Healthcare

Cook CEO to Toomey: MDT will drive our device business overseas

Cook CEO to Toomey: MDT will drive our device business overseas

The Keystone State senator, who for many years ran a small restaurant with his brothers, drew out from Steve Ferguson, the chairman of Cook Medical, a discussion about the damage President Barack Obama’s medical device tax has on his company during a Feb. 26 hearing of the Senate Budget Committee.

“Am I right in understanding that because of the medical device tax and if it stays in effect, you will forgo expanding production in the United States of medical device manufacturing?” said Sen. Patrick J. Toomey (R-Pa.), who in addition to helping to operate the restaurant in Allentown, Pa., had a successful Wall Street career.

Examples of aortic intervention devices produced by Cook Medical (Courtesy)

Examples of aortic intervention devices produced by Cook Medical (Courtesy)

“Yes, our future growth will have to be in Denmark or Australia,” the Cook chairman said. Cook Medical is a family-owned medical device company based in Bloomington, Ind., with more than 10,000 employees.

The medical device tax is a 2.3 percent levy on sales including in the president’s landmark 2010 Patient Protection and Affordable Care Act. The levy is unique because it does tax profits, as is the case with other corporate taxes.

In the case of a company with $1 million in device sales, it would owe $23,000 for the MDT. If the company made a profit of $100,000, before deductions it would owe another $35,000 in corporate income taxes giving this relatively small company a tax rate of 63 percent. That 63 percent rate would come down with deductions, but the deductions apply only to the corporate income tax, not the MDT.

Toomey said, “There is a bipartisan concern that this is a really egregiously badly-designed tax. That happens to be my view in part because it applies to sales, irrespective of whether a company is making any money.”

The senator, who was once the president of the Club for Growth, pressed Ferguson: “So this medical device tax, in your view, is this a pretty direct incentive to go overseas, go offshore, create jobs somewhere else?”

Ferguson said the MDT is a major burden to his company.

“When combined with other issues the answer is ‘yes’ and this is sort of the straw that broke the camel’s back,” he said.

“But the other thing is that it falls directly on R & D because when you look at the size of this type of tax and it’s an expense and knowing places you got other employees or R & D or you got to go look for cost savings someplace else,” he said.

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