Special report: Reprocessing in an era of health care reform

by Carol Ko, Staff Writer | January 22, 2014
From the January 2014 issue of HealthCare Business News magazine

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.

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