Puerto Rico's Medical Manufacturers Worry Federal Tax Plan Could Kill Storm Recovery | KERA News

Puerto Rico's Medical Manufacturers Worry Federal Tax Plan Could Kill Storm Recovery

Nov 27, 2017
Originally published on November 29, 2017 3:36 pm

In Caguas, south of San Juan, Puerto Rico, Jared Haley is fighting a daily battle at C-Axis, the medical device manufacturer where he's the general manager. The power has been out at his plant for nearly three months, since Hurricane Irma.

Operating on emergency generators, the plant restarted operations last month and, Haley says, is delivering all its work on schedule. But he's not happy now with the plant's condition. Walking into his factory, he laments, "This shop used to look like a doctor's office."

Not now. Walking through the plant, the damage from Hurricane Maria is evident. Hurricane Maria caused extensive roof damage and flooding. Many ceiling panels are missing. A temporary roof installed after the storm is leaking.

By the time Haley and some of his employees got back days after the storm, heat and humidity had damaged much of his equipment. He says: "We have brand-new, $500,000 pieces of equipment that now look like they're 100 years old. Everything rusted on them."

C-Axis makes parts on contract for some of the big medical device companies. It uses its computer-operated milling machines to make parts out of titanium, stainless steel and plastic. "This machine makes bone screws and anchors," he says. In another part of the shop, he examines finished components that will go into a 13-part assembly.

"That assembly is used in bypass surgery for the harvesting of the vein in the leg," he says.

Because Caguas is in the mountains, cellphone service in the area has remained spotty since Maria. Many of Haley's employees were hit hard in the storm, and some have left the island. Haley estimates he's lost more than 10 percent of his workers.

"We've been trying to hire in this climate, which is very interesting," Haley says. "There's no communication, no phone. How do you get employees? We just made a sign and put it outside that says 'Now Hiring.' "

Across Puerto Rico, dozens of medical device and pharmaceutical manufacturers are facing similar challenges. More than two months after Hurricane Maria, the only power for many of these companies comes from emergency generators. They're also facing logistical problems and staffing shortages that have left some manufacturers unable to keep up with demand. Because there was a shortage of the saline bags used to inject IV drugs in patients, the FDA recently stepped in and approved imports from overseas facilities.

Another medical device company, Medtronic, has four plants in Puerto Rico. Medtronic's Fernando Vivanco, senior director of corporate communications, says his company also lost employees and is looking to hire 300 new workers. Medtronic now provides its employees with aid and services never offered before, Vivanco says.

"We've gone as far as doing things like providing free meals for our employees, ensuring that they have water and food that they can take home in the evenings," he says. Medtronic now is offering on-site day care and even a laundromat for workers.

Maria is expected to have a $55 million to $65 million impact on Medtronic's bottom line. But Vivanco says the storm hasn't affected the company's commitment to staying in Puerto Rico. "We have a talented and skilled workforce there," he says. "And we continue to see a future on the island."

But after Hurricane Maria, manufacturers in Puerto Rico are now facing what some are calling a potential man-made disaster. It's a provision in the tax bill that recently passed the House that would impose a 20 percent tax on goods made in Puerto Rico and shipped to the U.S. mainland. Puerto Rico's Gov. Ricardo Rosselló and nonvoting representative in Congress, Jenniffer González, lobbied hard against that provision. González says she's received assurances from Republican leaders that if the measure passes the Senate, the part affecting Puerto Rico will be fixed before final passage.

Manufacturing makes up about half of Puerto Rico's economy. A decade ago, Congress phased out an important tax break that attracted manufacturers — especially pharmaceutical and medical device companies — to the island. Since then, many companies have left. If this new provision becomes law, Julio Benitez, with Puerto Rico's economic development agency, says he worries that many other manufacturers may follow suit.

"They will have to consider seriously their future," Benitez says. "Because, at the end of the day, we're talking about money."

At C-Axis, general manager Haley says the plant is getting a new roof soon and he's working on an insurance claim so he can replace his damaged equipment. He says he'll do whatever he can to keep his employees working.

