Medtronic Inc. (MDT), the world’s biggest- maker of heart rhythm devices, said it is planning for a U.S. tax on medical products that will cost the company $125 million to $175 million annually starting next year.
Medtronic, which reports earnings on a fiscal calendar that ends April 30, will provide a forecast for the 2013 year in May. The estimate will include four months during which the company was subject to a 2.3 percent excise tax on medical devices that was part of the 2010 health-care law, Chief Financial Officer Gary Ellis said.
The Minneapolis-based company estimates it will pay a tax of $40 million to $60 million in the 2013 fiscal year, based on the draft regulations currently available, Ellis said today in a telephone interview. Medtronic is trying to determine how much of the tax it can pass on to hospitals and other customers who purchase the company’s devices, he said.
“We’ve looked at this as basically one of the costs we’re going to have to cover as we put together our plans for fiscal year 2013 and as we put together our initiatives on a long-term basis,” Ellis said in a conference call with investors. “We’re going to have to make the tradeoffs and there’s probably going to be things that we can’t do as a result of that,” he said. “It means we won’t have as much to invest going forward.”
Medtronic fell 2.4 percent to $38.99 at 4:05 p.m. in New York Stock Market composite trading. The shares have declined 5.5 percent in the past 12 months.
Paying for Uninsured
The tax was designed to raise $20 billion to expand health insurance coverage for the uninsured. The Internal Revenue Service hasn’t given final guidance on exempt products or when the tax will be assessed.
Medtronic also is looking for other ways to counter-balance the new expense, Chief Executive Officer Omar Ishrak said.
“We don’t view the medical device tax any differently from other pressures that come our way,” he said in a telephone interview. “We like to focus on things we can control. One of our main strategies is to make sure we get our costs under control.”
Medtronic today reported fiscal third-quarter profit rose 1.2 percent to $935 million, or 88 cents a share, from $924 million, or 86 cents. Profit excluding one-time items was 84 cents a share, matching the average of 26 analyst estimates compiled by Bloomberg.
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