Indiana Medical Device Leaders Wary of Taxes from ACA

Gabrielle Karol of FoxBusiness.com reports on the looming taxes and fallout from the Affordable Care Act that could give some of Indiana's medical device makers big headaches. The Chamber and other business organizations continue to fight this.

In Warsaw, Indiana, known as the “Orthopedic Capital of the World,” the CEOs of medical-device companies are none too pleased with the medical-device tax imposed by ObamaCare.

In this edition of Conference Room, Iconacy CEO Tom Allen and OrthoPediatrics CEO Mark Throdahl tell FBN’s Jeff Flock that the 2.3% excise tax will have a major impact on their businesses.

“This is a tax on sales. We have no profits to pay it from, so the only way to stump up the money to pay a tax of this size is by cutting programs,” says Throdahl, whose company makes orthopedic products for children with fractures or leg or spine deformities.

Throdahl says the tax will prevent his company from growing.

“All of the engineers who surround me – their payroll is equivalent to the tax we’re now paying Washington. So we could double the size of our technical staff were it not for the medical-device tax,” says Throdahl. While Allen’s company is still in the launch phase, so the tax hasn’t yet had a major effect, he says it has hindered his ability to add staff as well.

Given that Warsaw is known for its medical-device companies, the tax could also have a profound effect on both the community and the state of Indiana.

“There are estimates that over 40,000 jobs will be impacted in the medical technology industry by the medical-device tax,” says Throdahl.

Indiana Economic Development Corp. president Eric Doden says the tax is particularly disappointing to the community given the strides made to reduce the tax burden paid by these companies.

“In Indiana, we have had a history of entrepreneurship particularly in this arena. And these are high paying jobs and the thing that sort of disappointed us as a state is that Governor Pence and the State House [have] done an incredible job of lowering taxes and trying to create a better environment for these businesses to start to grow,” says Doden. 

Noblesville’s RMI Expanding Business, Adding Talent

Historically, RMI in Noblesville has focused on orthopedic solutions for spinal surgeries, as well as hip and knee replacements. It’s had quite a bit of success in this industry, but RMI leadership now sees an opportunity to expand its focus.

"More recently, we’ve been looking for opportunities for growth in the non-medical field," President James Evans explains. "So we’re in the process of getting our aerospace certification."

Evans relays that expansion is one of the key reasons the company moved to Noblesville from Rochester in fall 2011. He explains the move gave the company more access to talent, and provided a more central location and close proximity to customers. While quite an undertaking, 19 of RMI’s Rochester staffers made the move south with the company, which currently has 25 employees (although that number will grow to 28 in the near future and well beyond once it expands into aerospace).

"We build low volume precision components out of exotic materials for the medical industry," Evans clarifies. "It’s a natural outgrowth opportunity to build products for other markets. Aerospace (and government, high-reliability military and aviation industries) all have requirements for the kind of capability that we have. Fairly high value componentry and assemblies are what we specialize in. In the spinal parts we build, the cervical plates, the hooks, the rods, the screws, which are mainly out of titanium and stainless steel and exotic plastics — we could really apply those to other markets."

Evans adds that the company has worked to evolve from just a component supplier and has expanded into full assemblies, which now comprise 40% to 50% of its business.

"When you start adding components together as part of an assembly, you have all of the interferences and system-level issues that you uncover," he notes. "And frankly, most of our competitors don’t want that hassle — so we look for more of those opportunities and that separates us from the competition."

He adds that the company now focuses on getting products to market faster by increasing engineering staff and adding equipment, which has helped build customer satisfaction and loyalty.

Evans remarks that RMI now serves more second tier developers.

"In 2005, most of our business was with large OEMs (original equipment manufacturers), and we had very little flexibility in defining the manufacturing of these products," he says. "We had little say in product improvements, and now we’re with customers who are competitive with large OEMs; they’re design houses and they’re working with orthopedic groups. … they look to us for manufacturing solutions."

Challenges still face Hoosier companies in the medical device industry.

"With people out of work, they don’t have insurance and put off having surgeries," Evans offers. "People are also doing tigher inventory controls, so purchasing habits have changed and so we don’t get as many large orders as we used to get. And of course Obamacare has had its own set of challenges, as well as the medical device tax — those things will affect the marketplace."

When asked about Indiana’s pipeline of talent for his industry, Evans explains central Indiana provides more access to talent, but he believes the state has room for improvement.

"The people who actually run our machinery, they need to be trained machinists and need to know a lot about metallurgy and inspection processes, and we have to train every one of them that comes in here," he asserts. "So there’s always a talent gap."

Would you like to know more about RMI or its products? Reach out to Evans at [email protected].

Warsaw a Major Player on Global Commerce Scene

A new study by Indianapolis-based BioCrossroads puts some figures to what many people in northern Indiana already knew — that Warsaw’s niche as a global orthopedics hub is no joke. Inside INdiana Business has the press release:

Now generating more than $11 billion in annual revenues, the global orthopedics sector concentrated in Warsaw, Indiana, represents more than half the U. S. market share and more than one- third of the world’s market for developing orthopedic medical devices.

How does an industry — contained within a community — continue to maintain its strong economic presence and position itself for future growth? BioCrossroads, Indiana’s organization for investment, development and advancement of the state’s signature life sciences strengths, explores and outlines a series of action-oriented responses to this question in a new published report, Warsaw, Indiana: The Orthopedics Capital of the World — An overview, analysis and blueprint for future industry and community growth…

“The Warsaw orthopedics community is one of the most robust and concentrated medical equipment development sectors in the world, and a world-class economic asset that powers growth for all of Indiana,” said David Johnson, President and CEO of BioCrossroads. “The integration of all this research has resulted in a picture of an industry cluster in Warsaw, that is currently robust, respected and globally competitive. While this orthopedics device sector has been tremendously successful to date, our research and the truly global scale of this sector’s reach make it very clear that global pressures now confronting our whole economy, including all our life sciences sectors, have sparked a broadly perceived need for a community and industry engagement strategy focused on education, talent recruitment and retention, workforce and community development to ensure sustainability.

“We’re now in the process of developing a Warsaw-based, regionally focused organizational initiative that can better define and prioritize the challenges and opportunities, and then seek funding to bring the best and most responsive ideas to life,” Johnson added.

Personally, I’m working on an article for the November/December edition of BizVoice about business aviation, which will touch on how Warsaw’s airport has made the community’s climb to the top of the orthopedic world possible. Image Air Charter, an Indiana Chamber member, has had a great deal of success chartering flights for folks in that sector, showing how different companies can truly complement each other to enhance a community.