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Problem:
I need help with the spreadsheet portion of the assignment shown below. In essence, the spreadsheet needs to show example financial statements of a major medical device company and how a 2.3% tax on revenue under the proposed Obamacare Bill would affect a company. Essentially a before and after comparison.
Description:
Team Project – Health Care Reform Proposal
Decisions in the workplace are seldom made in isolation or by a single individual or department. That is especially true in health care and, in particular, health care finance. To provide students with the opportunity to simulate the collaborative problem solving processes used in typical workplaces, students will work with a team to identify and propose a solution for a health care reform issue that is directly or indirectly finance related.
You have six weeks to prepare and present your team’s proposal. Detailed instructions are included in the Workshop One Course Materials.
1. The team’s solution must include the following: a. 1,500 – 2,000 words, APA 6th ed. formatted paper that: i. Introduces the issue; ii. States the desired outcome(s); iii. Discusses risks and other factors that must be addressed; iv. Discusses quantitative and qualitative factors that bear on the decision making process; v. Proposed solutions and supporting rationale; vi. Anticipates and addresses opposing viewpoints; vii. Conclusion b. An Excel spreadsheet that supports your proposal. c. A 10 – 12 slide PowerPoint presentation that includes: i. A title slide that clearly states the issue being addressed and all members of your firm (i.e., contributing team members); ii. Key points and proposed solutions detailed in the paper; iii. Notes in the speaker’s note section elaborating on bulleted points presented on each content slide; and, iv. A final slide with correctly formatted references for all sources used in the development of your presentation (i.e., APA 6th ed.).
Links: http://cosmoscon.com/2012/07/15/the-real-impact-of-the-medical-device-tax/
Problem:
I need help with the spreadsheet portion of the assignment shown below. In essence, the spreadsheet needs to show example financial statements of a major medical device company and how a 2.3% tax on revenue under the proposed Obamacare Bill would affect a company. Essentially a before and after comparison.
Description:
Team Project – Health Care Reform Proposal
Decisions in the workplace are seldom made in isolation or by a single individual or department. That is especially true in health care and, in particular, health care finance. To provide students with the opportunity to simulate the collaborative problem solving processes used in typical workplaces, students will work with a team to identify and propose a solution for a health care reform issue that is directly or indirectly finance related.
You have six weeks to prepare and present your team’s proposal.
Detailed instructions are included in the Workshop One Course Materials.
1. The team’s solution must include the following:
a. 1,500 – 2,000 words, APA 6th ed. formatted paper that:
i. Introduces the issue;
ii. States the desired outcome(s);
iii. Discusses risks and other factors that must be addressed;
iv. Discusses quantitative and qualitative factors that bear on the decision making process;
v. Proposed solutions and supporting rationale;
vi. Anticipates and addresses opposing viewpoints;
vii. Conclusion
b. An Excel spreadsheet that supports your proposal.
c. A 10 – 12 slide PowerPoint presentation that includes:
i. A title slide that clearly states the issue being addressed and all members of your firm (i.e., contributing team members);
ii. Key points and proposed solutions detailed in the paper;
iii. Notes in the speaker’s note section elaborating on bulleted points presented on each content slide; and,
iv. A final slide with correctly formatted references for all sources used in the development of your presentation (i.e., APA 6th ed.).
Links: http://cosmoscon.com/2012/07/15/the-real-impact-of-the-medical-device-tax/
2.3% Excise Tax on Medical Devices
I. Introduction
a. Medical Devices –
i. Scientific advancement has contributed to an increased average life span due to the development of medical devices that sustain life and replace body parts, such as defibrillators and artificial hips and knees. Medical devices can also be as simple as a tongue depressor used for diagnosis purposes. Regardless, our achievement in technology has allowed humans to have a better quality of life, but it comes along with a huge price tag. The cost of the device alone can range from pennies to several thousands of dollars, which does not include costs for the hospital, physician, and anesthesia services to perform the procedure. Total hip replacements cost around $20,000 (this includes a fee for the hip implant ranging around $5,000). Costs will vary depending on geographic location down to the hospital, physician, or anesthesia services you choose. It is truly difficult to determine the exact cost of each procedure involving a medical device. There are websites, such as
www.healthcarebluebook.com
and local hospital references available to help determine approximate costs of procedures, but because of different economic factors, the costs are constantly changes, and typically increasing.
ii. Medical Devices are regulated by the FDA (Food and Drug Administration). Just as there are multiple steps to bring a drug to the market, medical device manufacturing companies must also go through multiple steps to bring a device to market. It is too extensive to get into the steps required! If you’re interested, Information can be found on the FDA website at
http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/Overview/default.htm
.
