Infection Connection

Business booms for third party reprocessors

by Julie E. Williamson

After years of clinical debate, political haggling and industry-wide skepticism regarding the reprocessing of single-use medical devices, it seems the smoke is finally beginning to clear on the once-controversial practice. 

Now third party reprocessing companies and the hospitals that seek their services are finding the practice nestled in a far different landscape than in the recent past – one that is being increasingly embarked upon rather than frowned upon, and eyed in a more credible, less cynical light. 

“There’s now a level of legitimacy and confidence surrounding reprocessing that wasn’t always there before,” noted Mike Goonewardene, chief operating officer, ClearMedical Inc., a reprocessing concern based in Bellevue, WA. “Customers are now approaching [the practice] with a greater level of assurance that third party reprocessors are being held to the same manufacturing standards as the original equipment manufacturers. As a result, we’re seeing a high degree of acceleration in the business.”

Statistics from the Food and Drug Administration and several healthcare associations underscore hospitals’ newfound acceptance of the practice. An FDA telephone survey revealed that 24 percent of hospitals reprocess at least some SUDs. Moreover, 84 percent of those facilities say they rely on the services of a third party reprocessor. A membership survey conducted collaboratively by the American Hospital Association, the American Society for Healthcare Central Service Professionals and the Association for Professionals in Infection Control and Epidemiology garnered similar results. That poll revealed that approximately one-quarter of facilities are involved in at least some form of reprocessing, with the majority turning the practice over to third party companies.

Backed by numbers like that, single-use devices reprocessing is experiencing a boom period. 

Regulatory support
If third party reprocessors are enjoying a surge in business, much of it can be attributed to more stringent FDA oversight, beginning with the August 2000 release of its guidance document “Enforcement Priorities for Single-Use Devices Reprocessed by Third Parties and Hospitals.” 

That document laid the foundation for reprocessors’ responsibilities as manufacturers engaged in reprocessing devices labeled for single use. The initial judgment, followed by a final guidance published in 2002, officially made third-party and hospital reprocessors of SUDs subject to all the regulatory requirements currently applicable to OEMs, including premarket submissions. 

“In a sense, it leveled the playing field and gave hospitals more peace of mind in knowing that the devices are subject to the same requirements and checks as new devices that come from the OEM,” explained Mark Salomon, senior vice president of corporate development for reprocessor Vanguard Medical Concepts Inc., Lakeland, FL. “In fact, the word ‘reprocessor’ is slipping from the vocabulary of the FDA and is now being replaced with ‘manufacturer,’ which has been quite comforting for the marketplace.”

The Medical Device User Fee and Modernization Act of 2002, which was signed into law in October, also had a substantial impact on the third party reprocessing industry. Intense pressure from OEMs led to new provisions in that law, which added even more regulatory requirements for reprocessors, such as identifying the original manufacturer of the medical devices; prominent labeling on reprocessed devices; the need from premarket notification for exempt and non-exempt devices; a premarket report submission for reprocessed Class III devices; plus user fees for most premarket submissions. 

“Although reprocessors of SUDs were already subject to the exact same regulatory requirements as OEMs, intense pressure from OEMs led to the inclusion of provisions that added additional regulatory requirements for reprocessors,” according to the Association of Medical Device Reprocessors, a Washington-based trade group.

Despite the extra hurdles, AMDR says it welcomed the enhanced oversight because it made “a safe practice even safer.” Of course, it’s also helped bolster third party reprocessors’ bottom line, sources told Healthcare Purchasing News.

Thanks in part to those favorable rulings, Phoenix-based Alliance Medical Corp. is showing remarkable financial growth in the neighborhood of 50 percent to 90 percent a year. The company currently provides reprocessing services for some 700 hospitals per month (1,000 hospitals on a quarterly basis), compared to 500 per month and 900 hospitals quarterly reported in July 2000.

“Reprocessing is definitely on the radar screen of senior [hospital] leadership because they are realizing that they can see powerful savings right away,” said Arthur Goodrich, vice president of marketing and business development, Alliance Medical. “Hospitals recognize that they don’t have the capabilities and resources to reprocess [in-house], so they are becoming more open to the idea of using a third party reprocessor.”

Minneapolis-based SterilMed is also rejoicing in a growth spurt. According to CEO Brian Sullivan, the privately held company “is doing quite well” and has just inked a sole-source contract with Ascension Health, a 90-hospital system based in St. Louis. Similarly, Vanguard’s Salomon said his company “has been experiencing record-breaking months” in terms of customer growth and overall financial gains.

By its own estimates, AMDR, which is comprised of three members– Vanguard Medical, SterilMed and Alliance Medical – currently handles approximately 90 percent of the nation’s third party reprocessing business, with 50 percent of the nation’s top 200 hospitals currently engaged in business with AMDR companies. To date, it is estimated that as many as 26 million medical devices have been reprocessed by these third party companies.

The bullish market isn’t limited to just the AMDR companies, however. On a percentage basis, ClearMedical is seeing triple digit growth and is in the process of adding a regional service center in Dayton, OH, plus another on the east coast to better meet customer demand.

