10 Things to Know About Selling to Hospitals in 2015

2014 and the holidays are behind us. For those of you that are on a fiscal year hopefully you ended the year strong and ahead of your sales revenue plan. For those of you that are in the mid-point of your sales year hopefully you are on target to meet or exceed your revenue plan.

Regardless of where you are in your fiscal year this is a good time to stop, reflect and look ahead at what challenges hospitals you sell to are facing in 2015. A few hours of reflection and planning can ensure that you capitalize on the opportunities and avoid unnecessary surprises to ensure you make your revenue goal.

The 10 Things to Know about Selling to Hospitals in 2015

  1. Supply chain costs account for 20%-30% of a hospitals budget so aggressive expense reductions will continue to prevail

Savvy sellers should expect product standardization efforts to increase (fewer approved suppliers), continued focus on proper product utilization to eliminate unnecessary waste and usage, increasing difficulty getting new products into the system (committees) and continued pressure to reduce the prices paid for all items.

Product standardization not only reduces the number of suppliers but it allows physicians to compare data and control the quality of care.

77.5% of C-Suite executives have resource utilization programs in place to control the use of extensive supplies and purchased services. Additional targets are the areas of largest spend such as physician preference items (PPIs).

Value analysis committees (VACs) will continue to delay the introduction of new products because each new potential entrant will need to be vetted. To displace an existing product or be added to the approved list will require evidence. These committees have been in existence for years now and they are growing in their level of sophistication. Use of VACs and other committees adds a level of complexity to the sales process and delays the introduction of new products.

With in-patient census down and increased focus on price reductions and decreased utilization, many sellers will be lucky to get the same product volume in 2015 as they received in 2014. Most sellers are going to have to take business away from a competitor to grow unless, they are fortunate to have new products to sell.

  1. Capital budget money will be tight

Clinical information technology encompasses 25%-35% of a typical hospitals capital budget. In the average hospital, this doesn’t leave much left for the other department heads. Savvy sellers that sell to hospitals will have to be able to articulate their measurable value and then be able to prove it. They will also have to be creative with other ways to get their equipment into use; such as through lease, pay per use, risk based contracts etc.

  1. Hospitals are full of empty beds

Inpatient census is down in most suburban and rural areas of the country leaving most available beds unfilled. There are several reasons for this: huge demographic defections have decreased the number of residents that could support an existing hospital, in other cases newer better equipped hospitals have expanded into key suburbs to draw local patients, teaching hospitals have invested in new buildings and technology to draw segment specific patients and the changes in how hospitals are paid has had a major impact on hospital occupancy.

The end result is that in most communities across the U.S. there are too many hospital beds versus the need. Hospitals will continue to close or be forced to consolidate. Many of the smaller hospitals will be converted to community centers and/or out-patient diagnostic centers. If you sell to hospitals this means fewer selling opportunities for many sellers.

  1. Physician employment will continue

Across all specialties, 21% of physicians are employed by a hospital. As hospital and physician partnerships flourish, physician preference items will decrease in cost or alternatives will be used. There are three reasons for this happening:

  1. Hospitals are focused on consumption and usage and have sophisticated systems for spend analysis by department, unit, service or physician.
  2. Physicians don’t typically know the cost of a product, therefore they cannot be expected to be cost effective.
  3. Under a hospital-physician partnership agreement, if the hospital saves a certain amount of money on products and/or services, then a portion of that savings can go back to the physician.

Savvy sellers that sell to hospitals are going to have to learn to sell to new buying influences. Marketing must provide them with buyer personas for these people as well as an in-depth understanding of how to interface with them. This means the questions to ask and the information they should provide. A sales playbook for major products is mandatory.

  1. Demographic trends are re-shaping the services each hospital provides

Understanding the customer is becoming increasingly important for hospitals. An understanding of their local population is paramount for success. For example, is the number of women within the child bearing age of 15-44 projected to increase or decrease over the next ten years? If it is increasing then there is a need for inpatient obstetric services. If it is decreasing it may signal a need to terminate the service. This strategic decision will have an effect on sellers that sell these products in that market. Savvy marketers can predict these trends before they happen so that sales quotas can be adjusted properly and territories can be re-aligned if required.

  1. Data mining can pinpoint price discrepancies and areas of product over-utilization and product utilization

According to the Medicare Payment Advisory Committee, in 2013 Medicare paid hospital out-patient departments 78% more on average than ambulatory surgery centers for the same procedure. This shows that there is a huge price disparity between surgery in a hospital out-patient center and an ambulatory surgery center. This is not going to continue. If your company sells products into these two markets then you can expect hospital supply prices to fall and more patients to be cared for in out-patient surgery centers. This means your in-patient product utilization will fall while it increases in the out-patient market. What affect does this have on your sales coverage model and pricing strategy? Suppliers should expect that hospitals will increasingly deploy data driven digital health strategies to reduce costs and improve patient outcomes. If you sell to hospitals that own surgery centers ensure that your data mining is as good as your client. Don’t be embarrassed in a negotiation.

  1. Bundled payments are the future and not a panacea

Bundled payments are those that cover the entire case episode from pre-operative visits to postoperative hospital stays and rehab center/home visits. This implies strict clinical pathways and a thorough understanding of all the individual costs included in the patients care such as labor, equipment, supplies etc. It’s being done in many types of spine surgery and will be common in other surgeries soon. In addition, Health & Human Services (HHS) has a goal of tying 30 percent of Fee for Service Medicare payments “to quality or value through alternative payment models, such as Accountable Care Organizations or bundled payment arrangements by the end of 2016, and tying 50 percent of payments to these models by the end of 2018.”1

  1. Consumer price transparency is gaining momentum

This is being driven by the Affordable care Act because patients are faced with larger co-pays, increased deductibles and therefore more out-of-pocket expense. They will seek individually and through their employers lower costs for healthcare because they want to lower their out-of-pocket costs. If they work for a large employer they will also have to be willing to travel to get it. Think medical tourism! This is where a firm such as Wal-Mart contracts with six hospitals in different areas of the U.S. and flies the employee to the appropriate facility for heart, spine and transplant surgery often at a savings of 40% or more for the same surgery performed locally. This means that sellers must be prepared for bundled pricing as hospitals define and scrutinize each cost in the product and service delivery chain. If you cannot prove your value you will be commoditized and your price will go down or you will lose the business.

  1. Population Health is here to stay

As new financial models determine how hospitals will get paid, it affects how they deliver patient care. New care pathways are emerging to provide cost control and patient outcomes for specific diseases like diabetes, COPD and CHF, to keep these patients healthy and out of the hospital. This will open up opportunities for new care models outside of the hospital and physician office. This will require new sales channels.

  1. Hospital consolidation will continue and GPOs and IDNs will prevail

Further consolidation of hospitals has to occur because population health cannot work unless you are the low cost provider. GPOS and IDNs will control decision making for capital equipment, purchased services and supplies using real-time data and placing it into a dashboard. If you don’t have a robust GPO and IDN strategy start one now. If you have one improve it. Your future revenue and margins depend upon it.

  1. Burwell SM. Setting value based payment goals-HHS efforts to improve U.S. health care. NEJM Jan 26.2015

Parting Thoughts

Selling to hospitals is becoming increasingly difficult because your hospital customer base is changing. If there are fewer selling opportunities within hospitals, then each sales representative must win more opportunities to make their annual sales quota or they must find new customers outside the hospital. What will you do differently this year? What new strategies will position you to be successful? Are you equipped with the proper products, training, pricing etc. to sell in the new milieu?