Spectrum, SpineSource brace for medical device tax (St Louis Biz Journal)
Medical device companies expect a new federal tax to start squeezing their profits in 2013.
Last week, the Internal Revenue Service (IRS) issued the final ruling, which puts into effect a 2.3 percent tax on most medical devices sold. It’s part of President Obama’s 2010 Affordable Care Act (ACA) that’s set to go into effect Jan. 1.
While some on Capitol Hill are still working to repeal the tax, local business owners are preparing to take a hit.
Jeff Toedtmann, president of Spectrum Medical, a St. Charles medical device distributor, said he and his 16-person team expect less in commission next year, to the tune of $300,000 to $400,000 due to the tax.
Toedtmann and his group sell primarily orthopedic implants, earning 20 percent in commission for each sale. Toedtmann said he expects manufacturers to cut that commission percentage by at least 2 percent.
Toedtmann said while he doesn’t anticipate any layoffs due to the tax, he certainly won’t be hiring. Last year, Spectrum had revenue of $13 million, which he expects to reach $14 million by the end of 2012. Revenue for 2013 is less predictable because of the tax, he said.
Tom Mitchell, president and CEO of Chesterfield-based SpineSource Inc., said the tax is causing him to forgo importing a new spinal implant device from Europe that would have meant at least $5 million in added revenue in 2014.
Mitchell said he won’t cut any jobs from his three-person staff, but holding off on new devices hurts the company’s growth. “It’s just getting harder and harder to do business, especially in the medical field and more importantly, it’s much more difficult to justify taking calculated risk,” Mitchell said.
Hospital executives are concerned that the tax will be passed along to them and other purchasers of medical devices. “Until we know how the device industry will respond, it is hard to know how hospitals need to plan,” said Dave Dillon, vice president of media relations for the Missouri Hospital Association.