OEMs Best Third Parties With Own Reprocessing Programs

Orthopedic manufacturers can maintain control with outsourced services

Shannon Tillman – Millstone Medical Outsourcing

As discussions around the regulatory status of reprocessed devices continue in Washington, orthopedic device manufacturers may want to consider claiming a stake in this growing and lucrative market. The notion of OEMs managing the reprocessing of their own devices may seem counter-intuitive to growing new product sales, but the fact is reprocessing will continue to grow with or without the OEM’s participation.

By offering reprocessing services, medical device manufacturers take control of products throughout their lifecycles and gain key advantages that are otherwise lost, including:

• Limiting liability by ensuring products are reprocessed and validated according to their own standards;

• Recapturing revenues lost to third-party reprocessors;

• Improving their margins over deeply discounted “new” product sales;

• Winning new accounts from competitors by providing a program they do not offer;

• Building stronger relationships with customers.

By shifting the management of reprocessing from hospitals to themselves, OEMs can eliminate some of the risks associated with reprocessed products and give manufacturers new levels of control. However, reprocessing is not typically an OEM’s core competency. To successfully manage the practice, outsourcing may be the most effective model.

Hospitals pioneered reprocessing in the 1990s when administrators saw it as a way to reduce costs for many single-use devices. Although manufacturers recommended that their devices be discarded after one use, hospitals found they could avoid the full cost of a new device by properly cleaning, inspecting and deploying it for multiple patients.

Hospitals identified products they believed could be safely reprocessed, and the model succeeded so well that they outsourced services to third parties to increase capacity and savings.

As these third-party reprocessors capitalized on fast growth in the late 1990s, OEMs issued warnings about the risks associated with their reprocessing practices, including:

• A negative effect on device form, fit and function that could pose a threat to patient safety;

• Reprocessors’ lack of knowledge of product specifications, leading to an educated guess on how best to reprocess a device;

• Increased liability for the OEM and its brand. Devices often carried the manufacturer’s name, and the company could be pulled into a legal battle over whether a failure was caused by the third party or the OEM’s design.

Amid growing concern, the FDA in 1999 issued federal standards requiring reprocessors to seek approval to reprocess single-use devices, known as 510(k) verification. In 2000, OEMs lobbied Congress to require even higher standards by applying the same level of scrutiny on reprocessed and original devices. The FDA again acted, issuing a 2002 guideline under the Medical Device User Fee and Modernization Act (MDUFMA), delineating more stringent reprocessing requirements for certain devices based on their complexity and intrusion level. In particular, this guideline required a Supplemental Validation Submission (SVS) in addition to the 510(k) to further ensure high quality standards.

While the OEMs’ original intent for greater FDA oversight may have been to discourage reprocessing, MDUFMA ultimately legitimized the reprocessing industry by requiring the same level of regulatory control manufacturers had. As a result, third-party reprocessing boomed.

Hospitals established outside contracts with reprocessing companies that developed and submitted 510(k)s and SVS documentation. Today, the top three early leaders-Vanguard Medical Concepts, Inc. of Lakeland, FL; Alliance Medical Corporation in Phoenix; and SterilMed, Inc. of Maple Grove, MN-own 95% of the market. Smaller players are also looking to get a piece of what some estimate will be a market worth more than $500 million by the end of 2005.

How third parties reprocess devices

In this relationship, third-party reprocessors collaborate with hospitals to determine which products to re-use. Devices range from Class I instrumentation to the most advanced Class III devices; the FDA has provided an extensive list of commonly reprocessed devices, and large reprocessors handle hundreds of different products. The amount of validation work required directly relates to the intrusion level of the device. Typically, the higher the classification, the more 510(k) and SVS documentation is required. Some simple devices, like blades and scissors, require no 510(k) submission whatsoever.

