEO of a startup company testifying that the tax made it easier for them to attract venture capital. Why not? Could it be that such examples do not exist? << That could be the case. It could also be the case of folks who would so testify, simply not being invited to testify. Its not like the testimony presented has not been researched up front. The reality is that how VCs make their investment calculations is not simply my anecdotal evidence: http://www.saastr.com/the-pernicious-effect-of-dilution-in-saas-the-cold-hard-bloody-numbers/http://mbi.dirkjanswagerman.nl/static/files/MBI/Module%2010/basic%20VC%20formulas.pdfhttps://www.macabacus.com/venture- http://www.forbes.com/2004/01/27/0127artofstartmidas04.htmlhttp://static1.squarespace.com/static/54925cc3e4b000408898a92c/t/54952ffde4b0b34816287afe/1419063293775/Is+it+Worth+It_.pdf

Hopefully those are good starting points

John Eckberg
Let’s see what a few entrepreneurs have to say about this tax, since there seems to be a dearth of commentary readily googlable:

Here’s an entrepreneur who has a head-hunting firm in Waukesha, Wisc.: “I have been a medical sales recruiter for over 25 years and I am seeing first hand what the 2.3% excise tax is doing to eliminate jobs and opportunities in the medical device market place. This tax is a job killer and positions are being eliminated at a rapid rate with medical device manufacturers. When market leading companies such as Medtronic, St. Jude, Stryker and others are eliminating hundreds and even 1000 jobs as with Stryker, you know this tax is killing the medical device economy. This tax is anti jobs and pro tax and it is sad to see how many people are being affected by it across the country. Repeal it now please!”

Or this physician from Puyallup, Washington, has some points to make: “I have a surgical device that I am now in the process of marketing to the major surgical device manufacturers in the US. I had the fortune…or should I say, eventual misfortune, of having dinner with the VP of sales and member of the board of directors of one of our country’s major medical device manufacturers. The purpose of the dinner was for him to evaluate my new medical device.The upshot of the meeting, he loved the idea, and thought it was a significant improvement not only over what their company had available, but better than any of the other competitive devices as well. Sounds promising.

“He then proceeded to tell me that, unfortunately, due to the looming new medical device tax,
that they would not be investing in any new medical device technology anytime soon, and were looking at taking their company in “alternative directions”. Regarding manufacturing of their current medical device portfolio, he informed me that their company, which does the majority of their manufacturing in the US, was now building new plants overseas and would be shifting their manufacturing there permanently in order to offset the costs associated with the medical device tax.

“The president has stated that the ACA will increaset he number of patients available and thereby increase their sales to make up for that. Unfortunately, as a surgeon, I can tell you with utmost certainty that this reasoning is flawed. Not once in my career did I not use, or downgrade the quality of the medical technology or devices that I use due to a lack of insurance.
NEVER. The same number of devices will be used regardless of the ACA.”

And, finally, for now, an entrepreneur from Utah, a CTO, actually: “My company stands to benefit as we have a U.S. owned factory in China. Never the less I’d rather thrive on the business that I already can earn than see the job cuts in the USA that are inevitable with the device tax. Before it was just manufacturing jobs and now we are seeing engineering, purchasing, R&D and other professional jobs being off-shored as the device companies are left little other options in
compensating for the 2.3% additional burden placed upon their business.”

Maybe somebody can cut-and-paste these comments and send them to your favorite Senator who is still opposed to the repeal. My personal favorite is Ohio’s Sherrod Brown…why he hasn’t joined with most other progressive Senators in opposing this tax is a mystery riding a chimera.

Karl Schulmeisters
and again, this isn’t really meaningful. Puyallup is also the town in which one of the leading Rotary Club members claimed that he would close his business if Obamacare passed. He has since then been seen running his business full tilt.

What you offer is anecdote by folks who perceive they have a vested interest. its not meaningful. sure you can cut and paste them. and it is not particularly consistent with being in a science based business

John Eckberg
Oh, I thought real world examples from honest people offered insight. You think everybody is lying. Ok, I get it.

John Eckberg
Isn’t really meaninful? The contrary is true. This commentary from people who have their lives, companies and jobs on the line is very meaningful and ought to be screamed from the highest steeple in the land.

So, too, this headline from February: The Decline Of Venture Capital Investment In Early-Stage Life Sciences Poses A Challenge To Continued Innovation.

And this one from Investors.com from 2013, I believe: Venture Capital In Medical Innovation Declines…The first two sentences are quite disturbing: ” Venture capital investment in American life-sciences innovation is suffering an alarming decline. The number of new biotechnology and medical device companies receiving start-up financing has now fallen to the lowest levels in 18 years, according to PriceWaterhouseCoopers…”

That same year one of the Wall Street Journal’s covey of otherwise boorish and unfair journalists woke up long enough to pen this story, no doubt reluctantly: “Funding dries up for medical start-ups.”

In the interest of fairness, a Laura Lorenzetti, who is a Fortune Magazine something-or-another, found two start-up specialists to talk about the wonderful state of start-ups … booming because digital

Karl Schulmeisters
And again John you are putting words into my mouth and I would appreciate it if you would stop.

People who have a vested interest in something tend to see things from a perspective that they believe serves their interests. We have lots of evidence of this and its precisely why we use scientific method and double blind testing. Its not that people are dishonest. Its that we are imperfect.

And no one has disputed that there has been a decrease in VC investment in medical startups. But nothing in your citation of the WSJ story or Fortune disambiguates that reduction from the expected lagging indicator of the greatest GDP crash in human history.

Its important also to remember that VCs also need a stream of startups to invest in. And we have seen that in this crash – because the crash affected home equity nationwide in catastrophic ways, the ability for entrepreneurs to use their home-equity to start a business was crippled, and thus we saw a huge drop in “new business creation” which is the normal response to increasing unemployment. http://www.citylab.com/work/2014/07/the-troubling-decline-of-american-business-dynamism/375353/

So a reduction in entrepreneurial startups because of the mechanisms of the crash, in turn leads to a reduction in investment opportunities for VCs 3-4 years later.

Fewer opportunities means lower investment. Yes and?

Kathy Saint
I think “and” is the operative work here. Good point on the home equity issue. Here in CT I am part of a group of small business owners and one of the members owns a startup that makes medical devices for NICU’s. He was developing 4-5 new products a year but this past year he was hit with a $40k bill for the tax and had to cut back on his investment in new products. $40k for that small business is an employee. The money has to come from somewhere.

just to underscore that correlation is not causation. Consider that since 1978, new business creation has fallen by 50% http://www.citylab.com/work/2014/05/rate-new-business-formation-has-fallen-almost-half-1978/9026/

And at the same time top marginal income taxes have fallen by 50% and corporate tax rates by 37%.

So are you saying that tax cuts cause a reduction in business creation? After all that’s essentially the same sort of correlative reasoning you are offering about the reduction in VC investment

Karl Schulmeisters
I actually have to retract my statement. My friend corrected me that it WAS a hit the first year but they have worked on improving systems/productivity and absorbed the hit and moved forward with their original plan and pace. He adapted.

So Kathy – why did they opt to take the hit and not pass it on to the clients?

John Eckberg
Here is the thing about credibility. Unlike civility, there is no sliding scale. Either you think the executives who offered those 20 testimonials have it or they do not. If you think they have it, that means they are telling the truth. If you don’t think they have it, that means you think they are all telling a tall tale, that is, they are lying. This is pretty much journalism 101 and it is not something that has room for obfuscation or explanation.

Karl Schulmeisters
I don’t see how credibility is not a sliding scale. juries balance relative and conditional credibility all the time. The good eexample being that the eye witness testimony of a relative who otherwise appears honest, carries less credibility than an independent eye witness, and both are more credible than someone who has a previous perjury conviction.
.
the execs are about as credible as three eye witnesses who are in line to inherit from the person in the dock

John Eckberg
Canard alarm: a tax like this is a 30 percent surcharge. Nothing you write after calling this tax small has any credibility. It bleeds a $60,000 a year job from the balance sheet of a US company in this space every 40 minutes And has done that level of blood letting since January 2013, when it was first collected.

Karl Schulmeisters
if that’s the best case you can make john it’s pretty weak:
* homing
* of large numbers ( $0.00019 per US resident per year is hardly a catastrophic price increase)
* by repeated assertion
.
saying something over and over that you otherwise fail to make a case for is hardly a robust arguement

John Eckberg
GPOs (Know what they are?) don’t allow price increases. And, in fact, only have to wait for the next round of negotiations, which occur every three to five years, the duration of contracts, for products from new factories, like Volcano’s $40 million new and automated plant in Costa Rica to get even lower prices. Caught in that crossfire are thousands of Americans who used to have jobs – good jobs. Why don’t you care about those jobs, which, by the way, employ women 60 percent to 80 percent of the time?

Hugh F. McCann, Jr
Mmmmm.
Great day yesterday……Sunny. Selling my CT home….taxes too high and going higher. Many people are thinking of exiting for personal or business reasons. Any golf courses in Costa Rica?
And CT IS cutting, yes cutting, $100M to hospitals…..some are closing. The aspirins are too expensive….and the uninsured are still filling up the ER.
“GOP CONTROLS BOTH HOUSES” r u sure?
“COGS sold” is the reason for capital formation and cash requirements…..no costs below the line, fixed and variable? R u sure?
Mmm, ah, did we forget about the Great Depression? A little bit of a drop in GDP. Don’t you agree.
BTW: GE just announced they will explore options to move out of CT. Apparently the state decided to make permanent and throw in additional uptick in taxes, the tipping point….point of inflection.
BTW: to keep the poltical theme going…..what party actually authored ACA, the 2.3 and strong armed for one STINKING vote to pass a change in 1/6 of the US economy? What party boss said “pass it and we will read it later” ?
I still would like to here from anyone who actually owns a startup or mature company REGARDING how any tax policy influences business decisions including borrowing, headcount, R&D, facility expansion and other balance sheet decisions….
Notice I have been civil. Not pointed fingers. I have been a good boy. Ha
This forum is about Learning.. Listening. Applying. Growing. Attaining success.
Question: who will win the SUPER BOWL given the fact that Brady will miss the first 4 games?
The point being many picked the Patriots until the disruption……deflate gate.
Simple real life example for how small decisions can and will impact future decisions.
The 2.3 is not a rounding error (.00000000000009) after one loses their job…..and income. A VERY BIG EVENT. Velocity of job loss can cripple municipalities and budgets….real life Flash Card Math.
Watch the repricing of healthcare premiums this year….early signs are they will explode. Is this market reaction to ACA, escalating demand and disruption? No time to create a mathematical formula.
Gotta go hit some balls….Sunday is a day of reflection for how much we all need to be grateful for.
Peace to all.

John Eckberg
The debate is great and good to have you back, although at times there are elements of tedium and a dose of insidious intent.

Here’s an anecdote for you, Prufrock, er, Paul, no I mean Karl. His name is Jeremy and he used to work at GE’s Acclarent.

Army Veteran, Bronze Star recipient, changed careers to medical device and was laid
off 8 months into career because positions were eliminated to try to remain profitable. Moved to
Phoenix for this job, three children and wife is 9 months pregnant with fourth child. Trying to find
work in this economy but other companies also laid off employees so there are fewer positions
available.

Karl Schulmeisters
And that has what evidence of being linked to the 2.3% tax as opposed to the aftermath of the greatest GDP crash in n human history?

John Eckberg
An anecdote more on point from somebody named John who had a job in a place called Buford::
I have lost my job due to this tax as well 50-60 people at Remington Medical, Inc. My
past employer is moving to Dominican Republic.

Jerry Robinson
Hugh…

come to Texas… it ain’t perfect.. far from it.. weather is annoying… but people do try….

If you are med devices – then you have to look worldwide and think in new terms of distribution… and delivery to consumers… Aflac is a good example of applied thinking….

It is a good day.. my daughter graduates High School TODAY… it’s been an adventure… all over Texas, the very best happens when HS graduation day happens..

Karl Schulmeisters
It sucks that your employer is offshoring.

but again… this has what evidence that it is tied to the 2.3% tax rather than cost of labor or the consequences of The Great Recession?

GDP per capita in the DR is $5,195 USD/yr vs $45,863

DR is part of CAFTA. which GWB had Fast Track Authority on and put into effect as an Executive Order.

So it seems to me that a combination of the fallout of the greatest GDP crash in human history and wage rates roughly 11% of those in the USA are the reason for the move. I don’t see that you’ve shown it has anything to do with the device tax.

Your in a tough spot it sounds like and I can understand your frustration, but blaming it on something visible but of low impact is hardly a solution. I can point to a variety of policy actions that could have been done that likely would have prevented your situation – but the Device Tax isn’t one of them. Economics is economics – there is a reason its called The Dismal Science

I truly am sorry for the situation you find yourself in. But this is a windmill that you are tilting at

Jerry Robinson
Karl…

Truly… why are you so vicious to people here…? This is what we, and I include you here, have been sensitive and resisted for decades.. some people get off on vicious trolling. It fixes nothing and seems calculate to hurt other people’s feelings and such..

We aren’t discussing CAFTA here.. YOU stated that we should avoid politics… YET YOU KEEP BRINING IT UP.. so… you get to discuss politics – and others don’t? How is that helpful…???

How is it that you get to DECIDE what is acceptable or not in other peoples presentation reports of jobs lost? people hurt and suffering? Where is your FORMAL CREDENTIAL IN THIS? I certainly have not appointed you “dungeon master” or “referee”… Did anyone else say this? I don’t think so…

Just so you can get in touch with your “human side again”: >>I truly am sorry for the situation you find yourself in. But this is a windmill that you are tilting at<< is callous, unfeeling, and I think offensive remark. MY OPINION - you don't GET to somehow MODERATE that opinion - and decide OTHERWISE.. Joe is moderator. He gets to decide - and trys to do a good job. NEVER have I seen that he "steps on people's" opinions or sense of self worth. IF he "pulls the chain" - it's been due to the sense of fair play involved..... The SUBJECT was the impact of the 2.3% tax. NOT CAFTA, NOT the GDP crash.. NOT what a bunch of UNNAMED, perhaps NON-EXISTENT VCs might think. EVERYTHING that people have brought up as observation, experience, and even FIDUCIARY RESPONSIBILITY - you have chose to blow off. Fair enough - that's your opinion. I actually THINK you might make valuable contributions - if you would stick to the topic and get off the pompous high-horse. Hopefully, I can level up again on the "uncivility" index... but.. when people in Texas notice that you really and truly have stepped in a "stinker" - then you MIGHT want to know this.. saves cleaning up the tracks later... Karl Schulmeisters
Do explain where I am being “vicious”? John’s in a tough spot. And I do feel for him.

No we were not discussing CAFTA, nor were we discussing offshoring to the Dominican Republic. But John has provided ZERO evidence that the company is offshoring because of the Device Tax. Even if that is what they told the employees, the real reason is that with salaries 1/9th that of the USA and CAFTA enabling the devices to be imported into the USA at reduced or no tariffs.

Blaming it on the Device Tax, is in fact tilting at a windmill. there is nothing vicious in saying so. Its just economics – and economics is called the dismal science because it often gives answers that are unpleasant

Sure John gets to have an opinion. But opinions that are contrary to the facts have a very unkind dictionary definition. One that I did not invoke.

I’ve blown off nothing Jerry. I’ve pointed out that the anecdotal claims made are not evidence. And I’ve provided independently verifiable context that either refutes, or puts into question those viewpoints.

As for incivility – you haven’t left the ad hominem from a post yet.

Nothing John has posted links his situation to the Device Tax. And since he brought up his situation, linking it to the likely causes – namely CAFTA and the huge wage disparity between the DR and the USA is perfectly reasonable

Hugh F. McCann, Jr
“Hear” from anyone…..computers are great until they misspell a word in the context it was meant.
I would be interested in hearing from folks who deal with “above the line costs and below the line costs” in a public or closely held business.
As a business owner with a multi million payroll I do not support any tax that gums up the means of production. The U.S. is an economic engine. Creative. Free. Dynamic.
In my view, the 2.3 does not resolve the vexing problem and “DISMAL” reality of having too many people living long and longer lives. The 2.3 is yet another variable drain on cash flow.
COGS sold is only half the equation…..there are remedies to alleviate this fact including LEAN, automation and perhaps M&A.
Not all business plans make sense and succeed. That is very normal and expected. BTW: I still have a perfect BETA MAX.! Does the world need better MRI technology? Not sure. Do I personally need faster computing power? Don’t think so.
Business plans like marriages are shall we say: fluid and can get disruptive. Fortunately I have been very very lucky in both…..and love to read the ECON101 stuff but at the end of the day I pull the trigger based on a gut feel. Statistics is more about probability than a sure thing….anyone watch the Miracle on Ice or the Tyson-Douglas heavyweight match? Most of us got that wrong.
This I do know: when driving wear your seat belts……
The 2.3 is not helpful
Lower C and S rates…..and pass the tax provision I co-authored. MRA

Jerry Robinson
you HAVE asked for examples – and when provided, you HAVE dismissed them…

Hugh is pretty clear here – above – and is directly in a postion to comment.. “does it affect jobs” – then the answer is “likely” yes.

also.. no hominems were harmed in my responses..

As far as the vicious part goes.. I think that a number of people mentioned in this thread have been the object of a vicious response.. at least that is the way I see it. This is not a High School debate forum – and such tactics are not helpful.

I referred to you making political comments – and that is accurate. It’s also accurate to say we don’t need to consider the background or motivations on what is happening now. JUST THE EFFECT – right?

It’s my assertion that the 2.3% tax is harmful and cost jobs. It does so in a nasty and insidious way for hardware type medical devices – because of when the tax is paid. WHAT would have been the HARM in making this tax a part of the normal income tax structure? Making the payments due in the NORMAL course of business? instead of the cash flow damaging method in place now? I do NOT believe in accidents – and this one was considered… more cash heavy companies – find this a wonderful way to crush startups, new companies, and small companies. This is JUST SIMPLE MATH.

It’s my assertion that the 2.3% tax is JUST ONE of a number of mechanisms designed to drive US makers offshore – or out of business… A FEW people will benefits – hundreds of thousands will lose out and suffer. This is NOT the first time this scenario has played out… We have the benefit of experience in many such EXTINCTIONS to draw upon.

John posted lots of examples, names, and companies to illustrate his position. YOU ARE WELCOME TO CONTACT THE PEOPLE DIRECTLY to get more insight… that’s research… RESEARCH is good… Have you actually DONE THIS RESEARCH? IF not… then you are entitled to your opinion, too..

I feel that – for a startup – that it is extremely hard to play in the US only… you HAVE to be thinking globally.. when you do.. there are EXCELLENT PARTNERS to work with.. the DISINFORMATION is that you would do so for low cost. That is not true, at least to me. You work with people of like mind because they are among the BEST and MOST CAPABLE people in the world. Frequency – they do not have the INSANE burden to overcome that we have in the US for medical device innovation and manufacturing. They certainly have other issues… and that is why you can work as a group.

But that is not a topic here, either – or at least not a major component of the topic..

John Eckberg
Jerry, Nah, I don’t care what Karl thinks nor do I seek or need his pity. He understands nothing. I bet you were a Boy Scout.

But maybe he’ll get this. He seems to like numbers and this is what happens to the numbers because of this tax, according to the president of a company out of Atlanta:

“We have lower net margins than competitors solely due to the our choice to keep
prices competitive while keeping 100% of sourcing and production domestic. To put that in
perspective, for one of the products we’ll be releasing for 2013 my domestic cost per unit to do
this runs in the high $40s per unit. My total cost in having it manufactured offshore, including
logistics, runs about $18 per piece. That cost goes even lower if production runs become larger.

“By doing nothing but moving my production offshore we immediately see around a 65% savings per unit – which becomes all margin.We had made the decision to forego the additional profit in order to preserve and expand jobs domestically and do our part in getting the economy working again, small as that may be. With this new tax we are faced with 2.3% on gross sales of the products. So for a product we’re selling for $90 that is $2.07 additional cost for every unit. If our margin on that piece after production costs, shipping to client, commissions to sales force, etc…is running about 26% currently it would be about $23.40 on the sale. $2.07 is a 9% tax on our net margins. For one of our products it’s 38%

“If we move production of that same product overseas we save in the ballpark of $30 per unit in per unit costs. That is still a 100+% increase in profits post excise tax. As a small manufacturer we have to make tough decisions then. Do we continue to use top of the line materials and components or try to cut corners in order to preserve margin (although some have definitely
taken this path – we can’t stamp our name on that)? Do we discontinue lower margin lines and concentrate on higher margin products only and worry about losing market share to more comprehensive providers? Do we continue to manufacture domestically or do we move production overseas and increase profit in the face of the tax.

“There needs to be a distinction between those manufacturing domestically, paying decent wages,employment taxes, providing benefits for their workers, etc…and those who bypass our system by offshoring production.”

Letters to Senators still work. Particularly now. Drop one to your Congressman, too.

Jerry Robinson
letters… not for Texas…. they might want donations..

I think we have to be a lot more creative – than letters…

Karl Schulmeisters
>> “We have lower net margins than competitors solely due to the our choice to keep
prices competitive while keeping 100% of sourcing and production domestic.<< Well I could quote Jerry and say that you are digressing afield. This is a controversial issue and has been across multiple industries from call centers, through manufacturing. There are additionally significant costs in actually making a move offshore. As your own quote shows, the Medical Device Tax, which is a 2.3% increase in COGS would come to $2.07/unit. Whereas offshoring will save about $30/unit. So which is the more plausible reason a company like that would choose to offshore? * To reduce costs by $2.07/unit OR * to reduce costs by $30/unit. And while I respect that particular vendor's choice to stay in the USA and take the lower net margins - the Economics of the situation say that most won't. And that is because of CAFTA rather than ACA as your own anecdotal evidence shows. As to: >>There needs to be a distinction between those manufacturing domestically, paying decent wages, employment taxes, providing benefits for their workers, etc…and those who bypass our system by offshoring production.”<< Well one would argue this means you should vote for Bernie Sanders. 🙂 After all he's the only one raising this issue (not saying I advocate for Sanders - but policy statements are policy statements). But all joking aside - that's a policy issue that will not even get raised as a discussion in Congress. Remember that Congress just Fast Tracked the TPP and TAFTA. Which is what it also did for CAFTA. So its a bit late to write letters to leges That decision has already been done. What I find curious John is that as "refutation" to my points, you offer evidence that 100% supports what I have been saying all along. Namely: The offshoring that is happening is happening for reasons that are not linked to the Device Tax but rather to wage or other functional differentials (Ireland fgzmple has 70% of WW Cardiac innovation mostly because First In Man is so much easier to do in the EU )

John Eckberg
It is a tipping point tax. Plain and simple. It raises average tax rates for average companies by 30 percent. It leads companies to curtail R&D, makes them takeover targets and when the amount claimed by this tax is translated into jobs lost, moved or jobs not created, the harm tops 120,000 job equivalents bled from our regional economies.

Karl Schulmeisters
There is no such thing as a “tipping point tax”. Again if you have on one hand:

* an 80% reduction in your labor costs

vs
* 2.3% reduction in your COGS..

Its the labor costs. After all, you could always go to your employees and say – we all have to take a 3% pay cut (most of the costs are labor costs but you do have some materials costs). Heck even a 10% pay cut is something you would take to keep a job in recessionary times.

But the management of these companies is not doing that. Why?

Why instead are they opting to reduce their labor costs by the full 89%? That’s not driven by a 2.3% increase in COGs.

R&D got curtailed by the greatest implosion in GDP history. Not by a 2.3% increase in COGS that you can pass onto your customers. That’s just not plausible

John Eckberg
Here’s what a Phoenix VP describes about how the tax has harmed otherwise thriving companies. As an aside, I don’t think an economy cratering in 2009 has much of anything to do with impact in 2014 of a tax that crushes free cash flow for companies in one small sector. Anyhow: “The medical device tax is highly destructive and threatens to irreparably damage one of America’s few remaining innovative and world-leading industries. An excise tax based on gross revenue is punitive and spits in the face of capitalism. It will serve only to stifle innovation, destroy jobs, and diminish personal income tax and sales tax revenues at the State and Federal level.”

John Eckberg
Red Herring Alarm: A tax “you can pass onto your customers!?!?!”

Remember, we talked earlier about GPOs and IDNs setting prices and no price hikes allowed?

Remember, we pointed out how three- to five-year contracts prevent cost or any increases being pass through?

Remember how 40 percent of the hospitals are operating in the red?

Remember how prices not being able to float with cost of living increases has keep prices illiquid for about two decades now?

At just about 6 percent of the cost of healthcare. Remember any of that?

Remember how you wrongly thought this tax was imposed in 2009 and then despite all the evidence to the contrary, that it actually was first collected in January 2013, remember how in the face of all that evidence you continued to assert that 2009 was the year it was collected?

Hugh F. McCann, Jr
Gentlemen,
We are getting closer to agreement.
The accumulation of tax policy is onerous.
I love the tipping point analogy. Business leaders make decisions based on a composite of factors…..real and anticipated. A CEO of a publicly traded company must defend shareholder value.
A mature closely held company may have wiggle room.
Startups are really “green shoots” not yet mature or steady enough to withstand headwinds.
The mature company can try to pass on an additional tax or choose to give up margin.
The small guy is just plain nervous……
There are many fixed and variable costs to fund……an amazing long list, very long. Yikes!
Our USA political class must decide how to boost job grow so young folks can form families and generate enough velocity to pay for you old farts in retirement. Ha ha
And I would like to see a day when all women, men and CHILDREN have access to quality healthcare….
That is my litmus test.
The tax bill I co authored addresses some of the issues we are discussing.
It is languishing in Congress….535 out of control ego maniacs.

Hugh F. McCann, Jr
Karl, in life there are many tipping points….including tax policy in aggregate…..
I know from experience….
Let’s call it an inflection point…..sounds fancier….ha
In a very competiitive world prices can NOT be raised….unless it is a commodity that is scarce or there is a lack of competition.
The device sector is under assault for many reasons…..the 2.3 is not helpful AND millions remain without access to healthcare. ACA ain’t gonna work.
This I do know: I have a good job. Many other people do not. And I am concerned for their welfare.
If tax policy remains on a Rube Goldberg path……buy a hot dog stand….cash only.

John Eckberg
Medical device maker Volcano plans another 170 layoffs; will cease manufacturing

That’s a headline nobody likes to see. Here’s the top of story from October, a story that suggests that next month, the hammer falls on lots of jobs out there in California. Think a journalist will cover the story and explore the causes? Fat chance…

“Volcano Corp. is laying off another 170 workers in Rancho Cordova, where it expects to stop manufacturing altogether by next July. It’s part of a cutback that’s been underway since the medical-device maker moved its headquarters to San Diego and built a duplicate factory in Central America.”

