Medical device firm Welch Allyn announced Monday it will reduce its workforce by 10 percent over the next three years in reaction to the 2.3 percent medical device tax slated to begin in January 2013 in accordance with the Affordable Care Act.
In a press release announcing the cuts, the company said the job reductions will be accomplished via a combination of voluntary and involuntary separations. Welch Allyn currently has a total of 2,750 employees globally.
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According to the press release, the company said it will also perform a 90-day evaluation of its European operations to determine the optimal deployment of the business in that market, and reorganize its Latin American business to be more competitive in the region.
The company is realigning its resources and will establish three New Product Development and Technology Centers in Skaneateles Falls, NY; Beaverton, OR; and Singapore. It will also create a Global Finance Shared Service Center in Tijuana, Mexico and consolidate its North American manufacturing and related support functions at its largest facilities in Skaneateles Falls and Tijuana, Mexico.
"We firmly believe this restructuring program is the right thing to do for the long-term success of the business, however, we also fully recognize the hardship it will cause some of our colleagues in the short term," explained Welch Allyn president and CEO, Steve Meyer in a written statement.
Welch Allyn is not the only U.S. medical device company to announce job cuts recently.
Global medical device company St. Jude Medical, Inc. announced in late August that it is realigning its product divisions and that the reorganization will result in the loss of roughly 300 jobs.
Streamlining their business structure is a prime goal of the company’s reorganization strategy, according to St. Jude spokesperson Amy Jo Meyer.
“The centralization of key support functions further simplifies the business and contributes to lower costs,” Meyer told Healthcare Finance News. “The new organization will allow the company to more efficiently and effectively develop clinically significant medical device solutions that drive economic value.”
In a study published in the August issue of MD+DI, tax advisory firm WTP Advisors cited the new medical device tax as one of the major challenges currently facing the U.S. medical device industry.
“The medical device excise tax could put more strain on the U.S. innovation ecosystem for medical technology and affect the willingness of investors to back start-up companies seeking to commercialize new technologies,” Yair Holtzman, director and global life sciences practice leader at WTP Advisors told Healthcare Finance News in August.
Steve Ferguson, chairman of the board of medical device firm Cook Group Inc., parent of Cook Medical, said he was not surprised by Welch Allyn's recent announcement.
“We believe this is, indeed, part of a trend that we have been predicting for two years," he said. "We have seen a succession of companies in recent weeks make similar lay-off announcements. For us, the 2.3 percent tax on gross sales puts an additional 15 percent to 20 percent burden on earnings, bringing the total state and federal tax obligation into the neighborhood of 50 percent. It’s true that foreign manufacturers will also pay the excise tax on their U.S. sales, but those companies start from a much lower corporate base (e.g. Ireland at 12.5 percent), and have a tremendous competitive advantage."