Invacare prepares for the worst in healthcare reform: freezes hiring, suspends merit raises

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01/15/2010

Invacare is taking very seriously a healthcare reform proposal that, if enacted, would cost the company an estimated $12 million to $14 million a year. Check out this document the company filed with the Securities and Exchange Commission Jan. 7.

The U.S. Senate and the U.S. House of Representatives each recently passed health care reform legislation that includes a new tax on medical device manufacturers, such as Invacare Corporation (the “Company”). The Senate version of health care reform would impose a yearly sales-based tax on medical device manufacturers intended to raise $2 billion in tax revenue annually beginning in 2011, and $3 billion in annual tax revenue beginning in 2017. The tax would be not be deductible by the manufacturer and the amount of tax payable by a manufacturer would be determined based on market-share.

While this legislation has not yet been finalized, if the Senate version of the proposed medical device manufacturer tax becomes law, the Company will have to begin accruing expense for the new tax in 2010. Based on the Company’s interpretation of the Senate proposal, the Company estimates that the new tax could result in an impact to the Company of approximately $12 million to $14 million annually.

The Company continues to actively lobby members of Congress in an effort to make the proposed legislation less onerous on medical device manufacturers, and, until the legislation is finalized, there can be no assurance that the tax may not be eliminated, modified or delayed. However, the Company is evaluating all of its available options to offset the impact of the proposed tax on the Company’s financial results, including possible price increases or cost-reduction actions such as shifting more production overseas, reducing employee benefits or research and development expenditures. In anticipation of the proposed tax becoming law, the Company has already taken steps to suspend Company matching contributions under its 401(k) retirement plan, suspend merit pay increases for management employees and freeze new hiring.

In accordance with its historical practice, the Company intends to disseminate its guidance for 2010 performance in its fourth quarter earnings release, which is scheduled to be issued on or around February 4, 2010.

For more on this, you can read a story we posted to hmenews.com Dec. 31.

— Mike Moran