Because these products have nearly always been in contact with the patient, the process must begin with third parties ensuring the device’s cleanliness. To perform this process, significant expertise is required. When devices are originally manufactured, they are often cleaned as separate sub-components. Cleaning an assembled device may be impossible without requiring disassembly. In addition, the validation process for cleaning is highly technical. Products must be soiled in the hardest-to-clean places (i.e. through holes, thread spaces, any intricate areas where ultrasonic action will not easily reach) with a large amount of bacteria. They are then cleaned at reduced parameters of temperature, ultrasonics and rinse time. If the cleaning removes 99% of the applied bacteria, then the normal process run at higher parameters allows a higher level of confidence that effective cleaning can be controlled on a routine basis. However, maintaining control of multiple operating parameters to ensure cleaning effectiveness is a challenging task. If a single parameter is out of control, the cleaning of an entire product batch can be compromised.

The next step is also the most inherently flawed: third-party reprocessors reverse engineer the product. While they have set procedures in place, third parties don’t have access to the original design specifications for the products they handle, making this process of inspecting and qualifying a device for additional use an educated guess. If it is an external fixation device, for example, they will develop a detailed inspection checklist to verify the functionality of each component of the device, as well as the overall quality. Each part must be carefully scrutinized. The more intimate knowledge a reprocessor has of the intended design and use of a device, the better equipped it is to verify functionality before sending it back to a hospital. Any defect, of course, would be cause for rejection.

Finally, the reprocessor repackages the device. When required, sterile packaging involves an advanced microbiological effort, whereby the reprocessor must maintain a high level of process control to ensure consistent bioburden levels within its operating space. Without control of bioburden levels, sterilization processing cannot be trusted. Any misstep in this part of the process could result in a non-sterile device, potentially harming a patient.

OEM Concerns

Manufacturers are growing more concerned. As the number of reprocessed devices continues to climb, sales are adversely affected. Each time a single-use device is reprocessed, the OEM loses potential new revenues. Third-party reprocessors can re-certify a device dozens of times or more, drastically reducing hospitals’ orders for new devices. And OEMs are troubled by the added liability associated with a third-party reprocessor handling their products and proclaiming them “good as new.” Legal battles over failed devices are costly, whether or not the OEM is to blame.

At the core of the issue is whether a single-use device should be re-used at all. Third-party reprocessors cannot obtain a manufacturer’s design specification for a given device. The design specification provides the inspection criteria, durability and tolerance requirements against which a device is accepted for use. While some of this information is available through the Freedom of Information Act, OEMs typically withhold large portions of proprietary information.

Manufacturers are thus asking how a third party can claim a device is “good as new” if it doesn’t know what makes it “good” in the first place.

Case in point: In February, AdvaMed, the world’s largest association representing manufacturers of medical devices, diagnostic products and medical information systems, petitioned the FDA to immediately review all 510(k)s submitted by reprocessors on the grounds that more than 50% of approved devices were inadequately validated.

Manufacturers argue that new product validations are available for FDA review before the product is approved for sale. Yet this standard is not required for third-party reprocessors. The review of validation work is handled by facility inspection alone, meaning improperly validated processes may be employed on reprocessed products and could go unrecognized for years until the next FDA facility inspection.

Options for OEMs

So how can OEMs avoid the pitfalls that may come from reprocessing? The answer is for manufacturers to take ownership of device reprocessing. However, in doing so, manufacturers face a three-pronged challenge:

• Hospitals and end users are asking manufacturers to develop reprocessing solutions that accommodate OEMs’ mandates for quality while still reducing healthcare costs.

• Only manufacturers can best maintain the integrity of their products and brand because they own all product data and can solely determine what makes a product “good as new.” However, the same personnel resources they rely upon for ensuring product quality price them out of the competition with third-party outfits.

• OEMs’ core competency is designing and developing life-saving and life-improving devices. If manufacturers shift resources to reprocessing, they undermine business goals and limit new breakthroughs that Baby Boomers will count on to maintain active lifestyles.

As the debate over value and risks continues, one solution has emerged as a viable alternative: subcontracting the reprocessing to an outside vendor. This model differs from the hospital’s reprocessing program because the vendor works for the OEM to ensure the device’s original design criteria are met before that device is re-deployed. Unlike the third-party model employed by hospitals, the reprocessor here has access to the device’s complete design specification to ensure that reprocessed devices really are “as good as new.” Other key advantages include:

• The OEM stays focused on core competencies. The subcontractor’s mission is managing and controlling the labor-intensive reprocessing service, leaving the OEM to design the next modular hip system or spinal disk replacement.