Financial aspect boosts gradual acceptance
However booming the business may seem, sources acknowledged that the overall acceptance by hospitals has been more gradual than some had expected.

While the added regulatory oversight made many hospital executives more comfortable with reprocessing, some ongoing grassroots efforts by patient advocacy groups and OEMs to emphasize the perceived risks of the practice may have led some facilities to shy away from reprocessing – or at least approach it more cautiously. Some institutions, for example, may have chosen to take a wait and see approach, while others have limited reprocessing to non-invasive devices, such as compression sleeves, tourniquets and pulse oximeters.

“While the regulations were an important step in legitimizing the practice [of reprocessing], it wasn’t the panacea that some expected,” said Goodrich. “What we’ve seen is a more gradual adoption by hospitals. At the same time, we’re seeing more of a willingness to become educated on reprocessing. We have been actively involved in engaging senior leadership of hospitals and educating them on the practice and the level of potential savings they can expect.”

By and large, third party reprocessors said that when healthcare facilities do come on board, it often doesn’t take long for them to understand the financial picture – and ultimately consider reprocessing of items like electrophysiology catheters, compression sleeves, orthopedic tools, laparoscopic devices and gastrointestinal biopsy forceps.

“On average, a facility can save up to 50 percent over the cost of new devices, so when you take a 500-bed institution, they can easily save about $500,000 a year,” says Vanguard’s Salomon. “When they see that reprocessing brings pure and continual savings to the bottom line, reprocessing begins to make a lot of sense. Although in the past, the traditional approach was to perhaps start off with one or two devices and then move forward from there, we’re now seeing a more wholesale approach right from the start with hospitals wanting to move reprocessing into all areas.”

Alliance Medical is aiming to capitalize on hospitals’ willingness to reprocess across the board, rather than just send out low-dollar items that take longer for both company and customer to realize a strong inancial return. The company is focusing much of its efforts on more high-dollar, high-volume devices such as electrophysiology catheters. A single electrophysiology procedure which might require the use of four or five catheters, could save a hospital “a couple thousand dollars” if the facility used reprocessed devices, according to Goodrich.

Of course, there’s still room in the reprocessing sector for companies that focus solely on non-invasive devices. ClearMedical, for example, provides high-level disinfection of Class I and II devices, items that aren’t exposed to more than skin and mucous membranes. Although many of these devices only cost between $5 and $10, most hospitals buy them in large volumes, which would generate substantial savings when reprocessed.

“There are literally thousands of Class I and Class II devices and every hospital buys thousands of these. When you look at those numbers, the level of savings that can be achieved with reprocessing becomes much clearer. Reprocessing these devices also becomes compelling from an environmental standpoint because it significantly cuts down on medical waste,” ClearMedical COO Goonewardene noted.

Upping the ante
As reprocessing moves toward becoming standard practice, which some believe is already the case, healthcare facilities will likely expect more value and service from third party reprocessing companies, just as they do from other vendors. 

Reprocessors say they are poised to meet that demand, particularly in regard to offering greater efficiency and speedier turnaround times. ClearMedical, which says its goal is to return reprocessed items to the customer in an average of 5.8 days, plans to use its three facilities to lay the foundation for even quicker pick-up and delivery services. 

“The better inventory velocity we can get to the customers, the more savings they will see,” said Goonewardene. 

Alliance has installed a state-of-the-art cleaning, rinsing and drying system that uses vacuum technology to cut the cleaning cycle of biopsy forceps, trocars and scissors from eight hours to just 20 minutes. The company is also offering a customer support program to help healthcare facilities maximize their savings from reprocessing. The AIM program, which stands for assessment, implementation and management, includes a comprehensive audit used to establish collection efficiency benchmarks and savings goals, development of an implementation strategy, timeliness and servicing schedules, and on-site training.

“There is no doubt that a properly designed, implemented and managed reprocessing program will result in significant supply cost savings and waste reduction,” noted Goodrich.

As reprocessors look toward the future, they see there’s also room for strategic partnerships with OEMs, which would provide customers with even greater reprocessing options and savings. In April, Alliance announced a co-marketing agreement with Nellcor, a Pleasanton, CA-based supplier of pulse oximetry, fetal pulse oximetry and airway management products, for remanufacturing of pulse oximetry sensors. The agreement extends Nellcor’s pulse oximetry sensor remanufacturing to Alliance customers who currently do not participate in Nellcor’s program. Prior to the agreement, high validation costs prevented Alliance from adding low-cost devices like pulse oximetry sensors to its approved reprocessing list. Similarly, Vanguard is expected to soon announce plans to team with OEMs on several fronts. 

Future alliances aside, there remains some staunch opposition to the practice of reprocessing. “Right now, there are still ongoing attempts by the OEM community to create obstacles and use scare tactics to [halt] the practice. The upside, though, is that the mudslinging and negative press is becoming far less palatable for healthcare facilities, particularly at the clinician level,” Salomon explained. “As time goes on, I think OEMs will realize it may be wiser to partner with third party reprocessors, rather than fight them. There are many opportunities and I think the industry is definitely moving in the right direction.” 

HPN

June