I’m often asked, “In today’s regulatory and tax environment, could you successfully start Merit Medical in 2015 rather than 1987?” Unfortunately, the simple answer is no.
A lot has changed since 1987, and in the world of regulatory oversight and discriminatory taxation, it generally has not been for the positive. Bureaucratic red tape and increasing delays in device approvals have strained our ability to grow and eroded our nation’s world leadership in the advancement of medical science.
And now, on top of these increasing challenges, the industry is required to pay a 2.3% excise tax on the gross revenue from U.S. sales. The tax, included in the 2010 Affordable Care Act (ACA), has placed a heavy burden on Utah’s vibrant medical device industry and has threatened its ability to remain viable in Utah or any other state.
Next week, the U.S. House of Representatives will consider legislation repealing this onerous tax. It is my hope that this bi-partisan legislation will overwhelmingly pass both the House and Senate, and the President will sign the bill repealing this significant impediment to economic growth and investment.
Since 1987, Merit Medical Systems has grown from its birth in a small clean room in a leased warehouse to a world leader in advancing medical care for patients worldwide. Today, Merit is Utah’s largest home- grown medical device manufacturer headquartered in the State. Our company employs nearly 3,300 employees worldwide including nearly 1,500 in Utah.
Like many others in the medical device industry, Merit is a net-exporter. While nearly 60% of our sales are outside the U.S., the overwhelming majority of our products are manufactured at our U.S. sites located in Utah, Texas, Virginia, and Pennsylvania.
The most significant barrier to our future job growth in Utah and at our other U.S. facilities is the medical device excise tax. While 2.3% doesn’t sound like much, it is a tax on U.S. gross revenue and it comes off the top, not from profits. For Merit, the device tax increased the amount of taxes paid to the U.S. Treasury by a whopping 41%.
In addition, this discriminatory tax reduced Merit’s net income by 15%. This is less income available for investment in new technologies through R&D, increased employment and benefits, and expansion of U.S. facilities including those facilities right here in Utah.
Merit is just one company that has suffered, but the tax has provoked an even larger debate about the future of medical device manufacturing in the U.S. Recently, Cook Medical, one of America’s largest and most respected medical device companies, announced in testimony to the U.S. Senate Committee on Finance that without repeal of the device tax, Cook would move “important new, device-related product lines outside the U.S.”
With manufacturing facilities around the world, including a new state of the art facility in Mexico which will become operational July 1, 2015, Merit, too, is evaluating where the best locations for future investment and expansion are. Over the next 90 days, we are evaluating all U.S. facilities and product lines to identify candidates for possible relocation to lower cost environments.
Make no mistake about it: we want to develop and manufacture our devices in the U.S., but this tax is preventing this investment in Utah and in other U.S. facilities. The direct impact of this tax is squarely on U.S. jobs and because nearly 60% of Merit’s U.S. employees are female and 55% are minorities, it will hit these workers hardest.
Merit takes great pride in our employees, facilities, and the lifesaving products we produce every day. We are proud to call Utah home and have invested hundreds of millions of dollars in facilities, R&D, and equipment. We have the best employees of any business and have strived to provide them with the salaries and benefits they need to improve their quality of life.
It is our hope that the U.S. Congress will act quickly to pass legislation repealing the medical device tax for the benefit of us all.