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Special report: Reprocessing in an era of health care reform

January 22, 2014
by Carol Ko, Staff Writer
To the average patient, reusing surgical tools like colonoscopy biopsy forceps seems like the last thing hospitals should do. In reality, however, reprocessing is helping hospitals save millions of dollars and is forecast for robust growth, averaging almost nine percent a year, according to market research firm Millennium Research Group.

Reprocessing is by no means a new practice – in fact, it has been around for decades. But as cost-cutting measures are coming into vogue with the advent of health care reform, the industry has seen an especially strong surge of growth in recent years as more hospitals implement reprocessing programs.

“Hospitals are being asked to do more with less and reprocessing is one of the most impactful resource management programs that allows hospitals to save money,” says Kevin Liszewski, vice president of marketing and corporate accounts for Stryker Sustainability Solutions.

Along with cutting costs, reprocessing is also a savvy way for hospitals to show their commitment to the environment. The practice is estimated to reduce yearly waste by thousands of tons in the United States alone. “Four billion pounds of waste are generated by the U.S. health annually. Reprocessing does reduce waste, so this will be a key driver in future growth, and over time, it will increasingly become a factor as the environmental concerns become more acute,” said Sohaib Perwaiz, senior analyst at Millennium Research Group.

Around 3,000 U.S. hospitals currently have reprocessing programs, according to the Association of Medical Device Reprocessors. While pioneering academic centers were the first to adopt these programs, the net has now widened to include hospitals of all kinds and sizes.

According to their company websites, SterilMed (purchased by Johnson & Johnson in 2011) and Stryker Sustainability Solutions are each reporting year-over-year growth based on two factors: the increasing number of hospitals adopting reprocessing, and hospitals that are expanding their reprocessing programs to include more medical devices.

The two companies make up about 95 percent of the $373 million market for third-party reprocessing.

Safe word

But there are still obstacles in the way of widespread adoption for reprocessing. The practice has been regulated by the U.S. Food and Drug Administration since 2000 and the agency has acted to strengthen its existing oversight, performing inspections on reprocessing companies and monitoring reports of adverse events. Still, some doctors and industry experts express concerns about the safety of reprocessed devices, putting administrators and physicians at odds over the safety and efficacy of these programs.

Over the last ten years, the practice of reprocessing has faced more scrutiny at both the state and federal levels, but two Government Accountability Office reports showed that it has resulted in very little harm. In particular, a 2008 report concluded that based on then-current data, there was no evidence showing that reprocessed devices were less safe than original devices.

“Much of the controversy started going away after the FDA began regulating the practice,” says Chris Lavanchy, engineering director at not-for-profit medical technology think tank ECRI Institute.

But questions still continue to linger within the medical community. For example, in October 2012, the American College of Obstetricians and Gynecologists released a committee opinion calling for studies that assess the safety, cost-effectiveness and quality of reprocessed devices used in gynecologic procedures.

“Physicians should be informed whether the instruments used in surgery are original or reprocessed, and adverse events should be reported to improve the safety information about reprocessed single-use devices,” the statement said. The release also raised the question of whether patients should be informed that reprocessed devices will be used on them during surgery.

In many ways the debate is similar to the high-publicized controversy surrounding the ethics of labelling genetically modified foods: GMO lobbyists argue that the label might lead consumers to reject genetically modified products that many scientists and regulators argue pose no danger. Similarly, reprocessing proponents argue that patients unfamiliar with reprocessing may reject the idea without understanding its economic and environmental benefits.

What complicates matters is the ongoing lack of data around reprocessed devices: since hospitals still don’t track whether a reprocessed device was used in a procedure, it is difficult to ascertain whether those devices lead to more complications or other adverse events in patients.

The left hand doesn’t know…
An inherent conflict of interest may contribute to the suspicion among clinicians about the safety and efficacy of reprocessing: Johnson & Johnson and Stryker were vocal, long-time critics of reprocessing before later purchasing and acquiring third-party reprocessing companies.

Stryker paid a hefty $525 million in 2010 to acquire Phoenix-based Ascent Healthcare Solutions and renamed it Stryker Sustainability Solutions, and in 2011, Ethicon Endo-Surgery (a subsidiary of Johnson & Johnson) acquired SterilMed, the second largest reprocessing company in the U.S.

