Third-Party Reprocessing: Industry Update Daniel J. Vukelich, President Association of Medical Device Reprocessors (AMDR)

2 Topics to Be Covered AMDR & Industry Background Recent GAO Report Conclusions The Anti-Kickback Statute and Fair Competition

3 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 4

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

6 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 7

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. 8

Government Accountability Office (GAO) Report: 9 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:

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 (emphasis added). 10

The GAO Report: Key Findings The “single use” label Adequacy of FDA’s oversight Adverse events Hospitals experience 11

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).Reprocessed Single-Use Medical Devices: FDA Oversight Has Increased, and Available Information Does Not Indicate That Use Presents an Elevated Health Risk 12

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 13

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 14

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 This accounts is approximately.005% of all MDRs filed 15 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 16

“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.” 17

“…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 18 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 19

OEM Interference with Reprocessing Programs Sales rep interference Possibly anti-competitive contracting practices Inappropriate financial relationships between OEMs and doctors (to oppose reprocessing) 20

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) 21 The Anti-Kickback Statute

The Anti-Kickback Statute: Certain types of activities “raise red flags:” Giving gifts Entertainment Free goods Consulting arrangements Grants »MDDI, March

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 23

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 24

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 25

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…. 26

Thank You