Read more here: http://www.sacbee.com/news/business/article3440085.html#storylink=cpy

Hugh F. McCann, Jr
Gentlemen.
I had my ah ha moment days ago….
Each of us is defending our point of view from our point of view.
All must hold position, and not retreat for obvious professional and intellectual reasons.
Give no quarter.
There is more than a modicum of truth in the notion that the MED DEV sector is under stress. There will be winners and losers.
The idea that good ideas will be value added manufactured in lower cost tax environments seals our fate….continued job loss. That is unsettling.
Karl, you require data to prove what is obvious….to many many business owners. Ok I get it.
John is an advocate, a strong advocate, attempting to educate the political class that they are presiding over and accelerating these disruptions in US economic vitality.
Jerry has a huge wealth of knowledge and strategic accumen……and helping this industry navigate the shifting landscape.
How do we aggregate our collectives passion and experience to change the trajectory and improve the outcome?
The 535 can not.

Jerry Robinson
They 535 won’t… they are a huge cannon with a burning fuse… pointed in any direction by the highest bidder…. (ok.. contributor…) it’s why Politics needs to be left out… That Titanic has sailed….

This whole story has been in a modern phase of trainwreck since the 1930’s… a lot of the damage is also self inflicted…

There is a sense may be that what is said here does not matter… I think it does… I know it does, since I have really dug into what Lorenz’s research showed…

Anyway… back to typing for me…

HS Graduation last night in Richardson, TX… Class Pool party afterward till 4AM in City of Garland water park… Glorious day!!

Dan Stipe
I do believe that Karl has taken everyone to school on this issue. And to that I say thank you, Karl.

Hugh F. McCann, Jr
Dan. Ok. And that’s Ok. Everyone has a right to a position.
There is little agreement on many of life’s issues.
I disagree with your conclusion.
But at he end of the day….the sun will rise and set.
Life is short.
Opinions are endless.

Jerry Robinson
Tipping points are real… not everything works that way – but some do…

There comes a monning when the CEO comes in – an says – “we are going to make a change”… some single thing may have driven that…

One of the most STUNNING tipping points in recent business events… may be EVER… is that late one night Gates was pounding on playing on the internet… He used to use a pseudonym when he did this… and he just stopped for a moment and realized that in all this internet stuff… there was no Microsoft… There was a point – just like the mythical story of Newton and the Apple… There was a point – that things changed…. Next morning, so the story goes, Gates directed EVERYONE to change direction – and pursue this “internet” thing… I hope full details of the story are collected and verified.. It is really, really, really an important point in the computer story… and may be in human history..

Tipping points happen… events are quantum – so you tend to look for them – even when they may not be there…

Hugh F. McCann, Jr
Dan, I am still chuckling….it’s been fun….ha
Still wondering if deflate gate will disrupt the Patriots chance to repeat….LOL
My gut instincts have not given me any clear sign…..no data!

Karl Schulmeisters
I’m your gates story is outright wrong. Factually wrong. I happen to know all the parties involved personally….the guy who pitched building the first MSFT Internet browser to Bill had his wife working for me two years earlier, and I was working directly for BillG at the time
.
This is yet another example of how not everything you read on the Internet is factual and why independent verifiablity is important.
.
btw if it was so bad from the 1930s onwards….why doesn’t the independently verifiable economic data reflect that?

Jerry Robinson
This story is repeated in business schools. I have no direct knowledge.. I would really like to see what Gates says….

It’s kind of like the “Newton and Apple” story.. something there – but it has moved to the realm of myth, in many ways…

Because the result of this process is empty buildings, disappeared companies and jobs, and more.. When were you last at a shoe factory, textiles mill, or on a medical devices production line?

SPECIFY what you mean by independently verifiable.. I can VERIFY that there are empty buildings all over the Midwest where the jobs went away…

If you are SKILLED at this business, then you MUST understand the process… seriously… it you Don’t – then it’s like crossing a busy express way – by first closing your eyes..

Hugh F. McCann, Jr
Does anyone really believe that the unemployment data as published by ostensibly qualified resources is accurate? Mmmmm…..checking the weather channel is ok, but if it looks iffy, bring an umbrella. Business folks are instinctive. They take measure of the landscape and place a bet. Sorta like sailing…..tacking in the wind…..Mother Nature can be disruptive much like an unnecessary tax on the means of innovation and production. Anyone know anything about sailing?

Karl Schulmeisters
define accurate. Since it is a lagging snapshot it is inherently inaccurate. And short of neural implants always will be.
.
the key Qs are whether it measures employment levels in a meaningful manner and whether it does so consistently.
.
remember the reason for the current formula’s creation was the Reagan Administration’s dislike of the measure inherited from the Nixon WH by way of Carter…because it made the Reagan recovery look slower than was politically advantageous

Karl Schulmeisters
whomever is repeating the story in Bschool Jerry is ignorant. I was designing the conto systems for his house at that time….I know the story personally.
.
MSFT had bern bbuilding an online service for some 4 years to compete with AOL when Ben Slivka took the hen nascent Mosaic browser up the OS dept hierarchy and that basically meant pith it to SteveB who then backed it and the pitched acquiring Mosaic and rebs ding it and then building their own.

Leanna Levine
I just don’t understand from a P&L point of view why a 2% tax on revenue means a 29% loss in profit. the tax is like adding 2% to COGS. how does that translate into anything other than a decrease in the gross margin? Overhead isn’t affected….

Karl Schulmeisters
as to independently verifiable. ..sure you can verify that there are companies that went bankrupt. So what? that’s not the core claim you are making.
.
you are making a causal claim not only for these anecdotal companies but for the industry as a whole.
.
that means verifiable data on the books of these companies decor related from the other economic effects

Jerry Robinson
So…. someone who was there should do a really, really good job and document this story.. before it slide – unopposed – into history. This happens a lot in history…

Re casual claims…

If you want to argue, then you will have to pay. Monty Python set a rate of a quarter per argument.. (or something like that) – I charge more – say $125 an hour.. paid in advance – you can use paypal..

You need to think about what you are saying.. companies that are DEAD and gone…. sometimes with only the slab foundations left – don’t have books left.. and you DON’T get to win these kind of arguments by default because of silence.. right? you are, after all, after facts – not high school debate wins…

Hugh F. McCann, Jr
Jerry, history will show (sadly), the 2.3 exacerbated offshoring……thank you for your insight.
I have also seen a few slabs in my lifetime…..not good.
I enjoy your input.

Jerry Robinson
Slabs aren’t always the end….

I had a friend hit hard by the crash… he picked up a cheap RV and moved to Slab City.. near the Salton Sea.. even that is drying up now…

I enormously respect your stubbornness, Hugh…. I appreciate how hard it is to fight around these situations…

The 2.3 will do it’s damage… I just don’t think people really appreciate the cash flow impact on a stressed infrastructure…

Karl Schulmeisters
There is no verifiable evidence that the device tax has done any meaningful harm.
.
as I said before. …such evidence might yet turn up, though given that it has not been found in the last four years suggests otherwise.
.
it’s particularly disturbing to see business leaders in what is ostensibly a science based business, seemingly abandon sold evidentiary reasoning and “go with the gut”…even in the face of strong evidence to the contrary

John Eckberg
Hello Leanna Levine, The top line tax turns into a 30% tax increase only if the company is fortunate enough to have average profit margins. For many firms, it’s far worse. So here’s the scenario, and thanks for the question.

You own a small company that makes nephrostomy catheters. It’s been a long haul but after six years of effort, your company finally achieves black ink with profit margins that are not great but hey, better than grocery store margins. Your profits, as compared to revenues, are the industry average of 6 percent on annual sales of $10,000,000. So that’s a profit of $600,000.

You pay a 30% federal tax rate because you’ve created jobs and have another credit in R&D. But that was in 2012, before this tax had to be collected. (I’d say 2009 like Karl thinks and has repeatedly written but that would be something else he has penned on this chat string that is flat out wrong so I’m not saying that).

Then 2013 comes along and this tax is imposed, a tax that must be paid every two weeks, whether your client base is a bunch of no-pays or slow-pays or not. Doesn’t matter. You book the sale. You owe the money.

The 2.3% of your top line, which is paid before the first employee is paid, the first bank note is paid, the first royalty payment is made, the first utility bill is paid, now bleeds another $230,000 from the balance sheet, leaving your company with just $370,000 in post-tax earnings.

Prior to this tax, your taxable income after deducting for wages, interest, depreciation and amortization was somewhere in the neighborhood of $2.1 million, give or take a dinar or two.

That tax tally was $700,000 annually to the feds.

The new, $230,000 owed from the sin tax is one-third of that amount. When you factor in state and local taxes, it gets worse.

As you can see, it also gets worse for thinly profitable companies. Keep in mind that of the 220 or so publicly traded companies in this space, only 1/3 actually made money last year. Public companies have average profit margins of 10 percent, a bit better but not great. As an aside, what I know about this side of the business pales when compared to Jerry and Hugh.

What I do know is that this tax has chased companies to near shore locations. Next month Volcano has announced that it will close a factory it used to run that was just outside Sacramento in Rancho Cordova. The 170 jobs lost, the last in a wave of lay-offs that started when this tax was signed into law, will still exist – it’s just that they’re going to exist in Costa Rica.

John Eckberg
Truth Alert – Here’s what a Florida Global VP of Marketing and Business Development has observed about the trauma from this tax and how it’s harming jobs for new medtech grads: “This tax has punitive underpinnings. the fact of the matter is that this will impact innovation and more importantly jobs. Med device companies typically spend 4%-6% on R&D. I suspect that this will be one of the first areas that will get hit.”

Hugh F. McCann, Jr
Karl, a key trait of any leader is an ability to have gut feel….a visceral inflection point. Gathering data, reading, sharing with peer groups is all part of the decision making process. I know many of these folks and given I actually own a moderately successful company with a decent size headcount and payroll……I can speak from experience. Not everyone is cut out to be a risk taker…..that’s ok.
Any successful business requires people with special skills and talent to work as a cohesive team. But after all the meetings are ended a true leader must buck up and pull the trigger…..often with scarce resources….$$$$$
I do not disagree with your premise that data and analytics are useful and part of the decision stew….but as I mentioned recently data can be yesterday’s news….or it can be a useful predictor of future trends. I love reading pundits analysis but I often find their input inaccurate and just a quality guesstimate. Like a good skipper on a sailboat…..keeping ones eyes open and tacking in the wind…..or yikes, no wind, is tricky. Micro decisions are made within the context of the business plan or vision. The global arena is so fluid and dynamic that having an ability to fine tune is a critical component for remaining viable. Cash is king….believe me. Burning cash is my biggest fear.

Hugh F. McCann, Jr
MassMedic is a legitimate composite and representation for the device sector. Members and their management are real people running real companies.
There is more than a modicum of truth in their reality and gut feelings….
They can not be dismissed easily. These are the folks who we need to invest and grow jobs in the HOMELAND. Not Paris.
If you drill down they have and are compiling data.
How they view the landscape is legitimate ……they are the skippers on their sailboats.
Karl, perhaps you can get a gig to provide analytics……just don’t telegraph your apparent conclusions as represented in these threads….

Karl Schulmeisters
>>Hello Leanna Levine, The top line tax turns into a 30% tax increase only if the company is fortunate enough to have average profit margins.<< This is gaming the numbers. (just as misstating what I've written about when the tax goes into effect is ) It is a 30% increase in the total tax liability over what the base liability is. But that's an intentional misstatement of the impact because the net contribution of the tax to COGS is otherwise 8%. But lets look at your analysis. So you have been in the business and you generate 10,000,000 in sales. Because you were a competent manager of your business (which as a startup you began back in 2008 and it has taken you the industry average of 7 years to profitability) - * When you learned of the Device Tax back in sept of 2009 when it was ANNOUNCED as part of the ACA, you factored that into your COGS. * when you negotiated with your first large scale sales, you negotiated in a clause that allows you to adjust your pricing based on an increase in COGS (which includes an excise tax) * you know that any across the board increase in COGS driven by changes in the commodity products like steel, or titanium, will affect every vendor equally * you know that Since the Price Elasticity of Demand in this industry is 0.2 - any such across the board increase in COGS can be passed onto your customers with a negligible drop in sales. So as a startup you have been growing 100% sales year on year. So in 2012, before the implementation of the 2.3% device tax your revenue was $4,990,000 - but you were not yet profitable Now in 2013 the 2.3% tax gets collected off your top line as John suggests. BUT because you were a competent business manager, and because this affects all companies in your industry across the board, you increase your prices by 3% to offset the tax. Because of the 0.2 PEoD your sales decrease by 0.6%. So instead of growing 100%, you grow 99.5%. but of course you also raised your prices. So your revenue in 2013 is (($4,990,000 x 1.994 ) x 1.03 ) x 0.977 ==> $10,012,845

So that’s now a profit of $600,771. So you lost a whopping -$771 from your balance sheet. IOW Because you were a good manager, and you traded off lower sales but at a higher price you actually were able to use the tax increase to INCREASE your profits.

Now the fact that previously your tax rate $700,000 (which is unrealistic since as a startup you are taking an R&D deduction ) and it is now higher, is frankly irrelevant.

>>Keep in mind that of the 220 or so publicly traded companies in this space, only 1/3 actually made money last year<< Note the caveats here. * Publically traded * On The Books Profit (which comes after writing off all manner of costs against the revenue stream - which is why we look at EBITda in the growth and startup world). So given that you are an R&D business. you are eligible for a 20% deduction in your tax rate. So instead of paying 30% - you actually are paying 10%. Further more you get to deduct COGS - so your actual Federal Tax bill looks like Profit = 0.6% of ($4,990,000 x 1.994 x 1.03) ==> $614,914
of which you owe $61,491 – in Federal taxes
and you own an excise tax of $230,000

for a net tax bill of $291,491

So none of this has anything to do with Volcano moving to Costa Rica. The reason for moving to Costa Rica is that under CAFTA, Volcano can move to Costa Rica and sell in the USA without import duty. And the wage rate in Costa Rica is 12% of the wage rate in the USA.

after all.. lets compare:

* 2.3% increase in COGS

vs
* 88% reduction in the cost of Labor

Which is the plausible reason for the expensive decision of moving a manufacturing plant and retraining 170 employees? hmm?

Karl Schulmeisters
John you are neither quoting me accurately, nor painting an accurate picture of the economics of the situation.

you are leaving out things like the R&D deductions
you are leaving out issues like being able to raise your prices because everyone in the industry faces the same COGS increase
you are leaving out things like the Price Elasticity of Demand being 0.2, thus allowing a price increase without any meaningful drop in sales volume

Therefore you are misrepresenting the facts of the matter. Why?

Karl Schulmeisters
Actually Hugh – I grow jobs in both the EU and in the USA. (hint companies headquatered in the USA as we are – generate US Jobs)

So again – the fact that you find a need to seek to attack me personally rather than doing an actual valid and fully inclusive analytic analysis – frankly speaks volumes in and of itself.

Hugh F. McCann, Jr
CASH IS KING.
Cash out the door is cash out the door.
The 2.3 can not easily be passed on or absorbed …especially in an unprofitable company.
It is a silly Rube Goldberg tax scheme to fund ACA.
ACA is flawed and won’t secure healthcare for millions and millions of folks living in the US.
Flash card math……very simple concept that can be shared within 140 characters or less.

John Eckberg
As a guy who spent a year covering state and federal courts (and author of Road Dog, a true crime drama available at Amazon and good bookstores worldwide) my gut tells me you are right at the jurisprudence level. But these testimonials are not compelled by summons no they are offered freely as a public service. Nobody is lying about seeing 11 coworkers in an engineering department let go. Nobody is making up or embellishing the fact that their company can no longer offer internships. Nobody is confused about seeing their job relocated to Mexico or the Dominican or Ireland.

Karl Schulmeisters
Except that makes them even more biased. It’s called selectivity bias. In the courtroom, the prosecution and defense call anyone they feel necessary to put forth their case. And because it is directly adversarial you get witnesses from both sides of the spectrum.

The politics of the ACA are different
* you don’t have “equal time” in the hearing rooms – because one party controls the hearings in both bodies, they get to set the agenda and invite the majority of the speakers

* you don’t have a direct push/pull. For example the Senate Dems can rely on a filibuster to keep any bills they don’t like from getting to the Floor of the Senate. They don’t have to openly oppose the issue in committee. In fact they may want to be seen as being supportive of a repeal, but then insist on it being done in a Budget Neutral manner knowing full well that such a requirement is a poison pill (the House won’t raise taxes elsewhere and the Dems in the Senate will filibuster or the WH will veto – any cuts to Obamacare programs)

* its very clear that the GOP has been trying to dismantle the ACA wholesale or piecemeal since 2010. So they are not going to call a balanced panel of testimony, and they control both Houses.

* people who feel impacted will speak up. people who don’t feel impacted won’t. It doesn’t matter if they actually WERE impacted its their perception.

I’ve never said that the folks are being dishonest about seeing 11 coworkers let go or jobs be off-shored. The issue is whether there is evidence of any sort that this is the result of a small excise tax that can be passed on to the customer without measurable reductions in sales volume.

Consider that the greatest GDP crash in human history took place in 2008/9. We were shedding 700,000 jobs/mo in Jan of 2009. Now many of theses jobs had COBRA benefits and extended unemployment through Dec of 2013. Furthermore States received block grant program subsidies through 2010 which many states used to extend benefits, keep state workers employed etc.

So this means that we would not expect to see a drop in healthcare expenditures in 2009 or 2010. and indeed what we see is a plateau in 2009 http://healthcare-economist.com/2013/01/09/2011-national-health-expenditures/

but the failure to have a recovery past 2010 and the cuts to state grants meant that a lot of state workers (mostly teachers with good healthcare benefits) lost their jobs in 2010. Again with COBRA that meant their healthcare expenditures carried through the middle of 2011.

So a medical service providers would not have seen a reduction in receipts until middle of 2011.

That means their re-ordering of medical devices would not begin to fall until late 2011-2012.

That in turn means that mfgs would not see their revenues drop in ways that require layoffs until 2012-2013

And that then is coincidental with the advent of the device tax. But coincidence is not correlation, much less causation.

And no-one has shown any actual basis for even a correlation, much less the claimed causation

Hugh F. McCann, Jr
Ms Levine
COGS is one piece for consideration….
Karl does not mention “the below the line” costs….many of which are fixed and variable.
All line items require CASH.
One learns this by actually meeting a payroll and paying bills N30
Business 101

John Eckberg
Canard Alarm – No price hikes allowed. GPOs and IDNs, which account for 60 percent or more of billings do not allow it, demand 3- to 5- year contacts and international global companies under bid US firms all the time when the contracts do come up. And what fantasy land are you living in where R&D credits total 20 percent? Try 2 percent, J. Alfred.

Hugh F. McCann, Jr
Maybe Paris?

Hugh F. McCann, Jr
Karl, I am not focused on you. Don’t assume it is personal. I actually think your style and reasoning is fun and challenging. I am ticked at the 535.
I live in the U.S….I have a HUGE passion for business and its success…..not for me, but for you and others. I have been blessed. There is little that you can say to me that I will take personally.
You have a job to do and I respect that. John and Jerry have made huge contributions to this thread. Fascinating. Each of us is defending our beliefs and core values. Great. And I respect that!
Heck, I am competitive and will make a case that my lemonade stand will be more successful than yours….ha ha
But the 2.3 is foolish. Tax profits. Why tax shipments?

Hugh F. McCann, Jr
NEWS FLASH
just in, my posse just apprised me that a small CT medical device company was hit with a $40K 2.3 tax bill….the CUSTOMER, a CT hospital, refused to accept an uptick in selling price….business man in quandary…..cash drain…..CASH IS KING. This could force a job loss.
State of CT cutting $100M in budget from hospitals…..yikes

Karl Schulmeisters
Sure – but did they seek to negotiate that price uptick into their customer base starting back in late 2009? it sure does not sound that way. (and I’ve also been blessed – its why I can afford to play in a startup that is focused on enabling success for medical device innovators who want to reduce their consultancy costs by at least 10%).

As to R&D tax credits – John its the IRS’ own site.

As to a Canard alarm – sorry price hikes are part of the healthcare business and have been for decades. Suddenly magically saying they go away is playing games with numbers to make an imagined scenario set of numbers come together.

yes GPOs and IDNs demand 3-5 year contracts. SO and I’ll type very slowly so maybe you will read what I write this time – because it is tiresome to have you misstate what I wrote repeatedly.

WHEN in 2009 – the Device Tax was announced… assuming a WORST CASE scenario where you had just signed a 5 year deal with a GPO or IDN in August of 2009…. when the Device tax did kick in, you would have been “unable” to do a price increase from Jan 1 of 2013- August of 2014…

A worst case scenario of 21 mos. . OTOH if it was only a 3 year contract, then from August 2009- August 2012 meant that by the time the Device Tax kicked in, you would have renegotiated your contract to enable a price increase.

Now realistically, since medical inflation was running about 6%/yr EVERY mfg had a price increase built into their cost contracts. And since with the advent of the ACA that medical device inflation rate dropped to 3.5%, you would have had a 2.5% cushion built in that you could continue to use to offset the 2.3% increase.

That is unless you are an incompetent business person and you ignore what congress is doing until your tax accountant tells you how much you owe.

And if you are that incompetent, you deserve to go out of business

Hugh F. McCann, Jr
Karl, do you know the rule of 72? No googling!!
The “incompetent” characterization is gratuitous…..and mean. Don’t be mean….spasms of thought are unattractive. And like cash, it is not advisable to burn street credibility.
We agree that globalization has altered the landscape. We agree that a “stew” of tax policy decisions including the 2.3 forced many CEOs decisions. We agree that a startup is different than a mature company. You fail big time to acknowledge that an owner must fund many below the line fixed and variable costs…..which telegraphs either a misunderstanding on your part of business or an unhealthy inability to admit to a mistake…I have concluded admitting an error is a huge hurdle for you. But I understand. I really do…..and I can factor that into our friendly discussion.

Hugh F. McCann, Jr
Karl, don’t telegraph your consulting fees are 10% less. Off of what baseline? Can you prove that with data? As your advisor I advise you to make the case that your fees are an investment and will pay off in many many ways, many times over with a huge ROI.
MY FLASH CARD MATH: 10% of nuthin is nuthin. Your net net net consulting fee cost should be ZERO.
Another below the line line item….fixed and variable cash commitment. Cash is king.

Joseph Schwartz
Karl, here is some math you should be able to appreciate, and from your own example:

“Profit = 0.6% of ($4,990,000 x 1.994 x 1.03) ==> $614,914
of which you owe $61,491 – in Federal taxes”

OK, that is roughly 10% of your allegorical company profits.

“and you own an excise tax of $230,000” Which is roughly 37% of the company’s profits, and you call that a measly 2.3% tax? (Leanna, that is how a 2.3% tax becomes a 30% tax; in this case 37%)

Now add them both together as you did “for a net tax bill of $291,491” When we analyze this with “flash card math, the federal government has now confiscated nearly 50% of that company’s profits…not even considering state and local taxes. And you still claim it is for wages a company locates offshore?

Simple math, not complicated P-whatever formula that does not represent real life.

Hugh F. McCann, Jr
Joseph
Great simple example….well done.
For a SubS Corporation the 39.6 Federal rate can hit quickly if we consider co-owners salaries….after that threshold additional profits hit the top end rate head on ……..coupled with state taxes, local taxes, and a “stew” or bevy of other taxes …..yikes. What is the return on risk? At some point a cash only hotdog stand might be a better deal….ha ha

Jerry Robinson
Used to… there where things that to OFFSET against Fed Tax.. R&D was a good item… Jobs cost (ie, the mythical “intern”) was another.. these were real expenses.. but…As JOSEPH DETAILS… the 2.3% hits RIGHT at this point.. internal R&D is not tax credit deducted against the 2.3% cost.. adding another paid intern comes out of money that goes to pay the 2.3% number as well…

One odd result… R&D projects much get sped up – and it forced development outside the company when possible – so staff can be cut.. this is partly from the 2.3% – and partly from the offshoring strategy…. So… outside contracting and development companies will pick up some more business for a while.. I expect…

It all REINFORCES the necessity of starting to think of a global sales strategy – first. The US is increasing in hostility for an economic climate..

I still think this is a very good place to design and develop – and these days the developers are very much from all over the world.. A real plus for design, I think…

Jerry Robinson
Oh…

You appear to be a master sailor… I sail too.. I like working on boats…

I make a day sail plan and sail intensely to the conditions at hand… So too, is the art of steering business through a hostile business space…

Hugh F. McCann, Jr
Actually Jerry I AM NOT A sailor…..but I think I might know who is…..ha ha
Either way, it is a great metaphor……😄😃😀😊☺️😉

Hugh F. McCann, Jr
Jerry, I am still giggling…..ha

Dan Stipe
“But the 2.3 is foolish. Tax profits. Why tax shipments?” — Agreed.

“Still wondering if deflate gate will disrupt the Patriots chance to repeat….LOL
My gut instincts have not given me any clear sign…..no data!” — In one of my first posts I cited the Emergo study: http://www.emergogroup.com/resources/research/annual-medical-device-industry-survey. Scroll down and you’ll see responses regarding how companies have reacted to the impact of the 2.3% tax. I call that data. Have jobs been lost? Yes. Has the tax decimated the US medical device industry? Apparently not.

Now, John says that Emergo puts a positive spin on everything. I don’t see any spin in that data, nor in their accompanying analysis.

Jerry Robinson
could we add a 2.3% tax to all Pro football proceeds? that’s ok, right? should not hurt anything..

Great rumor to start..

Hugh F. McCann, Jr
Dan THX
Read survey….very helpful.
Mixed bag….and fluid
Go Panthers…..hope springs eternal. 😄

Joseph Schwartz
Dan, notice the 14% of companies that reduced jobs where among the bigger companies…that translates to a lot of jobs. But this is the testimony of company executives so they must be lying. An Karl, you keep claiming the CEO’s who did not pass on the costs to the users of their products are incompetent (note the response was that they passed on SOME of the costs), these are, for the most part CEO’s of big companies…they did not get there by being incompetent. A company can’t just factor in the cost increases and simply make a better deal and you imply. The buyer will just go to another supplier who has lower taxes and wages and can/and will offer a lower price.

Hugh F. McCann, Jr
CEOs will ultimately make moves based on the entire economic landscape…..and part instinctive and part visceral.
That is their job…..or they should be fired and let WATSON call the shots…..
Today’s decision will be replaced by tomorrow’s decision if conditions change…..just like trimming the sails….from a lack of SALES.
Ha
Now admit it….that’s funny!

Joseph Schwartz
OK, I like it, but, as a sailor (not sure I should admit to that in this environment) trimming the sales does nothing when there is no wind, it that case one must start the engine or in worse case, paddle!