That these two device manufacturers own most of the market share for reprocessing raises some interesting questions for the market in the future.“When Stryker and Ethicon bought up the major reprocessors, that means they can now provide the solution of providing the device and then reprocessing that device for half the cost,” says Perwaiz.

Though both OEM-owned reprocessing firms currently function as independent entities, if they become more aligned with the OEM and its products, then they might be able to provide a more integrated solutions suite. In other words — they may be able to provide a one-stop shop for hospitals, selling the brand new equipment and then collecting it for reprocessing to sell again at a discount.

But as reprocessing firms are bought up by OEMs with an inherent interest in selling devices, is it possible that the service will get the short shift as OEMs push their products to hospitals? In other words, will OEMs use reprocessing as a way to convert users to purchase more of their original devices?

“It will be interesting to see how they are going to maintain profitability in the OEM business while capturing reprocessing business,” says Perwaiz.
Sources close to the matter say that just a few years ago, these big OEMs were giving hospitals the option of taking a discount on their devices only if they promised not to reprocess them. But eventually attitudes shifted as reprocessing became increasingly popular.

As of now, profits are so high across the board that the status quo is working for everyone. However, this may change if Stryker and Ethicon want to make a more aggressive bid to control market share. “Let’s say Ethicon says they want to wholesale commoditize certain products and reprocess the whole thing — how competitors are going to react to that is an interesting question,” says Perwaiz.

If the reprocessing firms truly become an arm of the OEM, such scenarios become increasingly likely. For now, competitors such as Covidien could still fight back by giving discounts on devices, but in four or five years, when these reprocessing companies become even more integrated with OEMs, they might be able to pursue a more aggressive pricing strategy that regular OEMs can’t beat.

Show me the money
Regardless of where the market might go in the future, ongoing studies continue to demonstrate that reprocessing pays. For example, a 2012 study by the Commonwealth Fund examining various hospital sustainability programs — including reprocessing programs, waste reduction and energy use reduction — recommended that all hospitals use such programs.

The authors argued that the financial benefits were so clear that public funds should be tapped to provide reprocessing to poorer hospitals: “Given the return on investment, the authors recommend that all hospitals adopt such programs and, in cases where capital investments could be financially burdensome, that public funds be used to provide loans or grants, particularly to safety-net hospitals.”

The Healthier Hospitals Initiative, an alliance of health systems looking to boost sustainability, released a report in April 2013 that found 185 hospitals saved $32 million last year by reprocessing single-use medical devices.

And published reports showed that Tenet Healthcare Corp. saved $9.4 million while diverting more than 1.5 million pounds of medical waste from landfills in 2012, while the Franciscan Health System expects to save $2 million in 2013 — all thanks to reprocessing.

A reprocessed device can cost between 30% and 50% less than the original device. To give one concrete example: data from Practice Greenhealth, a not-for-profit focused on green practices in health care, show that a new ultrasound catheter costs about $2,900 while a reprocessed one is $1,400. And laparoscopic instruments may cost $1,240 when purchased from the original equipment manufacturer, but a reprocessed one might cost only $250.

Reprocessing is seeing a lot of growth and change this year. But the FDA’s UDI rule for medical devices, issued last September, while daunting to some, will have minimal impact on the reprocessing sector , according to experts.
The UDI rule will have the biggest impact for manufacturers who’ve never had to create a UDI for their devices before. But most reprocessed devices already have a unique reprocessing number. Since 2006, the industry has been governed by a set of regulations that required a unique processing number for each device so authorities would be able to track it down if it caused problems in a patient. Thus the ruling doesn’t actually add much more difficulty to the process.

“In the near future we’ll see some sort of standardization of both types of UDI — eventually it’ll be only one UDI — one for the processor and one for the manufacturer,” said Millennium Research Group’s Perwaiz.
“It’s hard to know how things will be interpreted and shake out. About a year or so ago, when they put this stuff out for review, some people thought reprocessors would have to obliterate the original UDI and redo a new UDI. It turns out not to be the case,” said ECRI’s Lavanchy.