iii. The FDA defines a medical device as “an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them, intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.” Devices are categorized into classes, such as Class I, Class II, and Class III.
b. PPACA (Patient Protection and Affordable Care Act) – I’ve heard this referred to as Obama care. It was passed by Congress and signed into law by President Obama in March 2010.
i. Main discussion of ACA – In June of this year, the Supreme Court upheld the decision for PPACA. I found a video on CNN pertaining to the recent Supreme Court decision on healthcare. Dr. Sanjay Gupta explains the portion of the mandate affecting patients will be implemented in 2014. Adults and children with chronic illnesses or preexisting health conditions or those have previously been denied insurance for whatever reason cannot be discriminated against or denied insurance. The portion affecting physicians will be implemented in 2015. Doctors will be reimbursed by the value of the patient’s care overall. The test completed and how medications are dispensed will be considered when reviewing overall care. This ruling came down to a 5 to 4 decision that was decided by Chief Justice Roberts on what the mandate meant and how it will be enforced. By 2016, health insurance will be mandated. If you can afford healthcare and do not purchase it you will be penalized by 2.5% of income or a preset amount. WHAT THE REPORT DID NOT MENTION: The 2.3 excise tax on medical devices that will be in effect as of January 2013 if it is not successfully appealed.
ii. 2.3 Medical Excise Tax – The IRS has a PDF document for this portion of the ACA (REG-113770-10). After December 31, 2012, there will be a 2.3% excise tax on the sale of medical devices for manufacturers, producers, or importers. The IRS defines a medical device the same as the FDA. There is information regarding what is excluded, such as eyeglasses and contact lenses, hearing aids, and items typically purchased over-the-counter (OTC) at retail stores. This document is helpful to help distinguish what exactly is considered to be a medical device. This particular portion of the ACA has gotten a lot of criticism from physicians and medical device manufacturers. Not only have the usual Republicans made negative comments about this mandate, but there are also Democrats siding with Republicans who have negatively commented on this mandate for the reasons below.
c. The Issues
i. Threatens Jobs – Evan Bayh, attorney, Democrat, and former governor and U.S. senator from Indiana, submitted a recent article in the Wall Street Journal stating this tax “threatens thousands of American jobs and our global competitiveness” (Bayh, 2012). I think it is important to know that Bayh’s firm represents many medical device companies, so one should also look at the evidence to support such claims.
Bayh mentions in his article that manufacturing companies have announced layoffs, are decreasing R&D budgets, and will reconsider domestic expansion in response to this tax. Why – it is felt that the tax comes straight from the manufacturer’s bottom line, not the medical device consumers (hospitals, physicians, and other providers are already locked into contracts with set prices). There are many that see this tax as causing more harm than good. A job in this industry average compensation is $58,188.
ii. Companies will close – It is felt companies will close and move overseas or their bottom line will hurt so bad they’ll be forced to close. Bayh mentioned a typical company will incur a 15% tax on profits if there is a 2.3 tax on revenues, which will equal a 50% tax to companies when combined with a 35% corporate and state tax rate.
iii. Stifles Innovation – companies will reduce their research and development budgets in order to make up for the loss on taxes, which will decrease innovation. Devices – $5.4 billion more in exports than the U.S. spent on imports in 2011. Will this cause the U.S. to lose export business? Bayh states the tax “will stifle critical medical innovation in the industry that gave us defibrillators, pacemakers, artificial joints, stents, chemotherapy delivery systems, and almost every device we depend on to save lives” (Bayh, 2012).
1. Boston Scientific – a major medical device manufacturing company feels there will be a “significant negative effect on our ability to invest in new therapies for the patients we serve” (Boston Scientific Corp, 2012). They are supportive of the Protect Medical Innovation Act.
II. Desired Outcome – Many wish to appeal this mandate so that the U.S. can continue to be a global leader in medical innovation and prevent job loss in a current failing economy.
III. Risks and other factors that must be addressed
a. Economic and Financial conditions – this could include whether it is more favorable for companies to expand internationally and move overseas, the ability to finance and manage debt levels and not experience a disruption in cash flows it could have an adverse effect on the cost of borrowing and affect operations.
b. Reimbursement and Regulatory factors – the mandate is not clear to many and some worry the new tax on top of any changes in reimbursement will also negatively impact the manufacturing industry
IV. Quantitative and Qualitative factors that bear on the decision making process
a. Quantitative factors – already discussed above (disruption of cash flows, potential effect on financing)
b. Qualitative factors – Companies will not only have to look at the financial information and analysis when considering their future and investments, but must also consider qualitative factors.