Joseph Schwartz
Your mixed metaphor mixed me up, I meant to spell sails, not sales in the context of trimming.

Hugh F. McCann, Jr
Lol
Part of my strategy is to keep everyone alert…..go into a rope-a-dope until the opponent is gassed out then pounce with humor….
Life is short…..laugh a lot 😄

Joseph Schwartz
I don’t mind laughing. By the way, I have a sailboat I am selling due to the uncertainty of my future employment (though I plan to keep a smaller one [downsizing] ) are you interested?

Hugh F. McCann, Jr
When one door closes another opens up…..I received awesome good news today for my business after a year of sleepless nights.
At the end of the day I have a wonderful wife. And two fun pups….my pack is intact….☺️
As my father told me many times: ” get up every day, shower and shave, and go to work”
There are companies looking for talent……average talent won’t make the cut. So remain positive and keep moving forward….

Karl Schulmeisters
>>But this is the testimony of company executives so they must be lying. An Karl, you keep claiming the CEO’s who did not pass on the costs to the users of their products are incompetent (note the response was that they passed on SOME of the costs), these are, for the most part CEO’s of big companies…they did not get there by being incompetent<< Neither statement is true. the testimony given by the big companies indicates they have been unable to pass the costs on.. So saying that the CEOs of big companies have been unable to pass on costs is not supported anywhere. And I explained the "lying" issue previously. Please stop misrepresenting what I wrote. BTW its a very amateurish sailor who thinks there ever is NO wind. there is always some airflow. BTW what kind of sailboat ---- cuz the kind says a lot about how good a sailor you are Jerry Robinson
Sailboat kind does NOT say anything about how good a sailor you are… Where is the proof of that? :>

Out on a Texas Lake in late July – when 115 in the afternoon.. there may be wind.. . somewhere else.. Fortunately, with my 12V fan – I can generate some local wind..

Hugh F. McCann, Jr
Funny!

Hugh F. McCann, Jr
Karl, I play golf. Shoot in the mid 80’s.
Is that good or bad compared to all golfers?
Does someone who scores par have more fun than I do?
Does it really matter if my drive is 250 yds vs 250 meters?
I still must try to hit my approach shot to the green….and if I miss I will attempt to rely on my short game to score.
So, I adjust and after my round have a pint with my mates.
All good!

Karl Schulmeisters
Golf is an interesting game. Its filled with people who seem to take pleasure in announcing themselves with better handicaps than their actual skill level.

Jerry Robinson
what an odd thing to say…

Joseph Schwartz
In other words, Hugh’s testimony is suspect. And the boat is a Ranger, if you can believe my testimony, I might be stretching the truth so you will think I am a better sailor. I sail for the enjoyment so it does not matter what anyone else thinks of my aility. I am skillful in enjoying the sport.

Karl Schulmeisters
And Jerry, I’ve raced sailboats from 2.5m -25m in length in conditions from ghosting in 7knots of adverse current to howling 55+knots of wind…. but I’m open to you teaching me what you know about wind

Karl Schulmeisters
>>In other words, Hugh’s testimony is suspect.<< As is ALL of our individual anecdotal testimony. That is why logic and independently verifiable data is the standard. We don't allocate medical device approvals simply based on anecdotal testimony particularly testimony based on "gut feel" as Hugh has said he goes with. So Ranger 28? 33? or one of the smaller one? Do you know what an I-14 is? an IMS pocket Maxi? trust me, if I wasn't skillful at enjoying the sport, I would not have the hours into it that I do.

Jerry Robinson
I like wind. I do know that.. There is power in wind – and people do not realize how truly much there is..

I don’t race boats.. I have worked with Sea Scouts (ie, boy scouts on water) – and it was fabulous. When a young person takes over the tiller the first time – it’s magic.

It is certainly not about me “teaching” you anything on wind. I like wind conversion systems for salt water desalinization.. it has extreme potential to power fresh water conversions. PV=nRT mostly, ya know…

So why does sailing have to be competitive? I think there is a lot of art in making the right kinds of boats, for sure…

Jerry Robinson
Rangers are such good boats… :>

Joseph Schwartz
A Ranger 26, and I sure enjoy handing the tiller over to a youngster for the first time as well. Never no wind? Ever hear of the doldrums? But far be it from me to try to teach you about the wind. I guess if I can’t describe the doldrums mathematically, they don’t exist.

Hugh F. McCann, Jr
Karl,
I feel like I am on Candid Camera with Allen Funt….ha ha
Soooo, accuracy depends on conditions. For an average golfer like me hitting a 8 iron 150yds plus or minus say 5 yds….is accurate enough for me to get to the green…but wind conditions do make a difference. Ha
And for each hole and on any particular day I may need to adjust….for the wind et al.
So. Wind conditions seems to be a common challenge for sailors and golfers.
Just like taxes…..business leaders must assess their cash flow reality and make micro adjustments in real time.

Karl Schulmeisters
yes they do. And like on a golf course or a sailing course, you plan your maneuvers well in advance. Which means reading the course instructions well before you start the race.

In the case of medical device taxes those instructions were available from Sept 2009 onwards even though the “start” of the course was Jan 1 2013. Now less skilled players/sailors just whack away with no planning. should we be designing courses to accommodate them more than the player who pays attention?

And while wind and other course conditions make a difference (your cashflow metaphor ) the layout of the course (contracts and durations) and your own equipment (pricing and COGS) are affected by the playing surface (damp grass, 2.3% excise tax). But because the playing surface affects everyone equally (2.3% excise tax) its not going to make or break how you end up relative to everyone else

Jerry Robinson
might reword that last bit… I did not follow….

I think planning a course means using the best data you have.. but on the water or in a business enviroment – conditions change and you MUST adapt to the reality of conditions… looking a 2009 is not going to help a lot in a 2015 plan.. – especially when you are out on the water…..

Ranger 26 was an excellent balance of potential trailer sailer and on the water boat… My boats are not as good… but still fun…

Hugh F. McCann, Jr
Karl, you are very very inaccurate regarding Golfer’s…..many like their higher handicaps so they can complete and win Net Golf tournaments posting a Net 54. And most golfers complain complain complain about every bad shot rather than focus on the good shots and the experience. Very annoying. I seem to be recording scores within a consistent standard deviation pattern…..my wife beats me! And that is great!!!

Hugh F. McCann, Jr
Karl, wow. You are inaccurate again. The 2.3 impacts each business differently. Startups vs multinationals……you are starting to tact in the wrong direction……businesses come in many flavors…..but let’s not switch to ice cream…..let’s stay with golf and sailing….ha

Karl Schulmeisters
So it turns out it depends on whether you are talking about tournament golfers http://blog.philbirnbaum.com/2009/06/new-golf-handicapping-system.html or your average golfer who instead likes to brag about his score. and hence cheats by not reporting bad scores http://www.limerickgolfclub.ie/IvanMorris/LL373.pdf

Karl Schulmeisters
no 2.3% affects all medical devices mfgs by raising their COGS by 2.3%. regardless of the flavor it comes in, the excise tax is an excise tax – so it is a change in the Cost of Goods Sold. period.

Hugh F. McCann, Jr
I have played golf for 50 years…..integrity, honestly, fun, happiness, camaraderie and having a pint après round has been my experience.
Karl, gotta sign off for a while…..gotta get back to employing my instincts……keep smiling!

Joseph Schwartz
I must disagree with this statement as you are using it.

“Now less skilled players/sailors just whack away with no planning. should we be designing courses to accommodate them more than the player who pays attention?”

You assume if they did not pass the tax on, they did not plan. A good strategy involves more than one action. Many CEO’s planed by reducing work force, reducing R & D budgets, M & A where advantageous, reducing production costs (though most were unsuccessful at that) as well as passing on the tax when they could. You just can’t seem to accept that anything other than passing on the tax, is strategy.

I must also disagree with this statement:

” But because the playing surface affects everyone equally (2.3% excise tax) its not going to make or break how you end up relative to everyone else ”

The metaphor breaks down here if I understand how the excise tax applies (not to mention other taxes & wages). If a device is made in the USA and is sold, even to a market other than the USA, does it not come under this tax, since it is sold in the USA? That makes it not an even playing field.

Jerry, I must also disagree with you, The Ranger, with a fin keel, was never intended as a trailer sailor. I wish it was, then I could reduce costs and still keep it. Perhaps you are thinking of a different boat. It was designed as a balance between a racer and a cruiser, making it very fun to sail. Karl, that IN-14 looks like a blast to sail…and under an unlimited asymm…

Jerry Robinson
Karl…

why do you feel the need to attack the “average golfer”… ? <Jerry Robinson
Joseph…

We hauled one – a R26 around on a trailer – for scouts.. parked it in the lot, sometimes… used a swing arm to lift and drop in the water… Boy… it was AWKWard to haul – but possible.. never intended – was dead right… but.. things get “hacked” sometimes.. trailer width was 8’6″ for street legal.. comes close…. :>

There is a fellow in Okla. who can customize trailers for it…

John Eckberg
Red Herring Detector….Red Herring Detector

“2.3 percent affects all medical devices mfgs by raising their COGs by 2.3%”

Nothing is further from the truth. This tax clearly is unjust – skewed to benefit diversity of holdings and multinational global giants. We’ve been through this before: a global giant like Koninklijke Philips N.V. is a Dutch diversified technology company headquartered in Amsterdam with primary divisions focused in the areas of electronics, healthcare and lighting.

Known as Philips, it gets half its revenues, for instance, (I have no time for 14DFEs or Proxies or 10Ks) from TV sales to hotels. Of the half that’s left, half of those revenues come from lighting or kitchen appliances or what not. Of the half that’s left, assume it’s medical device diagnostic revenues – all of it. Okay, so that’s 25 percent. But wait, there’s more.

Half of those revenues come from International sales and are not subject to this tax.

So Philips gets to pay the medical device tax on just 12 percent of their revenues – instead of the lucky U.S. company that pays it on 100 percent of the revenues because it only sells in the U.S.

This tax is unfair, punitive and needs to be repealed.

John Eckberg
Yes, Jerry, Emergo puts a happy spin on everything. Here’s two examples based on their 2015 update. They project that 75 percent of the companies in the world in this sector think everything is going to be swell this year. Okay, another way to frame it is 1,100 companies are not so sanguine about their prospects.

It concludes there on page 1 that a majority of US companies did not make major changes in response to the US medical device excise tax. What’s a major change? Fuzzy there. What we do know based on the one question they asked on this topic, what we do know in the details is that one of four companies that employ more than 250 reduced headcount. Another one in four companies reduced R&D.

That means that half the companies that employ more than 250 reduced headcount and/or reduced R&D. Look closer and find that 42 percent of the companies that employ 50-250 cut jobs and/or reduced R&D. I’d say that those acts constitute major changes in response to the tax – yet Emergo think, meh, no big deal….

Karl Schulmeisters
>>You assume if they did not pass the tax on, they did not plan. A good strategy involves more than one action. Many CEO’s planed by reducing work force, reducing R & D budgets, M & A where advantageous, reducing production costs<< I doubt you can back up that "many" claim in any supportable way. Since the Price Elasticity of Demand tells us that raising prices would result in no meaningful drop in demand, cutting work force and R&D budgets for a 2.3% increase in COGS is suicidal and if that counts as "planning" they deserve to fail. >>If a device is made in the USA and is sold, even to a market other than the USA, does it not come under this tax, since it is sold in the USA?<< Sorry that doesn't parse for me.

Karl Schulmeisters
>>you can find almost no end to supporting links for the “ancient astronaut theories” of Erich von Däniken.<< Exactly Jerry. You can find no end to such links or to similarly unverifiable stories of how companies are moving to Costa Rica because of a 2.3% increase in COGS rather than a 88% reduction in labor that CAFTA brings them. that is my point exactly about the importance of independent verifiability. See there is no independent verifiability for either the Von Daniken theories or for the claims of these CEOs. Von Daniken didn't open his "science" to scrutiny nor have these CEOs opened their books.

Karl Schulmeisters
>>Nothing is further from the truth. This tax clearly is unjust – skewed to benefit diversity of holdings and multinational global giants. We’ve been through this before: a global giant like Koninklijke Philips N.V. is a Dutch diversified technology company headquartered in Amsterdam with primary divisions focused in the areas of electronics, healthcare and lighting.<< this betrays an ignorance of how budgeting in multinationals and conglomorates is done. Each division or sector has a P&L that it has to match. and that P&L has to match the general corporate goals or the company disinvests. So it doesn't matter if the parent is a multinational or the ownership is by domestic shareholders or by a single family - the fiscal numbers and planning are the same for a same sized enterprise. >> It concludes there on page 1 that a majority of US companies did not make major changes in response to the US medical device excise tax.<< IOW they failed to plan. They counted on a political change in 2014 that failed to materialize. Dumb.

Karl Schulmeisters
BTW Jerry, Ranger 26 isn’t a bad boat – a bit dated. old Gary Mull IOR hull – should do ok in light air heavily heeled to leeward with a seeker up. you should be aggressively roll tacking it though.

Jerry Robinson
yep… Joseph has a good boat… not great for overnight.. but light airs and such should be a lot of fun.. I enjoyed the limited time I had on one..

Like he said – a hard part is keeping it in the water – in a slip.. if you can trailer – then you can work on it yourself and save a lot..

I had a Columbia 28 for quite a while.. It was a magic place to be at night on the West Coast (Dana Point).. At 6500# – it would have been very difficult to trailer.. I am always amazed at how different water conditions are on the West Coast versus the Gulf Coast…

Jerry Robinson
People do fail to plan. Doesn’t mean they are evil or incompetent.. Nassim Taleb writes a lot about this area. You can’t make a 100% foreseeable plan. You can make a “best case” – with “backup” plan – and then be as adroit as possible..

Jerry Robinson
I don’t think John’s comment is off base at all… International and Offshore companies DO play a different game. Many offshore companies are motivate by National and Strategic Interests – not just economic interests…

Dumb or not.. the 2.3% effect causes people to lose jobs.. that was the point in this discussion…

I think, for reasons pointed out – that is just one more in a series of things that really impact US companies.

Karl Schulmeisters
no. if a company does something dumb and then lays off people….the layoff is because the management did something dumb….not because of something else

Karl Schulmeisters
it doesn’t mean they are evil…but if their job is to plan and run a business it does mean that they are by definition incompetent

Karl Schulmeisters
6500# isn’t that bad on a trailer….I’ve hauled an Olson 30 through the Syskius and that’s about the same.

Jerry Robinson
The plans that people make – do not always work out. Do all your plans work out? If not, then that does not mean you are dumb…

In fact – this is BIG PART of the dissertation I am writing.. About how ATT&McKinsey did an early analysis of projected cellphone subscription growth – between basically 1983 and the year 2000.

McKinsey projected 960K subscriptions.. there actually were in excess of 109 million.. McKinsey grossly underestimated the size of the market.. AT&T broke up during those days and later had to buy a more mature cell phone provider.

But.. McKinsey really, really were the experts on the block… They were “wrong” – but not dumb at all!! Based on the information they had – and the assumptions they made – the report was a good one… BUT.. conditions changed..

Tetlock studies this intently.. he studies how the “accuracy of Experts” play into the accuracy of expert predictions.. Which is what you comment on – Those managers may have made some bad or incorrect choices – but that does not make them dumb.. They aren’t.

Tetlock has 80,000 + predictions logged into his data base – and the results are enlightening.. It does bring into view the value of good backup plans – and protections… This spot applies to the stock market – and related in extreme volatility.. again.. more predictions.. Nassim Taleb is and was a master at understand the downside of such economic predictions and taking a financial position in them.

Not dumb or incompetent – just wrong this time..

In any event.. the question was “the effect” – lost jobs.. I think jobs were lost – you can call up people at companies and ask them – and why…

Jerry Robinson
I agree – you “could” do it on two trailer axels.. but I sure prefer 3 – for safety reasons… my truck (red, of course) is rated at 9600#. The worst case trip was here to Dana Point – at 1450 miles. it works…

People more expert with trailers had some other recommendations, as well..

John Eckberg
Oops, you are comparing apples to zebras again, Paul. Not talking about planning for impact of a tax. The example detailed actual impact of the tax on the earnings of a major global diversified company versus a U.S. company with only domestic sales. Huge advantage for giant company when it comes to paying a “sin tax” on revenues since only a fraction of the revenues of the diversified company are taxable but 100% of the revenues of the domestic company are taxable, Paul.

Here’s another anecdote for you to dismiss as uninformed or not credible. It is from an Indianapolis device company employee: “The 2.3 percent federal medical device tax is an innovation-crushing measure that will and HAS already negatively impacted the med device & healthcare industry. Just look at the recent headlines now, Medical device giant Stryker, cut 5% of of its workforce in November specifically citing “The Affordable Care Act” and the 2.3% medical device tax that comes with it. This is only a sign of what’s to come.”

Karl Schulmeisters
Except Jerry this was planning on a political outcome of an election rather than planning for adjusting business to the reality of the regulations. That’s not a wise business decision. After all, if they had built into their contracts the right to pass the tax on as an increase in COGS had Obama not been re-elected and the ACA repealed, they would not have been in a worse position than if they had no so clause in their long term contracts.

OTOH by putting it in their contracts they would have been in a better place with Obama being reelected. Its just bad planning.

As to your quote John… the employee is offering ZERO in the way of well reasoned and supported claims.

Yes Stryker cited its layoffs. but consider. If you are Stryker management, and you have to layoff 5% of the workforce and you have a choice to blame

* Economic plateauing because of a slow recovery that you failed to properly plan for

or
* the Medical Device tax

Which one is more palatable to use?

Which claim has the potential for helping your business in the future?

Hugh F. McCann, Jr
Demand for healthcare rising

John Eckberg
What is it about the functioning of GPOs and IDNs and the inability for supplier to pass along price increases that you don’t want to understand? You clearly have never spent a New Jersey nanosecond in front of a hospital value analysis team or before a GPO to explain to them how they MUST accept this price increase. Doesn’t happen. Isn’t going to happen. We are not talking about cashmere sweaters and bass boat pricing.

John Eckberg
Here’s a training manager for Bayer Interventional, another guy who doesn’t know what he’s talking about, apparently, when it comes to impact of the sin tax on innovation: “It will almost completely wipe-out new R&D in the US…”

Hugh F. McCann, Jr
The notion of passing on price increases is a 1970s concept…..can’t do it in a global arena. Doesn’t pass the smell test. The 2.3 is a cash drain. There are many fixed and variable costs to “plan” for in running a business. As a business owner who actually meets a payroll….I have experience. Lots of real life experience. Instinctively I must try to imagine the ever shifting landscape and make everyday decisions to remain in business. A long range business plan is useful but my advice is write it up in pencil with an eraser. Just in case. Cash is king. Investment and risk and success is tricky. If it was so easy then flash card math analysis might work……but 10% of nothing is nothing. Wear a belt and suspenders.

John Eckberg
Here is the president of a Philadelphia medical device company that is pre-clinical and has a innovative suture it is trying to bring to market. Does he know what he’s talking about? “We make novel devices that will help patients & doctors, and saves money for hospitals, insurance companies, and the health care system. The medical device tax is a direct hit off our forecast top line, which translates into investors being less willing to invest. That slows down our ability to innovate. The med device tax keeps innovations from helping patients & doctors, and from reducing costs to hospitals, insurance companies, and the health care system.”

,p>Karl Schulmeisters
>>What is it about the functioning of GPOs and IDNs and the inability for supplier to pass along price increases that you don’t want to understand? << I understand them completely. but if what you say is true, these companies would have been bankrupt a decade ago because COGS inflation has been going on for a long time. And the INDUSTRY DATA looking at sales volumes and pricing shows that the Price Elasticity of Demand is 0.2. PEoD of 0.2 means that that when you raise your price by 3% you lose 0.6% in sales. YOUR assertion is that somehow GPOs and IDNs have such control that they are able to negate this industry wide PEoD of 0.2 and reset it to infinity. IE that if the provider tries to raise their prices the GPO or IDN will buy ZERO of the product. that's simply contrary to the research. Furthermore you have repeatedly claimed the issue is that there are 3-5 year contracts in place. No one .... let me repeat NO ONE disputes this. but its not of significane. because EVEN IF there were nothing but 5 year contracts in place. the WORST CASE of these would have been ones signed in August of 2009 a month before the Device Tax came to be known as a component of the plan. Such a contract would be in place through August of 2014. So that means that from January 1 of 2013 through August 2014.. ie 20 months, of the 60 month contract, they would have losses in this particular contract. now NO company has all of their contracts signed at the same time. And ON AVERAGE their 5 year contracts would have had 2.5 years to run September 2009. ie through the end of January 2013. So the idea that even 5 year contracts would lock a company into permanently zero price increases just doesn't stand up to the numbers. sorry your claims just do not hold up to the scrutiny of industry numbers.

Karl Schulmeisters
>>The notion of passing on price increases is a 1970s concept….. << Hmm that so well explains the fact that the industry PEoD is 0.2 and why medical companies have been able not gone bankrupt completely since the 1970s even though the price of raw materials has more than doubled. This sort of claim is simply not meaningful.

Hugh F. McCann, Jr
Another real life example of job growth being dampened and or reduced. Wasn’t that the featured question? I smell a problem….demand for services is going to rise as boomers age out and folks continue to eat McLard burgers, extra large fries and super duper sugar laden (real sugar not the fake stuff) soft drinks. Not confident the 2.3 can be passed on easily. The ACA police are having difficulty tracking down all the illegals, cash based businesses and healthy young folks who where part of the ACA business plan…..bummer.

Karl Schulmeisters
And again… you have no evidence that a 2.3% increase in COGS rather than the biggest GDP crash in human history is the cause. What part of “biggest GDP crash in human history” is not getting through?

And this focus on “illegals” has nothing to do with the issue at hand

Hugh F. McCann, Jr
Karl, illegals actually show up at the ER. I know doctors and nurses, my friends, that share their real life, same day, stories. The cost is not reimbursed. This is a HUGE HUGE HUGE problem. I will give you one do-over…..your response was silly. Ha. I actually navigated through many many recessions….so slow down my friend. Experience matters.
Demand for diabetes care et al has ZERO link to sub prime mortgages and Wall Street greed.
Demand is soaring !!!!
Boomers and AARP is a huge voting block….we will rule the narrative going forward. Think. Before. You. Respond.
I am traveling for the balance of the day…..so don’t spasm a response….you are a smart guy. Slow down.
I have many many instinctive decisions to consider in the purview of my job……I meet a payroll. It’s a big deal. And I love it!
Are you on vacation? If so, try sailing……fresh air, sunshine…..shifting wind…..enjoy!

John Eckberg
Uh, the “biggest GDP crash in human history” ended six years ago. Ancient history and it has nothing to do with healthcare delivery anyhow. People still showed up at emergency rooms whether there was a GDP crash or not.

It’s not a 2.3 percent increase in COGS. It’s a 30 percent tax surcharge.

This tax is paid every two weeks. This tax, a sin tax, claims $1.8 billion annually from balance sheets of companies in this space. Assume each dime of that tax would have otherwise gone to job creation had it been left on the books of companies in our nation’s most innovative industry: that’s 60,000 research jobs that might have paid $60,000 each (and created three other jobs indirect in local towns, cities and hamlets) in the two plus years this tax has been in place.

Four of five Senators want this tax repealed, including some of the most Progressive Senators in that august body. Two Houses of Representatives, in a strong bi-partisan vote, have repealed this tax. Another House is scheduled to hear the repeal later this month. It was the wrong tax at the wrong time on the wrong industry and now, patients are paying the price.

We can argue about this until kingdom come: me telling truth, you repeating canards. In closing, here’s another testimonial from somebody in the medical device industry, who, in your estimation, has no credibility:

“Our company (a medical device company) was seeing increases in sales of 10%-20% month over- month, but regardless, they let 30% of their work force go because they were “not going to hit their number” in 2013. I am positive this tax had something to do with it.”

Rodney (Rocky) Bailar
I’ll bet the decision went something like this: “Next item – Cut administrative bonuses or lay off 30% of the work force? Any discussion? Great. Next item.”

John Eckberg
Thanks for the read and commentary, Rodney. You may be right, since it was a public company and this tipping point tax inevitably leads global giants to off-shore production, even though labor costs here versus there (Ireland?) are likely to be a wash.

Here’s another one, this from the president of a Vermont firm that illustrates the unfairness of a tax on revenues: “As an owner of a small medical device company that manufactures infusion devices it is us who will bear the brunt of this tax. Many small innovative medical device companies use the larger players to distribute our products as the costs to establish a sales and marketing program are prohibitive for us. The way the tax is structured it’s the manufacturer who pays the tax even if it’s a small company and the distributor is a multi-billion dollar corporation.”

Karl Schulmeisters
>>Uh, the “biggest GDP crash in human history” ended six years ago.<< not quite. We have still been in recovery. And because of how the stimulus worked (grants to states for state education jobs) and how it was cut off in 2010 and how the exteneded unemployment benefits worked you would only see people losing their healthcare coverage in 2012-2013. So you would see revenue problems to the medical device companies arriving in 2013-2014 with layoff and shutdown responses in 2014-2015 when the tax is paid is irrelevant. Its a Cost Of Goods Sold. and you pay materials the same way. So if you don't have the cash flow to handle this on a rolling revenue basis, you instead get an Accts Receivable line of credit just like you do for the Stainless steel you use. No difference. Its not an issue. You name calling doesn't make your selective data "truth". As for the bi-partisan vote to repeal, I have no reason to believe there isn't such support. THAT IS NOT the political issue. The political issue is that any change to the ACA is required by law to be "revenue neutral". That means you have to either * cut $2.5+ billion in benefits or * raise taxes by $2.5 Billion The GOP in the House will not agree to any such changes as the latter The Dems in the Senate will not allow any cuts to the ACA to even come to a debate much less a vote. And the WH will veto any cuts to the ACA and there will not be an override majority. and the House will not give the WH any tax increases. I was speaking to a someone who does consulting on the Hill in the medical device field a day or so ago. And I actually asked them. They believe that it MIGHT get to the floor in 2016 or 2017. but when I pointed out that 2016 was an election year.. they hemmed and jawed/ There is no evidence that "tipping points" are what drive companies offshore. the small VT firm you cite is one that clearly did not spend 2009-2013 working to increase the sales price of their product by 2.3% which the PEoD would easily allow.

John Eckberg
Canard Alarm – No price increases allowed since GPOs and IDNs now have lower-costing alternatives, that is, products arriving in the U.S. from plants in Costa Rica, where the base tax is far lower, and from Ireland, where it’s half the U.S. rate.

A product made in the U.S. is taxed at 30 percent, assuming a handful of modest credits for R&D and job creation, then the device tax equals another 9 percent of earnings, and finally state and local taxes of, say, 6 percent, for a grand total of 45 percent tax rate on earnings.

