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Cook Medical shelves Midwest expansion plans

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Cook Medical Inc. had been planning to open five new manufacturing plants over the next five years in small communities around the Midwest, including Indiana, but has shelved those plans because of the hit it will take from a new U.S. tax on medical devices.

The Bloomington-based medical device maker estimates it will pay between $20 million and $30 million once the tax takes effect in January, Pete Yonkman, executive vice president of strategic business units at Cook Medical, said this week.

The 2.3-percent tax on sales of all medical devices was created as part of President Obama’s 2010 health reform law to help pay for its expansion of health insurance coverage to as many as 30 million more Americans. The tax is projected to raised about $2.9 billion per year.

“It is a challenge for us, no doubt,” Yonkman said in an interview after the IBJ Life Sciences Power Breakfast on Wednesday (see video below). “We have fewer resources to be able to spend on those kinds of projects.”



He referred to a new plant Cook opened recently in Canton, Ill., renovating a plant abandoned by the International Harvester Corp. Cook has invested $30 million in the plant, which will eventually employ 300 or more people, Yonkman said.

Canton is the hometown of the late Bill Cook, who founded Cook Medical.

“We had hoped, as we get bigger, that that would be our model for expansion,” Yonkman said. “To take these small manufacturing facilities and bring them to these communities, that had been hard hit by jobs leaving, because the work ethic is amazing and the people are really supportive and excited.”

Yonkman said Cook had planned to open a similar facility each year for the next five years.

“So, for us,” he added, “that’s one less facility per year that we’re going to be able to use because of the tax.”

Cook officials have long been critical of the medical device tax. Even before it became law, Bill Cook said it could cost the company as many as 1,000 jobs.

Since then, Cook officials have said their future growth will be focused overseas. Cook already has production facilities in Ireland, Denmark and Australia.

Medical device makers pushed for a bill earlier this year that would repeal the tax. The bill passed the Republican-controlled House of Representatives in June but has gone nowhere in the Democrat-controlled Senate.

The Center for Budget Policies and Priorities, a liberal think tank in Washington, D.C., said in a March report that medical device makers are blowing the tax’s impact out of proportion. It noted that the new tax does not apply to medical devices made in the United States but then exported for sale overseas.

“In fact, health reform may, on balance, benefit the medical device industry and boost its sales,” the Center stated in its report. “By extending health coverage to 33 million more Americans, or by more than 10 percent, the Affordable Care Act will increase the demand for medical devices and the revenue of device manufacturers.”

Companies such as Cook, however, have always sold their products directly to hospitals, not to customers. So while the insurance coverage expansion may help hospitals get paid more often, Cook officials argue that it will not meaningfully boost Cook’s sales.

Cook is the nation’s largest privately held maker of medical devices, with annual revenue of more than $1.8 billion. The company employs about 4,000 people in the Bloomington area and 10,000 worldwide.

 

