Third-Party Reprocessing:

Industry UpdateDaniel J. Vukelich, President

Association of Medical Device Reprocessors (AMDR)

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Topics to Be Covered

• AMDR & Industry Background

• Recent GAO Report Conclusions

• The Anti-Kickback Statute and Fair Competition

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AMDR Background:Trade Association Information

• Based in Washington, DC

• Represents the legislative and regulatory interests of third-party reprocessors of “single use” devices (SUDs)

• Members perform 95% of the third-party reprocessing done in U.S.

Background on AMDR:Reprocessing Industry Since 2000

• Fully regulated as device manufacturers since 2000

• Over 55 million devices reprocessed since

• 10,000 tons of medical waste diverted

• Saved hospitals over $600 million

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Background on AMDR:Industry By The Numbers

• $150 million: annual savings to U.S. hospitals from reprocessing SUDs

• $32 billion: annual original equipment manufacturer (OEM) SUD sales

• 2%: percentage of SUDs that are potentially reprocessable

• 40-60%: average savings to hospitals, per device

• $1.8 billion: reprocessing market potential 5

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• Ascent Healthcare Solutions, Inc., Phoenix, Arizona

• SterilMed, Inc. Minneapolis, Minnesota

AMDR Background:Membership

AMDR Background:Safety Principles

• 100% testing/ inspection of devices

• 100% device traceability

• 100% device marking/ identification

• Full compliance with FDA, ISO, ANSI, ASTM, & AAMI standards

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AMDR Background:Serving America’s Top Hospitals

• AMDR member-companies serve 17 of the 18 “Honor Roll” Hospitals -- America’s top 18 medical institutions.

• 10 of 10 Top Heart Hospitals

• 10 of 10 Top Orthopedic Hospitals– As listed by U.S. News & Word Report magazine’s summer, 2007 report.

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Government Accountability Office (GAO) Report:

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Reprocessed Single-Use Medical Devices:

FDA Oversight Has Increased, and Available Information Does Not Indicate That Use Presents an

Elevated Health Risk (January 2008) Link to full report: http://www.gao.gov/new.items/d08147.pdf.

GAO’s Conclusion:

“After reviewing the available evidence - including FDA's process for identifying and investigating device-related adverse events reported to involve reprocessed SUDs, peer-reviewed studies published since 2000, and the results of our and FDA's consultations with hospital representatives -- we found no reason to question FDA's analysis indicating that no causative link has been established between reported injuries or deaths and reprocessed SUDs.” -- GAO Report, pages 21-22 (emphasis added).

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The GAO Report:Key Findings

• The “single use” label

• Adequacy of FDA’s oversight

• Adverse events

• Hospitals experience

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GAO:“Single Use” Label

“The decision to label a device as single-use or reusable rests with the manufacturer. … Thus, a device may be labeled as single-use because …the manufacturer chooses not to conduct the studies needed to demonstrate that the device can be labeled as reusable.”

-- U.S. Government Accountability Office (GAO), Report to the Committee on Oversight and Government Reform, House of Representatives; Reprocessed Single-Use Medical Devices: FDA Oversight Has Increased, and Available Information Does Not Indicate That Use Presents an Elevated Health Risk (January 2008), at 1 (emphasis added).

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GAO:MedSUN Findings

“According to FDA, all participants believed that reprocessing establishments are more stringently regulated by FDA than are the manufacturers of original devices, and this provided them a sense of confidence in the reprocessing process.”

–Page 21

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GAO Findings: Adverse Events

“FDA’s analysis of reported device-related adverse events does not show that reprocessed SUDs present an elevated health risk.”

- page 19

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• FDA received 320,000 total adverse reports (associated with all medical devices) in 2006

– Page 21

• In a 4 year period since 2003, FDA received only a total of 65 events with any connection or possible connection to reprocessed devices

– Pages 19-21

• This accounts is approximately .005% of all MDRs filed

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GAO Findings: Adverse Events

GAO Findings:Hospitals Experience

“Participating hospital representatives generally expressed confidence in reprocessed SUDs, with some participants stating that there were actually fewer performance problems with reprocessed SUDs than with new SUDs.”

- Page 21

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“In January, after reviewing eight years of FDA data, the Government Accountability Office weighed in with a report concluding there is no evidence that reprocessed single-use devices create an elevated health risk for patients.”

- The Wall Street Journal, March 19, 2008, “Hospitals Reuse Medical Devices to Lower Costs.”

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“…while the GAO report tilts the debate strongly in favor of reprocessing and opens the door to more widespread use, [original] device makers are sticking to their guns.…

- Wall Street Journal

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The Problem…

Reprocessing:Part of the Healthcare Solution

• A majority of U.S. hospitals have recognized that reprocessing plays a critical role in: – Reducing costs– Reducing waste– Providing competitive pressure in the

marketplace to lower OEM device costs

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OEM Interference with Reprocessing Programs

• Sales rep interference

• Possibly anti-competitive contracting practices

• Inappropriate financial relationships between OEMs and doctors (to oppose reprocessing)

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• It is permissible for device companies to compensate doctors for help in developing new technologies

• It is illegal for a device company to compensate a doctor in exchange for the doctor’s influence in hospital purchasing decisions (e.g., anti-reprocessing policies)

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The Anti-Kickback Statute

The Anti-Kickback Statute:

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The Anti-Kickback Statute: Consequences

• DOJ settled with the country’s 5 biggest orthopedic manufacturers for $311 million for financial relationships OEMs had with physicians

• Both sides of an impermissible kickback – the OEM and the doctor OR hospital – are subject to serious penalties, including exclusion from CMS reimbursement

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State Law:Prohibitions on Payments to

Physicians • District of Columbia• California• Maine• West Virginia• Vermont

– Includes public disclosure

• Minnesota (1993)– Includes public disclosure

• Massachusetts– Most far reaching

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AMDR is Urging Hospitals to Reexamine their Policies

• Reuse committees need to continue to include surgeons, nursing, risk management, etc.

• However, physicians should periodically disclose any relationships with device companies

• Hospitals may consider a policy whereby physicians with financial ties to OEMs are prohibited from participating in purchasing decisions, including reprocessed devices

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Cost Containment

As health care prices continue to rise and policy makers and elected officials look for solutions….

• Greater investigation into inappropriate financial relationships between OEMs and physicians….

• Greater scrutiny and desire for transparency in healthcare pricing…

• Greater demand for safe, effective, lower costs products….

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Thank You

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www.amdr.org202.518.6796