A LigaSure jaw blade goes through
inspection during reprocessing.
Image courtesy of Stryker.
Contracts and kill switches: the business of reprocessing
February 09, 2015
by Lisa Chamoff
, Contributing Reporter
Since becoming an early adopter of single-use device reprocessing back in 2002, St. Joseph Health System is now saving nearly $3 million a year for its 16 hospitals in California, West Texas, and Northern New Mexico, and diverting 80,000 pounds of medical waste from landfills.
St. Joseph didn’t achieve such a huge cost savings without some challenges. The first hurdle came with educating and communicating with physicians on the benefits of reprocessing equipment ranging from harmonic scalpels to electrophysiology catheters, something that’s been regulated by the U.S. Food and Drug Administration since 2000.
More recently, the challenges have come from surgical supply vendors, who presumably aren’t happy with revenue lost to the reprocessing industry, which is expected to see tremendous growth. A report published by Transparency Market Research in September 2014 projected that the global reprocessed medical devices market was expected to grow at a 19 percent compound annual growth rate, reaching $2.58 billion in 2020.
James McManus, vice president of finance for St. Joseph Health System, says they had to take a bit of a hard line with some of their vendors.
“We were pretty upfront with the OEMs, saying we are a reprocessing organization and we expect you to respect that,” McManus says. “Most organizations we work with understand our position.”
Some vendors have included wording in contracts to inhibit single-use device reprocessing, something that officials at St. Joseph have had to actively look out for.
“There have been a couple contracts we have not signed because it specifically said we could not reprocess your products,” McManus says.
There are also contracts that provide a discount for not reprocessing to offset savings from reprocessed devices, which can cost 50 percent less than new ones. According to a buyer’s brief by MD Buyline, a new ultrasound catheter can cost anywhere from $2,200 to $2,744, while a reprocessed one can cost a little more than $1,500. A new long shears curved harmonic scalpel could cost $368 to $629, but a reprocessed one might only cost $170 to $225.
But even when the savings from reprocessing wasn’t better than the discount, “we felt it was more important for us to stick with our beliefs on reprocessing,” McManus says.
Many in the reprocessing industry say that OEMs are modifying their products so they cannot be reprocessed, by adding a chip, rendering the product ineffective if it’s reprocessed, or modifying the device — for example, changing the curvature of a scalpel — so that it doesn’t have 510(k) approval from the FDA for reprocessing.
Craig Allmendinger, founder and chief executive officer of NEScientific, says he has seen these “kill switches” in the cardiovascular devices that his firm is preparing for 510(k) submissions.
“Those are technologies we have overcome and we still have to overcome,” Allmendinger says.
Janet Graesser director of global communications for Johnson & Johnson, responded to suggestions by industry sources that after acquiring SterilMed, Johnson & Johnson has been building chips into single-use devices that prevent them from being reprocessed by a third-party, as well as working language into contracts with hospitals that discourages reprocessing.
“Some medical devices manufactured by Johnson & Johnson operating companies include advanced components that enhance the performance of such medical devices,” Graesser said. “SterilMed, Inc., part of the Johnson & Johnson family of companies, collaborates with some of its sister operating companies to offer unique solutions that support the economic and environmental sustainability goals of its customers, including offering high-quality reprocessed medical devices to their customers.”
While OEM campaigns aimed at curtailing reprocessing are nothing new, some of the consolidation within the industry has raised eyebrows — and suspicions.
In 2010 Stryker, which was a critic of reprocessing, acquired Ascent Healthcare Solutions and renamed it Stryker Sustainability Solutions. In 2011, Ethicon Endo-Surgery, a division of Johnson & Johnson with a well documented history of anti-reprocessing tactics, acquired SterilMed, the second-largest reprocessing company in the U.S.
The acquisitions left industry veterans wondering if the companies, which account for 95 percent of the market, would grow the reprocessing businesses or fragment them to protect sales.
Daniel Vukelich, president of the Association of Medical Device Reprocessors, says SterilMed was a founding member of the industry organization, but left after its acquisition by Johnson & Johnson, and only Stryker Sustainability Solutions, Vanguard, and Medline ReNewal, which was brought into the fold last year, remain in the group.
Vukelich says he worries SterilMed is using reprocessing as a marketing tactic to steer their customers to sales of new devices.
