From the April 2016 issue of HealthCare Business News magazine
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Healthy competition is driving down original device prices.
According to a Government Accountability Office (GAO) report, reprocessing can provide hospitals with unique purchasing power. Hospitals confirm the report’s findings that when reprocessed SUDs are designated as a preferred option at the negotiating table, it can help them secure reduced prices on OEM devices. Some OEMs have lowered their pricing on new devices in order to stay competitive.
Battle lines are being drawn
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With SUD reprocessing’s continued growth, more original manufacturers are feeling the pinch. In order to stay competitive with third-party reprocessors, some OEMs are coming up with creative ways to protect revenue lost to reprocessing. Some of these tactics include devising complex contract terms and issuing inconsequential device upgrades that force obsolescence of reprocessable devices. These contracts are presented as solutions to increase hospital cost-savings, but some may actually prohibit savings by limiting or prohibiting a hospital’s ability to purchase reprocessed devices at a discounted rate. There’s much more to evaluating a purchase contract than simply the device price, and a reputable academic medical center recently learned that the hard way.
Last year, the medical center entered into an OEM contract promising savings by requiring they purchase one new device for every two reprocessed devices purchased, with a minimum purchase volume required. A few months into the contract, they saw a sharp decline in reprocessing savings and the contract savings weren’t materializing to make up for the loss. The medical center’s reprocessing savings dropped by 43 percent before it was able to break from the contract and start rebuilding their reprocessing program. The group shared its experience of entering a “combined contract” with readers of EP Lab Digest last fall.
Evaluate savings promises and contracts closely
Hospitals deserve transparency in their vendor relationships and it’s important to be aware that some vendor practices and contracts may prohibit your right to work with other vendors. These contracting practices don’t promote a fair competitive environment that allows you to choose solutions that are most advantageous for your organization.
To prevent interruptions to your reprocessing savings, ask before a purchase if new devices can be reprocessed and if incremental feature changes are worth the potential lost savings if the old device can no longer be reprocessed. Also, notify contracting personnel to be on alert for contract clauses with terms that prohibit your right to purchase reprocessed SUDs. Make it standard protocol to review all contracts for language that restricts reprocessing in any way. If you find clauses that prohibit your right to reprocess, assess the long-term impact on your organization. If you need assistance, third-party reprocessors can offer guidance and analytics support to help evaluate your system’s best option for long term supply chain savings.
About the author: Bill Scott is a senior marketing director at Stryker’s Sustainability Solutions, an industry leader in providing third-party medical device reprocessing and remanufacturing services.
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