April 9, 2010 - I have been very outspoken over the last few weeks since the medical device tax included in the new health care reform bill became law. It’s a subject I’m very passionate about. While I am in favor of having universal coverage for all US citizens, I cannot overlook this tax, as it will have a direct effect on ZOLL and other device companies like ours in the capital equipment business. The total tax on the medical device industry will be about $2 billion a year, starting in 2013. It will have a big impact on us; a 2.3% tax on this year’s revenue would mean an additional $7.5 million in tax. To put this in perspective, last year our total profit was only $9.5 million. Running our company at close to break even would not be a sustainable position for us.
Currently, we have only a few options. We don’t want to have to pass this additional cost along to our customers, which would raise their costs and effectively defeat the purpose of health care reform. But if we don’t do this, we would then be forced to reduce our costs in some manner. This would likely take the form of reduced research and development and moving our product manufacturing overseas. We don’t want to do either of these. The most obvious question is why ZOLL won’t benefit from having more people insured. That’s easy. We are not like a pharmaceutical company or a hospital, where the amount of insurance affects our revenue. Our main business is defibrillators, which are capital equipment that make up the infrastructure of a hospital or an ambulance company. Such institutions already have all the defibrillators they need. They are well equipped to handle cardiac resuscitation of all their patients. Having additional insured patients will not drive additional demand for our product. Put simply, you would not add another defibrillator to an ambulance just because the patient now has insurance. Therefore, having an additional 31 million insured patients does not mean more business for us. This is why, now that the big political battle is behind us, we are trying to move forward constructively for the benefit of innovation and patient care, as well as for the 1600 U.S. employees of ZOLL in Massachusetts, Rhode Island, Colorado, California, Pennsylvania, and Illinois. We are working with our state and Federal legislators to begin the process of altering the tax so it is not such a burden on the industry. Hopefully, working together, we can make a change that we all can support.