Med Tech Giant’s Claims About ObamaCare Undercut By Its Financial Filings
In its push to pass the American Health Care Act (AHCA), one of the world’s top medical-technology companies is making claims about Obamacare that are contradicted by the company’s own financial filings, according to documents reviewed by TYT Politics.
Stryker Corporation CEO Kevin Lobo has made multiple statements on national television about the negative impact that Obamacare’s tax on medical equipment has had on his company and the industry. But those claims appear to be undercut not only by the company’s SEC filings, but also by statements made to Wall Street analysts by Stryker’s own executives, including Lobo himself.
Lobo’s opposition to Obamacare centers on its medical-device tax, which was was added to subsidize the cost of expanding coverage and was projected to net $27 billion for that purpose. Medical-device makers were singled out because they would benefit from expanded insurance coverage.
The tax was suspended for two years at the end of 2015 and would be repealed entirely by the AHCA
“The tax, really, is a job killer. It’s an innovation killer,” Lobo told CNBC on Dec. 9, 2016. “Congress decided to suspend it. It had bipartisan support just for suspension for a two-year period but we look forward to, with the new administration, a full repeal.”
In addition to Lobo’s public statements, Stryker in the first quarter of this year spent $50,000 lobbying Congress on issues specifically including, “Legislation to repeal the Medical Device Excise Tax,” according to its lobbying-disclosure form.
Lobo also sits on the board of the Advanced Medical Technology Association, known as AdvaMed, which paid three lobbying firms $160,000 in the same quarter to lobby Congress on issues including both the AHCA generally and the medical-device tax specifically. Lobo has personally donated $20,000 to AdvaMed since he became CEO, according to data maintained by the Center for Responsive Politics.
AdvaMed in March became one of the few national medical organizations to endorse the AHCA, with a statement urging the House to pass it, “so we can continue the push to end this tax once and for all.”
However, a TYT Politics review of Stryker’s public statements and financial filings shows that the company’s claims about the impact of the tax began to shift and contradict themselves even before the tax was implemented. Stryker did not respond to a request by TYT Politics for comment, or to a list of questions related to the impact of the medical-device tax.
Job Losses?
Stryker first publicly blamed the medical-device tax for the imminent layoffs of five percent of its global workforce in a Nov. 10, 2011, press release, more than a year ahead of the tax. The layoff announcement became a national symbol of Obamacare’s detrimental effect on jobs. However, in a filing submitted the same day to the SEC — and subject to federal regulations regarding its veracity — Stryker offered an explanation more commonly cited for layoffs: The company wanted to eliminate redundancies created by recent acquisitions.
“These actions are being initiated to provide efficiencies and realign resources following recent acquisitions,” Stryker’s SEC filing says, “to allow for continued investment in strategic areas in an ongoing challenging economic environment and market slowdown in elective procedures.” The filing does not mention the medical-device tax or the legislation that created Obamacare.
In addition, Stryker gave varying accounts of the actual costs incurred due to the tax. Previous CEO Stephen MacMillan told Fox Business News it would cost the company $150 million. Prior to the tax’s implementation, Lobo told CNBC on Oct. 18, 2013, that it would cost Stryker $100 million in its first year. Six months earlier, on April 24, Lobo told Wall Street analysts the tax had cost Stryker just $23 million in the first quarter of 2013, which would total less than $100 million for the year at an annualized rate. Stryker did not release estimates of the tax’s impact in subsequent earnings calls.
Furthermore, Stryker routinely characterized the rate of the tax as 2.3%. But because the cost of the tax was deductible, its effective rate reportedly was only 1.5%. Stryker’s own 2013 annual filing with the SEC, however, reported after the first year of the tax that, “The Medical Device Excise Tax was 0.9% of sales in the current year.” The company nevertheless continued referring to the tax as having a 2.3% rate.
The actual number of jobs lost due to the tax also remains unclear. In its 2011 announcement, Stryker declined to provide a number beyond its estimate of five percent of its workforce. A year later, Nov. 16, 2012, Fox News reported that Stryker “will cut 1,170 jobs,” a number widely cited by critics of Obamacare.
Fox News did not provide a source for that figure, and three days later a Stryker spokeswoman told the Gazette newspaper in Kalamazoo, MI — where Stryker is based — that Fox’s figure was inaccurate. Stryker has never provided an exact estimate for layoffs due to Obamacare or said where they occurred. Its original, 2011, press release said, “The reductions and restructuring activities are expected to be substantially complete by the end of 2012.”