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  • 30 Million is a new facility
    Henry, as much as it seems 30 million is not significant to a company generating 1.3 billion in US sales (the 1.7 billion combined overseas does not all get hit with the US medical device tax). Think of it this way every 30 Million in tax dollars taken away from the company, could have opened a new facility somewhere in the and created more tax-paying jobs. Real estate taxes, and so on. Again 30 million doesn't seem like it would make a dent as it is around 2.3% of total gross revenue, but when we look at as net revenue, that percentage climbs even higher. taking resources from R & D, marketing, technology investment etc. Just my 2 cents
  • Send Jobs overseas?
    You say to do what Boston Scientific did, well I just recently quit working for them, and if they make a site out of the country like Boston Scientific did, then you are supporting sending work overseas. Because Boston Scientific is shipping line overseas, leaving Americans without jobs. Is that really what you want? Less jobs for Americans?
  • a $30M tax bill means $1.3B in sales
    For a 2.3% tax on medical device sales to result in a $30M tax bill, Cook Medical would have to gross $1.3 billion in medical device sales in the USA. I find it difficult to believe that a 2.3% tax will actually cripple their plans. Furthermore, Bill Cook's 2011 obituary at the NY Times cited global sales among all 42 related companies (spread over 4 continents) of $1.7B. A report that same year said the "U.S. peripheral vascular device market was valued at over $3.8 billion", and "the market is expected to grow rapidly to over $7.1 billion by 2018". So if Cook Medical really has such a commanding market share, they'd be shooting themselves in both feet by not expanding to keep up with the demand.
    • Flawed analysis
      Remember ACA is about "Who pays for Healthcare" not "Expansion of healthcare services" The tax drains $2.9B from the industry...it doesn't create more demand for its products (Unless more people get sick as a result of having health insurance)...The tax however is added; if they can't pass it on to health insurance cos they will have to cut back.
    • Something fishy
      I guess it is which argument to believe. ACA will increase the business of medical device makers as more people have insurance, so they will be able to afford to pay this 2.3% tax. Like any business, I cant imagine this not being passed on to the patient or payer of the device. If a 2.3% tax will undercut Cook, then they must really be on shaky ground. Of course, you dont know that since it is a private company, right? I just am not buying Cook's explanation and rationale. IMHO they are using ACA as a scapegoat and attempting to give ammo to the R's about the evils of ACA.
      • device vs pharma tax
        Why is there so much whining about the device tax, but no one complains about the tax on pharma or health insurance companies? These industries also had tax increases as a result of healthcare reform? It seems pharma has no issue with paying a higher tax to ensure poor people don't have to get their healthcare from the emergency room.
      • taxes
        Are you saying for profit corporations should not pay taxes? Why should they be exempted when middle class Americans are not? That's not very American (or is it?)
      • Costa Rica
        The solution is simple, expand in Costa Rica as Boston Scientific did several years ago, new facilities in Costa Rica with thousands of jobs there.
        • Costa Rica
          The solution is simple, expand in Costa Rica as Boston Scientific did several years ago, new facilities in Costa Rica with thousands of jobs there.
        • Nonsense
          I also wondered, as Josh 101 and Crosspatch discuss, why Cook doesn't just manufacture here and export, etc., to avoid the medical device tax, etc. Reviewing the quagmire of IRS rules on the medical device tax, it seems that companies that export can ONLY avoid the tax if they are exporting for REMANUFACTURE. But I am not sure...maybe Josh101 can read through the IRS rules on the medical device tax and let us know if that's the case?? See the forty plus pages on these rules at www.irs.gov/pub/newsroom/reg-113770-10.pdf and you'll understand why it's not just the tax, but interpretation, compliance and endless changes to rule making that will make this entire piece of legislation an absolute bureaucratic nightmare that no one can really figure out. Not even Josh101. We will surely be at the mercy of the IRS rule makers, tax enforcers and bureaucrats for our health care. http://www.irs.gov/pub/newsroom/reg-113770-10.pdf
        • Nonsense
          This is political nonsense from Cook. They were going to outsource these plants anyways. It does not matter whether they do or do not for the American market. 1) If they build a plant here and they sell in the American market they pay the tax. If they export, they don't pay any additional tax. 2) If they build a plant abroad and they sell in America, they still need to pay the tax. If they sell abroad they don't pay the tax. So no matter what situation, there is no difference in revenue... Something is smelling here...
        • Its Called Cost Shifting
          The medical industry is full of cost shifting from those that can pay Commercial Insurance pays $1.00 Medicare Pays $0.70 Medicare Pays $0.18 Cash Customers Pays at least a $1.00 but 80% pay nothing. This tax is just another case of cost shifting. If Cook chooses not to expand to take care of the baby boomers in the next twenty years than I am sure that a foregn company or other American competitors will import and fill the gap. The next couple years will be exciting times in this industry but I doubt that a small tax that will be passed on to hospitals and to patience will be the reason for expansion or retraction.
        • Tax
          If the cost to built something offshore is 50% less you can afford to pay a tax when it is sold here. Obama and dems look at business in a different way than I do. I want business to thrive here not go overseas to build a product. But if you look at the same medical device companies in the EU you will see they have major problems collecting payments from the government run agencies. One factory will not see to hositial without payment upfront first.
        • I must be missing something
          I guess what your missing is that they won't sell medical devices here at all
        • I must be missing something.
          The medical device tax is, the way I understand it, effectively a sales tax on medical devices. It will apply to devices manufactured overseas as well as in the US. I'm not understanding how manufacturing in Europe is going to avoid that tax or reduce costs since doing just about anything in Europe is more expensive than here. There must be a part of this that I am missing because it isn't going to matter where they build them, the tax will still apply.
          • Thanks Kenyan Prince
            As with my other things that the Kenyan Prince has implemented, along with piglosi and dirty-harry. CommieCare MUST go. Please remember to vote on National Flush The Toilet Day, November 6, 2012 and send the Kenyan Prince, along with all of its pals in the Senate swirling down the porcelain bowl. Scott
            • Profit
              So to maintain maximum profitability, they have to ship US made devices overseas while importing devices made overseas into the US. If it ain't broke, the government will fix it until it is.
            • BLAH BLAH BLAH
              Heard it before, millions more insured to use Cook products. Political posturing.
            • more for China
              So now Cook (and other medical innovators) can go out of the country (most likely to China or India) to develop and produce medical devices - just like they do with clothes, dishes, and everything else we American consumers use. Thanks, Obamacare!
            • Taxes
              One more reason to thank Obama for making sure that the government controls everything. No Money No Jobs No Future NOBAMA
            • Medical Device Tax
              I don't understand why Democrats thought the medical device tax was so important that they included it in Obamacare. Do they just want to keep companies like Cook from developing new products that would cost health insuance companies more money, even if the products provide better service to patients? Is the government trying to quash innovation? Do they not care that people are suffering? I think they don't care.
            • But his family lives
              ...because the politicians have arrived and are now using the all too familiar "we must help the less successful by taxing others" excuses to hurt fellow Americans. Where is the Republic that I pledged allegiance to? Why is it punishing innovation? Why is it hurting local job growth? This is insanity beyond reason.
              • Yep!
                So the Cook group can now send the money they would have successfully used to creat new jobs to a government who has proven in the last 3.5 years that has proven that they cannot. Great Plan. Vote Republican across the board in Nov. Vote Republican across the board in Nov. Vote Republican across the board in Nov. Vote Republican across the board in Nov. Vote Republican across the board in Nov.
              • Unfortunately Bill Cook is dead
                ...because the accountants have arrived and are now using the all to familiar "it is cheaper to outsource" excuses to hurt fellow Americans. Where is the Republic which I pledged allegiance to? Why is it protecting foreign job growth? This is insanity beyond insanity in a recession.

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