• Vendors have lower costs. OEMs provide a highly valued service to their customer at a rate competitive with those offered by third-party reprocessors but with higher quality. The vendor’s lower-cost structure, which does not require highly paid engineers, allows for this advantage. Manufacturers can therefore afford a reprocessing program and earn revenue from reprocessed devices-money that previously would have been lost to third-party reprocessors contracted by hospitals. Most importantly, because such lower costs can be achieved through subcontracting, the OEM sees the same margin on the sale of a reprocessed device as it does on the sale of a new device. In fact, in some cases the margin is even higher than that achieved on the most deeply discounted new device. A third party, on the other hand, can only make money by reprocessing and will almost always want to push the envelope on the number of times a product can be recycled through its program. This increases the risk of product failure and is an inherent conflict of interest in the third-party model.

• Reduced liabilities. By taking control of reprocessing, OEMs mitigate the risk associated with third parties handling their devices without adequate product knowledge and decrease the chances that a device reprocessed by a third party will fail.

• Customer satisfaction and retention. Medical device companies spend years developing relationships with hospitals to maintain and gain market share. By meeting customers’ new reprocessing needs, manufacturers find new ways to retain hospitals and grow their businesses, often winning new accounts from the competition.

How a subcontractor reprocesses

As an early adopter of this approach, one leading orthopedic OEM has formed a partnership with a leading outsourcing company. The program involved significant collaboration between the vendor and OEM to validate the process and develop the inspection criteria to qualify and re-use devices originally intended for single use. The result: devices in question could be recertified three times and still maintain full functionality and integrity, as opposed to the original design for single use.

Once proven, all core components of the program such as additional cleaning and decontamination validation-along with testing of packaging integrity, ship testing and laser etching-were performed. After final approval by the quality teams of both the OEM and vendor, the OEM’s sales force launched the service.

Product representatives now sell the service at the field level to the hospital accounts they service. After a surgery is completed, the hospital decontaminates the devices and contacts their salesperson. The salesperson collects and sends the product to the outsourced vendor, which performs the work.

Products are sorted, received and tracked into an online management system, allowing hospitals to monitor the status of devices throughout the process. The product batch is immediately processed through cleaning and decontamination, followed by inspection for missing components, dimensional requirements, functionality and appearance. Two operators participate to ensure maximum quality assurance.

After cleaning, each device is laser etched with a unique three-letter code specific to the originating hospital, with an “R” added each time to provide a simple visual identifier that allows the hospital and OEM to both know exactly how many times a device has been recertified.

After laser etching, the outsourced company packages and labels the devices, providing the original instructions for use (IFU) from the OEM within each package. The label applied to each package specifically states that the device has been recertified, and the “R” suffix is denoted on the label as well. The devices then go back to the OEM’s field salesperson, who delivers the batch to the originating hospital.

This subcontractor-based reprocessing saves hospitals up to 50% of the cost of a new product while maintaining the product’s full quality.

Still, the OEM has found initial challenges associated with hospital relationships. Unlike product sales, where the relationship with a surgeon is the driving force in success, reprocessing has more hurdles to overcome. Typically the surgeon offers little resistance to OEM-driven reprocessing and often strongly favors this option because he understands and values the manufacturer’s expertise. However, hospital purchasing and administration personnel may see it differently and fail to understand the difference between the two options, in large part because of FDA’s tacit approval of third-party reprocessing. The difficulty is in educating all decision makers so that they choose better quality for the same price.

Even if FDA guidelines stiffen and validations are more aggressively reviewed, reprocessing will continue to grow. The best way for an OEM to generate revenue growth, maintain product quality and meet hospitals’ cost-cutting mandates is to consider providing its own reprocessing program by partnering with a proven, qualified vendor.

Shannon Tillman is the president of Millstone Medical Outsourcing, a leading provider of aftermarket medical device services, including reprocessing, repackaging, field inventory auditing, and instrument recycling. He can be reached at show_email(“stillman”, “millstonemedical.com”, “”, 1); [email protected] or at 508-679-8384.