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Regaining Control: How OEMs Can Participate in the Medical Device Aftermarket in the Wake of MDUFMA


Posted by mddiadmin on July 1, 2003

Originally Published MDDI July 2003

PRODUCT DEVELOPMENT INSIGHT

TAs reprocessed medical devices gain legitimacy, manufacturers prepare for a changing market.

David Warburton

Healthcare providers purchase one medical device over another for a variety of complex reasons. Price, features, reputation of the company, and the relationship between salesperson and customer all play a part in the purchasing decision. Even the best marketing minds have trouble predicting which product will be a hit with customers and which will sit on the shelves. When healthcare providers choose to buy a reprocessed medical device, however, they do it for only one reason: cost.

When a hospital buyer decides to purchase a reprocessed endoscope from a third party, for example, that buyer has weighed the cost savings of the reprocessed single-use device (SUD) versus the perceived risk of purchasing used over new. Perceived risk is not the real medical risk of using a reprocessed SUD, which is likely to be statistically insignificant, but the less- quantifiable hesitation a purchaser has when buying a used device, based on things such as the opinions of supervisors, policies of the hospital, and previous experience with reprocessed devices. Perceived risk can be quantified as a "risk premium," which is the cost difference a typical customer is willing to pay for a new device over a reprocessed one. Each individual purchaser sets his or her own personal risk premium. In the aggregate, these individual decisions about cost versus risk determine the size of the reprocessed device market for a particular device.

For example, the cost to clean and resterilize a single-use surgical saw blade is low, as is the risk premium, because a surgical saw is a relatively simple device with a long history of successful reuse. Thus, the market for reprocessed surgical saws is large. However, increases to perceived risk, such as unfavorable media coverage of reprocessed devices, will cause the risk premium to increase, shrinking the market share of the reprocessed device.

The recently passed Medical Device User Fee and Modernization Act (MDUFMA) will alter both sides of this equilibrium between cost and perceived risk.

First, by requiring reprocessors to validate their refurbishment and resterilization procedures for many Class I, II, and all Class III devices, MDUFMA will substantially increase the reprocessors' overhead costs, ultimately increasing the cost of the reprocessed device and eliminating smaller suppliers. This will probably narrow the price difference between new and used devices.

On the other hand, the labeling requirement for the devices, and the legitimization of the reprocessed medical device market by FDA will serve to lower the perceived risk associated with reprocessed devices. This may ultimately expand the market by making reprocessed devices an acceptable choice to a wider base of customers.

The law is too new for its macroeconomic effects to be fully known. However, a company can study and thoroughly understand the secondary market for its own devices. Once it does understand the dynamics of this market, it can exert considerable control over it through its marketing efforts, pricing, and new product design. Product design in particular can be used to reduce or control the reuse of single-use medical devices.

The first step to controlling the reprocessing of an SUD is to understand who is reprocessing the device and what the economics of their business are. The passage of MDUFMA creates three kinds of reprocessors:

  • Third-party reprocessors who are in compliance.
  • Healthcare-provider reprocessors (hospitals and labs).
  • Noncompliant reprocessors (offshore, "garage" reprocessors, or small doctors' offices).

To be successful, a third-party reprocessor must acquire a steady supply of undamaged used devices, and then must be able to reprocess them at a cost that allows them to sell the devices for the cost of new devices, less the risk premium. The healthcare-provider reprocessors are primarily using devices that they themselves have purchased, so their business model is different from that of the third-party suppliers. As part of the initial analysis, it is important to understand the size and influence of the healthcare-provider reprocessing market. The ability to reprocess a particular device might be an important consideration in the selection of that device at the site, and it must be considered before changing a device's design to prevent reuse. Based on this study of the economics of reprocessing, a company can use product design to

  • Discourage reprocessing by either increasing the costs to the reprocessor, or increasing the customer's discomfort with reprocessed devices.
  • Capture value from the growth of the reprocessed device market by participating in it in some way.