Same device made in Costa Rica: zero percent corporate tax rate, the 9 percent of earnings equivalency from the device tax, no state or local taxes for a combined tax rate of 9 percent. You are the GPO and you don’t care where products are made – which product are you going to buy? How is there any room for a price hike in that equation? And for that matter, where do you build your next medical device factory? Canton, IL? Or Tamarindo, Costa Rica? Or Baja, Mexico? Or Limerick, Ireland.

This mess was not created by our President but landed in his lap from a Senator who wanted to punish medical device companies. Our President has NOT indicated that HE will veto this measure. Rather, his staff indicated they think the repeal should be vetoed as a statement of administration policy….bit of a difference between that and our President vetoing a measure. Our President has been mum on the question.

https://www.whitehouse.gov/sites/default/files/omb/legislative/sap/112/saphr436r_20120606.pdf

Jerry Robinson
Karl…

You live in a bit of an Ivory Tower with a large bank account.. That’s the only thing that can make sense here…

Here is why I say that…..

* CASH FLOW – If you make software, there is little cost in making “product” and sticking it on the shelf.. There is a small support cost – and there is a substantial upfront development cost….

If you make HARDWARE THINGS, then there is a physical thing that has to be (a) paid for materials, (b) paid for repair of things when they do not work (ie, manufacturing product on line), (c) paid for materials – in products – on the shelf – until they are sold – if they even get sold, (d) reserve costs that apply to potential recalls, warranty repairs, and just plain “customer did not pay”. HARDWARE THINGS are MUCH more difficult to make – and HAVE MUCH WORSE CASH FLOW IMPACTs…

* “BORROWING” – small companies are always BEHIND the curve when it comes to having money to manufacture.. ALMOST ALWAYS – you have to COUNT on your own internal resources to make things.. if you had an INFINITE POT OF MONEY – then this is not the case.. but I have NEVER seen that situaion happen – even if money WAS AVAILABLE – because it gets throttled by the accounting folks – and probably rightly so…

So by this point – you are assuming I am “full of it” or “wrong”.. let’s change your mind… Get out of the Ivory tower and infinite bank account mentality…

GET a LONG piece of paper… clean to start with.. a roll of white plotter paper is good…

Draw a line down the MIDDLE of the paper – left to right.. in the center – horizontal..

Above the line – is cash… Below the line is actions…

Below the line – on the left – Starting on the left – begin with the DECISION to build “x” number of units – on the bottom left.. then go time wise to the right – with each thing that has to be done – to make X number of units… have to buy parts .. have to test.. have to assemble – someplace – package – repair the ones that don’t pass the manufact. test… Just draw out all the items that have to be physically done.. this is what every medical device build process does..

Above the line – on the left – you have two kinds of cash.. what I pay now – and what payment obligations are incurred… GO ACROSS THE PAGE.. on the top.. what do you pay and when? what cash comes out of the bank account? what are the pending debt obligations rung up…

AS SOME point – at the end of the process – on the FAR RIGHT – you have built products.. sold some – have some potential exposure – and hopefully reach a “break point” along the way.. where CUSTOMER PAYMENTS incoming – have met the outstanding cash and obligation requirements.. you aren’t done – but a long stretch..

Remember – the IRS and State view a box of parts on the floor.. or dead product that does not work – awaiting repair – as the same thing as cash in the bank. YOU might see it as unfortunate experience – THEY see it as cash.. but will not take a box of excess parts and dead units in as payment.

Jerry Robinson
NOW.. the 2.3 % tax COMEs directly out of “booked sales” – and NOT at the end of the process.. like the REST of the taxes you have from profits.. So… you may have spent all your money building product and supporting the sales… that’s common.. Like a Walmart full of groceries that they had to pay cash for…..

Right when the company was in a MINIMAL CASH POSITION.. you spent money to build products – and you encountered debt to make product… You have to pay the FEDS withing 14 days of booking that sale.. Where does that money come from? From your infinite bank account? It does not exist.. From BORROWING money from loan sharks? that’s expensive.. you observed that they want 20% – reality says even more..

The WEAKEST SPOT in the cash flow chain gets HIT to pay this tax.. and since it takes a while to sell all your medical devices – it just keeps building up over months..

LOOKING at the cashflow process… It’s a killer.. of jobs – and a destroyer of manufacturing – of product DEVELOPMENT – of R&D, and a killer of US Manufacturing…

It’s simple… If this was just about your COG or PEoD, and you had that infinite bank account to pay bills with – then MUCH of your argument is right.. Wouldn’t matter when you paid – and life is good.. but it doesn’t work that way…

But that is NOT the situation… It’s different.. Its very much like you having to pick up a HEAVY, AWKWARD load – and holding it… barely – and then someone sticks a 2.5 pound weight – at the end of a long stick – in your arms. Easy to drop the load, right?

By this analysis – you SHOULD be able to hold a 2.5 pound weight on your belt clip – with no problem.. Ok… I can see that. If you put that SAME 2.5 pound weigh on the end of a 5 foot long stick – and hold it straight out with your hand – parallel to the ground.. IT”S NOT THE SAME THING.. Try this – do this test – and then come and talk about TRIVIAL and NO PROBLEM.

AN HONEST TAX would have been to simply tag it on at the end of the normal taxing process… So.. in an ordinary tax cycle, you pay income and state tax. Just a 2.5% tax on sales at that point – HAS A COMPLETELY DIFFERENT EFFECT than 2.5% – due 14 days after “booking” as sale.

UNTIL you REALLY UNDERSTAND THE DIFFERENCE that these two approaches make -then you WILL NOT UNDERSTAND THE REALITY of what is going on.. IF you REFUSE to understand or at least acknowledge the difference – then you are not qualified to comment on the issue.

So.. WHY did the “lunatics” who wrote this law – require an entirely new way of paying it? Why did a WHOLE NEW ACCOUNTING STRUCTURE HAVE TO BE IMPLEMENTED – and the associated cost/risk? Why did this rule get written in such a DAMAGING FASHION? well.. NOTHING happens by accident.. people who wrote this rule calculate it out… NOTHING happens by accident – who will benefit is the real question – and you can’t even get there – until you can see the cash flow effect..

just get a roll of paper – and try this simple test out..

Karl Schulmeisters
And again Jerry, you’ve said nothing new. this is std Accts Receivable lending realm. And 2.3% difference in what you are borrowing isn’t going to break any viable company.

This notion that my view is based out of infinite $$ is anything but. so you have a $103k accts receivable that is net 90. since you are supposedly 6% profit that means your COGS were $94k (remember the 3% is your ACA markup)

So and on that $103k you owe $2.4k ….. So you borrow $97k
for 90 days
at 20% interest That costs you 5% net. so it cost you $4,8k

You pay your suppliers and your staff $94k
you pay the feds $2.4k
you hold $4.8k as cash to pay the interest

That’s $101.2k. But your sale was $103. you made a profit.

But in reality that 6% profit is AFTER your ACCTS rcvbl costs so realistically we are talking about an 11% profit ie $11.3k

So your real COGS was $87.8k. to which you had the $2.4k of taxes. so that’s now $90.2k.

your 5% cost of the ARL will be $4.5k So that’s $94.7k.

you get paid $103. So you pocket $8.3k

now whether or not you think the tax is dishonest or whatever… you have not shown that it is in any way “a killer of US Manufacturing”

you keep making up this mythical problem of Net 90 but that’s a normal accounting process and a normal Accts Receivable lending process.

In fact this is such a normal process, that if it goes south the economy implodes – which is why Cash for Clunkers was so brilliant … but that’s a completely different opera

Karl Schulmeisters
As to your paper based book keeping. If in this day of Excel, and Project and PLM/BOM software you are doing it that way – you deserve to go out of business

Jerry Robinson
Karl…

First – I am not proposing or saying anything new. BUT – you still don’t seem or want to understand what I & others are saying.. You assert that it won;t break a company.. but in ADDITION to all the other crap that companies have to deal with – it certainly can. ALL along – I have satid that there are MULTIPLE things working against companies manufacturing here. This is ONE MORE PROBLEM – and the Cash Flow impact is dramatic.

Second – OK… let’s say you CAN”T borrow money… not 97K for 90 days at 20%. And “even if you could” – there is a a cash cost and impact. There is also the cost of a second method of tax accounting – that has DOES cost money and DOES increase tax assoicated risks. So when the state and FEDs come calling -they can audit for NEW things – and take up MORE OF YOUR TIME and make you EAT THE EXPENSE. RIGHT?

Yes Karl.. some companies DO NOT borrow the money – others can’t.

so… redo your analysis.. Instead of paying the Gov’t at the end of your tax year – you get to pay his new tax NOW – and there is a compounding effect there as well.

Third – I really don’t need to show you anything. You do not, as I understand it, have to deal with the IRS calling to audit your 2.3% payments – and do not in fact manufacture things. This is not aimed at you – but it is to say that people IN THIS POSITION of dealing with THIS PROBLEM – are saying it IS a problem – and DOES ELIMINATE JOBS. Do “I AGREE” with all of the evils lumped onto this tax? no… Doesn’t mean that it still does not elimnate jobs.. which what the point..

So..

In your analysis.. ASSUME that you can not borrow your 97K for 90 days.. and carry on.. where does the money come from? This is the dilemma that high growth and startups deal with…

WHen there ISN”T funds free to pay the tax? how to solve the problem…

Fourth.. Normal processes do not excuse difficulties of dealing with the problem. SOME COMPANIES mention the net 90 day expectation… frequently – that is an average – and more companies also take longer.

Brother.. . the economy is imploding.. when 40% of governement expenditures are “printed out of thin air and not backed up by revenue” – there is a problem.. when 55 million Americans are on food stamps – and can not find work – there is a problem.. when offshoring is subsidized by our own government – and imports are subsidized as well.. there is a problem.

I am glad you eat well. A lot of people don’t. that’s a problem.

Jerry Robinson
Gee Karl.. If I deserve to go out of business…. Isn’t that a job lost – and does that mean “automatic win” for the question at hand?

In a 4000 character forum.. you want to see excel spreadsheets?

How about you do some “actual research yourself” and build a try survey monkey research questionnaire? Make it neutral – and send it out.. then you can FOLLOW UP for more details.. get some real answers..

That is.. if the companies you send the survey to – have people left to answer the questions and have the patience to deal with academic annoyance…

Karl Schulmeisters
you don’t seem to get the notion that self reporting (ie survey) isn’t a strong evidentiary basis. which iis surprising to me in a forum about clicclick devc innovation.
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as a country we want policies that reward efficient business practices. In today’s world that includes what if business scenario generation using the best available electronic bookkeeping and eSCM, BOM , and MRP tools.
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we ought not be making policy to reward less effective business practices given how cheap the above are

Karl Schulmeisters
if you cannot borrow on your acts rcvbl then you can’t pay your staff which means you are shut down

Karl Schulmeisters
as for the economics….well take it up with Maynard Keynes….the reality is that if you are a small mfg and you don’t have a relationship with your bank for accts rcvbl lendlending you will nnot be in business long regardless of a 2.3% excise tax.
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because you won’t be able to make payroll and that shuts you own and maybe lands you in jail

Karl Schulmeisters
as for subsidized off shoring, I vaguely recollect you saying that CAFTA was not part of this discussion

Jerry Robinson
I am not talking about CAFTA…
Haven’t brought it up. There are MULTIPLE threads working against US companies.. CAFTA and the like is just one.

Jerry Robinson
Your comment >>if you cannot borrow on your acts rcvbl then you can’t pay your staff which means you are shut down<< is just plain false. FALSE.... You can pay for operations and growth out of profits. I have done it... LOTS of others do, to... Make a 20% profit - to use your number - and you can grow the business with your additional resources. As a startup - you do this.. to fund serious growth - you can do this.. There are variants of this technique that can be used, too. EXPORT product - get an EXIM guarantee - and then BORROW the money versus a guarantee.. it's how the FILM industry grew so fast for a while...

Jerry Robinson
Keynes isn’t the only thinker in town – and has been dead quite a while. His business climate – is different from ours now..

Self fund to grow -and you become EXTRA sensitive to impacts on your cash flow.. which the 2.3% is…

WHY would the govt require a new type of accounting system for paying this “tax”?? Why not just use the one – already in place? Doesn’t that question get you curious?

A second accounting process cost extra money – for the IRS, for the company, and all of it takes more time.. Your observation is that it is “minor and irrelevant”.. mine is just the opposite… Those people spending the time DOING THE ACCOUNTING – and the AUDITING – get paid. that money comes from somewhere.. for the company, there could have been R&D or intern jobs… instead.. lets just count beans in new and exciting ways.

so.. your foundation – about borrowing money – is just flat wrong.. DO YOUR OWN RESEARCH and base disagreements on facts.. not your “expert opinion”… which I think is wrong… :>

As always – with 14K+ med device companies – people and companies do things differently..

I know for my own efforts in start-ups – I don’t plan much on the “sugar daddy” method of startup..

Jerry Robinson
We DO want policies that work toward a level playing field. I don’t think we have that – and will not get it… Who profits if the US Med Device companies are gone? This is a serious factor underlying the landscape that start ups and established companies have to overcome…

Karl Schulmeisters
Keynes isn’t the only thinker in town. But his predictions are the only ones in the last 50 years that have been borne out by empirical data.

If you want to self-fund a hardware startup you will need Accts Rcvbl lending even more. so that doesn’t have any really change here. That’s part of managing cashflow. And the interest you pay on Accts Rcvbl is part of your deductible COGS

Now why the “second accounting system”? From Ernst and Young’s viewpoint it doesn’t exist http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0CDYQFjABahUKEwjly-uw9oXGAhXFtxQKHQMmAKk&url=http%3A%2F%2Fwww.ey.com%2Fpublication%2Fvwluassetsdld%2Ftechnicalline_bb2439_meddeviceexcisetax_21november2012%2F%24file%2Ftechnicalline_bb2439_meddeviceexcisetax_21november2012.pdf%3FOpenElement&ei=k5h4VaW2B8XvUoPMgMgK&usg=AFQjCNH-4zRWePKIpye3NyVPdRJ9Mw6XqQ&bvm=bv.95277229,d.ZGU

But perhaps your accountant is better than Ernst and Young. however according to E&Y, its just a matter of having the correct column in your spreadsheet, or category in your accounting system . which in part again, is why one should run things in a modern system rather than on butcherblock paper. That way you let the electronics do the calculations.

And my basis for how you deal with accts receivable is based on… using accounts receivable lending. I don’t need to “do research” I’ve researched, I’ve used it, and our current startup has it in place as a financing option. And no 14 thousand medical manufacturing companies are not doing it differently.

Nor are medical device companies “gone” there is a consolidation and as in any downturn (particularly one exacerbated by not using tried and true recovery fiscal policies) the weakest companies in every sector do get shaken out. Its what Mitt Romney called “creative destruction of capitalism”

John Eckberg
Canard Alarm – “Nor are medical device companies ‘gone'”
Tell that to workers in Galt, Texas; or Ashboro or in Georgia or maybe stand outside the gates over in Rancho Cordova or in another half dozen communities I can name off the top of my head. Of course it’s not your world cratering so it’s just capitalism shaking itself out. That’s really how you see it? Just less than half the companies 50 to 250+ employees in a 5,000 plus survey by Emergo either laid off workers or cut back on R&D in 2014. That’s what this 30 percent tax surcharge has wrought. Here that? That’s the sound of the best economic development development policy possible for Ireland, Singapore, Mexico and Costa Rica. Simple as that, really, and it has nothing to do with COGS, second accounting systems or weak companies.

Karl Schulmeisters
And again. that SOME companies close is not the same as ALL companies are gone

I just quoted the person in the last election cycle who most vehemently advocated for the benefits of capitalism and CAFTA.

And the moving to other countries is SOLELY about COGS.. the labor component of COGS in most cases though in Ireland its the COGS of First In Man testing

Jerry Robinson
Keynes is not the only thinker in town…

I’m not paying E&Y to do my thinking.. they are not posting here, either… do you speak for E&Y?

the link observes.. taxes incurred when sold. payments due twice a month. if you have returns, or any of a SLEW of other things – then life gets more complicated… and more expensive to track…

so you are GOING to have to carefully track – outgoing – incoming – and may be down to the serial number… right? this cost money to track.. it costs more money to audit.. so jobs are getting created here – right? but these jobs are outside of the primary path – of goods to services from mfr… cost consumed in this admi/tax – isn’t in place for R&D – or other jobs.. result? fewer prodcuts… longer dev times… fewer ancillary workers…

So.. people like Steve Jobs – would be LESS LIKELY to be hired by the old HP – as an example..

and my accounting is better than E&Y. here’s why: I don’t have to pay them – and I work for effectively – for free. Less accounting cost – is BETTER… even if I have to hire local dedicated professionals – I will STILL SPEND LESS… less expense is better money – ie, not spent.

Cash is King here…

In any event – we are just observing… right? after all, I charge for arguments.. just like E&Y charges for accounting.

Hugh F. McCann, Jr
Jerry, those “below the line costs” really get in the way of a nice sunny day….fixed and variable. The truth is Cash Is King and ROI is the goal….COGS sold can be reduced with LEAN, automation and/or cost effective design…….ALL IMPORTANT.
Having a LOC facility is fairly straight forward…..but is not free. Given Payment terms are rarely adhered to most business end up being a defacto bank……
The 2.3 is not helpful…..it retards growth, sucks up CASH and forces business owners to choose. And sometimes someone loses their job….one lost job has an impact on other jobs in the community….a negative multiplier.
As far a creative destruction…..let’s not create goofy tax policy that gums up balance sheets and kills off Green Shoots….Mitt was speaking directly to the automotive industry vis a vie a government contrived bailout vs an organized bankruptcy path. Unions and union votes trumped. With an assist from MCBAMA.
Who knows when one of those Green Shoots might be the next breakthrough app that improves our quality of life? There is a lot of innivation emerging in the shadows of MIT.
Nope. It is not just about COGS. PERIOD.

Hugh F. McCann, Jr
“Innovation”….I am a bit fastidious….ha
No person or idea is perfect….and to admit that is liberating…..opens up the mind for considering/learning other points of view in a respectful setting.
Congress could learn from listening more and shouting less.

Jerry Robinson
Jobs learned the biz at HP..
Tesla worked for Edison….

Eliminate that one job – for an intern with “potential” – and it can affect the world. really…

Karl Schulmeisters
So Jerry, you keep digressing into other issues. The point about E&Y was that there is no “new accounting system” nor is there a great need to add something new about tracking ingoing and outgoing. Because all of that stuff should already be in place in your QuickBooks or whatever other electronic bookkeeping system you are using.

Why? well because it doesn’t really cost anything to track that electronically and it is something you want to do if only for liability, customer service, and reliability reasons, but which is also going to be required by FDA regs on Device UID.

And its great that you are trying to self-fund your way. But policy isn’t set to cater to the exceptional part of the industry – particularly when that’s not where most of the innovative work comes from (even though some great innovation can occur there).

Hugh, you betray your ideological bent when you talk about the automotive bankruptcies. In fact what happened there was that creditors, not the government, forced an organized bankruptcy path even though they were being offered more than the face value in bankruptcy by the Federal government bailout.

The reason they did this was because the big Credit Default Swap holder AIG. This made the CDSes covering the automotive debts worth more in bankruptcy than in bailout – so the creditors forced the bankruptcy. To pretend otherwise is to ideologically ignore the actual financial history.

By making that sort of digressive and wholy politically ideological comment in a discussion on actual fiscal facts, largely discredits most of what you have claimed so far

Hugh F. McCann, Jr
….and the preferred Bond holders took a hit…..????
My bent is CASH is king. The auto industry was bleeding cash. For decades cash was pledged and diverted to defined benefit pension plans….instead of making a great car. (R&D)
So in the 1980s it took 32 hours to build a typical car…..the Japanese and Demming principals cut the end to end cycle time to @16 hrs. Sooooo, COGS was reduced.
Imagine adding in 2.3 to the price tag of a car and expecting the customer to finance an inflated sticker price?….a drain on the consumers income that could perhaps be used to buy milk. Or pay for prescription drugs…or golf balls!
Digression: mmm, not so much. In FACT digression like accuracy (and ones credibility) is difficult to define. Hitting my second shot to the green within say, 10 yards is very very accurate for a duffer like me …but for the touring pro….not so accurate.
CASH is king…..the 2.3 is not helpful….and causes job losses and the velocity of job losses is not so good for society.
An enlightened leader listens, learns, shares and keeps an open heart and mind. Being perfect is a burden. Ha

Hugh F. McCann, Jr
Jerry, John, I am very busy at work. Just authored my 10 year vision and plan….but will use my instincts and gut feel to tweek my path as conditions change.
I have employed Lean principles, invested in a modern facility and just took delivery on a “best in class” thin films converting press.
Forgive me if I appear to go silent for stretches as I am busy creating great value for my global customer base…..
Being a good leader and employing people has been my focus.
I take my responsibility seriously.
This forum has been enjoyable….I have listened, contributed and learned. All good.
Everyone has an opinion….the Dismal Science….ha ha
Life is Short…..enjoy, laugh, and spread Peace

Karl Schulmeisters
Hugh you keep arguing strawmen. sure being in the enviable position of running everything on positive cash flow is a great place to be. But for most companies it’s not possible to make market leve ROI without leverage.

leverage is everything from outside investment capital to accts rcvbl lending and all in between.
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and in fact if the economy did not leverage investment capital, HD growth would slow (as it did after the tax cuts in the late 80s that reduced incentives for holding Long Term Cap Gains to maturity) and stop (as it has in nations where capital investment ceases to be protected by the government)
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but all that is a digression in measuring the net impact of a mere 2.3% excise tax that the market data shows can mostly be passed on to customers without losing business

Karl Schulmeisters
BTW mist of what killed two of the three Big Three was an inordinate focus on cash. Cash in place of innovation and quality of design and MFG.
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GM was particularly bad on this. I remember buying a Suburban in 89 which had the technology and design styling of the early 1970s. …because GM was milking cash out of the design.
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their quality issue had everything to do with fastener count. GM in the early 2000s had roughly 2x the fastener count as Ford and 3x of Toyota. and each fastener is a point of potential failure do to road vibration AND a slow down in production because it requires labor to validate. hence GMs labor costs were higher than their competitors. ..but not due to unions.
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the GM labor cost was within 10% of the cost aat the non union Acura and Toyota plants in the South.
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so focusing on cash can kill a company.

John Eckberg
CANARD ALARM AND RED HERRING ALERT
“A mere 2.3 percent….market data shows can mostly be passed on to customers”

Tax backers who make this contention time after time after time are just spouting off. This tax is a 30 percent tax surcharge. It has eliminated EBITDA for this sector. It crushes free cash flow and can even claim ALL 2012 profits for thinly profitable companies.

It cannot be “passed on to customers” because customers are huge buying groups called GPOs and IDNs, which collectively account for 50 percent to 60 percent of sales. They refuse price hikes and simply sign contracts with companies that manufacture in low-tax or no-tax zones. They also have three- to five-year contracts and none of those contracts have clawback provisions.

The lesson here: repeating a lie does not make it true. No matter how many times it is repeated.

Karl Schulmeisters
CANARD ALARM AND RED HERRING ALERT AND MISLEADING VIVIDNESS ALERT

Btw john I think you are confused about what a “red herring” is: http://www.nizkor.org/features/fallacies/red-herring.html nowhere have I introduced a topic not directly relevant to either the top post or points raised by others.

See what Hugh and Jerry and you have done are actually “red herrings”: that jobs offshore to lower labor cost markets is not an issue of the 2.3% tax, and you have not offered any data that supports that. Hence it is a “red herring”.

same to some extent applies to your claim of Canard. a Canard Claim is an ungrounded claim. Making the claim that a company who sees an 88% reduction in labor costs is incurring the massive expense of moving because of a 2.3% reduction in COGS is a case of an ungrounded claim.

So too is the claim that just because a buying group is large you cannot pass on increases in COGS.

This last is particularly ungrounded because there is nothing inherent in the largeness of a client that precludes passing on COGS increases. Even more so when there is a 30 year track record of doing just that. Trebly so when the Price Elasticity of Demand in that marketplace of GPOs and IDNs is 0.2.

You have never once actually backed up your claim about this magically barrier.

your 3-5 year contract claim is both a Canard and a Red Herring. Its a Red Herring because the medical device tax has been known about for more than 5 years. Well outside the realm of re-neogiability. And this has been pointed out to you multiple times and you have not once addressed it, other than by putting untrue claims into my mouth.

You are absolutely right that repeating an unsupported statement does not make it true no matter how often you repeat it.

I’ve cited you the respected economic analytics source that puts the PEoD at 0.2
* You’ve cited???? nothing

I’ve shown how even a 5 year contract in the absolute worst case only would have resulted in an 18 month lockin but that on average even 5 year contracts would have no such lockin
* You’ve shown? well nothing actually. You just keep repeating the same tired phrase over and over. And you also repeatedly misquote me.

Now as for “Misleading Vividness” http://www.nizkor.org/features/fallacies/misleading-vividness.html you cite “30% tax surcharge”… … well the definition of a “tax surcharge” is http://dictionary.reference.com/browse/surcharge
* additional charge, tax, or cost. ”

So by definition this is ADDITION not percentages. So an ADDITIONAL 2.3% tax on top of other taxes.. by definition is

* a 2.3% surcharge.

Not 30%. You are playing numbers games by trying to claim that 2.3% is an additional 30% increase over the base tax rate they pay today… but that’s a number that has no relevance except in trying to make the increase sound more dramatic (more vivid) than it actually is.

QED that is the Logical Fallacy of both Appeal to Emotion and Misleading Vividness.

Please John.. reason civilly and using valid reasons and facts and address the questions, not strawmen

John Eckberg
You need to listen to a CFO who pays this tax every two weeks. Apply that 2.3 percent amount to existing taxes and, on average, it’s a 30 percent increase. No obfuscation. No confusion. Simple math. Price elasticity is negligible because GPOs do not allow hikes. They even create cyber-lists naming companies that have tried to pass along the tax.

Whether red herring or dead rabbit, your untruths stink. No pass along. No tsunami of new patients. No hope for jobs to return after $40 million plants are built in Costa Rica, Baja or the Dominican. U.S. companies become take-over targets for global giants. None of this is particularly complicated. And 20 headlines about jobs, HQs, and engineering departing from the US because of this tax are fairly commonplace.

What I am beginning to wonder: are you right about anything in this sector because you sure have missed the reality of GPOs, predatory global giants, 4 of 5 Senators wanting this repealed, R&D and lay-offs at 45+ percent of all companies with payrolls between 50 and 250+, according to Emergo. The list of what you are wrong about is extraordinary. In closing, here’s commentary from the president of an Eden Prairie, MN, company: “Medical device support service provider who will be affected by an exodus of MDM’s leaving the country for friendlier business environments.”

