MEDICAL PROCESSORS FEELING COST PRESSURES

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ANAHEIM, CALIF. — Health-care industry cost pressures are likely to remain a key factor for processors and resin suppliers involved in making medical devices.

Other trends include a movement toward single-source contracting, a booming market for noninvasive devices, and plant equipment upgrades to cut customer's costs in areas such as product inspection.

At least that is the consensus of industry officials at the Medical Design and Manufacturing West show, held Feb. 10-13 in Anaheim.

Representatives of plastic processors and suppliers differed on whether cost pressures are worsening or lessening, but said they remain a critical factor for companies in the device manufacturing chain.

The pressure is driven by cost-containment efforts of health-maintenance organizations and health-care alliances, said Doug Powell, the medical market manager of Makrolon technical marketing for the Pittsburgh-based Polymers Division of Bayer Corp.

``I think the easy cuts have been done,'' he said. Providers are moving care to outpatient treatment, creating an opportunity for disposable products.

Processors and original equipment manufacturers may not necessarily want the cost of a material reduced, but they do want more value, Powell said.

``I think in the last year we have seen more emphasis from companies we deal with asking `How do we justify our costs?' '' said N. Wayne Ladd, medical business market manager for specialty plastics at Eastman Chemical Co. of Kingsport, Tenn.

Cost pressures will get worse because HMOs are paying hospitals a fixed cost for a procedure and letting the hospital determine how best to deliver the service, said Bill Partridge, director of sales and marketing at ACT Medical Inc., a Waltham, Mass., tube extruder and medical device manufacturer.

``In the '80s, you could sell a product that improved care and cost more,'' he said. ``Now, a product needs to improve care at a lower cost overall.''

For example, he said ACT is part of a group developing equipment for heart surgery that does not require opening the chest and instead makes incisions between ribs. The equipment may cost more than what it replaces, but it reduces the overall cost of treatment, including patient recovery, he said.

Medical device manufacturers also increasingly want companies to act as single-source contractors, handling all aspects of choosing materials and making the product, he said. ACT has grown 40 percent annually in the last two years and now has about $10 million in sales, he said.

The single-source approach was also cited by Polymer Technology Group, in Emeryville, Calif., as a key reason for the company to build a 32,000-square-foot plant and expand its OEM service.

Medical device manufacturers are shifting toward OEM service as a way to control skyrocketing new product development costs, said PTG President Robert Ward.

Gary Werschmidt, manager of product and business development for injection molder KippGroup of Ontario, Calif., said materials suppliers are pushing price increases of 5-15 percent, while customers want cost reductions of as much as 30 percent. That leads to higher cavitation and faster cycle times, he said.

Health-care providers have been watching costs closely since early Clinton administration proposals to revamp the health-care system, he said.

``It didn't go into law but it went into effect. Hospitals will not buy something that costs more and works better,'' Werschmidt said.

Device manufacturers also want their suppliers to assume some costs that the manufacturers had borne, said Brian Meltzner, sales manager at Merrill's Packaging Inc. in Burlingame, Calif.

Merrill's improved its cleanroom partly because medical device companies want to minimize their cost of product inspection, he said.

``The medical device companies are trying to watch margins,'' he said. ``Our customers want more out of their suppliers.''

Device manufacturers are also downsizing their packaging and are asking for packaging that has a secondary use, such as product storage, Meltzner said.