Specific design elements to discourage reprocessing will vary with the product, but to be successful, they will either increase the cost to the reprocessors or decrease the attractiveness of a reprocessed device to the end-user. Increasing the cost to the reprocessor involves deliberate design to make it more difficult to reprocess the device.

The most effective countermeasures can be taken for disposables used in conjunction with a host instrument, such as an electrophysiology catheter. By embedding a small, inexpensive asset-management EEPROM in each disposable, each unit can be uniquely identified by the host instrument. (See sidebar, page 40.) When that disposable is plugged into the instrument, the instrument supplies power to the EEPROM and reads the information in the EEPROM memory to determine if the disposable device has already been used. If the disposable device has not been used previously, it will operate normally. The instrument then writes to the EEPROM in the disposable, permanently updating the information in the disposable's EEPROM, thereby preventing subsequent reuse. There are a number of integrated circuits on the market designed expressly for this purpose. With proper encryption of the information in the EEPROM to prevent tampering, this approach gives the OEM full control over the use life of the disposable device.

For disposables not used in conjunction with an instrument, alternatives are more limited. Design elements that could be incorporated include:

  • Assembly with tamperproof fasteners or adhesives to discourage disassembly and cleaning.
  • Parts that are permanently deformed or altered during use, or at the end of a single-use cycle. (One example is a biopsy needle that comes with a sharps-disposal sheath that permanently bends the needle upon insertion.)

The attractiveness of a reprocessed device can be decreased through unalterable cosmetic design elements that alert the end-user that an SUD has been reprocessed. A variety of technologies from the tamper-evident packaging industry can announce that an SUD has been used previously. Holographic labels similar to those found on software packages can be applied directly to the product with messages such as, "Do not use device if seal is broken." The labels are inexpensive and permanent, and can be neither removed nor easily reproduced by a reprocessing firm. The label also supports the OEM's claim that the device is only validated as an SUD.

However, a company's analysis of both the market and the product's design may reveal that design changes to reduce the reprocessing of its products may alienate healthcare providers who are purchasing the product because it can be reprocessed. These providers might switch brands if reprocessing one brand becomes too difficult.

Even if a company decides not to discourage reprocessing, it still may make sense to take steps to control how the device is reprocessed, and who may reprocess it. Again, controlling reuse starts at the new-product specification stage. The design team can choose to add an EEPROM to control reuse rather than prevent it. An embedded EEPROM allows the OEM to determine the number of times a device may be reused, and allows the OEM to sell encrypted licenses only to qualified reprocessors, thus recapturing some of the revenue from that reprocessed device. Other design elements include units that disassemble easily for cleaning but require specially tooled refurbishment parts to reassemble the device. The refurbishment parts would be designed so that they are too difficult or expensive to reproduce, making them available only from the OEM.

From a business standpoint, a company may find the best way to compete with reprocessors is to spin-off a reprocessing subsidiary and compete directly in the reprocessed device market, armed with all the engineering expertise and validation data of the parent OEM. Another business strategy might be to take advantage of the new costs of validation imposed on the reprocessor by MDUFMA and lower the price of the new device to the point where reprocessing is no longer economical. Although this will obviously decrease the revenue per unit for devices that are widely and repeatedly reprocessed, underpricing the reprocessors may ultimately increase volume and overall revenue for the OEM.

Whatever strategy a company chooses to pursue, the most important thing is that it recognize that through MDUFMA, Congress has affirmed the legitimacy of the reprocessed medical device market. By considering whether a new single-use device may be reprocessed during the design of that device, organizations can make design choices to either prevent reprocessing of that device, or to control the number of times it is reprocessed. For an OEM, the key to controlling the reprocessed device market for its own devices is to recognize reuse as a potential part of the life cycle of the device, and to plan for it in the design requirements process.

Acknowledgment

The subject matter of this article was brought to my attention through discussions with TIAX LLC, a technology collaboration firm located in Cambridge, MA.

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Copyright ©2003 Medical Device & Diagnostic Industry


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