i. The manufacturing companies that have decided not to expand domestically should reconsider and analyze whether or not investing in new production facilities may be essential to maintaining a reputation as the industry leader in innovation because it is hard to quantify being an industry leader in innovations.
ii. Social Responsibility – Reducing pollution, recycling, or being socially conscious may provide social benefits even though the quantitative analysis (NPV and IRR) points to rejecting these types of investments.
iii. Investing in a new product line that will not be taxed could result in increased sales of other products, even though the quantitative analysis (NPV and IRR) points to rejecting the investment.
iv. Marketing – look at marketing to those overseas since devices produced in the U.S for export are tax-exempt.
v. Ethical Decision – is it not jumping the gun to announce layoffs and determine you will cut 10% of the jobs before seeing if the tax negatively affects the company? This should be considered before making decisions that will impact others’ lives to prove a point that you do not agree with this ACA mandate.
V. Proposed solutions and supporting rationale (Excel Spreadsheet to support) – STILL WAITING ON FEEDBACK FROM THE GROUP ON WHAT TO DO FOR A SPREADSHEET SUPPORTING OUR SOLUTION (my suggestion – not sure how they came up with a tax of 2.3% (supposedly it was higher before deciding on 2.3%), but if they decrease the amount or tier the amount as we do for individual taxes which it will not be as much of an impact – this will be easy to show on a spreadsheet)
VI. Anticipates and addresses opposing viewpoints – those providing the negative feedback regarding this mandate and who want to repeal are exaggerating and basing the reasoning on misinformation. The highly publicized statistic of 43,000 lost jobs and 10% of companies moving overseas was financed by a company within the manufacturing industry, and an analysis completed by Bloomberg Government states it is not credible (Van de Water, 2012).
a. The medical device industry will not suffer due to other parts of the ACA mandates – insurance coverage expansion will increase demand and bring more business to the manufacturing device companies. Although there are many elderly folks with Medicare that have surgeries with these devices, there are also many more who will finally have coverage that can electively have surgeries. This should help to diminish the tax effect.
b. Production will not have to be moved to overseas – “The tax applies equally to imported and domestically produced devices, and devices produced in the U.S. for export are tax-exempt” (Van de Water, 2012).
c. There will be little effect on innovation – this tax is asking companies to find more cost –effective ways to deliver care, which they should probably be doing anyway. The Center on Budget and Policy Priorities states, “Consulting firm PricewaterhouseCoopers has identified five pillars of medical technology innovation: financial incentives, human and physical resources, a favorable regulatory climate, demanding and price-insensitive patients, and a supportive investment community” (2012). This tax affects one of the five pillars of medical technology innovation.
VII. Conclusion
a. Change in general seems to make people squeamish, especially when it comes to the topic of taxes. We have a huge budget deficit that did not begin in Obama’s presidency, even though it has certainly increased since he took office, as well as a GDP for healthcare that is larger than any other country’s GDP. We have to budge somewhere. There are options out there in attempt to help our situation and not everyone is going to agree, as we see in this case. Having an alternative suggestion prior to appealing the mandate may be helpful. Ultimately it’s best to do something rather nothing and getting the same results.
References
(These are not currently in APA format)
Bayh, Evan. (2012). ObamaCare’s Tax Raid on Medical Devices. Retrieved from
http://online.wsj.com/article/SB10000872396390444620104578012281306687070.html?mod=googlenews_wsj#articleTabs%3Darticle
Boston Scientific Corporation. (2012). Boston Scientific Supports Passage of the Protect Medical Innovation Act: Medical Device Tax Would Stifle Innovation. Retrieved from
http://bostonscientific.mediaroom.com/2012-06-07-Boston-Scientific-Supports-Passage-of-the-Protect-Medical-Innovation-Act
CNN. (2012). How will the court’s ruling affect you? Available from
http://www.cnn.com/video/#/video/bestoftv/2012/06/28/sot-gupta-scotus-healthcare.cnn
FDA. (2012). Is the Product a Medical Device? Retrieved from
http://www.fda.gov/medicaldevices/deviceregulationandguidance/overview/classifyyourdevice/ucm051512.htm
IRS. (n.d.). Taxable Medical Devices. Retrieved from
http://www.irs.gov/pub/newsroom/reg-113770-10
Van de Water, P. (2012). Excise Tax On Medical Devices Should Not Be Repealed. Retrieved from Center on Budget and Policy Priorities at
http://www.cbpp.org/cms/?fa=view&id=3684
Sheet:
Balance Sheet
Sheet:
Income Statement
Sheet: Shareholders Equity
Sheet:
Cash Flows
Sheet:
RESULTS OF OPERATIONS
Sheet: COMPUTATION OF EARNINGS PER SHA
Sheet:
NO TITLE
STRYKER CORP
10-Q
08/13/
1997
Balance Sheet
June 30
December 31
1997
1996
ASSETS
Current Assets
Cash and cash equivalents
Marketable debt securities
Accounts receivable, less allowance
of 9,900 (1996 – 9,500)
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total Current Assets
Property, Plant and Equipment, less allowance
for depreciation of 127,984 (1996 – 117,882)
Other
Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable
Accrued compensation
Income taxes
Accrued expenses and other liabilities
Current maturities of long-term debt
Total Current Liabilities
Long Term Debt, excluding current maturities
Other Liabilities
Minority Interest
Stock
holders’ Equity
Common
stock
, .10 par value:
Authorized – 150,000 shares
Outstanding – 96,009 shares (1996 – 96,787)
Additional
paid-in capital
Retained
earnings
Unrealized
gains on securities
Foreign
translation
adjustment
s
Total Stockholders’ Equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
____________________________
Created by Morningstar Document Research.
