Worcester Business Journal

12 Worcester Business Journal • August 3, 2015 www.wbjournal.com A 2.3-percent tax doesn't sound like much, but taking it directly off the top of medical device companies' sales could have widespread impacts on busi- nesses large and small, industry experts say. Since the inception of the federal levy in 2013, the industry has been trying to have it repealed. While past efforts at overturning the tax that was part of the Affordable Care Act have failed, this could be the year it goes away. The House has passed a bill repealing it. Now that it's before the Senate, and although President Obama could veto any repeal, industry representatives continue to lobby to get rid of the tax. The tax is taken from companies that produce medical devices, culling 2.3 percent from a company's U.S. sales. And it's been blamed for the loss of an estimated 39,000 jobs in the industry and reduced research and development in the field — an area in which the U.S. is seen as a world leader. Both are issues that affect broad swaths of an industry that has a strong presence in Massachusetts, from manufacturers such as Boston Scientific to plastics companies that produce specific compo- nents or larger devices. "Even companies making no profit pay the tax, which makes it harder for entrepreneurs to attract the investment required to support innovative new companies," said Stephen MacMillan, the chairman, president and CEO of Hologic Inc., which has operations in Marlborough. "We pay more than $20 million in medical device taxes annually. This serves as a disincentive for invest- ments in research and development, and for additional hiring, especially in the U.S." The tax has had a significant impact on Hologic, he said, since the company sells 75 percent of its products in the U.S. Unlike other taxes, said Massachusetts Medical Device Industry Council (MassMEDIC) President Thomas Sommer, this is not a levy that can be passed on to the end user because medi- cal devices are usually sold through long-term contracts. "Hospitals and clinics have, in effect, refused to pay the increase," Sommer said. "Manufacturers have tried to add the 2.3 percent but the invoice has been returned with the original amount (that is, contracted prior to the tax's imposi- tion) paid." Hologic manufactures diagnostic products, medical imaging systems and surgical products, most of which are affected by the tax. "Any time you increase a company's tax bill, you sap financial resources that would otherwise be available to invest in research and development, new hiring, or other business priorities. While a reduction in (research and develop- ment) would not have a huge impact in the short run, over the long run it would hurt our ability to innovate and bring new products to market," he said. Cascade effect While the levy only taxes the final manufacturer of the devices, that impact on revenues has a trickle-down effect on suppliers. "The price pressures the OEMs are under – they then turn to the suppliers to say, 'Cut costs and cut prices because we need to be able to lower our overall cost,' " Sommer said. "It has a ripple FOCUS Business & Public Policy TAX attack Medical device industry pushes for repeal of federal levy, calling it a 'disincentive' to R&D, hiring BY SAM BONACCI Worcester Business Journal Staff Writer Medical devices, such as this mammography machine made by Hologic, are subject to a 2.3-percent federal tax that may be overturned in Washington. >> Continued on next page Here are five key issues facing businesses today, focusing on legislation and regulatory policy. 1. PAYING OVERTIME In his effort to boost the middle class amid a widening income gap between the richest and poorest Americans, President Obama wants to extend federal overtime pay to nearly 5 million salaried workers – about 110,000 in Massachusetts, according to the Obama admin- istration – who earn less than $50,400 a year, more than double the current cap. A poll released in May said nearly 80 percent of Americans believe people making more than $23,000 a year deserve overtime . Options for business? There are three: Restrict workers' schedules so that you don't pay it, avoid paying overtime by hiring more people to get the work done, or just buck up and pay it. 2. NON-COMPETE AGREEMENTS In his final year as governor, Deval Patrick supported attempts to curb the use of "non- competes" that restrict the movements of employees to other companies and act as a drag on innovation and entrepreneurship. On the other side, Associated Industries of Massachusetts supports non-competes, in part because it believes they help preserve a company's intellectual property rights. Up for consideration again? Patrick is gone, but legisla- tive leaders on Beacon Hill indicated they're interested in bring- ing up the issue again. 3. EQUAL PAY, MINIMUM WAGE Last year, state lawmakers approved a three-step increase in the minimum wage, which will cap at $11 an hour as of Jan. 1, 2017. Business groups such as The Massachusetts Retailers Association have argued that the Bay State wage hike would hurt employment and make the state less busi- ness-friendly. But elsewhere around the country such as in Seattle, advocates have pushed or are pushing for a $15 floor wage. Then there's the issue of pay equity, especially in Massachusetts, where lawmakers have filed a bill to elimi- Beyond revenue and profits, federal and state policy shapes a lot of what businesses do and – in some cases – can influence the future of an entity, an industry, even a good chunk of the economy. 5 issues to watch

• Cover