Give my regards to your buddy Jon Gruber

Karl Schulmeisters
>>You need to listen to a CFO who pays this tax every two weeks<< I do? why? If the CFO offers up an implausible explanation why exactly should I take him or her at face value? If the CFO plays semantic games and uses invalid logic such as Misleading Vividness (a 2.3% tax where no was before would be an INFINTE increase using your and his logic) I "need to listen to it"? Why? Invalid logic is inherently obfuscatory. Because if valid logic would suffice, that would be presented. The whole point of using invalid logical arguments is to obscure that valid logic doesn't get you to the desired conclusion. >>Price elasticity is negligible because GPOs do not allow hikes.<< If this was true, then there would be no medical device industry. Because there has been a steady increase in COGS for the last 3 decades. So this statement in and of itself meets the definition of "CANARD".. as in when observed in the context of all known facts - its is false. >>Whether red herring or dead rabbit, your untruths stink<< and now back you go to personal attacks. * you have not refuted any of my citations with either valid reasoning or verifiable facts * you have not actually provided independently verifiable support for even one of your assertions * you have repeatedly engaged in all manner of logical fallacies. >>No hope for jobs to return after $40 million plants are built in Costa Rica, Baja or the Dominican<< This is another example of four logical fallacies rolled into one * Red Herring Fallacy. ...times two... neither the fact that the plant is being built in Cost Rica, nor that it will not return has any relevance to whether or not 2.3% Device Tax is a bad tax. * Misleading Vividness. Citing $40 million is a "big number"... now in reality this number works against you, but you present it as supporting you. That it works against you is that for a $40+ million expenditure to make sense over a 2.3% excise tax. That company would need to be earning $600,000,000/yr (3 year amortization of investment) in revenues... just to break even. Yet I suspect that's nowhere near the case. In which case, this has nothing to do with the 2.3% tax - whch leads to the fourth logical fallacy * Begging the question fallacy http://www.nizkor.org/features/fallacies/begging-the-question.html namely you have shown no connection between this offshoring and the 2.3% device tax.

So the fact that you are resorting to stuffing FOUR logical fallacies into a single sentence – strongly suggests you have no actual factually reasoned case to make.

>>What I am beginning to wonder: are you right about anything in this sector because you sure have missed the reality of GPOs, << And again with the personal attacks and the strawman assertions. I have addressed your GPO issue. You have not even tried to support it. >>predatory global giants<< again - its been addressed. >>4 of 5 Senators wanting this repealed<< again its been addressed and you've done nothing to address the points I've raised in response >>R&D and lay-offs << again its been addressed and you've done nothing to address the points I've raised. >> according to Emergo. << Again this has been addressed and you have not even tried to address the points raised. >>The list of what you are wrong about is extraordinary.<< Repeating a lie is what Goebells did when he had nothing to go on other than hate. >>”Medical device support service provider who will be affected by an exodus of MDM’s leaving the country for friendlier business environments.”<< And again * Red Herring Fallacy * Begging the question Fallacy * Circumstantial evidence Fallacy all in a single sentence You really don't believe in civil discourse do you? You really don't believe in discussing facts rationally and logically do you?

Michael Arellano
Really, is this the right location for a pi$$ing match? I know enough that the tax is probably not good for business. If the product can be manufactured for less elsewhere, it will. Like everything else, it takes money out of the hands of business and business moves its jobs elsewhere. Not sure who really wins with the tax, but the national economy loses due to lack of jobs, lack of revenue for company – company decides not to pursue new innovative devices – healthcare suffers. Simplistic but true! Repeal the tax!

Karl Schulmeisters
it ought not be a possibility match. All I’ve asked for is some verifiable evidence that a 2.3% excise tax that can be passed on to customers with less than 1/2% réduction in sales volume (based on industry data on price increases vs changes in sales volume) is costing jobs.
.
after all a 2.3% Excise tax isn’t going to pay for a $45 million relocation cost

Jerry Robinson
PMatch….

My dad fought these kinds of issues his whole life. 1930s on….

So… where does one deal with them? People down on the production line – and in manufacturing don’t have direct say for what is happening.. At least before the internet and such forums did show up…

the posters have all been very, very knowledgeable…. different positions – but it is worth getting the issues posted. In the Textiles Industry, millions of jobs were lost and are gone because of these issues.. the technology is GONE…. That’s a simple matter of record…

So it can be important to get the issues out and forward..

There are whole clans of economist, managers, MBAs and consultants who spout the benefit of offshoring and endorse techniques that destroy millions (yes.. and that is conservative…) of American Jobs.. Not for reasons of LOWER COSTs – but because it is to their economic advantage to do so.

It’s a cult – that like any cult – will deny the dogma. The only counter is to insist on objective research and to resist the character assignations that go along with opponents to cult ideological theology.

Objective facts and speaking up are what makes a democracy work, after all.

Jerry Robinson
Karl….

E&Y.. you brought it up. Not me. I avoid such, wherever possible.. I think (my opinion) that they say what the management wants to hear- if at all humanly possible.

What do you think the story of Enron and their accounting firm tells us? Do you know the story?

ABOUT ACCOUNTING COSTs…

One accounting approach is for a company to deal with Year End taxes and such – in a standard fashion. It’s another approach to deal with a bi monthly payment of excise tax – based on the “soft” reality of title transfers.. Product churn causes an accounting problem and is a big cost.

If you have had to PAY FOR and BABY SIT an IRS or STATE TAX audit – then you would not so callously say “doesn’t cost more”.. because it does. People work hours – get paid and it is expensive. Legal risk is part of the “did you pay your tax” story. You pay your income tax at the end of the year.. what happens when you have to ACCOUNT for a tax paid bimonthly? And work with an IRS whose budget is getting cut to shreds? If you have ANY sense of reality – then you can see what a real problem that JUST THE ACCOUNTING effect – will diver jobs away from manufacturing and R&D.

Jerry Robinson
You make a really big deal about verifable and such… good…

Here is a test for you..

John identified a company that is bailing from the US – closing manufacturing – and going to Costa Rica.

PICK.UP.THE.PHONE.

Call them. ASK about the 2.3% tax – and ASK them if this was a significant part of their decision to move.

GO.AHEAD. DO REAL RESEARCH. Stop quoting long dead economist who never had a Cell Phone…

Cease with Strawman Blather! So I do not have to bring up constructive uses of Duct Tape again..

Go do some real research.

Jerry Robinson
Karl.. you ask for evidence…

GO DO YOUR OWN RESEARCH! FUND YOUR OWN STUDY..

or… offer a specified contact to do the research and produce the study.

If so trivial, then fund it yourself! E&Y and McKinsey do those kinds of things all day long!

Joseph Schwartz
He won’t believe the CEO, who is obviously biased. I keep thinking about historians, how they value first hand testimony. Isn’t it ironic that economists ignore first hand testimony and discount it as biased?

Karl Schulmeisters
Its not a question of “biased” its a question of numbers Joseph. Which is more plausible

* $4 million in excise tax savings is the cause?

or

* $100 million in labor rate savings is the cause?

please answer

Joseph Schwartz
Both, but the tax was not there before 2013, the wage difference was. Think on that tonight as you sip your wine.

Karl Schulmeisters
really? $4 million is the same as $100 million to you?

BTW before 2013? no FFTA (ie sone of CAFTA) was NOT in effect http://en.wikipedia.org/wiki/Free_Trade_Area_of_the_Americas FFTA only went into effect in October of 2012.

Still think its plausible that $100 million is the same as $4 million? or that $4 million drives a risky $45million move?

Jerry Robinson
Here is the answer….

Go do some real research. You will be more comfortable with the numbers you spend time collecting. Make sure your research is objective.

Jerry Robinson
$4m or $100m…

go do some real research on the 2.3% question… what do company LEADERs say…?

If a company has moved offshore – or out of the US (incl. PR, etc) – then what were the reasons.

CALL THEM YOUR SELF. do the research…

Karl Schulmeisters
company leaders say what their PR department tells them is most advantageous to their brand.

Karl Schulmeisters
when they open their books and executive meeting minutes – THEN and ONLY THEN is it worthwhile approaching the company. Otherwise.. Follow The Money.

So please answer the question.

What is more likely to cause a company to take a $45 million risk?

* $4 million per year reduction in excise tax?

OR

* $100 Million per year reduction in Labor costs?

Be honest and credible please

Jerry Robinson
Karl…

NO.. they do not always do this…. They are NOT all HIGHLY PAID LIARS….

You are COMPLETELY IGNORANT if you think that is the case. Seriously… they have Fiduciary Liability – and can be SUED – if public – for misleading people in public statements… That is reality..

DO YOU LIE TO YOUR CLIENTS? probably not.. why would you think Company Leaders would do that?

Is this just a “Blow Off Excuse” so that you do not have to “actually do some work?”

Pick up the phone.. start calling and asking.. it’s called RESEARCH.

Karl Schulmeisters
corporate CEOs have a fiduciary duty to present the position that minimizes harm to the brand. That’s not lying if they actually can convince themselves of it. Since the are not required to open either their books or their executive meeting minutes, there is no way to sue them. You cannot sue simply because you believe them to be not telling the whole truth.

Nor are these CEOs talking to clients – they are talking to those they wish to influence. Asking them for a PR statement is not “research”.

so please answer the question.

What is more probable?

that they took a $45 million dollar high risk move to save $4 million

OR

that they took a $45 million dollar high risk move to save $100+ million

c’mon. You know what the answer is. that’s why you are ducking answering it.

Jerry Robinson
You are incorrect about being sued. Records show that.

Shareholder suits happen all the time – based on Corporate Officer comments…

CEOs do talk to clients.. the ones I know have… may be they don’t want to argue with you? :>

why am I being asked to answer a troll question?

In High School – Junior level – debate class, we learned all about asking “leading questions”… didn’t you? You know the “do you BEAT your wife in the MORNING or EVENING” kind of question. One should never take the bait and directly answer such a sucker question..

So why would you ask an equally sucker question? can you not do math? Do you like the Magician’s tricks of “balls and cups” or “pick a card”… ?

Jerry Robinson
So..

do you have a Cell Phone? you can call “411” and ask for phone numbers – then call companies DIRECTLY to get question answers.. How do you know that they will LIE – unless you call and find out?

Man UP!!! do your own research and see what happens!!

Karl Schulmeisters
what wil calling the tell us Jerry? that they have a competent PR department?
.
when’s the last time you turned yourself in for speeding?
.
please answer:
what is the more likely basis for a company opting to do a risky $45 million move?
.
$4 million/yr réduction in excise tax
.
OR
$100 million/yr réduction in labor COGS?

Karl Schulmeisters
BTW shareholder suits are exactly why you get only PR statements from CEOs. …and why getting them on the phone or in front of Congress is essentially a game of theatre

Jerry Robinson
Karl…

You asked for “verifiable proof”.. when company names and stories are given – you immediately dismiss them as “unreliable”.. “that’s not proof”.. this has happened over and over..

You blow off the expert opinions and exeperiences of expert professionals in this industry….

So I make the LOGICAL suggest that you ACTUALLY DO SOME REAL RESEARCH. Case studies are taught at the best business schools, after all..

I am not talking about speeding. don’t dissemble.. (more HS debate tactics…).

DO SOME REAL RESEARCH – that way – YOU WILL KNOW FIRST HAND what the stories and numbers are… If NO ONE ELSE can do it to your satisfaction – then DO IT YOURSELF. Pick the Cell Phone – start calling.

* which number is bigger, 3 or 7? if you want math questions.. here is mine….

the distance around a tire is finite and knowable.. you can take an extraordinary accurate tape measure and measure it.. The formula is C = 2*Pi*R.

So the circumference is precisely measurable.. yet on the right side of the equation.. PI is an irrational number – and does not have an finite answer… it repeats..

So.. finite number on the left…. irrational number on the right… how can they be equal?

Jerry Robinson
Companies have to disclose information in the 10Ks. Has to be accurate – by law. CEOs have to sign their legal documents – and be held liable by law – if they are NOT accurate..

Go do some research, Karl… you won’t believe company disclosures, the people who work there and have legal responsibilities to be accurate, or anyone else that has posted.. No basis for your disbelief.. that’s ok..

And ya know.. even an accurate rendition of reality can come out of theatre.. it’s why we quote Shakespeare sometimes..

Karl Schulmeisters
Yes Jerry. And 10ks are very dry, by the numbers. They do not make statements like “we are moving because”. they simply state what the numbers are – here’s the last 10k for Medtronic for example http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10520926-4889-194904&type=sect&TabIndex=2&dcn=0000064670-15-000005&nav=1&src=Yahoo

They do not even break out the Medical Device Tax as a line item. So the notion that somehow the SEC filings prevent CEOs from spinning the business reasons for doing something – well isn’t supported by the facts.

And if you really need an answer to your question on measuring the circumference of circle, I recommend the excellent read:

The Measure of All Things. http://www.amazon.com/Measure-All-Things-Seven-Year-Transformed/dp/0743216768/ref=sr_1_1?ie=UTF8&qid=1434094621&sr=8-1&keywords=the+measure+of+all+things&pebp=1434094621524&perid=0764B3FF4001497F8369
The so called HS debate tactics are the ones you and John are engaging in: Red Herring fallacies, ad hominem, Misleading Vividness, etc.

I’m using John’s own number:
* $41 million plant in the Dominical Republic

* Opted to be built after FAFTA came into law

* 6% profit margin

and only adding in the external numbers – which I support by citation
* The percent of COGS that is labor in typical mechanical manufacturing

* The percent of Labor Cost reduction comparing DR and CR to the USA

This gives us two very crucial numbers:

* – what the cost savings in avoiding the device tax is by moving to the DR or CR

* – what the cost savings in labor is by moving to the DR or CR

and for #2 I am in each case taking the bottom end number of the range. So this lets us compare the cost savings driven by Free Trade policies like FAFTA and CAFTA vs the cost savings of avoiding the Medical Device Excise tax which we are discussing.

So the question still stands to you Jerry:

Which is more plausible?

taking a $41 million risk (because moving mfg is always risky) because of

* $4 million in Excise tax savings/yr

OR

* $100 million in Labor Cost savings/yr

why won’t you answer that simple question?

Joseph Schwartz
Following your argument, if one only considers money in their decision or analysis, all MDM would have moved to CR in 1984, when trade barriers were first lifted. You are being deceptive when you state that CAFTA-DR was not in effect until 2013. CAFTA-DR was an expansion of CAFTA, which already included CR and took effect 2005. Company CEO’s don’t always make decisions bases solely on dollars. Although the bottom line is always important, some CEO’s are influenced by other values as well as profits. Values such as patriotism and loyalty to their employees. What makes a CEO who wants to stay in the USA, finally throw in the towel and make such a move? If it were only money, they would have moved a long tome ago. When the CEO has the choice of remaining a viable company or going out of business, they have to choose remaining viable. You refuse to consider the 2.3% tax as a tipping point, but as has already been show with simpler math than that used to calculate the PEoD, that this tax can easily confiscate more than 30% of a company’s profit, it has to be as strong a motivating factor as the savings in labor. A patriotic individual may even see this tax as a betrayal by a country they have loved. So if a CEO basis his decision solely on the bottom line, the $100 million would be a bigger factor, but the fact that many companies have not moved, shows that the bottom line is not the only factor CEO’s are considering.

You also contend that the lay offs of workforce is due to the recession. I don’t concede that point either, an analysis of the type of jobs involved would be necessary to better determine the cause independent of company management. Another thing to consider is if the tax made it impossible to retain employees that otherwise would have been retained, waiting out the downturn of GDP, if the recession has lowered sales at the same time. John’s example was a company experiencing growth in sales, yet the bottom line was still too low. What else is affecting the bottom line during sales growth to cause a company to look for ways to reduce it? Raw materials or a 30% hit on profits by the MDT. Which would be the larger number here and the more likely answer?

Karl Schulmeisters
Well except that there is significant risk in setting up in another country. And quite a few additional costs. El Salvador, Costa Rica, and the Dominican Republic have been working very hard to improve the skill level of their labor force So that for example El Salvador now has an Airbus refurbishment base that is not only cheaper but better trained than contract airplane mechanics in Alabama (I know that’s a digression but its by way of example why this stuff didn’t happen instantly in 1984)

You also had a fairly nasty insurgency war in the region through the 80s… And we did start seeing stuff move in the 1990s .

Sure there may be some “patriotism” but that’s not really that meaningful and most CEOs take their fiduciary responsibilities to shareholders as their primary responsibility. The primary barrier is risk. Not only are you extending your supply chain risk you are also taking on a host of other risk potentials – everything from exchange rate risk to political stability risk to USA trade policy risk to product quality and corruption risk. Which is why a 2.3% COGS issue is not a tipping point. The risk factors are too great.

So you really need to have a very substantial offset in COGs to take on that sort of risk. And particularly for a company that can afford to spend $41 million on a plant, a mere $4 million/yr in extra costs is not going to tip anything. Just the opportunity cost alone on that money is $3.7 million per year.

So you are trying to convince me that $300,000/yr in excess cost is going to be a tipping point on a deal with that much risk? C’mon.

>> but as has already been show with simpler math than that used to calculate the PEoD, that this tax can easily confiscate more than 30% of a company’s profit,<< And I showed how that calculation was bogus. Precisely because the 2.3% is passed on to the customer. That's in fact what the PEoD tells us. Whenever a numbers argument devolves into "percentages of percentages" - you know that there is something being played fast and loose. this is not a number you can plausibly claim. its made up by ignoring various inconvenient factors >>You also contend that the lay offs of workforce is due to the recession. I don’t concede that point either, an analysis of the type of jobs involved would be necessary to better determine the cause independent of company management. << um huh? The question raised was "how come the layoffs are happening in 2013 and 2014 when the "recession was over in 2010". And what I pointed out was that while the recession itself was over (ie we had a quarter of GDP growth) - because of how the recovery ran, and because of the complex interaction of fiscal policies and benefits during the recovery, you would not have seen a major drop in healthcare device revenues until 2012. And companies then take about a year to respond with new budgets. So that puts the start of the layoffs into 2012-2013. what sorts of jobs were being laid off doesn't matter particularly - because the issue is when did the revenue downturn signal arrive at the Med Device mfgs.. not what their particular response was. >>hn’s example was a company experiencing growth in sales, yet the bottom line was still too low. What else is affecting the bottom line during sales growth to cause a company to look for ways to reduce it?<< 70%-80% of the COGS is labor. that's just the facts. And then you also have energy costs - which until the last year were starting to climb as well.

Jerry Robinson
Karl –

Perhaps you will answer my “which is greater – 3 or 7”? Because that may be just as relevant as your math question.. I also followed your link – it does not address my math question for you. But it still looks like a good book to read.. In return, I suggest that you read Dava Sobel’s book http://www.amazon.com/Longitude-Genius-Greatest-Scientific-Problem/dp/080271529X/ref=sr_1_1?ie=UTF8&qid=1434114165&sr=8-1&keywords=dava+sobel

Yes – 10Ks are dry – but they have a LOT of detail – and sometimes things between the lines…

You said “So the notion that somehow the SEC filings prevent CEOs from spinning the business reasons for doing something – well isn’t supported by the facts.”

SO.. pick the top 10 Med Device companies.. CALL them with your 2.3% effect question – ask the CTO… ask Investor relations… If you have NOT done this – then where DOES your odd assertion come from? Are you assuming that all answers by Company officers and staff are Lies or Misdirection? If so, then why are you messing around with this question??

Yeah.. you are using HS Debate Tactics.. Seen it before.. been there – done that….

The big fallacy in your “which is greater in size – the chicken or the egg?” question is that the question is distorted – and answers are partial.

The question was “is the 2.3% tax – costing jobs?” – and the answer is yes… AS I HAVE ALSO SAID – over and over – there are MULTIPLE FACTORS working against a company making products in the US… Many of our friends in Govt ALSO created these problems – intentionally…. It’s been a problem since the 1930’s… it is an extreme problem TODAY..

Watch the Friday night fights sometime.. It’s not usually ONE PUNCH AND DONE.. its a combination of PUNCHES and where those punches land – that make one fighter a winner and the other fighter the defeated…

Your REFUSAL to accept expert opinions presented is EXACTLY the same as DENYING THAT THE REFEREE has the qualification to call the fight – because the REFEREE gets paid for the fight.. It is the same as asserting that Judges are only motivated by money they get in salary – so their decisions can NEVER be accepted.. You DON”T accept the opinions expressed by trainers and managers – because they lie too..

On top of that.. you HAVE NOT DONE RESEARCH – and WILL NOT EVEN PICK UP THE PHONE TO DO SO.

Yet you have lots of time to post here..

Pretty amazing….

So which is greater? 3 or 7? >>why won’t you answer that simple question?<<

Jerry Robinson
From above…

>>>> but as has already been show with simpler math than that used to calculate the PEoD, that this tax can easily confiscate more than 30% of a company’s profit,<< And I showed how that calculation was bogus. Precisely because the 2.3% is passed on to the customer. That's in fact what the PEoD tells us. Whenever a numbers argument devolves into "percentages of percentages" - you know that there is something being played fast and loose. this is not a number you can plausibly claim. its made up by ignoring various inconvenient factors<< You did not show that the calculation was bogus.. To be profitable - a company must FIRST break even.. You showed - and the numbers support - that the effect on a company might be 5% - with expense and tax accounting thrown in.. and that is of SALES - not profitability.. Profitability for medical devices is END GAME - not when the sale occurs.. MANY COMPANIES - come on... DO THE RESEARCH - are NOT profitable.. or have SUBSTANTIAL R&D to pay off.. so the 2.3% or 5% of cost - come directly out of the MEAT of the company.. JOBS are what gets lost.. It's clearly obvious - it happens A LOT.. AND - since you HAVE NOT DONE THE RESEARCH - my assertion is clearly correct....

Karl Schulmeisters
>>Yes – 10Ks are dry – but they have a LOT of detail – and sometimes things between the lines…<< Show me where the 2.3% device tax is being discussed. >>The question was “is the 2.3% tax – costing jobs?” – and the answer is yes… << Saying it does not demonstrate you have facts to back it up. you have to "show your work". So far you haven't. I have. And I have shown that there is no reason for it to have cost jobs, and that it plausibly increased innovation. (the answer btw is 7). I've done the research. I've shown that using John's own numbers, it simply isn't believable that his company relocated to DR because of the 2.3% tax. Because it would be taking on a opportunity cost almost as big as the 2.3% tax cost and massive amounts of risk all for a $300,000k/yr benefit. you know that's not plausible so you refuse to answer the simple question I posed to you. The reality is they moved because they can save upwards of $100 million /yr in labor costs (assuming John's numbers were valid). >>You did not show that the calculation was bogus.. To be profitable – a company must FIRST break even.. << and I showed that with a PEoD of 0.2 that a company breaks even on the additional cost by raising its prices by 3%. Which means that the 30% of profits calculation is bogus. Now it is true that many companies are not profitable. We the taxpayers and public are not in the business of making policy to subsidize them.

Jerry Robinson
a – go find your own details. You know what you want to see – you go find it.

b – DENYing – that 2.3% cost jobs – as you do – does not make it so.

c – what you show is not logical is and is in error. I went over HOW The cost affect (a) hospital patients and (b) medical device makers cash-flow – and you had NO REAL comment whatsoever.

That does not pass the SMELL test Karl…

Seems fair to refuse to answer your skewed question when you won’t answer mine.

As John observed – some companies have to “eat” the cost. All med device companies have a new, complex set of accounting to pay for and manage.

How much do you think the IRS has to pay to implement the taxing system for the 2.3%? Is it “free” or will you “Dismiss the cost” with another classic Karl “Poo-Poo” Blast?

WE can agree on one point.. WHEN A COMPANY IS NOT PROFITABLE – THE 30% of profits number is BOGUS.. no PROFIT – yet STILL PAY this “tax”…

Jobs get lost here… Any simple accountant can tell you that… Numbers have to balance between outgo and income.

Jerry Robinson
* still loses money – because of the cost of accounting and expense associated with the TAX.. Surely you know this.. Accountants and Consultants coast money when they work.

I guess the answer is more like 5%. ESTIMATE only.. YOU ARE ENCOURAGED TO DO SOME REAL RESEARCH TO FIND OUT REAL NUMBERS>.. but UNTIL YOU DO.. you are not entitled to disagree out of ignorance..

We went through research, published figures that show that medical device cost markups ranged between 157% and 709% in one study.. There are, I am sure, other studies.. These ARE REAL, RESEARCHED STUDIES. So that 5% cost – gets markets up to 7.85% to 35.45% of the hospital’s medical device cost.

More expensive medical cost for patients WORKS AGAINST BETTER HEALTHCARE..

SO.. not only does the tax COST JOBS.. but it also WORKS AGAINST BETTER PATIENT HEALTHCARE COST..

Karl Schulmeisters
Jerry, if the details that John offers as “proof” are orouborean, I don’t need to “find my own”. Because if the best data you or John can offer does not make the case, I don’t need to prove it any further.

And as you and John have pointed out – repeating something without being able to back it up – either with logic or independently verifiable facts – does not make it so. The CLAIM here is that the 2.3% tax costs jobs… QED the onus is on you to demonstrate this
* with independently verifiable facts

* with valid logic.

All I have done is to point out that you have failed to do this. The onus is not on me to prove it has not. I’m not the one making a claim.

As to how the costs affect hospital patients – that is a red herring fallacy. because the title of the thread is :

======> “Tax leads to lay-offs, frozen R&D, no raises ”

not

Tax costs patients more in one part of their bill.
or
Tax increases IRS Costs
or
Some companies have to eat the cost
or
There are some minor additional accounting expenses associated with this tax.

Those are all red herring fallacies unless they directly support your claim. You have not shown your claim to be true

Jerry Robinson
There you go again.. I googled orouborean – and google can’t find it.. Is this a small, yellow flightless bird – commonly found in the South Atlantic.. (this is humor, Karl)??

You have disputed John’s numbers – which is fine – and don so without any shred of actual research to back you up. I DETIALED – carefully – how the 2.3% can have a PROFOUND influence on a small or growing startup – and how it costs jobs..

It is very much like a professional boxer’s experience.. They can take punches – it’s part of the job.. but LET THEM TAKE A JAB UNDER THE BELT – twice a month – and they are not going to do so well.

Thee is no “onus” on us to prove anything to you .. especially when you insult evey single thing that has been brought up. In fact, Corp. CEOs by are large are doing the BEST JOB THEY CAN – in running a company and being honest to both shareholders and employees. That bargin is changing, one might argue – but If IS FALSE TO ASSERT THAT THEY LIE ALL THE TIME OR SPIN REALITY TO FIT WHATEVER THEY WANT. I am NOT going even to assert that YOU MIGHT DO THIS>.. since you ARE – after all – in management – right?