AdvaMed has pointed to a study estimating that the medical-device industry would lose 43,000 jobs once the tax was implemented. In August of 2012, however, Politifact reported that the study was funded by AdvaMed and that the research service Bloomberg Government found the study “not credible.” The study assumed, for instance, that manufacturers would move 10% of their production overseas, even though the tax applied to imported devices, as well.
A 2015 report by the Congressional Research Service concluded that because companies could raise prices, in the entire medical-device industry, “probably no more than 1,200 employees should lose their jobs.”
Today, AdvaMed claims that 29,000 jobs were lost, and that 53,000 jobs will be created or saved if the tax is permanently repealed.
Stryker has not said whether it will create any new jobs in the event of a full repeal. On Jan. 26, 2016, a month after Pres. Obama signed the law suspending the medical-device tax, Lobo told Wall Street analysts, “The two-year suspension of the med device tax provides us with the opportunity to bolster investments and will help drive sales growth and innovation as we plan to invest the majority of this temporary benefit.”
He added, “We’re also continuing on our path toward driving greater cost efficiencies,” a phrase often associated with layoffs. Lobo made no mention of new hiring.
“An Innovation Killer”
Stryker’s filings and public statements also show little evidence that the tax has proved to be an “innovation killer” for the company. Lobo and other Stryker executives continued to tout Stryker’s growth in innovation throughout the first year of the tax and beyond.
After increasing spending on research, development and engineering by just 2% in the year prior, Stryker increased R&D spending 13.8% in the first year of the tax, from $471 million to $536 million. R&D spending rose by an average annual rate of 10.1% during the three years in which the tax was applied.
In his earnings call for the fourth quarter of 2013, Lobo said, “Our ongoing investments in R&D, as well as our targeted M&A [mergers and acquisitions], positions us well to deliver innovation to our hospital customers.”
Increased Stryker Spending
As Lobo suggested in that call, Stryker increased spending across a range of activities despite Obamacare’s ostensible $100 million impact. In addition to the R&D increases, Stryker spent $2.32 billion on acquisitions in 2013, $916 million in 2014, and $153 million in 2015.
After handing shareholders $324 million in dividends the year before the tax hit, in 2013 Stryker paid out $401 million in dividends. That increased to $462 million in 2014 and $521 million in 2015.
Lobo’s total compensation rose from $9.23 million in 2012 to $12.8 million in 2016.
Besides increasing spending on executive pay, R&D, mergers and acquisitions, and dividend payouts, Stryker also upped the amount of money it used to repurchase its own stock. Stock buybacks during the tax’s three-year span totaled $1.17 billion.
Stryker’s cash on hand ballooned, as well, during the period the tax was said to be killing jobs and innovation. Stryker’s federal filings show its cash reserves swelled from $1.4 billion before the tax to $3.4 billion at the time it was suspended.
As Stryker said on numerous occasions, its growth would have been more impressive if not for the tax — but in earnings calls with Wall Street analysts, its own executives repeatedly identified other factors that seldom made it into mainstream media coverage of Obamacare’s economic impact on big business.
On top of the estimated $100 million tax costs, Stryker also took a $700 million hit to recall a faulty hip replacement. And the cost of fluctuating exchange rates for foreign currency consistently topped those of the medical-device tax.
While the tax typically accounted for one percent or less of Stryker’s sales, in almost every quarter that Stryker executives gave comparable figures, exchange rates cost the company more than the tax did.
On Oct. 17, 2013, for instance, Stryker CFO William Jellison said, “This quarter’s EPS [earnings per share] includes negative impacts of approximately $0.05 per share from FX [foreign exchange] and $0.03 per share from the med tech tax.”
Since the first year of the tax, Stryker consistently advised Wall Street analysts that the company is in good shape and continuing to grow.
Despite calling the tax a “job killer,” Lobo has grown Stryker’s payroll from 22,010 employees in 2012 to more than 33,000 today. Stryker expanded by 6,000 employees last year alone, after the tax was suspended. The company did not attribute the new hires to the tax suspension, however. According to its 2016 annual report, “The number of employees increased from 2015 largely due to our Sage [Sage Products] and Physio [Physio-Control] acquisitions.”
Eleven months after Lobo said in January of 2016 that Stryker would respond to the tax’s suspension by pursuing “cost efficiencies,” the company closed a plant in South Carolina, costing 88 full- and part-time jobs there. In December of 2016, the same month Lobo told CNBC Stryker was looking forward to permanent repeal, the company announced it would expand its R&D facility in Portage, MI, as part of a restructuring. Three months later, local media reported 50 layoffs as a result.
Written by Larsen, with additional reporting and research by Gina Kim.
