Bill Scott
Savings war: The pros and cons of SUD reprocessing growth
April 22, 2016
By: Bill Scott
For nearly two decades, single-use device (SUD) reprocessing has steadily gained favor among U.S. health systems looking to better control costs and reduce their environmental footprint. In fact, SUD reprocessing is projected to grow globally at a compound annual growth rate of 19.3 percent until 2020, according to a 2015 report from Transparency Market Research. This rate of growth is considerably strong, estimated to be two to three times faster than the med tech market overall. The tangible financial and environmental savings SUD reprocessing offers hospitals have helped it grow and earn a spot as one of the top health care supply chain strategies used to reduce costs and optimize resources. The increased demand has also increased competition.
Generally speaking, competition is a good thing as it keeps pricing in check, but the marketplace has seen both pros and cons due to the increased competition. While the benefits are many, the implications can be difficult for hospitals to identify, and potentially detrimental to their savings goals.
Reprocessing growth benefits
Efforts to educate hospital staff about the value SUD reprocessing brings to their organizations have increased. Industry organizations such as Practice Greenhealth have established initiatives that support reprocessing as a means to drive more sustainable care, garnering a high volume of engagement and interest from hospital leaders. As a result, general awareness and acceptance of the practice has become more mainstream. The number of hospitals reprocessing SUDs is at an all-time high, with more than 3,000 facilities stateside, including nearly all of U.S. News & World Report’s “Honor Roll” hospitals.
Hospitals are organically growing their reprocessing savings by emphasizing collection education, adding more device types to their programs and showcasing their increased savings to upper management to gain further support. As reported in Practice Greenhealth’s 2014 Sustainability Benchmark Report, participating hospitals prevented 847 tons of device waste from entering landfills and saved $49.2 million by reprocessing. This was a 20 percent increase in waste diverted and a 58 percent increase in savings compared to the previous year. Other benefits of reprocessing growth include:
• Clinician skepticism has subsided.
Historically, one of the largest barriers to establishing a reprocessing program or achieving sustained savings growth has been clinician pushback. While skeptics remain, many clinicians now better understand the strict FDA guidelines that govern the business, the science behind the intricate remanufacturing process and the industry’s strong safety record. Reprocessed SUDs are holding their own, too, being regarded as just as safe and effective as their original equipment manufacturer (OEM) counterparts. Researchers from Banner Health recently conducted a study that pits reprocessed devices head-to-head against OEM devices to increase the data available on device defect rates. The results, published in the December issue of the American Society of Mechanical Engineers’ Journal of Medical Devices, found OEM devices were nearly five times more defective than reprocessed SUDs. Increased acceptance is helping reprocessing advocates add new devices to their programs, which is improving their overall savings.
• 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
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.
For nearly two decades, single-use device (SUD) reprocessing has steadily gained favor among U.S. health systems looking to better control costs and reduce their environmental footprint. In fact, SUD reprocessing is projected to grow globally at a compound annual growth rate of 19.3 percent until 2020, according to a 2015 report from Transparency Market Research. This rate of growth is considerably strong, estimated to be two to three times faster than the med tech market overall. The tangible financial and environmental savings SUD reprocessing offers hospitals have helped it grow and earn a spot as one of the top health care supply chain strategies used to reduce costs and optimize resources. The increased demand has also increased competition.
Generally speaking, competition is a good thing as it keeps pricing in check, but the marketplace has seen both pros and cons due to the increased competition. While the benefits are many, the implications can be difficult for hospitals to identify, and potentially detrimental to their savings goals.
Reprocessing growth benefits
Efforts to educate hospital staff about the value SUD reprocessing brings to their organizations have increased. Industry organizations such as Practice Greenhealth have established initiatives that support reprocessing as a means to drive more sustainable care, garnering a high volume of engagement and interest from hospital leaders. As a result, general awareness and acceptance of the practice has become more mainstream. The number of hospitals reprocessing SUDs is at an all-time high, with more than 3,000 facilities stateside, including nearly all of U.S. News & World Report’s “Honor Roll” hospitals.
Hospitals are organically growing their reprocessing savings by emphasizing collection education, adding more device types to their programs and showcasing their increased savings to upper management to gain further support. As reported in Practice Greenhealth’s 2014 Sustainability Benchmark Report, participating hospitals prevented 847 tons of device waste from entering landfills and saved $49.2 million by reprocessing. This was a 20 percent increase in waste diverted and a 58 percent increase in savings compared to the previous year. Other benefits of reprocessing growth include:
• Clinician skepticism has subsided.
Historically, one of the largest barriers to establishing a reprocessing program or achieving sustained savings growth has been clinician pushback. While skeptics remain, many clinicians now better understand the strict FDA guidelines that govern the business, the science behind the intricate remanufacturing process and the industry’s strong safety record. Reprocessed SUDs are holding their own, too, being regarded as just as safe and effective as their original equipment manufacturer (OEM) counterparts. Researchers from Banner Health recently conducted a study that pits reprocessed devices head-to-head against OEM devices to increase the data available on device defect rates. The results, published in the December issue of the American Society of Mechanical Engineers’ Journal of Medical Devices, found OEM devices were nearly five times more defective than reprocessed SUDs. Increased acceptance is helping reprocessing advocates add new devices to their programs, which is improving their overall savings.
• 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
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.