http://documentresearch.morningstar.com/
STRYKER CORP
10-Q
08/13/1997
Income Statement
Three Months Ended
Six Months Ended
June 30
June 30
1997
1996
1997
1996
Net Sales
Costs and expenses:
Cost of sales
Research, development and
engineering
Selling, general and administrative
Operating Income
Other Income
Earnings
Before
Income Taxes
and Minority Interest
Income Taxes
Earnings Before Minority Interest
Minority Interest
Net Earnings
Net Earnings Per Share of Common
Stock
Average Outstanding Shares
for the Period
____________________________
Created by Morningstar Document Research.
http://documentresearch.morningstar.com/
STRYKER CORP
10-Q
08/13/1997
Shareholders’ Equity
Additional
Unrealized
Foreign
Common
Paid-In
Retained
Gains on
Translation
Stock
Capital
Earnings
Securities
Adjustments
Balance at
January 1, 1997
Net earnings
for
six months ended
June 30, 1997
59400.0
Sales of 214
shares of common
stock under stock
option and
benefit
plans, including
1,296 income tax
benefit
Repurchases of 993
shares of common
stock
Unrealized gains,
net of 64 income
tax benefit
210
Translation
adjustment
-7366.0
Balance at
June 30, 1997
____________________________
Created by Morningstar Document Research.
http://documentresearch.morningstar.com/
STRYKER CORP
10-Q
08/13/1997
Cash Flows
Six Months Ended
June 30
1997
1996
OPERATING ACTIVITIES
Net Earnings
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation
Amortization
Minority interest
Changes in operating assets and liabilities,
net of effects of business acquisitions:
Accounts receivable
Inventories
Accounts payable
Accrued expenses
Income taxes
Other
Net Cash Provided by Operating Activities
INVESTING AND FINANCING ACTIVITIES
Purchases of property, plant and equipment
Sales of marketable securities
Business acquisitions
Payments on borrowings
Dividends paid
Proceeds from exercise of stock options
Repurchases
of common stock
Other
Net Cash Provided by (Used in) Investing
and Financing Activities
Effect of exchange rate changes on
cash and cash equivalents
Increase in Cash and Cash Equivalents
____________________________
Created by Morningstar Document Research.
http://documentresearch.morningstar.com/
STRYKER CORP
10-Q
08/13/1997
RESULTS OF OPERATIONS
Three Months Ended
Six Months Ended
June 30
%
June 30
%1997
1996
Chg
1997
1996
Chg
Domestic/
International Sales
Domestic
International
Total Net Sales
Product Line Sales
Stryker Surgical
Stryker Medical
Matsumoto Dist
Products
Total Net Sales
____________________________
Created by Morningstar Document Research.
http://documentresearch.morningstar.com/
STRYKER CORP
10-Q
08/13/1997
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Three Months Ended
Six Months Ended
June 30
June 30
1997
1996
1997
1996
Average number of shares
outstanding
Net earnings
Net earnings per share
of common stock
Primary:
Average shares outstanding
Net effect of dilutive
stock options, based on
the treasury stock
method using average
market price
Total Primary Shares
Fully Diluted:
Average shares outstanding
Net effect of dilutive
stock options, using the
period-end market price,
if higher than average
market price
Total Fully Diluted Shares
____________________________
Created by Morningstar Document Research.
http://documentresearch.morningstar.com/
STRYKER CORP
10-Q
08/13/1997
NO TITLE
____________________________
Created by Morningstar Document Research.
http://documentresearch.morningstar.com/
