Obamacare’s Impact on Brookfield? The Closing of Siemens and the Loss of 300 Jobs

It’s hard to believe that Siemens’ decision to close the Brookfield manufacturing facility was not at least partially predicated on the 2.3% tax on medical devices that went into effect on January 1st of this year as part of Obamacare. The medical technology industry has repeatedly warned that this tax would not only have an adverse effect on the research and development of the next generation of products, but would also lead to layoffs and the shipment of jobs overseas.

The Siemens jobs are not moving overseas—at least not yet. The work performed at the Brookfield facility will now shift to a currently operating plant in New Jersey. Germany based Siemens has plants around the globe and following the lead of many other US medical manufacturers, the company could readily export operations—and jobs—to any number of locations.  

The Siemens facility in Brookfield focused on in-vitro diagnostics, the largest sector of the medtech industry. The company is also a leader in the development of molecular diagnostics and the era of personalized medicine that will enable the diagnosis of a number of life threatening diseases before any symptoms appear. Siemens, which operates in many other industry sectors in addition to healthcare, is currently ranked as the second largest manufacturer of medical devices, equipment and systems in the world with 2012 medtech revenues of $17.7 billion.

Not exactly the kind of company that you want to see leaving town.

Yet, Siemens is not alone. According to AdvaMed, The Washington, DC based trade association for the medical device industry, publicly traded medtech firms cut 10,000 jobs in 2012 in anticipation of the law. A steady stream of reports continues to document that medtech firms are cutting back operations in the USA.

And medtech jobs are high quality jobs that will not be easy to replace.

The global medical technology industry is currently valued at $350 billion and is expected to reach $455 billion by 2018. The USA is home to 12 of the world’s top 20 companies and controls just under 50% of the worldwide market. Medtech is also one of the few manufacturing sectors where we enjoy a favorable balance of trade. The industry plows back revenues into product research and development at a rate four times greater than any other US manufacturing sector.

The medical device tax associated with Obamacare is an excise tax that is paid in addition to a company's state and federal income taxes. Furthermore, the tax is paid on revenues—not profits, a particularly onerous situation for many small and medium size firms that are the laboratories of innovation, but yet struggle for years before seeing any profits. In fact, the exit-strategy of many of these firms is to be acquired by a large medtech company.

Many manufacturers describe compliance with the new tax law as a nightmare. The tax is paid on every single medical device from simple tongue depressors to sophisticated imaging systems and everything in between. The only exceptions are Band-Aids, contact lenses and a few other consumer healthcare products. Sales must be reported every two weeks, requiring companies to upgrade or install new IT systems as well as beef up their accounting, tax and legal departments.

Many Obamacare proponents continue to assert that the use of advanced medical technology is driving up healthcare costs. Yet, the facts simply do not support that contention.

Today’s sophisticated medical products account for less than 6% of all healthcare spending in the USA. These life-saving, extending and enhancing innovative products and systems improve the efficacy and safety of both diagnostic and therapeutic procedures across a broad spectrum of medical conditions. In addition, hospital stays can be reduced, shortened or eliminated entirely by the use of less-costly outpatient facilities. Modern medical technology enables patients to return to their productive lives much faster than was previously possible using the older procedures that these technologies replace.

Although the House Republicans have repeatedly called for the repeal of the medical device tax and included it again today in their budget resolution, Senate Majority Leader Harry Reid (D-NV) dismissed it as a “stupid idea”. Yet, this past December, Sen. Amy Klobuchar (D-MN) said that repeal of the device tax had broad bipartisan support, and she joined 17 other Democrat senators urging Mr. Reid to kill the device tax. Last year, 37 House Democrats joined the GOP majority in calling for repeal. This past March, the Democrat-controlled Senate voted 79-20 for repeal, but the move had no effect, as it was part of a non-binding resolution. The Democrat Senators apparently did it for show, not substance, particularly Senators from California, Minnesota, Massachusetts and other key centers of US medical manufacturing.

While repeal of the medical device tax clearly enjoys bipartisan support, the Senate and House Dems are all silent now in light of the budget impasse in Washington.

They’ve got their marching orders.

Unfortunately, US medtech jobs may have theirs, too.