Originally Published MDDI August 2005
|Millstone CEO Shannon Tillman says OEMs cannot afford to
The relationship between medical OEMs and reprocessors can best be described as contentious. But a new business model is being tested that, if successful, might change the way industry approaches reprocessing.
Today, when an OEM labels a device for single use but FDA allows it to be reprocessed, the OEM has no control over how or how often the device is reprocessed. It also loses revenue when a reprocessed device is used in lieu of a new one being purchased. This has led to public squabbles between the two camps over safety and financial issues.
What if an OEM decided to take control of the process, allowing it to specify what can and can't be done during reprocessing, limiting the number of times a device can go through the process, and seeing some revenue from the effort?
One of the first such programs began this year, when a large orthopedic OEM contracted Millstone Medical Outsourcing (Fall River, MA) to handle reprocessing for its devices. (Under terms of the contract, Millstone is not yet allowed to publicly identify the OEM.)
“The OEM is really the reprocessor, and they have subcontracted the process to us,” says Shannon Tillman, CEO of Millstone. “They set up their own program. They have their own quality system.”
The reason, Tillman says, is that “there are now OEMs who are saying they can't keep ignoring this issue, and that rather than look away, they should embrace this. Hospitals want reprocessing programs. If you set up your own, you can regain some lost revenue that has been going into the hands of third-party reprocessors. You can control the parameters of your program, and you can control the number of cycles of reprocessing before a new product must be sold.”
Perhaps one of the reasons that Millstone was chosen is that it already has relationships with the OEM community. It is not a third-party reprocessor but a provider of aftermarket services to OEMs. The company began in 2000 as a repackager, then expanded into providing recycling services for unused nonsterile instruments. In that program, Millstone keeps track of an OEM's distributors and when one is in need of an instrument, it finds another that has surplus rather than asking the OEM to make a new one. This makes sense in the orthopedic sector because of its pricing structure, says Tillman.
|AMDR's Dan Vukelich says that reprocessing is a legitimate service, with FDA regulation.|
“Orthopedic OEMs don't make money on the instruments, but on the implants,” he says. “But they spend $50 million per year on instrumentation. If they can recover an instrument they've already deployed, that comes to only 25% of the cost of a new device. So we're helping them save 75 cents on the dollar for these devices that they don't make any money on.”
Dan Vukelich, deputy executive director of the Association of Medical Device Reprocessors (Washington, DC), calls Millstone's contract a positive development and noted that its members have had similar arrangements for products such as pulse oximeter sensors.
“This goes to show that when OEMs slap the single-use label on many devices, it doesn't automatically mean that they are single-use,” he says. “Reprocessing is a legitimate service, with FDA regulation. Perhaps ‘if you can't beat 'em, join 'em' is at work here.”
AdvaMed, has raised concerns about the safety of reprocessing, but declined to comment for this article.
Meanwhile, the conflict between OEMs and reprocessors has begun to play out at the state level. Prompted by industry, a Massachusetts state senator has introduced a bill that would require doctors to inform patients if they are using reprocessed single-use devices and to allow them to refuse to have those devices used on them. The bill won't be considered until October, however.
Copyright ©2005 Medical Device & Diagnostic Industry