If you sell to hospitals in the USA, you are probably hearing from your contacts that admissions are trending up in many institutions while staying flat in others. Inpatient census is up in some institutions because of an improving economy, the implementation of the Affordable Care Act especially in states that expanded Medicaid under the healthcare law and the abatement of patients waiting for procedures.
While the general trend for admissions and inpatient census is positive the hospital C-Suite is still cautious in spending. This is due to several factors:
- US healthcare is transforming from a hospital centric model to a population centric model.
- All payors are reducing their payments to hospitals.
- Sequestration has reduced Medicare reimbursement by 2% to all hospitals and 5% to teaching hospitals.
- Hospitals are seeing a siphoning off of their inpatient surgeries to out-patient surgery centers that provide the same surgery for less cost and often with the same or better clinical outcomes.
- Healthcare reform is cracking down on re-admissions and penalizing hospitals financially.
- Many of the inpatient admissions are for sicker patients that consume more resources and are not necessarily profit generators for the hospital.
When in-patient admissions are uncertain the hospital C-Suite reacts in predictable ways:
- Conserve Cash– It’s a best practice for hospitals to conserve their cash but they really hunker down when in-patient admissions are flat or slightly increasing because they have a high fixed cost structure. When the census is flat or drops, discretionary expenses are stopped and payment terms are typically extended to their vendors.
- Delay Capital Purchases- If money is tight, capital expenditures are placed “on hold” except for those required for construction and renovation projects in which the funds were previously committed or for those situations where the expenditures are required to meet regulatory or safety requirements.
- Increase Product Evaluation Time Periods– This is one of the easiest and most common “cost savings methods” and it’s often used even when the hospital has a profitable net margin. The hospital simply increases the length of their product evaluations and their number of evaluations. If each product evaluation must last (90) days and the hospital evaluates products from four (4) different vendors then they have delayed the product purchase for one-year. This allows them to leverage their capital funds.
- Reduce Head Count– As admissions decline hospitals require less staff for in-patient care and support. This is forcing hospitals to critically evaluate each and every position continually. Asking personnel to take early retirement and layoffs abound as hospital eliminate positions.
- Re-Negotiate Supplier Contracts- The cost of procedures must come down and that means all supplies and Physician Preference Items (PPI) costs must be reduced. Hospitals are using their buying power to force their suppliers to re-negotiate their supply contracts. This provides immediate cost reduction. Purchased services contracts will be next.
- Out-Source- Many hospitals don’t have the breadth and depth of experience required in certain functional areas or they realize that other firms can provide the required service at a reduced cost so they out-source it. Some examples are food service, dialysis, coding, transcription, revenue cycle management etc.
- Refinance Debt– As interest rates stay low, many hospitals are re-financing their debt to reduce their interest payments and thus conserve cash.
- Increase Staff Productivity– A hospital’s largest cost is labor, which is often about 50% of their total expense. Their goal is to have each clinical departments productivity at or better than the 60th Productivity is measured as hours per CMI (case mix index) adjusted admission. If you think it’s hard to get to a clinician today to discuss your product, service or solution- it’s only going to get worse as productivity levels trend upward.
- Reduce Energy Requirements– Hospitals are looking at redesigning their infrastructure for water and utilities to be more energy efficient and environmental friendly. This reduces their energy usage immediately and keeps it under control for the years ahead.
- Expand Revenue Cycle Management– Hospitals are being forced to be more aggressive in collecting the monies their owed from their payers. Denials have increased dramatically.
- Re-Allocate Resources– As more patient care moves outside of the hospital it is forcing hospitals to re-allocate their resources to out-patient facilities and home care. Many inpatient clinical positions that were once considered safe are now at risk or are being moved outside the hospital
- Employer Contributions– Many hospitals now self-fund their employee healthcare and many are now asking their employees to contribute a greater percentage of the total cost. This is done by increasing their deductibles and the amount of their co-pays.
How Can MedTech Suppliers React?
- First things first….your product and service must help the hospital address a specific clinical or economic problem. In the new healthcare normal, you must be able to prove the value. Think evidence based information and comparative effectiveness.
- Explain in clear language to your salesforce and National Account team that they are now in a hyper competitive state and they must learn to grow by cannibalizing all of their competitors to grow their business. The BEST trained and most competent sales teams that can demonstrate value will win out in the in long run.
- If you represent multiple products/services then bundle. Leverage your product portfolio when and where you can. Those companies that have breadth and depth will take a loss leader approach on some items to maintain an overall profitable portfolio and reduce the number of their competitors.
- If you are a niche player (basically one with a few products and services) then try and dominate your niche by adding value (beyond product and price) that your large competitors cannot provide.
- Understand how and if your product and service can be used in the alternate care market and look for the international market for growth.
- Manage your hospital accounts as assets with a well-developed account plan. If you don’t a competitor will take your business.
Are these the only ways that the C-Suite is reacting to inpatient census uncertainty? No, but these are the most common, and if you stop and analyze them, they all share one thing in common…they make sense!
Cost reduction pressures will continue for both hospitals and their suppliers. With bundled payments becoming increasingly prevalent, CFOs must reduce their supply chain costs.
If you sell to hospitals and want to grow your business you must cut your cost structure and demonstrate measurable value to hospital buyers. Suppliers’ that fail to act aggressively will fall on their sword like Circuit City, Kodak and Borders.
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