Cook Medical shelves Midwest expansion plans

Cook Medical Inc. had been planning to open five new manufacturing plants over the next five years in small communities around the Midwest, including Indiana, but has shelved those plans because of the hit it will take from a new U.S. tax on medical devices.

The Bloomington-based medical device maker estimates it will pay between $20 million and $30 million once the tax takes effect in January, Pete Yonkman, executive vice president of strategic business units at Cook Medical, said this week.

The 2.3-percent tax on sales of all medical devices was created as part of President Obama’s 2010 health reform law to help pay for its expansion of health insurance coverage to as many as 30 million more Americans. The tax is projected to raised about $2.9 billion per year.

“It is a challenge for us, no doubt,” Yonkman said in an interview after the IBJ Life Sciences Power Breakfast on Wednesday (see video below). “We have fewer resources to be able to spend on those kinds of projects.”

He referred to a new plant Cook opened recently in Canton, Ill., renovating a plant abandoned by the International Harvester Corp. Cook has invested $30 million in the plant, which will eventually employ 300 or more people, Yonkman said.

Canton is the hometown of the late Bill Cook, who founded Cook Medical.

“We had hoped, as we get bigger, that that would be our model for expansion,” Yonkman said. “To take these small manufacturing facilities and bring them to these communities, that had been hard hit by jobs leaving, because the work ethic is amazing and the people are really supportive and excited.”

Yonkman said Cook had planned to open a similar facility each year for the next five years.

“So, for us,” he added, “that’s one less facility per year that we’re going to be able to use because of the tax.”

Cook officials have long been critical of the medical device tax. Even before it became law, Bill Cook said it could cost the company as many as 1,000 jobs.

Since then, Cook officials have said their future growth will be focused overseas. Cook already has production facilities in Ireland, Denmark and Australia.

Medical device makers pushed for a bill earlier this year that would repeal the tax. The bill passed the Republican-controlled House of Representatives in June but has gone nowhere in the Democrat-controlled Senate.

The Center for Budget Policies and Priorities, a liberal think tank in Washington, D.C., said in a March report that medical device makers are blowing the tax’s impact out of proportion. It noted that the new tax does not apply to medical devices made in the United States but then exported for sale overseas.

“In fact, health reform may, on balance, benefit the medical device industry and boost its sales,” the Center stated in its report. “By extending health coverage to 33 million more Americans, or by more than 10 percent, the Affordable Care Act will increase the demand for medical devices and the revenue of device manufacturers.”

Companies such as Cook, however, have always sold their products directly to hospitals, not to customers. So while the insurance coverage expansion may help hospitals get paid more often, Cook officials argue that it will not meaningfully boost Cook’s sales.

Cook is the nation’s largest privately held maker of medical devices, with annual revenue of more than $1.8 billion. The company employs about 4,000 people in the Bloomington area and 10,000 worldwide.