YOU DEMAND PROOF… that’s good.. GO DO RESEARCH and FIND THE TRUTH.. STOP INSISTING THAT OTHERs FIND THE TRUTH -and BRING IT TO YOU FOR A BLESSING. You are not the Pope.. and.. You aren’t paying people for thier time. TRY actually PAYING FOR WHAT YOU ASK…

Go DO SOME REAL RESEARCH – and CEASE THE Wooly Bully.

You are correct about the core TOPIC.. These are other EFFECTS that do not help patients, the IRS, or companies eating cost. THERE IS an accounting cost – but it’s not minor.. DO SOME RESEARCH HERE – how much extra expense do you think it is? I estimate – that when all things are considered – it might be 2.7% or so. Just my estimate.. BEFORE YOU DISAGREE AND “PooPoo” again – go do some RESEARCH to actully back up such an assertiion.. what is a real number??

My claim is that it DOES cost jobs.. for small companies, the money has to come from somewhere – either reduced growth, less R&D, layoffs or decisions to not hire people. This is SIMPLE MATH. WHAT IS SO HARD TO UNDERSTAND ABOUT THIS?

>>why won’t you answer that simple question?<<

Joseph Schwartz
Just one short comment: Why are the types of jobs lost important? It is very important to the person losing the job, especially when most of the competition is doing the same, so replacing that job is difficult. But that is not my point. The reason the type of job is important is it will show statistically whether the cuts are GDP related or tax related. If the company has lost sales, the cuts will be in production positions. If the predominate jobs lost are not production jobs, it would indicate the company cannot reduce these jobs and still maintain the necessary production so the reason for the cuts must be other than loss sales due to the recession. What might those other costs be?

Karl Schulmeisters
I see where you are going with that but it doesn’t necessarily follow that cleanly
.
if my sales go up so I automate production and lay off machinists whose work is now done by CNC it would show up the same as just a decrease in sales demand or even a bad forecast the previous year that led to overproduction.

Jerry Robinson
Someone codes the software application and someone else likely enters the CNC data – even when hooked up to design software and computational elements.. It can be a job trade – and not a bad one…..

In this thread.. the 2.3% tax results in MORE JOBS for the medical device makers in some areas.. more accountants to keep track… better software processing of outgo – like sales – and receiving – like keeping track of the incoming product serial numbers.. BUT LESS JOBs in making things and designing things – as that there is more friction in the business process. Engineering gets affected.. R&D gets affected – and manufacturing jobs are driven to be leaner…

With the IRS budget being REDUCED – AND now having to deal with HEALTHCARE and this 2.3% excise tax – their job functions are INCREASING – yet the BUDGET is decreasing.. This will reflect back to medical device makers, too..

Karl Schulmeisters
Clearly Jerry you’ve not worked with CNC stuff. It comes straight out of the CAD program. Its called a “toolpath file”. there is some manipulation that needs to be done by ONE worker to run about 5 lathes that produce what about 10-20 skilled machinists used to produce.

And yes, if a 2.3% tax increases the value of growing and innovative companies (which it does because of valuation based on EBITDA) the it increases R&D and jobs in this area

Jerry Robinson
Karl… you should ask before your Splunge…

I have a Taig CNC Mill and Lathe machines, two Bridgeport (NC/CNC) mills, three Southbend lathes.. and dabble with 3D printing.. so YES I HAVE WORKED WITH CNC files.. I MAINTAIN and USE them. Classics….

It’s not STUFF.. What comes from CAD files is something that a program like Mach3 or MasterCam can process into “gerber files”… Sometimes one worker- – actually a CNC programmer – can operate 5 machines.. whether CNC Lathe, Mill or VMC. I really think one “worker” can produce a LOT more than 10-20 people used to produce.. the “worker” is a programmer, Karl… Are you a “worker”?

Well as John pointed out.. we don’t have the effect of EBITDA anymore.. we have this DRAIN on production, R&D, productivity, AND manufacturing. Along with CAUSING JOB LOSS – it drops the profitability – and we know that VALUE is frequently measured by multiplying the earnings to reach an approximate valuation – or at least if often can..

Karl Schulmeisters
I’ve done CNC programming but I’ve also done the backend coding.

but we are digressing the issue is that you and John and Hugh have made a particular claim..
.
I’ve shown you cannot credibly back that up.

Jerry Robinson
Like many posts in this thread, you made a blatant assertion – without checking the facts first. I have, indeed, worked with CNC… You did not acknowledge this error – before moving on.
I am glad you have done back end coding and CNC programming.. It is pretty clear that 3D printing will have a strong effect on the creative artisan’s work and also on the small start up or med device startup in the US. This is a good thing…

Yes.. WE DO digress from the forum thread topic.. kind of.. You brought up CNC. I like CNC, too.

YES.. John and I made a set of claims..

No, you are NOT the authority that solely decides credibility on this.. WE do not have collect a set of information and present it to you for your blessing..

You are PERFECTLY FREE to follow up our claiims.. DO YOUR OWN RESEARCH.. I STRONGLY ENCOURAGE IT!! contact the companies that John mentioned.. TALK TO PEOPLE.. Pick up that CELL PHONE and start talking to people.. I have done it.. I helped Boy Scouts Raise funds for local troops over the years.. I helped make telecalls for sales support – in the 1980s – to our distributor network… This is not hard to do.. get a list! start calling!!

Jerry Robinson
Or… you could fund an objective research project..

Karl Schulmeisters
again I brought up CNC in response to the question of type of jobs being lost and what that does and does not logically tell us.
.
but the point still stands:
.
there have been no independently verifiable facts presented that support the OP top claim

Jerry Robinson
I like CNC machines… It’s why I have them – and I like what I can do with them. CNC – in some ways – displaced a lot of manual machining operations… quite a while ago. I just do not see that the 2.3% tax would affect many jobs in area of CNC – but it certainly could. I think the rise of 3D printing will add a lot more jobs – potentially – than one might realize.. in this area.. I don’t know the numbers – but see the journal and magazine articles as new uses and techniques get created.

CNC type jobs in the Medical Device area is so bound up in technology change – as 3D printing jobs and products rise – that it is hard to really get a handle on the industry. It’s the same kind of job – with a good bit of learning curve between them. Starting with a CAD design – and then tweaking the design to be used with additive or subtractive technologies is a real art… then understanding the process and materials make it a good bit of overall art.

But.. I would have to say that overall, CNC is not part of what I would think of as job loss due to the 2.3% tax effect…

Your point – is that YOU do not think that “independently verifiable” facts have been presented to support the OP top claim.

let’s look at $$ for the govt – and patient effect first..

Jerry Robinson
I assert that a lot of jobs have been lost. That there are 14K+ companies -with many different situation. The 2.3% tax process throws a huge, needless bureaucratic “wrench” into all these company operations. It’s expensive – takes cash out of operations (to pay the tax, 2x a month), deal with bureaucratic tax tracking, increases substantially the cost of product handling, increases the cost (internally) for the IRS to manage and administer…

About the IRS.. let’s see… 14K+ internal US med device companies.. a lot more “international ones”… 100’s of thousands of products.. crossing the “title ownership” – boundary mostly in one direction – with some back-flow in the other direction.. so you are TRACKING EVERY SINGLE MEDICAL DEVICE SOLD IN THE US – and trying to handle the TAX and the TRACKING the unit.. At the company level – and at the IRS auditing level… Your tracking point is 2X month. Does this process improve health for ANYONE?

OK.. once we have gone down the hole with Alice, reality does not really have to hold sway any more.. SO…. Let’s look at medical devices that go to hospitals – or insurance companies.. etc, etc.. etc. HOSPITALS mark up the device – per ONE REAL STUDY – showed a 157 – 709% markup.. SINCE a LOT of these costs are picked up by the government in medicare/medicaid – you have the PECULIAR situation of..
a – the gov takes a 2.3% tax at the device sale level.. takes in revenue.. The Maker will eventually mark up the cost – may to 5% to cover the actual cost….
b – the hospital MARKS IT UP. by a factor of 1.57 to 7.09.
c – the hospital CONTINUES to complain about increasing cost – and bills MEDICARE/MEDICAID for a pretty high of products…
D – the GOVT pays the hospital for said medical devices…..

NET EFFECT……
a – govt pays out a lot more than what it takes in for a substantial number of devices.. It loses money on these devices.
b – the IRS loses money auditing the 14K+ domestic and international companies – Let’s just estimate 28K companies total.. (my guess – I don’t know) – 2x a month – for some hundreds of thousands of products. so… here is the math..
28K companies – 2x/month filing – 100’s Ks of products – 100’s of millions of products sold..
(how can you ever really quantify this cost point accurately)
so I would say.. may be 24x filings x 100’s of K products – tracking 100s M of of devices sold
that’s.. kind of a lot more than billions of things to account for.. right?
It is going to take a lot of numbers to quantify this..

BOTTOM LINE.. there is a HUGE COST in this tax.. I don’t even see that the Gov’t will actually make ANY money out of this.. Hospitals will rake it in, though..

BUT NONE of this RIVER of cash actually improves the lives of patients. it will all cost them more money. BIG CASH SPENT – NO RETURN ON IMPROVED HEALTH>. THEREFORE A BAD IDEA…..

This part is just part of the irrational logic of this tax.. it may not raise money for the Govt – yet drives up health care cost.

now.. to jobs…

Jerry Robinson
Your point….

Your point – is that YOU do not think that “independently verifiable” facts have been presented to support the OP top claim.

John gave companies, stories, and situations.

You reject the statements of CEOs, company officers, and others… ok…

WE (people who post here) are NOT obligated to go do research – to your unstated standards with no funding. You are an experienced professional – and don’t do projects for free, do you?

SO… define your criteria for a “independently verifiable” study – and GO DO IT…

I DO absolutely agree with you – that MULTIPLE damaging effects are AT WORK here – it’s not just this one 2.3% effect that is Killing Jobs and driving up the cost of healthcare..

But these other things are not part of this question – and should be filtered out of YOUR STUDY.

Good Luck.

Karl Schulmeisters
You can assert all you want. There are also people who assert climate change is not happening. Meh. That’s what independently verifiable fact is all about.

And you cannot point to any independently verifiable fact that combined with valid logic, supports the OP claim. Annecdotal claims are inherently not “independently verifiable” unless those companies open their books and their executive meeting minutes.. which they have not nor will not. so BY DEFINITION that is not independently verifiable. In legal terms it is simply hearsay.

John’s own numbers, plugged into simple analytic logic shows that it is very unlikely a company would take on a $45+ million risk to save $300,000 annually – vs. saving $100,000,000 annually.

The onus of ANYONE making a claim is in fact to support it with valid reasoning and independently verifiable facts. Neither you nor John nor Hugh have presented that.

Jerry Robinson
Sure I did … I went through the cash flow effect.. which anyone that has run operations or finance on a Medical Devices company can validate..

You, on the other hand, have done no “real research”. Meh.

I do assert.

I do have facts – you may not like them – and you are not the “fact judge”. Those who are expert and legally responsible – you have “blown off”…. double Meh.

Karl Schulmeisters
and I showed that the “cashflow effect” was basically nonexistent. in the cases where it might be a problem the company has deepe more structural finance problems
.
and assertion is no argument whatsoever

Jerry Robinson
Karl…

I have had to deal with paying things before.. Growth was completely constrained by cash-flow and profitability in those situations. You weren’t there – you did not have to SCRAMBLE to pay those bills and pay those people. This is a serious reality for small companies and small start-ups.. Unless you have BEEN THERE – and DONE THAT.. they I don’t see how you can judge with absolutely no knowledge and possibly no experience… . Hardware oriented device makers just have a MUCH MORE DIFFICULT situation with cash-flow..

Companies may have deeper financial problems. Many do.. and when short CASH – and the implied CASHFLOW.. people lose their jobs.

That was the point in this discussion.. “Are jobs lost”.. and the answer is yes.

John Eckberg
Jerry rules

Karl Schulmeisters
Jerry you are making what is known as a Hasty Generalization error http://www.nizkor.org/features/fallacies/hasty-generalization.html

Since you have not opened your books nor fully opened the discussion of all the financial choices and opportunities that were on the table it is basically not a meaningful example. For example, that you “had to scramble to pay bills” does not mean those were the only options open to you. Examples of things you could have done differently (but which are hard to accurately assess since you studiously are withholding information) include

* Anticipating the cashflow crunch and bringing in outside capital, be it Seed Funding, SBA loans, Kickstarter, or VC funding. True many of those choices would have diluted your personal ownership share and possibly lost you control of the company, but that does not mean that they were not options to accelerate growth.

* You could have arranged for Accts receivable funding long before the cash crunch. Had you established a longer term record with an Accts Rcvble lender, your rates would have been lower and your “scramble” non-existant

* You may well have been suffering from deeper financial problems – in which case the cause of a “cash scramble” are the deeper financial problems, not a 2.3% change in COGS.

Again, using logical fallacies (in this case Hasty Generalization) and incomplete and unverifiable claims

does nothing to make your point be based in independently verifiable fact and valid logic

Karl Schulmeisters
Put it this way – both you and John have or are experiencing financial difficulties do to a variety of factors. Why then would anyone consider your claims to be unbiased or uninfluenced by the stresses you feel or have felt?

John Eckberg
Financial difficulties. What part of global giant do you not understand? Companies that manufacture in Ireland, Australia and the like are going to be fine. The financial difficulties are at the family level, anyhow, families with a sick member who do not have the access to new life-saving medical technologies. They are the ones really hurting because of this tax.

Okay, where were we? About 2,397 posts ago I offered some study evidence of jobs lost. I guess I have to do it again.

The Emergo Group look at 2015 Medical Device spending suggested that somewhere between 44% and 50 percent of 5,400 companies in this space either laid off employees or curtailed R&D, which is, not to get too technical here, the same difference. Lost jobs. Of course, those jobs didn’t disappear, they just got relocated to Costa Rica, Mexico, Singapore, Ireland and the UK. Of the 15,000 companies in this space, that means 7,500 peeled back payrolls.

Note in the Duke Study, I’m not going to cite with a link, google Duke, Costa Rica, Medical, Device, Global, Value, Chain. When that comes up, look on page 32 and note the footnote No. 21. Looks to me like 14,500 jobs are now in Baja, Mexico, in this industry. In 2007, according to this study, there were 7,499 jobs…not 7,500 jobs but 7,499 jobs. That means there are now twice as many jobs in this space in this one near-shore country in just eight years.

And those figures are a few years old so it is doubtlessly worse by now.

Costa Rican medical device exports were up year-over-year by more than 50% from Costa Rica from 2014-2015, the Tico Times reported recently, from $97.3 million worth of medical devices in January 2014, to $149.9 million in January 2015.

Exports increased by 58% between 2008 and 2013. If you used the years 2009 and 2013, exports are up 65%.

http://www.ticotimes.net/2015/02/23/medical-devices-top-costa-ricas-export-sales-in-early-2015

Finally, I think tax backers ought to hear another anecdote from the real world about the impact of this tax. This is from the president of a Kendall Park, NJ, company: “This tax is much more than what it appears to be. What matters is where in the ledger the 2.3% is applied. This additional burden increases the tax obligation significantly.”

John Eckberg
I’m not certain simple math works in this forum but let’s try it anyhow. The tax is claiming $1.8 billion from companies in this sector. It took MassDevicedotcom a FOIA request to get that number, I should add. Nobody in the government just coughed it up. They had to be compelled, much like a summons to testify, to cough it up. Thanks to MassDevicedotcom for its public service.

So, assuming half the tally came from U.S. based companies and since the tax has been in effect for two years (not since 2009, as Tom the big tax backer and buddy of Jon Gruber, no wait, I mean Paul,….no, wait, I mean Karl) that’s $3.6 billion raised.

Again, it did not come from thin air, it came from the books of companies in this space. I think every dime of that would have been spent on job creations, a euphemism for R&D, but just assume that since payroll is 80% of most companies’ cost, just for the sake of argument, what would that $2.8 billion meant in terms of jobs.

Well, it’s 48,000 jobs that might have paid $60,000. That is, it’s a good-paying job disappearing from the balance sheet of companies in this space every 30 seconds since January 2013.

John Eckberg
Anecdote No. 11,141 – From the president of a NJ company that is family owned: “I have several patents on new medical devices, which could bring more jobs to NJ and the US, but investors are fleeing the medical device area because of the unfavorable conditions we are facing, like this new tax….It is already a struggle to keep our company going as a manufacturer in NJ and the US – this new tax could be the death knell for us!”

Karl Schulmeisters
John you are a clever rhetoretician, but wrapping a Begging the Question Fallacy in a Misleading by Vividness and Appeal To Emotion Fallacy does nothing to address the underlying logical fallacy.

your core assertion:

>>Again, it did not come from thin air, it came from the books of companies in this space. << Is what you started out with and which remains not only unproven but highly dubious.: FACT --> cited research shows a Price Elasticity of Demand of 0.2.
FACT –> we have evidence of companies passing this $1.8 billion cost onto customers
FACT –> we know that there is non-zero price inflation in the healthcare industry (also by supported citation)

So while the collection mechanism may be these companies, it is far more likely that the money is coming out of those paying for the devices at the end – be it individuals or healthcare insurance companies.

Since that comes from the customers and since PEoD tells us what the drop in demand is we can calculate the potential jobs impact:

$1,8 Billion x 0.2 ==> $360 million in reduced sales volume.
The FDA recognizes 20,988 manufacturers licensed to sell products in the USA

That works out to $17,152 of revenue loss per manufacturer.

That’s not even a full time job

Karl Schulmeisters
Somewhat relevant
http://theconversation.com/no-youre-not-entitled-to-your-opinion-9978

John Eckberg
From a news opinion column published in Utah today. This is anecdote No. 4,173. “For Merit, the device tax increased the amount of taxes paid to the U.S. Treasury by a whopping 41%.”

Tell him he’s wrong and that it’s all about COGS so things are fine.

(Note use of Treasury and not ACA, as funds are not earmarked in any manner, nuance or fashion for the ACA. This is the dumbest tax since Diocletes thought capital punishment for violators of his wage and price controls was a good idea.)

Karl Schulmeisters
from a news OPINION piece. do we need to read further ?

Karl Schulmeisters
and then of course the fallacy of percentages of percentages…

Karl Schulmeisters
so yes he’s wrong for using logical fallacies in his arguments

Jerry Robinson
Time to pick up that PHONE or EMAIL Karl…

you have a NAME (Company) and can FIND THE REPORTER’s name to ask them…

SO.. GO DO SOME RESEARCH and STOP WITH THE unsupported opposition DRIVEL.. What is your VERIFIABLE basis for disputing John’s comment?

You dispute OPINION – yet hurl out your counter disagreement. NO BASIS for opposing this information – yet you feel it NECESSARY to dispute – and “PooPoo” it?

Do do some research – CALL and find out the numbers.. FIND some basis for splurging out this opposition point…

Jerry Robinson
Regarding this link….
“https://www.linkedin.com/grp/post/78665-6014118362504798211”

It’s unrelated to this discussion….

But.. since you saw fit to post it.. His point is >>”Secondly, I say something like this: “I’m sure you’ve heard the expression ‘everyone is entitled to their opinion.’ Perhaps you’ve even said it yourself, maybe to head off an argument or bring one to a close. Well, as soon as you walk into this room, it’s no longer true. You are not entitled to your opinion. You are only entitled to what you can argue for.””<< so... in other words.. it the language is different.. if you are an infant, child, have a relevant disability.. if you are infirm.. if you speak a different language or have a different culture... or have NOT had the benefit of a sound debate training.. then you MAY NOT have an opinion.. This man - Patrick Stokes - is both an moron and ignorant.. That's my opinion. BUT - AS SAID - it is not relevant to our discussion of 2.3%. Jerry Robinson
Just to use YOUR FIGURES, KARL… without comment of if they are verifyable or accurate:

>>$1,8 Billion x 0.2 ==> $360 million in reduced sales volume.
The FDA recognizes 20,988 manufacturers licensed to sell products in the USA
That works out to $17,152 of revenue loss per manufacturer.
That’s not even a full time job << so... FIRST - these numbers say REDUCED SALES... (Your numbers) SECOND - Social Security reports that "the average wage index for 2013 is 44,888.16" THIRD... Lets do the math... $360 Million / 44,888.16 per job = 8,019.93 jobs. Hey... This is pretty simple math - and no POeDs even... SO>>> by YOUR OWN DEFINITION – we can look at a JOB LOSS OF 8,019 jobs from this tax..

QED – that is from the numbers YOU QUOTE>> YOUR NUMBERS << THEREFORE - John is ABSOLUTELY RIGHT - JOBs ARE LOST... QED - KARL... YOUR numbers - REAL SALARIES (per Social Security Admin) ==> a REAL JOBS LOST BY THIS ANALYSIS.

good.. NOW can you say “John… you were right.. my numbers show it.. JOBS WERE LOST”.

Jerry Robinson
Karl…

As an Engineer – I USED to Randomly Capitalize Words in my communications.. worked fine in emails.. But in longer documents – my GRAMMAR CHECKER objects… I still slide in the Necessity for Capitalizing the First Letter of Sentences.. and it’s Hard to Change.

But NOW – I find that if you just go ahead and occasionally CAPITALIZE all of the letters of impact words – that it KEEPS the READER awake and at lease SERVES a PURPOSE. The Grammar checker STILL COMPLAINS – but I feel more RELAXED about IGNORING it.

just a suggestion.. We are going to ignore nizkor, to.. kind of sounds unhealthy, anyway….

Jerry Robinson
You quote >> The FDA recognizes 20,988 manufacturers licensed to sell products in the USA<<. sounds like in the ballpark to me, too.... so.. these companies are all different and all have differing financial positions. May be they make differing products, too.. The experience I had in business was long ago - not related to 2.3% issue here. But I DO UNDERSTAND tjh challenges that underlie the challenge of business. Frequently - companies can go from a reseoruce tight to a resource flush CASH postion. My experience is therefore relevant. If you have NOT had to deal with cash limited finance -then How Are You the Least Bit Qualified to comment on Companies that have been in this position? I wonder... As mentioned before.. You are NOT the determinier of "verifyable" for other people or companies. I don't autorize or recognize that experience or authority.. Who does? Do you actually READ these posts? SInce pointing out your error on "CNC Assumptions" - though unrelated - you have YET TO SAY "I was wrong" - and MANING UP. Can YOU admit you were wrong on something? IF so.. I must have missed it.. FYI.. I have done a Kickstarter project... dealt with the SBA.. talk to VCs on a frequent basis... Can you say the same? Be specific - let's veryify names...

Karl Schulmeisters
Jerry the claim is yours. the onus of proof is yours.
.
and the ring also lies the rub: small sample examples are valid to use as a counter example but are Hasty generalization fallacy when used in a proof.
.
secondly here say is not independently verifiable evidence. it is unsupported opinion or in the cases you are using, largely the Appeal To Higher Authority fallacy.
.
it’s rather disappointing to see STEM field folks reasoning so weakly and seemingly unable to understand what are and are not valid forms of reasoning.
.
whic lleads to your “math”
.
since jobs exist only in the context of a company, you have to divide through by at least 20,998 is the number of companies.
.
and of cours there rrally are more companies since some are in startup mode.
.
and that gets you an average impact per company of about $17k ir not even a full time minimum wage job

Karl Schulmeisters
as for your own experience. …you have not opened your books or covered the circumstances. hence it is selective data fallacy (BTW I’ve already told you I’ve worked for cash limited orgs and full well understand cash flow.
but that doesn’t really matrix you cannot address the points I made)

Karl Schulmeisters
BTW what maks something Independently verifiable is very straightforward. ….that an arbitrary other person can use a different path of analysis on the underlying data to validate the logic, data, and conclusions.
.
so if I can point out the inability to do that (closed books, closed meeting minutes) then in fact I do get to be the determine of verifiable as does every other reader. And you well understand you have not met that standard (at least I hope you do)

Jerry Robinson
no you don’t, Karl.. the salary statistic is supplied by the Social Security Administration…. It is based on an AVERAGE SALARY for American Workers.

YOU provided the figures… BASED ON YOUR NUMBERS…..
>>$1,8 Billion x 0.2 ==> $360 million in reduced sales volume.
The FDA recognizes 20,988 manufacturers licensed to sell products in the USA
That works out to $17,152 of revenue loss per manufacturer.
That’s not even a full time job << The math is simple division... $360 Million / 44,888.16 per job = 8,019.93 jobs. SO>>> by YOUR OWN DEFINITION – we can look at a JOB LOSS OF 8,019 jobs from this tax..

I can add and divide. This is part of how math works.

Your argument – is one of the more ABSURD I have heard lately.. Do you know how to divide?

Are you actually saying – without serious fortification by Whiskey – that a $360 million reduction in sales – results in ZERO JOB LOSS – because it- in total – is >>not even a full time minimum wage job?<<

Jerry Robinson
Here is the standard I meet…

1. – I used your numbers – ones you POSTED.

1. – I used a number supplied by the Social Security Administration.

Your numbers + Offficial government information.

That says.. 8,019.93 jobs lost.

It’s MATH, KARL..

I am not even COMMENTING on numbers you provided – but you SHOULD be able to accept what you wrote. RIGHT?

EVEN if you declare everyone WRONG but yourself – well… THOSE WERE YOUR NUMBERS…

EVERY other reader here – can LIKELY do the math… BASED ON YOUR OWN NUMBERS…

Whether YOUR numbers are VERIFIABLE>.. I am not commenting.. I don’t need to.

Meh. QED. EIEIO.

John Eckberg
Here’s anecdote No. 196 – an early adopter at www.no2point3.com. He is the president of a company in Tennessee that makes heat- and cold-therapy treatment systems: “I believe that this so called tax will drive more companies out of business or they shall move off shore.”

Karl Schulmeisters
Jerry, you studiously left off the per company impact… people don’t work across companies.

John Read your own quote:

>>”I believe that …<< Belief is not what we should be basing public policy on. So far you are providing the "beliefs" of folks who perceive themselves to have a vested interest in this. Do you not understand how weak a claim that is?

John Eckberg
I believe that last year of 195 publicly traded companies on the TD Ameritrade Stock Screener that are registered Medical Equipment and Supplies, 120 operated in the red. I also believe that just 75 had net income.

John Eckberg
Anecdote No.5,314…This is from a J&J employee from Allen, Texas: “Layoff all R&D (8 impacted) and 20 in operations. A 12% reduction in work force. in 2013.”

Jerry Robinson
Of course I did not Karl…

According to YOUR NUMBERS – 8,109.93 jobs would be LOST.. So OBVIOUSLY – we could “assume” that some companies might lose jobs – others might not. Companies vary…

But.. the ISSUE – was JOBS LOST. not HOW THEY ARE Partitioned.