"This is a time of need and I have no interest in not giving it our all," Haley says. "But it only is going to take a couple of missteps and we won't have the ability to do that." He is frustrated with the federal government over the slow pace of recovery.

But Haley is even more upset about the tax provision. "We're U.S. citizens," he says, "and our government has failed us."

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

ROBERT SIEGEL, HOST:

Many of the medical devices used in the U.S. and around the world are made in Puerto Rico. Two months after Hurricane Maria, the only power for many of these medical device companies comes from emergency generators. NPR's Greg Allen reports they're also facing logistical problems and staffing shortages.

GREG ALLEN, BYLINE: About 20 miles south of San Juan, the city of Caguas is home to a cluster of companies that manufacture medical devices. Jared Haley's the general manager of one of the companies, C-Axis.

JARED HALEY: This is our shop. And this machine does a lot of bone screws.

ALLEN: C-Axis makes parts on contract for some of the big medical device companies. It uses its computer-operated milling machines to make parts out of titanium, stainless steel and plastic.

HALEY: This component here along with this component here, there's a 13-piece assembly. That assembly's used for bypass surgery.

ALLEN: The power's been out at Haley's plant now for two and a half months, since Hurricane Irma. Operating on emergency generators, the plant restarted operations last month and, Haley says, is delivering all of its work on schedule. But he's not happy with the plant's condition.

HALEY: This shop used to look like a doctor's office.

ALLEN: Hurricane Maria caused extensive roof damage and flooding in the plant. By the time Haley and some of his employees got back days after the storm, the heat and humidity had damaged much of his equipment.

HALEY: We have brand-new, half-a-million-dollar pieces of equipment that now look like they're a hundred years old. Everything rusted on them. And so it's a lot of damage in that realm.

ALLEN: Here in Caguas, because it's in the mountains, cell phone service has remained spotty since Maria. Many of Haley's employees were hit hard in the storm. Some, he said, have left the island.

HALEY: We've lost employees - 10, 12 percent of our employees. So we've been trying to hire in this climate. You know, there's hasn't been communication. There's no phone. There's no - like, how do you get employees? We just made a sign and put it outside - now hiring.

ALLEN: It's not only C-Axis facing problems. Other manufacturers have been unable to keep up with demand. Already there have been shortages of the saline bags used to inject IV drugs in patients. Another medical device company, Medtronic, has four plants in Puerto Rico. Medtronic's Fernando Vivanco says his company also lost employees and is looking to hire 300 new workers. He says Medtronic now is providing its employees with aid and services never offered before.

FERNANDO VIVANCO: Free meals for employees, ensuring that they have water and food that they can take home in the evening. We bought a large number of washers and dryers for employees to able to do the basics of doing their laundry.

ALLEN: Vivanco says Maria is expected to have a $55 to $65 million impact on his company's bottom line. But he says it hasn't affected Medtronic's commitment to staying in Puerto Rico.

VIVANCO: We had a great employee base. We have a talented and skilled workforce. And we continue to see a future on the island.

ALLEN: After Hurricane Maria, manufacturers in Puerto Rico are now facing what some are calling a potential manmade disaster. It's a provision in the tax bill that recently passed the House that would impose a 20 percent tax on goods made in Puerto Rico and shipped to the U.S. mainland. Julio Benitez with Puerto Rico's economic development agency says if that provision becomes law, more manufacturers may leave the island.

JULIO BENITEZ: They will have to consider seriously their future because at the end of the day, we're talking about money.

UNIDENTIFIED MAN: (Speaking Spanish).

ALLEN: At C-Axis, technicians are back at work. General manager Jared Haley says the plant is getting a new roof soon, and he's working on an insurance claim so he can replace his damaged equipment. He says he'll do whatever he can to keep his employees working.

HALEY: This is a time of need, and I have no interest in not giving it our all. But, you know, it only is going to take a couple of missteps and we won't have the ability to do that. So the future is unclear.

ALLEN: Haley is frustrated with the federal government over the slow pace of recovery, but he's furious about the tax provision. We're U.S. citizens, he says, and our government has failed us. Greg Allen, NPR News, Caguas, Puerto Rico. Transcript provided by NPR, Copyright NPR.