Manufacturers Add Reprocessing Services to Help Reduce Costs and Carbon Emissions
Although some do it to curtail the impact, not grow the impact
There is an obvious model available to medical device manufacturers to help healthcare facilities reduce costs while creating supply chain resilience and reducing carbon emissions. Green servitization means that manufacturers complement their product offering with services to develop new revenue streams and generate greater value for customers throughout the life of the device. “Green” servitization refers to the trend towards such models being focused on services that are aimed at reducing healthcare’s environmental impact. In a context where original medical device manufacturers have persisted in launching more and more “single-use” devices, green servitization means adding reprocessing services to the sale of single-use devices, reprocessing services that help the manufacturer deliver higher value and add new revenue streams while helping the environment.
In her October article Green Servitization in the Single-Use Medical Device Industry: How Device OEMs Create Supply Chain Circularity through Reprocessing, published in the Journal Sustainability, Dr. Benedettini explores how green servitization and reprocessing can help manufacturers create supply chain circularity in the single-use medical device industry.
Practically, adding reprocessing services can be accomplished by collaborating with reprocessing companies that can provide these services as a complement to the original manufacturers’ device offering – or by integrating reprocessing services into the design and marketing of new devices, a much more effective solution. Integration can happen through the build-out of reprocessing capabilities or through the acquisition of reprocessing companies, which is what we have historically seen in the United States: In 2009, Stryker acquired Ascent Healthcare Solutions (the largest reprocessing company in the country), and in 2022, Johnson & Johnson (Biosense Webster) acquired SterilMed (the second-largest reprocessor in the country).
I have always been of the opinion that the ultimate success of single-use medical device reprocessing, which as an industry has always had an adversarial relation to manufacturers in the space, would be the true integration of reprocessing into the original manufacturing and marketing process. And I believe it is only a matter of time before this will happen. When it is taking so long (the industry is more than 20 years old), I believe it is because large medical device manufacturers have a very short-term focus on protecting and growing existing revenue streams - a focus that lessens the appeal of solutions that drive long term value for the customer – because initial cannibalization of sales is always implied. Yet, visionary leaders in the medical device industry have tried for years to make this happen. The success has been limited. With today’s focus on the environmental impact of healthcare, problems with supply chain resilience, and the unprecedented financial stress in the sector, the tide may be turning. At some point, the medical device industry will have to give in to customer pressure and regulatory demands.
...large medical device manufacturers have a very short-term focus on protecting and growing existing revenue streams...
The financial situation in US healthcare is simply not sustainable. As we near the end of 2022, hospitals are looking at the worst financial year in decades, 19 hospitals have closed their doors, and, most recently, Providence announced the health system is looking at a $1.1B operating loss in 2022. Green servitization alone cannot fix the financial woes of US hospitals, but the medical device industry needs to start addressing ways to help their customers, not just increase prices to cover their own increased manufacturing costs.
Dr. Benedettini writes: “As increasing emphasis is being placed on reducing health care-generated emissions, several major OEMs of single-use medical devices have extended their business to reprocessing services, taking a green servitization orientation”. […] the green servitization phenomenon is supporting the transition of the industry to a more sustainable economic model. […] Single-use device OEMs may have started to understand the perspective and the long-term market share gains of combining a service model and a manufacturing model, making reprocessing an integrated part of how they think about how to design, produce and deliver their products.”
...the green servitization phenomenon is supporting the transition of the industry to a more sustainable economic model.
I certainly hope Dr. Benedettini is right that we are seeing the beginning of a transition to a greener, more financially responsible medical device industry. However, there are limits to the commitment made by manufacturers that adopt reprocessing. Again, Dr. Benedettini: “Servitized OEMs significantly reprocess other manufacturers’ devices in addition to their own. Several OEMs actually mainly reprocess other vendors’ devices and only a few of their product lines.” This, again, reflects the focus on short-term profitability as opposed to a genuine commitment to integrate reprocessing to deliver higher value and build long-term competitiveness and market share.
Dr. Benedettini knows that we are not quite ready to open the champagne – integration of reprocessing at times is not always due to a visionary pursuit of industry transformation: “[…] there is at least one notable example in the industry where servitization may have been pursued with a ‘defend’ intent. Johnson & Johnson moved into reprocessing by acquiring Sterilmed in 2011. Sterilmed reprocessed mainly Johnson & Johnson devices; it was one of the biggest players in the reprocessing market at that time, whereas now it is significantly smaller than other top players’ reprocessing subsidiaries. These facts suggest that Johnson & Johnson might have actually acquired Sterilmed to curtail or control the impact of reprocessing, expecting that the uptake of reprocessing would cannibalize the sales of new devices and eventually cut down profits.”
...Johnson & Johnson might have actually acquired Sterilmed to curtail or control the impact of reprocessing...
Green servitization and the integration of reprocessing services has a long way to go. Ultimately, reprocessing will have succeeded as a green servitization model in healthcare only when the intent is transformation rather than defense, and when reusability is built into both design process and sales and marketing practices.