Medical Device Sales: These Times They Are-A-Changin!

In 1964 Bob Dylan released his third studio album entitled: The Times They Are-A-Changin.” It was appropriate then and it is appropriate today especially as it pertains to healthcare. Here are a few:

  1. Buying Decisions: Manufacturers are seeing purchase decisions move from clinical criteria to economic criteria. With many products “clinically acceptable” is preferred to clinically superior if the price is lower. Buying decisions are also shifting from physicians and clinicians to cost-conscious personnel in procurement (strategic sourcing) and the C-Suite.
  2. New Stakeholders Emerging & Gaining Influence: GPOs have always had influence over product selection and pricing but now IDNs, RPCs, Value Analysis Committees and third-party-assessment firms are providing greater influence to procurement and the C-Suite.
  3. Capital Budget for Selected Items are Getting Squeezed: Most hospitals are committed to increased spending on IT infrastructure and buying physician practices (USA only). This often doesn’t leave a lot of money for capital improvements in facilities, new construction or new equipment. For capital equipment manufacturers its especially brutal because they are competing for funding against robots and other expensive technology that has major appeal.
  4. Physician Influence is Waning: As physicians sell their practice to hospitals and become employees they lose their absolute power over what products to buy. They still have influence but not absolute power. This allows the hospital C-Suite to break the individual silos of interest to one of joint interest.
  5. Price Transparency: As hospital prices become transparent they will incorporate more measures to drive down costs and ensure they are paying a fair price for their goods and services. They will continue to pressure the manufacturers for cost reductions. They will use GPOs, IDNs and third-party assessment firms to provide comparative price data on all items used and for various clinical procedures.
  6. Hospital Consolidation: As mergers and consolidation occurs it means fewer accounts with increased buying power.
  7. Physicians as Staff Employees: By 2014, 75% of the physicians will be hospital employees. The hospital will be the customer not the physician.
  8. From Materials Management to Strategic Procurement: It’s no longer about reducing cost per item purchased. It’s now product standardization, correct product utilization and the best patient outcome at the lowest cost.
  9. The ACO Affect: ACOs will de-emphasize the “clinical relationship sell” between the sales representative and the physician. Its replacement will be a focus on products that bring value to the hospital and are aligned with their new “outcomes-based” payment structure instead of the “volume-based” payment structure.
  10. Vendor Access RestrictionsIncreasingly hospitals are limiting access by sales professionals. Many are requiring that an appointment be made with the purchasing department before contact with hospital personnel and/or physicians are allowed. This not only avoids unnecessary distractions to hospital personnel but it reduces the sales representative’s chances to introduce new technology or expand its use through physician relationships.
  11. Specific Vendor Polices: Most hospitals are now rigidly managing medical device samples and product trials. Most are also prohibiting pharmaceutical representatives from promoting non-approved formulary products.
  12. Vendor CredentialingMost hospitals use at least one vendor credentialing program to document and manage the number of sales representatives that call on their facility and then restrict their access to specific areas of the hospital.

Some Implications for Medical Device Manufacturers

  1. Market Coverage & Sales Structure: Fewer buyers’ means fewer sales representatives are required. Those that remain will be account managers with business acumen. They will be able to discuss clinical outcomes, productivity, finance and other business challenges with healthcare providers. They will be supported by company clinical personnel and in some cases field sales personnel with a limited focus.
  2. Value & Evidence: The new rules of engagement are lower product utilization and product standardization with clinically acceptable products, evidence based value and a fixed payment structure. Manufacturers must help providers reduce end-to-end supply chain costs.
  3. Partner or Transactional Vendor: The idea that relationships are dead is both absurd and naïve. The healthcare C-Suite wants preferred partners that are proactive in helping them reduce costs and improve clinical outcomes. The new relationships will be at a senior level of the organization. Transactional vendors will become a scarcity and at best will be limited to low cost commodity items with many substitutes.
  4. Think Like Procurement: You love your product, service or solution and you should. Now is the time to get real and think like procurement. Would they classify you as a commodity (high volume-low cost), comparable (low-mid volume-mid-to high cost) or unique (first in category with no competition)? Your pricing must be in line with your perceived value.
  5. E-Commerce for Medical Devices Will Grow: Can’t happen you say! Think again! The move toward price transparency of some medical devices is already occurring. E-commerce removes the sales representative from certain portions of the business and it reduces cost to the hospital. Will this practice remove all sales professionals? Probably not but it can and probably will remove a slice of the existing sales representative population.
  6. New Pricing Models: As hospitals continue to reduce costs they will continue to need new technology to assist them. New creative financing models like gain-sharing and pay-per-use will grow in popularity. Pricing and contracting will have to align with the provider’s reimbursement.

Parting Thoughts

In the new millennium MedTech manufacturers will be required to sell in the way that their customers prefer to buy. For those that adapt quickly they will prosper and grow. For those that don’t act nimbly think Borders and Circuit City. These Times Are A Changin!