For example.. the US Govt statistics on families in 2014: 3.13 people per family. Would YOUR logic say “Since can’t have 0.13 people, THEN this family size MUST be actually ZERO?” That would be pretty silly, wouldn’t it?

So the point it – YOUR OWN INFORMATION combined with OFFICIAL GOVERNMENT RESEARCH information projects 8,109.13 jobs LOST.

Can you please MAN UP and concede the point?

Do you REALLY not understand the corollary of Tetlock’s “Accuracy of Experts” research?

Jerry Robinson
MAN UP!

Karl Schulmeisters
First off this is a hollow argument. Because as I pointed out before, these $$$ do not come out of the pockets of the company. They are passed on to the end consumers.

But secondly you have to allocate it per company. because people don’t work at two competing companies

So with 20,998 companies registered, that’s 8109/20,998 – less than 1/2 of a job per company.

Karl Schulmeisters
And again John – That companies are operating in the red coming out of a major recession is hardly surprising. I’ve already explained why their profits would be a lagging indicator.

As for J&J having layoffs… sure.. no question. So what?

how is that attributable to the medical device tax? You still have not shown the connection. You are still engaged in that logical Goebbelian fallacy of obfuscating coincidence with causation. Its good propaganda. It proves nothing.

John Eckberg
Group Purchasing Organizations and Independent Delivery Networks do not allow price increases. Period. The account for probably 60 percent of purchases in this sector. You are confusing the medical device supply chain with MP3 players, again. Did you ever clear up your confusion about the tax being collected in 2013 – not in 2009 as you insisted repeatedly about 300 comments ago?You sure were sure of yourself on that claim. About as sure as you are on price increases being passed along.

Jerry Robinson
Your own numbers predict a Job Loss…

Increasing prices – whether passed on to consumers predict reduced sales. The prices aren’t just passed on, either. COSTS are marked up and then charged to consumers. So actually job loss effects – would increase by 1.57 to 7.09 times – for those devices sold to hospitals.

You supplied the base numbers. The SSA posts average salaries in the US. This simple math points to job loss.

So.. You have to wonder… Just why it is that you seem to be unable to admit you were and are wrong – about this issue – and may be other things.

The mark of a true expert is that they are objectively fact driven. Best comprehension of the existing and known facts are what makes them expert..

This is an absurd comment – and totally false.
>>But secondly you have to allocate it per company. because people don’t work at two competing companies<< If it helps you feel better - you can theorize about partial humans that work at multiple companies being let loose from their jobs.. kind of janitorial or consulting services..

Karl Schulmeisters
>>Group Purchasing Organizations and Independent Delivery Networks do not allow price increases. Period.<< If this were true, we would have no Medical Device companies in business. Because GPOs have been around for decades and there has been COGS inflation for that whole time period. And that is the point of Price Elasticity of Demand data. for your statement to be true PEoD would have to be a very large positive number above 1.0 IE that for a 1% increase in price, you lose at least 1% in market share And yet the PEoD that I cited from actual field research across the whole industry, shows PEoD to be exactly the opposite. That it is 0.2 IOW you just keep insisting that something that has solid economic research underpinning it, is somehow, magically untrue.... Simply because you say so. UHUH right. That GPOs account for 60% of the purchases in the sector actually underscores even more that your claim is hollow. Because to achieve a PEoD of 0.2 when 60% of sales have a PEoD that is infinite - is mathematically impossible Get some cited data to support your claim.

Karl Schulmeisters
Jerry you are off on a tangent. Doesn’t matter what the markup is. Because it is only part of a larger cost. Healthcare labor costs dramatically exceed the device costs on the bill. So increasing one while decreasing the other can result in a reduction in healthcare insurance.

Jerry Robinson
Karl…. you PUT FORTH THE DATA…
I pulled one number from the Social Security Administration (A “Verifiable” source)

So the point is – YOUR OWN INFORMATION combined with OFFICIAL GOVERNMENT RESEARCH information projects 8,109.13 jobs LOST.

Can you please MAN UP and concede the point?

Jobs Lost is the subject of this thread.

LET’S SAY IT AGAIN (note the DRAMATIC all capital letters. for the hard of understanding….) YOUR SUPPLIED NUMBERS.. show MANY JOBS LOST. Simple Math…..

MAN UP..!!

John Eckberg
Karl, If you can’t get something as simple as when this tax was first collected correct, then why oh why would you think you are credible on any other element of this discussion? Costa Rican medical device exports are up something like 50+ percent from 2013 to 2014 or was it 2014 to 2015, I forget. Same scenario in Baja and Ireland and Singapore as companies shuttered factories in US and reopened in low tax locales. This time the HQs and R&D went along with manufacturing. All the data has been repeated three times on this string. Why don’t you read that Duke study, conservative and outdated because the job losses have been far worse, and get back to us after you do.

John Eckberg
FROM DUKE REPORT. THE TAX IS ONE OF THE MAIN REASONS THAT MOST EXPANSIONS HAPPENED OUTSIDE THE U.S. “In the last five years, 56 PERCENT of new or expanded manufacturing facilities for the major medical devices companies were outside of the United States (AdvaMed, 2011 cited in (Puri et al., (2011))…

Two dynamics are also likely to drive the shift of global production further towards developing countries: the first is rising tariffs and complex regulations and reimbursement in key emerging markets, such as Brazil and China; and the second is reform of the US health care system, WHICH PLACES AN ADDITIONAL 2.3 PERCENT EXCISE TAX ON ALL MEDICAL DEVICES MANUFACTURED AND SOLD IN THE U.S.

Karl Schulmeisters
Jerry you have not put forth any independently verifiable data on a corporation that can show it is laying people off by showing their books

And John, if you can’t even quote me correctly, then you really aren’t particularly credible. show us where I didn’t get the first date of tax collection incorrectly. I’ll give you $10 if you can show where I got the collection date wrong. Show us the post.

Yes I have no doubt Costa Rican Medical exports are up. This has exactly what to do with the excise tax.

And again, the Duke report doesn’t address that it is a 25x bigger cost savings by offshoring. You haven’t even tried to address the issue that according to your own numbers your company would have no meaningful cost savings if the move was based on the 2.3% excise tax.

Jerry Robinson
Karl…

This is a very simple story…

FIRST – you supplied the DATA – so USING YOUR NUMBERS..

>>$1,8 Billion x 0.2 ==> $360 million in reduced sales volume.
The FDA recognizes 20,988 manufacturers licensed to sell products in the USA
That works out to $17,152 of revenue loss per manufacturer.
That’s not even a full time job <<. SECOND - The Social Security Administration - a KEY US GOV"T organization - provided the average annual salary information: 44,888.16 per job QED - the MATH is SIMPLE $360 Million / 44,888.16 per job = 8,019.93 jobs. SO>>> by YOUR OWN DEFINITION – we can look at a JOB LOSS OF 8,019 jobs from this tax..

I can add and divide. This is part of how math works.

So..

a – are you choosing to be a complete Moron here.. ? seriously.. just to argue for the sake of arguing? Cause it LOOKS LIKE YOU CAN’T divide here.. Math.. It’s GOOD. Try it – you might like it…

b – I don’t need to show you books. Companies don’t either… YOU provided the base numbers.. the SSA provided a US average Salary..

John’s numbers are fine..

Demonstrate that you can DIVIDE – (that’s math…) and then complain to John…

I bet John can divide numbers just fine..

Karl Schulmeisters
Ya know the incivility from you and John is tiresome:

John deliberately misstating what I have said and you now calling me a moron.

It only shows how weak your arguments are.

Enjoy – feel free to call me whatever you would like, and to put forth beliefs as fact. The record of your writing stands. John I can somewhat forgive, he’s stressed with a family and a pregnant wife (by his own statement) so if he transgressed the code of honesty his military service instilled in him its forgivable.

I’ll leave you two to calling people names, and misrepresenting what they have said.
Enjoy

Jerry Robinson
I do apologize if you think I mention something personally. I am not.. My disagreement was solely with a position – not a person.

I also do not prefer to find my position misstated or confused.

Using numbers YOU supplied – and the SSA reported average, salary – I just found it astonishing that you would not do the math – or chose to sidestep it.

Again – I mean no offense to your personally and do so apologize. .

John Eckberg
Pregnant wife? Military service? You have me confused with anecdote 4,789. I think I will try to find that chatter where you claimed first that tax went into effect in 2009 and then later that it indeed went into effect in 2013 but that it did not matter because execs and companies had time to plan for it. As for incivil, I have always appreciated your effusive mendacity because it enables truth to be presented.

Joseph Schwartz
Karl, I believe you misspoke when you said this:
“First off this is a hollow argument. Because as I pointed out before, these $$$ do not come out of the pockets of the company. They are passed on to the end consumers.

But secondly you have to allocate it per company. because people don’t work at two competing companies”

So with 20,998 companies registered, that’s 8109/20,998 – less than 1/2 of a job per company.”

Those are job losses as a result of passing on the tax (the .2 PEoD). You can’t pass on a price increase to a lost sale. It does not even consider the jobs loss due to not being able to pass the cost on. Concerning GPO’s do you really believe they won’t look around for lower prices when offered a contract that passes on the excise tax?

A few days ago you mentioned CNC machining as a means of cutting costs. This shows an ignorance of the medical device industry, at least the orthopedic implant industry. Implants have been manufactured by CNC machinery for more than 20 years, so how will that help a company cut manufacturing costs. The same for lean standards. In order to remain competitive, lean manufacturing principles were applied to manufacturing as well as shipping and receiving and any other area that could be improved, years ago. I know, lean mfg has the concept of infinite possibilities for leaning out a companies processes, but in reality, there comes a time, like a starving cow, that there is nothing left to lean. I can’t say if the company I work for has reached that place, but each stage of leaning results in less savings. Eventually jobs becomes the easiest place to cut costs.

You want to argue that the job loss predicted from the PEoD is less than 1/2 job per company? OK, I’ll accept that, it comes out to 2.8 companies per job loss. So some companies have not cut jobs, I don’t think anyone here would argue that point, but one job loss per 2.8 companies is still a job loss and that supports the original statement, just from applying the PEoD to total sales.

Again, that does not account for companies that could not pass on the cost increase or lost contracts to offshore companies that could offer a lower price due to lower taxes and lower labor costs.

One final argument, you said :
“And yet the PEoD that I cited from actual field research across the whole industry, shows PEoD to be exactly the opposite. That it is 0.2”

So who did that research and what was their motive. You expect us to accept the researched PEoD as valid simple because it is math? The results of Med device company surveys is analyzed mathematically yet you call that biased because of the source. Who is the source of this PEoD? How do we know it is unbiased? We don’t, anymore than you know the results of the surveys are invalid due to their source. So none of the evidence is definitive, but using your own argument of PEoD, Jerry has shown it results in at least one job loss for every 2.8 medical device company. That is an access of 8,000 jobs, just from passing the tax on to the hospitals.

No misquotes, no name calling, no debating tricks, just valid reasoning.

Dan Stipe
Gentlemen,

For what it’s worth, I find Karl’s logic compelling. Seems to me he’s arguing his positon with data and clear reasoning. Comments from the other side of the argument come across as shrill and often insulting – “I really believe I’m right on this — it’s obvious! — why can’t you just agree with me? Moron.” (Jerry, it really hurts your case when you SHOUT all the time).

Now, it stands to reason that a 2.3% tax on revenues would be burdensome and could indeed cause companies to reduce workforce in response. The only data we have on that at this point — from the Emergo report — indicates that yes, that has been the case. And John has provided a lot of anecdotal evidence that supports his argument.

However, it also stands to reason that the world financial crisis and subsequent deep and long recession would play a more substantial role in companies’ decisions to relocate operations in regions where the labor force is significantly cheaper — and Karl has pointed this out and backed it up with, what seems to me, a solid analysis. His argument seems much more credible.

— Dan

Hugh F. McCann, Jr
Dan, thank you. YOU made a great contribution.
“Tastes Great…Less Filling” as the slogan goes can both be true.
The 2.3 as part of a “stew” of burdensome taxes and regulation is not helpful. We can split hairs and parse words ad nauseam or we can conclude some jobs have been lost from the 2.3 but the 2.3 is not the sole culprit.
For sure the 535 need to consider all sides of the debate and err on the side of “do no harm”.
Or limit the pain. ( take 2 of those expensive aspirins )
I did learn from this experience. Some input was very interesting and I have borrowed a few thoughts for application into my business model as a supplier into this market vertical.
Lastly, I am extremely impressed with everyone’s math skills…..my contribution being 10% of nothing is nothing….
So, smile, go back to work…..and Peace to All.

Jerry Robinson
I agree with your position, Dennis…

I tried to put some numbers to it in my earlier post.. For those devices being sold through Hospitals – the numbers show that the Gov’t could ( will??) actually end up LOSING MONEY on device purchase – and how that happens is documented above… When you add the Regulators, AUDITORS, and the like.. that MONEY LOSS GOES UP A LOT.

Clearly.. the tax has the effect of driving companies OUT OF BUSINESS – or OFFSHORE. Large companies can deal with this very well.. They LIKE it when smaller competitors are hindered, R&*D is reduced – and startup companies are put out of position.

With the damage being done to companies – I think you are perhaps far too optimistic that we will retain any kind of medical leadership in the world. I have done some research on this.. and efficiency is NOT an important gov’t goal. WIth the aging population.. this whole business will have a devastating impact on the US healthcare industry.

If you follow the methodology of Dr. Lorenz – then look at what is happening.. the long term effects are just huge… and quite negative..

Jerry Robinson
I don’t believe the 2.3% tax was designed by accident. It hits RIGHT at the heart of where R&D budgets get their money – and scoops it off the table..

It’s not collected in the same fashion that income tax is, either.. you have to account and pay it 2X a month.. That will need a whole new PILE of accounting software and systems..

EVERY SINGLE Medial Device will have to be serialized and tracked – at a company level – and all along the chain. Returns won’t be credited, if you don’t. This is going to be a real nightmare to track…

I don’t believe in “accidental effects” like this. Very cold and calculated in planning and execution.

John Eckberg
Anecdote No. 6,541 – from a principal scientist at a California Company. A real world assessment:

“Most med device companies that have publicly reacted to the device tax have announced layoffs to help pay for it. The most frequently mentioned department to target is R&D. That’s where I live. Besides the direct loss of jobs this entails, many of us still employed, at least for myself as of this note, are battening down the hatches.

Due to this insecurity about the future, I for one have postponed plans to remodel my
kitchen or to buy a new car (and I was looking to buy domestic). My 10 year old car will have to do for the foreseeable future. Med device jobs are one of the better paying ones. When you take us out there will be a snowball effect on other unrelated industries and their employment levels as I’ve demonstrated in my own example above.

John Eckberg
Hello Jerry, What I wonder about (always) is if the giant diversified companies, particularly those that have a Big Pharma arm (which will get 17 million new patients at three heart pills apiece) calculated that this tax would be little more than a nit on a flea’s back of their costs, while slaughtering the smaller companies that only sell domestically. Did those companies go behind those closed Senate doors where this tax was cooked up and agree to it because they knew it would devalue smaller more nimble competitors, which would later become take-over targets?

Rodney (Rocky) Bailar
Hello John. It happened. You accused Karl at least 4 different times of getting the tax start date wrong. He stated it correctly in every one of his comments going back to the first one. I see a pattern here.

John Eckberg
Hello Rodney, Guess I was wrong about that. I apologized to him. Now, I apologize to you for misleading you. I do remember correcting him but I guess I misunderstood him and his COGS line of thinking. What’s the pattern you see? Not sure one mistake repeated four times is a pattern but maybe it is.

As an aside and to get the discussion back to what’s important, here’s anecdote 10,141, which Karl says has no credibility. (Merit employees are all over the cyber-petition at www.no2point3.com)

http://utahpulse.com/index.php/features/business/2317-guest-editorial-it-s-time-to-repeal-the-medical-device-tax

Jerry Robinson
So…

Who were the people – names.. who came up with this rotten idea – and method of taxing… What were their names? The METHOD of collection and reporting – is JUST PLAIN evil.. this was well thought out…

John Eckberg
Hello Jerry. That’s a good question….A USAToday journalist, who shall remain nameless, wrote to me today “that HHS released 750 pages of documents on the Gruber contract a week or so ago. They’re heavily redacted, so it’s not entirely clear what exactly he did. He certainly worked on the “Cadillac tax” and the individual mandate tax subsidies and penalties. But I can’t find any reference to medical devices.”

Jerry Robinson
These folks… they do their damage under the guise of being “anonymous”.. If you want to have a “real effect” then you identify the “perps” and then “out them” in the approiate way..

is that hat a bad thing? Karl’s analysis indicated 8100 +/- jobs to be lost… you posted about ” Remington Medical, Inc.” with their job loss..

People are responsible… those folks at Remington – might want to know about who came up with this “tax”.. how they got it passed and names at each step of the chain? “Unfair”.. ? you might ask… well.. how much though do you think the “bigshots” gave to the children of US workers whose jobs were destroyed? not a single thought.. we have things like facebook and Youtube as tools today.. It’s people who caused this act to happen in the fashion it did. no “random chance” at work here..

John Eckberg
Jerry, Yes, I am from Ohio, from Akron and I’ve seen firsthand the pain felt by families when an industry picks up and leaves. It makes me angry too to see backers defend this tax with obfuscations, half-truths and strange calculations that “prove” this tax is good for start-ups and mature. Impairs alike. Tell that to the people I write to at companies like Carefusion who no longer have email addresses there because they no longer have jobs there. The jobs still exist somewhere in the world – just not in the US. It is outrageous and 280 members of Congress want this tax repealed.

Jerry Robinson
IT’S NOT PERSONAL TO THEM… NEVER WAS….

Someone ran a real “piece of work” scam on them.. they are not mentally equipped to understand.. And I have seen this OVER AND OVER again..

The Oblique solution would be preferred here.. who what behind the tax – which could have been fairly “harmless” but was constructed to be “deadly”? There was a serious, real economic analysis done to plan and create this effect.. Who benefits.. who loses – and who financially gains.. which lobbyist were paid to push.. which “puppet masters” pulled the strings..

As said.. my dad started to work against this kind of thing in the 1930s.. it’s an old formula…

Joe Hage
Still having fun, boys? Comment 620.

Jerry Robinson
no…

Question is… what to do – how to be effective… I don’t think a vote approach will work.. but that is for another topic…

Time to go Joe?? Closing time on this topic??

John Eckberg
Nah just getting started. I bet I have another 150 testimonials of harm from firsthand experience

John Eckberg
Anecdote 10,748 from www.no2point3.com: “We estimate that the 2.3 device task on gross sales in conjunction with income tax will consume roughly 80% of our gross profit. In order to pay for this, all product development has been stopped. Marketing has been reduced and our ability to grow and expand and create jobs has been eliminated. Furthermore, we cannot invest any profits into new development because the option of having a break even year by re-investing is gone. We must pay the tax regardless of profitability or go out of business.”

Jerry Robinson
Lost profits do not give people concern or the Heebie-Jeebies. too remote…

Re-express it as a Gangrene Tax – one which seems small to start – yet siphons off a company’s immune system and then kills it – This is something that people can relate to. Like Gangrene – it would seem to be small – but the effects can be devastating – fatal, in fact……

John Eckberg
Hi Jerry, Not directing or suggesting anything in these submissions but understand your point. I’m more of a raw journalism guy. Email company. See what they say. Write it. I think of this tax often as a tax on cancer because that’s what it is…

Jerry Robinson
Virtually everyone will see this as a “Small” tax and therefore reasonable.. that’t the insidious part.

Like Gangrene – it does appear small – and irrelevant, just as Karl insisted. YET.. in PRACTICE – because of WHERE it impacts in he cash flow process, how this “small tax” gets marked up by hosptiatls and then billed back to the gov’t at a huge markup.. because of a new – huge accounting, tracking, and regulatory system.. it has the Gangrenous effect of “killing the patient (company). That’s something that mapping out the cash flow stream shows…

People relate to Gangrene – starting small and resulting in chopped off limbs or death.. and Corporate Death can certainly happen..

Think is.. there are those who WILL profit off this Gangrene Process… and therefore push the issue..

as a crude illustration.. “get the bone saw, nurse.. we must remove this (R&D) limb to save this patient (company…).

Joseph Schwartz
WARNING: THIS COMMENT CONTAINS POLITICAL STATEMENTS, WHICH ARE, NEVERTHELESS, TRUE.

Jerry, in a post more than 20 hours ago you said the tax was insidious and intentional. I agree. This administration views our country in a colonialist fashion. In other words, the US is a monster who forces its will on as many other countries as possible. They think we are evil and are actively trying to dismantle our “power” and make our neighboring countries equal. This can only happen by tearing down the perceived more powerful country. They actually WANT jobs to go offshore…spread the wealth. They understand fully that this means lost jobs on our shores and less higher paid jobs. That is the equalization process. One radio commentator called it equalizing the misery. There is no doubt in my mind that this is a strategy actively pursued by this administration.

Who is responsible? I don’t think we will ever know the names of those behind closed doors…that is why the doors were closed. However, I do believe every politician who either gave or followed the instructions to “vote on it, then we will find out what it says”, should be driven out of office with such a resounding vote that they will never be able to run for office again. Let them discover what unemployment is like. Harsh words, you bet, hate speech? Not in any way or fashion.

Jerry Robinson
what you say – I think is dead on…
some one wrote this.. a someone conceived of it.. There is merit in “outing” such people

Sometimes identifying the “perps” is a good way to start their office exodus.. It’s the people behind the scenes that the light of the sun on them..

Martin Padget
Whether you are ok with this tax or not, the way I am seeing this community talk about this issue is embarrassing to me – and I am sure others as well. Many of us are scientists and engineers and should be above twisting facts and using anonymous anecdotes with over wrought analogies.

Jerry Robinson
I am an engineer and an Academic. I agree. I prefer to stick to facts and numbers. people do not always relate to this, though..

What do you suggest as alternative – how would you have handled the issue differently??

Dan Stipe
The reason that some of us are very skeptical of the anecdotal evidence provided for the harmfulness of the tax is because of comments like Joseph’s recent one: “This administration … thinks we (this country) are evil … They actually WANT jobs to go offshore …”

When you write things like that, it gives you zero credibility. And though not as explicit as Joseph’s, many of the repeal-the-tax postings in this thread have a similar mind-set oozing between the lines. Can you understand why we don’t trust what you say?

Jerry Robinson
Which you is “you”?

I think skepticism is really important on this particular – and on related issues..

If trust – only after you verify – is a good point, too.

How the tax damages companies is probably a lot more important than the amount..

For this 2.3% tax, there is 24 taxing periods per year… with all of the accounting, auditing, record keeping and such each year.. It’s a tax that must be paid – perhaps before – or long before a company gets paid by the purchaser – if you sell on “net” terms.. Tax is DUE 14 days from title transfer – in these 14 day windows..

Companies that would not owe ANY tax – now will. 2.3% of sales. In times past, the R&D could offset a tax bill – but not for this one. So it erodes that R&D budget. For some companies, it is a big effect – for others – little effect…

It hits on things you would not think about.. If it is a Medical Device – then tax is due.. things like.. pacemakers.. tongue depressors (??) and such…

For those devices sold to hospitals – their typical MARKUP is 157 – 709% (according to the Atlanta Journal Const.). I am sure these numbers vary.. Since virtually ALL companies have the OPTION to return a good – for some reason.. So you have the REAL scenario of the Gov’t seeing 2.3% income on one end – and paying out MULTIPLES of this on the back end.. it’s how Social Security, Medicaid, VA, etc, etc. work… So the NET EFFECT – for those products – is that the Gov’t loses money.. and that is before cost accounting for the tax auditing – accounting process.

companies will have to serialize products – in order to handle tax credits on sales… There are a LOT of products sold as Medical Devices.. tracking.. well.. it will be pretty surreal..

Dan.. from a PURE COST STANDPOINT.. it is much cheaper for the Gov’t to audit/tax account for imports than for domestiv products.. that’s been true on average – for a long time. How much that affects Medical devices – I really don’t know.. I DO KNOW that these numbers can actually be dug out…

I don’t assign any “motivation” to the administration… There are poeple whare are motivated who helped write these laws.. I am curious who they are and what their stake is….

This story is just another chapter in a long story of US Mfrs getting hit by our own rules to put our own companies out of business. Regan complained of this in the his first election campaign.. how the US trade reps would go to work for foreign interest they had been negotiating against….

Patent enforcement was another area of impact.. UNTIL Texas Instruments really put the squeeze on.. no US company had gotten IP revenue from US patents – in the US or in Japan.. this is a pretty clear story..

Repealing the tax? Congress?? have they ever seen a tax the did not like?… to collect?? :>

I really encourage skeptical approach.. there is a lot of factual info that can be dug out.. and the “chicken little” theatre just needs to get out of the way. What are the facts and what are the effects..

John Eckberg
Hello Dan Stipe, Tarring everybody with the same brush is never a good idea. I had a city manager tell me once to never look at the size of the group saying something, look at what that group is saying: EBITDA no longer exists for this sector, big companies actually benefit from a tax on revenues (particularly if they are diversified), small companies and start-ups have cash flow crushed. This tax has made U.S. companies takeover targets for companies based in Ireland, the UK, Singapore and Costa Rica. It has led to tens of thousands of lay-offs and lost jobs. Congress wants it repealed. The Senate wants it repealed and in his heart of hearts, I believe our President wants it repealed.

John Eckberg
And if anybody wants the email addresses of the people who offered the apparently tainted anonymous anecdotes, please write to me at [email protected] and I will offer them up. As for facts to satisfy the engineers and scientists, I’d urge people to look at the Duke study on the Costa Rican medical device industry growth, the Emergo survey of medical device executives and then apply a little common sense to those findings. Over-wrought? Embarrassing? Explain those terms to the 600 people who are loosing their jobs down in Ashboro or the couple of hundred who lost jobs in Galt, Texas and if you need more plants that have closed and jobs lost, I can repeat those facts, too, for you.

Jerry Robinson
The technique of offshoring that is happening now has a long, long history,

If you look back in time – you can follow the threads back a long way… My dad talked a good bit about times after WWII. I followed threads back a lot further.. the techniques go back many, many hundreds of years..

Post WWII – the US DoD and State Department made a decision to financially support certain countries and set up the rules for import accordingly. They could and did craft offshoring in certain target industries. Very well crafted technique. Many individuals found that they could also reap enormous profits in the process. Especially if they crafted the rules.

My point is not to detail history lessons here.. It’s just to say that there are multiple techniques in play NOW – forcing industry off shore – and subsidizing the offshore process – and subsidizing the import process. There is an effect.. you see it all over small towns in the America.. Shuttered factories. The death of industry and jobs.. the rise of hard drug use among the young.. and the corresponding death rates of those kids. You see the effect in Bridgeport.. in Detroit.. in Akron.. you get my point…

Assume for a minute – that I DON’T know anything – at all.. Just look at the death rates of kids in a small Midwestern town – and then dig in. Go look at the community – how employment changed over time.. job prospects for “locals”… and look back through the generations of their parents – through their eyes….

