New Year, New Beginning, New Tax Changes

With the start of a new year, many look to make changes that they strive toward accomplishing throughout the subsequent 365 days. It might be losing a few pounds, watching less television, or spending more time with family. Whatever “resolution” they’ve aspired to achieve, they use the start of a new year to motivate themselves to make a change that will ideally better their life. As it turns out, for this year, I got started a little early.

In late October 2015, Christopher Delporte, ODT’s editorial director, announced that he was leaving the industry to pursue new opportunities. In speaking with the people around the office, he’ll certainly be missed. But with his departure, a new opportunity emerged for me. In early November, I moved over from another medtech industry brand to take the lead on ODT. A move like that is simultaneously bittersweet and exciting. On one hand, I left a position I held for over 16 years on a brand that I helped build almost from the start. While it’s been left in very capable hands, that brand will always have a special meaning for me and I am sad to leave behind many talented people who I am happy to consider friends. On the other hand, I didn’t have to leave behind an industry I simply love to follow, discuss, and cover. I’ve joined a team that has a fantastic grasp on the medtech sector and demonstrates a similar passion for it. I look forward to the new opportunities this position brings, such as helping organize the next MPO Summit (spoiler alert, check your availability in October and the ad on page 41) or gaining new insights from preparing the “Top 10” issue.

Another benefit of joining ODT has been the reception from the editorial advisory board. The group that helps guide ODT has been nothing but enthusiastic regarding my arrival. That sort of response has been greatly appreciated as I look to see where we can improve upon what’s already been established as an extremely strong brand in this industry. As such, you’ll notice minor tweaks with the EAB line-up as new members join us to aid in that continued effort.

For the industry as a whole, the start of 2016 marked a very significant change. The medical device excise tax that put a 2.3 percent levy on all medical device sales within the U.S. was temporarily suspended for two years. I’m not sure the industry could have asked for better news to receive as it was ringing in the new year. While there were many who were unsure the tax would ever be eliminated (and that’s still not what’s been achieved, but a suspension is certainly a great start), there were several who never gave up the fight. Undaunted by those who gave in and said there was little point in continuing the battle, industry associations such as AdvaMed and the Medical Device Manufacturers Association, as well as certain key members of Congress, continued to attack the device tax as an assault on medtech innovation and R&D.

Speaking of R&D, coupled with the device tax suspension that came in the spending bill that passed at the end of last year was an R&D tax credit that was made permanent. The device tax suspension coupled with the tax credit makes for a very promising 2016 in terms of innovation and the development of new medtech solutions.

Unfortunately, even these windfalls haven’t prevented costcutting measures to take place and likely won’t for many other medtech companies as they look to assess their position and make “resolutions” for 2016. Just recently, Johnson & Johnson announced it was restructuring its medical devices business. As a result, it was going to eliminate approximately 4 to 6 percent of its global workforce within this segment. According to a release from the company, an increase in its investment in innovation is one of the positive changes J&J is looking to accomplish with this effort. To be fair, these changes were likely being planned well before the suspension of the excise tax ever took place, but at the same time, it’s unlikely going to change J&J’s decision to trim its workforce.

And therein lies the rub. When the device excise tax was first announced, there were members of industry who said that in addition to stalling innovation within the medical device sector, the excise tax would cost people their jobs. At the same time, there were others who said that companies would use the excise tax as simply an excuse to “restructure” and cut workforce as a way to save money. In other words, it would have been their plan anyway, but the excise tax gave them a valid excuse for the action. It was a decision they had been considering, but the excise tax enabled them to say they had no other choice.

Now, in 2016, with a suspension of the excise tax (and the added benefit of the R&D tax credit being made permanent and therefore, a predictable savings that can be added to budgets), will we see more companies making “resolutions” that result in layoffs?

Hopefully, the industry as a whole will follow suit and suspend those proposed changes until a more permanent decision is made on the device tax rather than show a preference for the example set by J&J.