Tuesday, March 23, 2010

Breaking What Works

For those who are now celebrating the onset of the nationalization of our health care system, I'd like to present an academic exercise with practical applications. Read on.

Located in Massachusetts, Zoll Medical Corporation develops and manufactures medical devices. It's one of the many obscure, unsung American businesses that provide the world with cutting edge medical technologies. Zoll's website describes its mission as follows :

(Zoll) helps responders manage, treat, and save lives in emergency rescues and in hospitals; outside the hospital while at work or home; in doctors' and dentists' offices and schools; in public places and on the battlefield. ZOLL's products contribute to managing patient care and saving lives, as well as increasing the efficiency of emergency medical, fire and hospital operations around the globe.

To help pay for its onerous costs, Obamacare imposes burdensome taxes on firms such as Zoll. This reality is presenting a formidable predicament for the company's managers. The Washington Examiner explains.

The bill passed by the House Sunday night contains a particularly damaging version of the $20 billion hit for the medical device industry, meaning Zoll and other medical device makers could well be headed for hard times.

"We believe that the tax will cost us somewhere between $5 million and $10 million a year," says Richard Packer, Zoll's chairman and chief executive officer. "Our profit in 2009 was $9.5 million."

That would be a devastating blow. Zoll employs about 1,800 people. Roughly 1,600 of them are in the United States, and about 650 of those are in Massachusetts. Once the new tax kicks in, that could all change. "We can't run this company at a break-even or a negative rate," says Packer, "so we will be forced to look at alternatives."

The company's first option is to pass the increase on to customers like hospitals and ambulance companies. That might or might not work, given that they are coming under increasing pressure to cut their own costs.

The next option is to cut research and development -- a short-term, money-saving move that will surely cost Zoll down the road. And a third option, says Packer, is to "look at trying to shift jobs to lower-cost places around the world." That would be bad news for Massachusetts and the USA.

No matter what happens, the makers of the devices that save our lives are going to take a major hit.

"It's a real concern for some of these companies, in that they probably are operating on pretty thin margins," says Brian Johnson, publisher of MassDevice, an independent business journal devoted to the medical device industry. Johnson adds that even those companies that can pay the tax face perhaps even more serious problems because of recent government actions, apart from health care reform, making it harder and more costly to win Food and Drug Administration approval for new products. "As a whole, in terms of stricter regulation and the added tax, that's a pretty big bag they're carrying right now," says Johnson.

And then, of course, there is the continuing economic downturn. All in all, it's not a good time to levy a new and burdensome tax on a highly innovative American industry. And yet that is exactly what Obamacare does.

When I called Richard Packer at Zoll on the morning after the House passed the bill, I asked how he was doing. "A total state of depression," he answered, with the kind of short, dry laugh that says it's not really funny. A lot of Americans are feeling that way now.

OK, Obamacare fans. The challenge - Devise a solution to Zoll's problem - Our problem too, since the company (and others like it) occupies an essential role in the health care system that you profess a desire to improve. The ideal solution would allow Zoll to continue to produce its high quality products and services, maintain its current staffing levels, especially in the U.S. and retain its innovative energy all while allowing it to earn a healthy profit. And then when you think you've found a solution, I have countless more of the Democrats' health care plan's toxic side effects for you to fix.

Incidentally, your answer will receive zero credit if you suggest that a government run, non-profit operation take over the services provided by Zoll. Anyone submitting such an answer will be assigned to study the satellite photograph below until he/she understands the consequences of governments that encourage free enterprise and of those that don't.


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