It’s a sobering story.. The 2.3% “tax” is just one tool in this nasty little story.. and because it happens so diverse – and in so many places – that you can’t really see what is going on very well. Numbers tell the story, though.

As Dietrich Bonhoeffer taught.. If you don’t contest the issue now.. then who will be left when they come for your job and family? Just for a minute.. look at the empty slabs of the textiles industry.. the hollow buildings where shoe and clothing companies used to be.. Why would you think that Med Device or Pharma is any different?

So.. yeah.. sometimes you get in the muck and conduct the dirty opposition – in a fair and appropriate manner.

Dan Stipe
John, I did look at the Duke study, though I confess not in detail. The impression I got was that the exodus to Costa Rica has been going on for decades.

Jerry Robinson
Fighters.. frequently do not go down with one punch.. It’s a series of punches setting things up.. the last punch.. when under the belt – can be the one that does it..

John Eckberg
Dan, It has been going on for a while. But the migration accelerated dramatically after 2009 and really accelerated two year ago. Same trend for Ireland, Mexico and Singapore.

There’s a reason why 46 Dems blew off their President’s veto threat to vote for repeal yesterday. That tally is a near-veto-proof majority – if not a veto-proof majority.

There is a reason why Congress Members like Terri Sewell of Alabama and Philadelphia’s Chaka Fattah and Brendan Boyle and Washington’s Suzan DelBene voted to repeal this tax. It’s clumsy, harms small businesses and start-ups alike and ultimately means less innovation for patients.

Now it’s time to get the Senate engaged at the same level, particularly Senators in California, Oregon, Washington, New Mexico, New Jersey, New York and Michigan.

Janett Jalil
This is a real overblown issue. Its a lousy 2.3% tax. Yes lousy! This is in an industry where as a previous commentator mentioned, mark-ups are 157 to 701%; hips manufactured in Warsaw, Indiana cast often twice as much in the US market at they do in Europe; where healthcare economists agree that everything that can be done to increase costs is done. Also, all of these companies are totally exempt from state sales tax which would usually be a lot more. They should count their lucky stars. It also applies to imports as well as domestic production so all those companies who claim they are moving overseas because of it are probably moving for the usual reason – lower wages. Give me a break.

Jerry Robinson
That was my first response, too..

But the mechanics of how it works is quite clever…

the 2.3% tax is not much… but in the “right place” – and the “right method” – there is an effect…

First – the tax filing – return and money – are due twice a month.. that’s 24 returns per year.. where you and I have one return to fill out per year. Med Device makers get to PAY this tax every 14 days… even though the customer might pay on NET 90 or worse.. that cashflow effect impacts jobs – especially in R&D. Where else does the money come from – EXCEPT jobs?

Second – there is a WHOLE new accounting structure for Medical Devices companies.. which ain’t free… so figure that that will likely DOUBLE the tax cost on a company.. 2.3% tax – and something link 5% after cost is passed on… Accountants, documentation, lawyers.. these things aren’t free….

Third. – The AJC did research and showed HOSPITAL MARKUPS of 157 to 709%. The COST of the 2.3% tax gets marked up – and passed along to PATIENTs.. If a company passes on the cost to about 5% – which is likely… that’s the base markup..

So the Gov’t takes IN 2.3% – but when it pays OUT money for MEDICAID, VA, ETC.. then it is PAYING OUT 7.85% to 35.45% of the base medical device cost… In a nutshell.. the 2.3% they take – is a lot LESS than the 7.85 – 35.45% that they are shelling out.. the HOSPITALS are getting the markup – not the Device makers..

Fourth.. the Govt will have to have a whole new accounting and enforcement effort.. they get to deal with 24 tax returns per year – for about 20,000+ Medical Device companies.. where does that money come from? the 2.3% income? Who is going to administer – the IRS? their budget is being cut now….

Fifth.. ALL of the Medical Devices – will have to be SERIAL NUMBER IDENTIFIED and TRACKED.. this is not cheap.. this is because of potential product returns – and tax accounting.. just like you have a VIN on your car.. you will have serial numbers – or batch numbers on your tongue depressor box.. tracking drives up cost – too..

After all that.. the markups posted are HOSPITAL mark ups.. not for the device makers..

Karl caluclated that the increased costs would be about a sales loss of $360Million. That translates to a loss of about 8100 jobs in the US – give US average salaries..

SO.. give all that.. there is NOTHING to be happy for in this tax.. IT absolutely drives cost up – and provides absolutely NO BENEFIT to the patient. It just drives the medical patient cost UP.

Will the gov’t actually MAKE any money off the tax… ? I have no idea… there is just a much larger bureaucracy with absolutely no patient benefit.

Jerry Robinson
Lower wages are not the only job killer or decision factor in manufacturing offshore.. There are other factors.. US companies parked %2.1 trillion dollars OFFSHORE (Apple, google, etc, ) by a variety of “tax tricks”.. these things ALSO drive US companies offshore – or out of business – and result in massive job loss..

Here is an example..

If the amount of money currently parked offshore = $2.1 Trillion
AND the average US Job Salary is 44,888.16 (from Social Security Admin numbers)
then…..

that represents $2.1 Trillion / 44,888.16 per job = 46,782,937 person-years of salary.

it’s a lot. Tax on this amount is essentially 0.

If you are a US Medical Device maker – these numbers are nothing to celebrate… They are like looking into the abyss.

Jerry Robinson
the math is simple. I encourage verification of numbers and sources. In some ways, this is just all the tip of the iceberg..

John Eckberg
At 46 votes to repeal in the House last week, we now roll into the Senate with an implied veto proof majority. Once people under stand that a 2.3 percent tax on the top line claims 30 percent more in taxes from companies on average then they recognize the need to repeal this tax. On we go to the Senate, where it never hurts to send a letter or make a phone call…

John Eckberg
Hello Dan – Reasoned thought but flawed. Dan DiMucco (sp) pointed out in my book The Success Effect (Sterling-Ross 2007-something) that labor represented about 7 percent of the cost of a ton of steel. Taxes were far more significant, as was cost of capital. The Emergo study was sobering indeed but the exodus off jobs and factories was due to this tax – a clear acceleration of the rate of jobs lost happened.

John Eckberg
Okay, since Karl is no longer commenting, apparently, if I were going to argue in favor of the tax, it would be this angle: of course some companies are going to be minting money from the ACA, orthopedics, for instance…far more hips and knees are going to be sold because patients won’t have to wait for medicare in order to live pain-free so why shouldn’t those companies pay a bit more tax for those new patients?

Jerry Robinson
The consumer cost effect is REAL…

driving up Medical Device costs to hospitals.. gets marked up to consumers a lot….

So to summarize the numbers presented so far…

First
A 2.3% tax is NOT collected the same way that ordinary tax is collected.. it takes a WHOLE NEW, LARGE accounting system to deal with.. ESSENTIALLY – every SINGLE medical device will have to be serialized and tracked…

Payments will made 2x a month.. based on title transferred sales.. This is irrespective of (a) if you get paid or (b) when you get paid. So if it takes 3 – 9 months get paid, then you have to carry the cost in between. This point is where jobs get lost and innovation gets stiffled.

Second
The Cost of dealing with this tax is not just in what you pay the Feds… There is the internal accounting cost, support, new tracking systems, and a lot more.. There is the downside cost of paying for more accounting, paying for new audit rounds, and the banked legal cost associated with compliance…

Because I DO NOT KNOW what this will be on average – and can only guess.. I picked 2.7% as a number. It’s going to vary from company to company – and will will likely end up costing a lot more.. for the moment – 2.7% seems a number..

So a company’s actual cost is increased to 5% of sales.. That will ALSO get marked up – by some substantial number… I have no clue what it will be.. but DOUBLE is not so unlikely.. and that is likely low… So that number drives ups the mark up cost to 10%. AGAIN – it is just a guess and will vary…

Thrid…
Eventually – the tax+increased costs gets passed on to the hospital – for some companies. For others, it comes into play relatively immediately.

For hospitals – this 10% number gets marked up before getting billed to a patient. The AJC did a study of hospital markups. They found that prices were marked up an average of 157% to 709%.

so using these real numbers – that means that the DEVICE TAX of 2.3% -has ballooned in cost to
* of the original device cost at the hospital – to 70.9% of the original device cost. Remember, this is so far based on real research, and real numbers… although the numbers are just estimates in some cases…

NOW for the FUN PART
MANY of the medical devices are paid for by Social Security, Medicare, Medicaid, the VA, and many OTHER government health care programs.

For these government programs – the results stand that 2.3% of the medical device price was brought in as revenue. That’s the PLUS side.. On the negative side… The IRS is losing a LOT or money in auditing and compliance… (or IRS equivalent). It cost money to administer compliance. How much? I don’t know – it’s a lot of money for a resource limited group to have to come up with.. Clearly.. it has a cost…

on the negative side – for hospital medical devices – the Gov’t is going to pay out 15.7% to 70.9% of the based medical device cost – versus their income of 2.3% – for those patients they end up paying for…

This is the math.. each device – each company – may hae to plug in different numbers.. but NONE of these cost work to make patients more healthy – or to reduce overall medical system costs…

I am not even sure if the overall tax will BREAK EVEN in total cost – other than shuffling money from one point of government to another. about the ONLY groups that MAY benefit are hospitals… who mark up expenses.. and that point is suspect – since they have real costs, too.

That’s the math.

John Eckberg
Anecdote No. 6,789 (out of 11,235 at www.no2point3.com). This is from a director at a balloon and catheter company in Monsey, NY: “Less money if any will be left for innovation! The average R&D budget for a Medical Device Company is under 5 percent! This tax will severely impact new product development.”

John Eckberg
It’s worth repeating: Most of this discussion is by necessity driven by what ifs. Here’s commentary that is directed at what is. A guy in Georgia writes: “I have lost my job due to this tax as well 50-60 people at Remington Medical, Inc. My past employer is moving to Dominican Republic.”

Dennis Vetrano
Hello Jerry. I get your comment about who ultimately pays for the tax but the real tax payment is being made by the device manufacturers. I have 25 + years in this industry starting out as a nurse and now in sales management/director. No one should believe anything else; this tax has and will continue to decrease R&D revenue. There are several takeaways from this tax 1. the politicians are as incompetent as we think they are 2. The government now has hired an entire group to handle oversight of this tax. Now a creation of another layer of jobs to pay for with this tax 3. The medical device industry needs better lobbyists that are as strong as the pharma industry. 4. This administration is clueless about how to decrease healthcare costs. 5. The GPO organizations are alive and well and continue to increase the cost of healthcare. This layer need not exist if someone really wanted to reduce costs. 6. Jobs are being lost to what is and will always be the best healthcare system in the world. 7. We all need to take responsibility to drive better efficiency but it is so very difficult when you have the government trying to get involved. They can not handle the administration of their own health system never mind trying to tackle the private sector. 8. We need to vote competent people into office instead of not showing up at the voting booth.

John Eckberg
Hello Karl, I can’t find the commentary where I thought you thought the tax was collected in 2009. I’m seeing that as a jay-walking infraction but do need to mea culpa and apologize. I am sorry. I read back through most all of the commentary, which was painful, and could not find it so I guess it never happened. As an aside, Dennis Vetrano, your observations are spot on..

Bill Schnoebelen
Sorry in advance.

https://www.youtube.com/watch?v=2ZBYLIUqmIs

John Eckberg
Anecdote No. 11,204 – I’m a small business man that distributes Medical implants for companies. Currently I employe 12 people, African Americans and their family’s , Women and their family’s and Caucasians and their family’s and even a UK guy who became a U.S. Citizen and his family. I would hire more if I could but the 3 percent that was taken off my Commision makes it difficult.

They have also moved their manufacturing overseas. Resulting in lost jobs here in the states…the Government telling me how to run mine has just about ruined and certainly made it harder to be a success. How is it our responsibility to fund Health Care?

Because I profit from it? What about the insurance companies or the payment processors that process the credit cards that consumers use to pay their medical bills or the how about the hospital executives who make absurd salaries….why not them?

Rick Stockton
John, I just got this link. It’s about France, who is ahead of the US in over-taxation and over-regulation. We could learn much from France’s very sad example: http://cbn.com/tv/3255110732001

Joe Hage
Okay, Boys, final comments. Next time I visit we’ll close shop on this one.

Jerry Robinson
who knows… Karl – who posted a lot of good stuff.. might post something in closing..

Neil Sheehan
Our industry needs to get over itself and quit whining. We’re the least taxed country in the industrialized world. We are all lucky to live here. And we are lucky to be able to contribute to affordable healthcare.

John Eckberg
Whining? Highest tax rate in the world competing against companies based in Switzerland that manufacture in zero tax zone in Costa Rica and dump devices on GPOs that could care less where a product is made and that is whining? Factories closing all over the US and reopening in Mexico and Singapore? Whining? Get over itself? Yeah, Joe, shut it down. No cure, no prescription for stupid…

Neil Sheehan
Sounds like you and your friend Joe have a dog in this fight. And you don’t have the courage to finish your insulting sentences. Yeah, better shut it down.

Rick Stockton
Neil, when you tell someone to “get over themselves”, and say they’re “whining”, then *you* have started your post by insulting them. Can we agree, there?

I know both Joe and John, and they are are both leaders of great courage, conviction, and wisdom. The subject here is an unfair tax that is introducing new harm to real human beings who have lives and families whose lives also matter. Can we agree, their lives matter?

=> These people are our “dog” in this fight.

And “Whining”? Really?

#1 – Have some compassion on all the lives impacted. Real people are being hurt, and unfairly.

#2 – Stop opening your posts by insulting people, and perhaps you will not get insults back.

Neil Sheehan
My comments were not of the “ad hominem” variety in contrast to yours. You got your industry talking points in, now show some compassion for the uninsured, the under-insured and your fellow man and woman.

Paul M. Stein
In reality, looking at the wide ranging picture from all sides, the medical device excise tax, in different ways, is hurting some and helping some. In my opinion, it would be best if the tax were modified to minimize that hurt significantly while trying to maintain much of the help. I stated this, along with many others, years ago when it was born. Unfortunately, the discussion, in the polarized world of today’s politics, has turned into an all-out-nothing decision on it. I find this disheartening as, with any legislation, it was really a social experiment.

As scientists, we learn from experiments, our successes and failures. We modify those “procedures” for optimal outcome. When it comes to politics, perhaps that was an option decades ago, when people were more reasonable, but not now, again, unfortunately.

To now choose death for the tax is, in essence, another social experiment. What would the ramifications to our Industry end up being? If jobs gains rapidly occur, offshoring drops precipitously, and companies’ profits increased so they stopped disappearing, then the opponents to the tax could be rightly stated to have been correct all along. However, if all the negative connotations of the current tax then do not get reversed in a reasonable amount of time, what would that say about anyone who was being so dead set against the tax, and their motives? Could they ever be trusted again with their opinions, correct or not?

I like to hear everyone’s opinion and take that deep think. I don’t want to dismiss anyone down the line just because they got something oh so wrong once in the past. That’s why I’m still holding out that ridiculous hope for a modification of the tax. That way, everyone can be right…and so, listened to next time.

John Eckberg
The ACA was noble, badly overdue and sadly inadequate when finally passed. If a tax was needed to fund it, then the tax should not have been a symbolic tax on one industry. Most lawmakers understand that it has had incredibly bad unintended consequences and needs to be repealed. That is all I am saying

Jerry Robinson
ACA wasn’t the point in this discussion. 2.3% – and HOW it was implemented was.. They point was.. does it kill jobs.. Yeah.. it did.. will they come back? probably not….

It did succeed in the process of driving up the cost of health care – which is just the opposite of the goal. Whether the tax actually generates a positive NET after the Hospital Markups and Medicare/SS/VA insurance payouts – is something that is really debatable. As the cost increases ripple through the whole chain – the answer is increasingly NO net income… just a loss..

If the tax had been structured differently.. say you paid tax on device INCOME – then the whole story would have been different.. I know that this part was not an accident.

Jerry Robinson
A LOT of people in TEXAS have never been able to afford ACA. They still do not have insurance.. Simply put – when you DON’T have a job – then [paying out $700 a month – ain’t possible. Driving up hospital cost doesn’t help.

Mary Jartcky
Agreed! This tax needs to be repealed.

Rick Stockton
So much for “affordable” care. Bad law; worse results.

But one logic-defying thing: How can you possibly reduce the cost of medical care by adding a brand new tax on medical devices?

Jerry Robinson
doesn’t reduce any cost….

after hospital markups – it adds a lot of cost.. the hospital keeps the markup… so.. who benefits? It’s carefully written.. and someone sure benefits…

Rodney (Rocky) Bailar
If the hospital’s contract management is worth anything, they have written their vendor contracts to disallow the pass-through of the 2.3% tax. No added markup or cost to either the hospital or the patient. For many supply items, the hospital cost has remained stable or even decreased since this tax was enacted. As an example, drug-eluting stent costs are now half of what they were in 2009 and that savings has been passed directly to the patient.

John Eckberg
Yep Rocky that is how it worked out.

Jerry Robinson
for the Med Device maker.. it’s 2.3% of the sales prices – PLUS all the costs of accounting, complainance, legal, etc, etc, etc.. so there is an ADDITIONAL expense.. I estimated that it would be more than the 2.3% – involved with accounting the tax.. 24 returns more a year + product tracking + legal/documentation.. It’s a lot…

At some point – the cost DOES GET PASSED ALONG.. When a small company is building something and selling.. the BREAKEVEN point is a lot harder to reach – and that cost will eventually get passed on to the hospitals.. as part of the group of customers.. for a lot of companies, they pass that cost along NOW – since if there is no contract in place, then no reason not to.

There real goal should be reducing health care cost, just as you say, Rocky…

Adam Gross
Jerry, just curious then what could they change about this legislation to actually lower health care costs? How could this legislation reduce the costs to a medical device maker without simply repealing the whole thing?

Jerry Robinson
I only have some general ideas – based from a small company – startup perspective.

First.. the 2.3% required a 2x per month – 24x per year tax accounting and payment. This put tremendous pressure on small companies and startups.

Instead – if you HAD to get this tax.. make it no different that (a) regular accounting periods – no different than what companies do now.. If you SELL something – then get PAID later.. for purposes of the tax – be on a cash basis – and transfer the title when paid…

Second.. EVEN the FDA inspection burden.. inspect OFFSHORE – as much as ON SHORE.. and charge OFFSHORE COMPANIES THE COST. If it cost 4x to inspect offshore than charge 4X the “tax”… If the offshore entities do NOT PASS a fair test, then suspend imports.

Third.. IN THE LAW – allow a tax surcharge – immediately. So the “negotiated” costs are immediately increased – in hospitals and such.. Making those providers EAT the cost – is completely destructive…

Fourth.. ALLOW PATIENTS to buy DIRECTLY… like from Costco and Walmart… for their medical devices.. It does NOT have to go through a hospital and get the 157% – 709% markup… As a practical matter.. a patient can buy a $2 bottle of asprin at Walmart – instead of paying $15-$19 for a single tablet – at the hospital level.. Build a list.. buy the list direct.. cut out the “hospital” middleman.

Fifth.. ALLOW competition among device purchases – and direct publishing of prices. Competition will reduce cost.. You know it will.. Allow NEGOTIATION from the Govt’ on Pharma.

These are some very simple things to do… and the gov’t still gets their tax. but it still would save many thousands of jobs.

IN TRUTH – there are a lot more things that could be done to actually” level” the playing field for US companies..

RIGHT NOW>. the idea of a Level Playing field – means MORE MONEY in the pockets of accountants, tax folks, lawyers, and hospital admins… NOT a more level playing filed for patients…

Ramon Babasa
Totally agree. Taxes has always been a form of oppression particularly to less fortunate people in the third world, where health benefits or none, makes it very difficult to cope with the already expensive health care. Governments should not tax medical devices that are used for diagnostic purposes and delivery of medicines. After all, it is their responsibility to oversee the health care needs of its citizens.

Jerry Robinson
with markups… they actually “may” lose money, too..

Karl Schulmeisters
>>Karl caluclated that the increased costs would be about a sales loss of $360Million. That translates to a loss of about 8100 jobs in the US – give US average salaries..
<< Jerry please stop dishonestly misrepresenting what I have written. This sort of misrepresentation by you and John and the personal attacks the two of you engage in is why I left the discussion (yes I see that John after my having corrected him at least 4 times - now admits he misquoted me - small beans). as for >>Taxes has always been a form of oppression<< I will leave you with these comments - feel free to look up to whom they are attributable: The Remissness of our People in Paying Taxes is highly blameable; the Unwillingness to pay them is still more so. I see, in some Resolutions of Town Meetings, a Remonstrance against giving Congress a Power to take, as they call it, the People's Money out of their Pockets, tho' only to pay the Interest and Principal of Debts duly contracted. They seem to mistake the Point. Money, justly due from the People, is their Creditors' Money, and no longer the Money of the People, who, if they withold it, should be compell'd to pay by some Law. All Property, indeed, except the Savage's temporary Cabin, his Bow, his Matchcoat, and other little Acquisitions, absolutely necessary for his Subsistence, seems to me to be the Creature of public Convention. Hence the Public has the Right of Regulating Descents, and all other Conveyances of Property, and even of limiting the Quantity and the Uses of it. Jerry Robinson
Your calculation was a sales loss of $360 million. That is what you wrote – based on your own research and application of formulas.

I DIVIDED your number.. $360 million of sales loss – to arrive at approximately 8100 lost jobs.

That is a valid analysis and thing to do.

In no way – is this dishonest to do a simple division – based on SSA numbers.

There is no misrepresentation there.. I do not intend a personal attack – and did apologize if you interpreted it that way. That is posted. Nothing dishonest in actually using numbers THAT YOU PROVIDED.

The only issue I have is that (a) you seem to be able to do math to calculate the $360 million lost sales number – but (b) can’t or won’t take it a step further and divide YOUR NUMBER by the US Gov’t supplied (Social Security Administration ) average wage $ amount in the US.

So why is that Karl? Why did you stop – one step short – of finishing the simple math – based on your information? I observe that YOU supplied the numbers.. not me – and logically following that extension out – it comes to about 8100 +/- jobs lost.

That was the point of this thread.. were jobs lost? The answer is clearly YES..

Re: your quote.. Let’s avoid a politics discussion – that is ALSO your instruction in this thread.

Susan K Jones
It can take multiple years before a startup company becomes profitable, yet the 2.3% tax is based on Gross sales, not profit. That means that the 2.3% plus extra accounting expenses have to come out of pocket even when there is no profit. That certainly can have a negative impact on R&D and hiring. Of course larger, profitable companies would not have this level of impact. I do believe that the 2.3% should be based on net rather than gross. Actually I believe the whole darn tax should be repealed.

Karl Schulmeisters
Jerry go back to what I wrote.. you are misrepresenting what I wrote by studiously leaving out something. As others have criticized you as well, we are engineers and scientists and we should use that sort of reasoning.

Jerry Robinson
Let’s see… This is what YOU wrote 11 days ago….

>>FACT –> cited research shows a Price Elasticity of Demand of 0.2.
FACT –> we have evidence of companies passing this $1.8 billion cost onto customers
FACT –> we know that there is non-zero price inflation in the healthcare industry (also by supported citation)

So while the collection mechanism may be these companies, it is far more likely that the money is coming out of those paying for the devices at the end – be it individuals or healthcare insurance companies.

Since that comes from the customers and since PEoD tells us what the drop in demand is we can calculate the potential jobs impact:

$1,8 Billion x 0.2 ==> $360 million in reduced sales volume.
The FDA recognizes 20,988 manufacturers licensed to sell products in the USA

That works out to $17,152 of revenue loss per manufacturer.

That’s not even a full time job << So.............................. Where is the misrepresenting part? you wrote and posted the above... It required division in your analysis, as well... The Social Security Adminstration - posts numbers too.. They say >>average US Job Salary is 44,888.16 << (from Social Security Admin numbers) Yes... I did the math... YOUR NUMBER: (Sales reduction) / SSA average US Salary of a worker = $360 Million / 44,888.16 per job = 8,019.93 jobs. Hey... This is pretty simple math - so perhaps you mis-stated your math or your analysis? I am doing a direct quote.. straight from the posts.. I don't mind being criticized. As an Engineer and a Art Technologist - it's possible that I can be wrong. That is why Tetlock did such a thorough study of the "Accuracy of Experts" - and also why Nassim did the same kind of thing for Wall Street and financial instruments.. The real trick - and where the professional part comes out - is to try and recognize if you are wrong and change track to GET RIGHT. It's important. SO>>> by YOUR OWN DEFINITION – we can look at a JOB LOSS OF 8,019 jobs from this tax..

John Eckberg
Hey Jerry – Appreciate the analysis and you are spot on with the trend analysis but the job loss is far more than that as high-paying professional jobs in this sector create three other jobs in regional economies, and, of course, I stopped counting at 10,000 announced lay offs due to this tax, which renders EBITDA meaningless for this sector as there are no longer Earnings Before Interest TAXES.

Did multinationals based in Ireland and elsewhere use this tax as a chance to shutter factories in the US and reopen them in Costa Rica and other no-tax enterprise zones? Yes. Are patients and their loved ones suffering because R&D no longer is vibrant and rewarded? Yes. Will this tax eventually be repealed?

I dunno but a veto-proof majority and 46 Dem Reps signing on for repeal certainly has implications for our level-headed president. That’s for sure. What a pleasant surprise: 46 votes for bipartisanship and patient care.

Jerry Robinson
I certainly agree with your comments, John…

Reductions of jobs – based on just increasing the cost.. I really had not thought about it so hard – until Karl did the math and pointed it out.

I fully believe there are a host of active detriments at work – and your 10K numbers are sure low..

Like riding a bucking horse in some ways.. if one jolt doesn’t get you – then the next might – or the one after that might..

Karl Schulmeisters
Again Jerry please stop misrepresenting what I wrote. It is not forthright.

Jerry Robinson
Your figures. SSA statistic. My division.

Jobs were and will be lost.

We talk. The jobs lost represent people. They will suffer.

Jerry Robinson
Have some confidence in your numbers. They describe a general “raised price” effect.. in a very, very conservative estimate (predication), they predict job loss.

We charge OTHER people for our consulting services… sometimes A LOT. so how does your effective prediction affect the message you tell clients?

Every experience military officer could tell you that it’s necessary to have a plan. But the first contact with their “opponents” will change that plan. That’s a good business and economic analogy as well.

Joe Hage
Thanks for the robust conversation, folks. At 680 comments, this is the longest string we’ve ever had in the Medical Devices Group. The discussion is now closed.

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