Medical Device Makers Profit From Waste, While GPOs Grow Fat on Kickbacks
Ever wonder why there's so much waste in the U.S. healthcare industry? In the medical device sector, at least, it's all about money: wasted supplies and the inability of small, innovative firms to break into the market mean big bucks for major manufacturers such as Johnson & Johnson (JNJ), Medtronic (MDX) and Becton Dickinson (BDX).
Take the reprocessing of single-use devices. When the packaging of these devices is opened, many are tossed into the trash even if they were never used or hardly used. Several companies specialize in sterilizing, repacking and reselling these devices for 40 to 60 percent below the original price of the device. There's ample evidence that the reprocessed devices are safe, and some have won FDA approval. Yet many hospitals and physicians still resist the use of reprocessed devices, buying the device manufacturers' assertions that they could spread infection.
Until about 25 years ago, medical devices were routinely re-used after sterilization. Then, when the AIDS epidemic came along, a wave of concern about re-using devices spread through the healthcare industry. The device companies capitalized on this concern by manufacturing single-use devices, and they're still profiting from them. The last thing they want to see is widespread reprocessing. But concern about the environmental impact of medical trash, along with a new cost consciousness, is motivating some hospitals to use reprocessed devices.
Meanwhile, there's an even bigger issue brewing with "group purchasing organizations," or GPOs. These are essentially large collectives that were initially formed by hospitals to bargain for better prices from medical suppliers. Since the 1970s, however, GPOs have been morphing into for-profit companies that wield extraordinary power over the distribution -- and thus sales -- of medical devices.
These days, GPOs are making out like bandits by favoring certain medical devices over others, regardless of their safety or effectiveness, as a great article by the Washington Monthly's Mariah Blake makes clear. For example, needle "sticks" are a big problem in hospitals, because infected needles can accidentally prick doctors and nurses. An engineer named Thomas Shaw invented a retractable syringe that was less likely to cause "sticks." He developed the device with help from an NIH grant, started a company, and brought the syringe to market. But he was unable to make any inroads because he didn't have a deal with the big GPOs.
With the help of federal legislation that exempted them from anti-kickback laws, and a later exemption from antitrust rules, the GPOs have become huge corporations that feed on the largesse of medical device manufacturers. The key to their success is their legal ability to share in the revenues of device makers whom they favor. So naturally, they favor the biggest companies and make sure that hospitals use their products. One of the GPOs' clients is Becton Dickinson, a New Jersey company that owns about 70 percent of the syringe market. At one point, all five of the top GPOs required hospitals to buy most of their syringes from Becton Dickinson, effectively freezing Shaw's product out of the market.
After a series of investigative articles in the New York Times, Congress held hearings on GPOs, and there was talk of legislation to limit their power. The GPOs headed this off by adopting a voluntary code of conduct, but there's no evidence that they've actually changed their business practices.
So whether we're talking about the reprocessing of devices or the possibility of a better mousetrap, the power of money blocks change that could make hospitals safer and more efficient. What's ironic about this, of course, is that single-use devices were adopted to prevent infection, and GPOs emerged as a tool for hospitals to get discounts from suppliers. But in the long run, both of these trends have turned into mechanisms for enriching the few at the expense of the many.
Image supplied courtesy of Svadilfari at Flickr. Related: