Medical Device Manufacturers to Lay Off Thousands of Employees

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Medical device manufacturers have begun to lay off employees in anticipation of the upcoming costs associated with the Affordable Care Act (ACA), also known as Obamacare.

The first companies to begin to feel the pinch of the new costs are are the makers of devices that include everything from splints to MRI's. Beginning in January 2013, medical device manufacturers in the U.S.  must pay a 2.3% tax on gross sales of products, or roughly the equivalent of 15% of net sales.  The tax is intended to bring in at least $28.5 billion over ten years to fund ACA.

Stryker (NYSE: SYK), one of the biggest medical device manufacturers in the world, will cut 1,170 jobs, or 5% of their global workforce, in anticipation of the excise tax. The company will close their facility in Orchard Park, New York, eliminating 96 jobs in December. Stryker’s 2011 gross sales was $8.3 billion, and 2012 gross sales will be approximately the same. The AHA excise tax will cost the company roughly $190.9 million.

Medical device maker Medtronic (NYSE: MDT) has been vocal since March of 2010 that Obamacare taxes would severely hurt the company. Over the summer, it laid off 500 employees, with plans to cut another 500 in 2013. Medtronic employs roughly 38,000 people worldwide. The company reported gross revenue of $16.2 billion in April 2012, which will result in a $372.6 million excise tax.

Abbott Laboratories (NYSE: ABT) discovers, develops, manufactures, and sells a broad and diversified line of health care products. The company has more than one line of revenue, and not all are manufacturing related. Some consider this $39 billion corporation to be more pharmaceutical than manufacturing. Revenue from non-pharmaceuticals and non-nutritionals was approximately $10 billion in 2011. The company laid off 550 workers in October, primarily in the Chicago area, and expects to lay off a total of 1,900 employees over the next five years. The layoffs represent about 2% of the company’s 90,000 worldwide employees, and 6% of U.S. workers. The layoffs will save the company nearly $300 million. 

Boston Scientific (NYSE: BSX) CEO Ray Elliott, warned that the ACA could "lead to significant job losses" for his company. Now, two years later, the company has announced it will layoff 1,200 to 1,400 jobs in the U.S., while shipping investments and jobs to China. The company's recent quarterly report didn't meet analysts' expectations, and with its stock down more than 9% over the past month, the company is hurting. The coming $174.8 million dollar excise tax will not help the situation. The company employs 24,000 people worldwide, in over 40 countries.

St. Jude Medical (NYSE: STJ) develops, manufactures, and distributes cardiovascular medical devices for the global cardiac rhythm management, cardiology, and cardiac surgery and atrial fibrillation therapy areas and neurostimulation medical devices for the management of chronic pain. In August, the company cut 300 employees in order to save approximately $50 to $60 million in anticipation of the excise tax.  Another 500 employees were recently laid off, with plans to reduce 5% more of the company’s 16,000 employees. St Jude is the smallest of the mentioned device manufacturers, with a 2011 revenue of $5.6 billion.

These are not companies laying off employees due to the potential or expected rise in healthcare costs related to ACA. These companies are laying off employees due to the tax burden placed on them before the healthcare insurance costs even effect them. While the layoffs come at a price and dismay for the employees, there is positive news to the investors that the effected companies have anticipated the impact of the tax, and the bottom line should not be impaired. However, laying off U.S. workers, shipping jobs overseas, and increasing costs to the consumer still takes a toll on the overall American economy. The new tax comes at a time when medical device manufacturers were not at their peak. But they do appear to be prepared and have planned for the worst.

ErinAnnie has no positions in the stocks mentioned above. The Motley Fool owns shares of Medtronic and St. Jude Medical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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