“When reprocessing is relegated to a marketing tactic and not really being promoted, there’s no incentive to keep the other guys honest,” Vukelich says. “It’s this appearance you’re going to get the best of both worlds. We reward you with lower prices on new devices if you reprocess with us. At the end of the day, you spend more and reprocess less.”
Graesser responded by saying that SterilMed looks to maximize cost savings to hospitals with“solutions that drive economic and environmental sustainability.”
“We are proud to be the only company that can provide a unique product mix of OEM, performance-certified reprocessed and reprocessed products from over 130 OEM manufacturers to help meet our customers’ economic and sustainability needs,” Graesser said.
Kevin Liszewski, vice president of marketing at Stryker Sustainability Solutions, says that some of the facilities the company works with have made them aware of contracts that could prohibit hospitals’ right to reprocess. Clients ask questions about how the savings from reprocessing correlate to what is being offered in the new agreement. Liszewski advises hospitals put in this position to do in-depth analytics, but says that “we feel confident that in most cases we still offer greater financial benefit both short and long term.”
“Although we welcome competition and we think it’s good for the industry and hospitals, we don’t think competition that pushes reprocessing out is good for health care and hospitals,” Liszewski says.
Liszewski acknowledges that in the early days, medical device OEMs did not embrace the reprocessing of single-use medical devices.
“As the healthcare industry landscape evolved over the past decade, Stryker executives saw a need to help hospitals optimize resources to support quality care,” Liszewski says. “That’s what drove Stryker’s interest in reprocessing at an early stage, and that’s what led Stryker to become the first OEM to acquire a reprocessing company, Ascent, in January of 2010.”
OEMs have also turned to price cutting in an effort to beat back the market threat from reprocessing, for example, when Vascular Solutions partnered with NEScientific in 2012 to reprocess Covidien’s ClosureFast catheter, used to treat superficial venous insufficiency.
“Right after we launched the service, Covidien did what most OEMs do,” says Phil Nalbone, vice president of corporate development and media relations for Vascular Solutions. “They will come out and make bold assertions that it can’t be done, it shouldn’t be done.”
Nalbone says Covidien lowered their prices and began cutting deals with some of their high-volume customers. Vascular Solutions countered with even lower prices on their reprocessed versions, enough to stabilize the business and get customers back. Lisa Clemence, Covidien’s director of corporate communications, says the company doesn’t comment on competitor products or sales strategy.
“At this point, we’ve clearly established the safety and efficacy of what we’ve done,” Nalbone says.
He points to a February 2014 study by Dr. James Isobe of the Baptist Vein Center in Birmingham, Alabama. The researchers found that reprocessed ClosureFast catheters performed no differently than new ClosureFast catheters in more than 300 patients treated between August 2012 and July 2013. The rate of deep vein thrombosis in the two weeks and six months after the treatment was similarly low in both groups, with four cases out of 198 procedures among patients treated with new catheters and four cases out of 397 procedures among patients treated with the reprocessed catheters, according to the report.
While anti-reprocessing tactics remain an issue, several of the very large OEMs have accepted that reprocessing is in the market to stay, says Kaeleigh Sheehan, a project manager with Practice Greenhealth, a not-for-profit focused on green practices in health care.
“It’s kind of a huge win in the sustainability field,” Sheehan says.
A recent survey conducted by Practice Greenhealth found that the No. 1 challenge for hospitals looking to implement reprocessing programs is clinician pushback, even though studies, including a 2008 Government Accountability Office report, have concluded that reprocessed single-use devices do not pose an increased safety threat.
Sheehan says that physicians need to hear more from their peers on the use of reprocessed devices.
“Some of it is they just need to see more literature on it,” Sheehan says.
Chris Lavanchy, engineering director at the ECRI Institute, a not-for-profit organization that researches patient-safety and technology issues, says the organization has been following the industry for a decade, and “we have not really found any evidence to indicate it’s problematic or dangerous in any way.”
There are theoretical concerns, Lavanchy notes, or “people’s reactions to using a device that is only meant to be used once.”
As with many hospital initiatives, to achieve maximum potential with a reprocessing program, a physician or leader should be championing it. When there wasn’t someone overseeing St. Joseph’s program full time, the savings plateaued at about $750,000 for a couple of years, McManus says. He notes that there should be demonstrations for hospital staff of the reprocessed products and how they perform, side by side with the new devices.
“It is important to have somebody dedicate a certain period of time to ensure the collections are taking place and physicians are continually updated,” McManus says. You need to have somebody on top of it and reviewing the numbers and giving education to those who need it.”