As the US healthcare system evolves to a more value and evidence based system, there will be many changes for all of the stakeholders. Medical technology companies are likely to face significant pressure from many directions. Payers will continue to put pressure on med tech companies for more evidence of value for money. There has been a constant drumbeat in this area, and it’s not a new story.
However, one area often overlooked by med tech companies is the change coming from the hospital supply chain evolution. By some estimates, supplier costs represent 30-40% of the total cost of care for hospitals. If you look more closely at physician preference items, the cost of supplies as a percentage of total cost of care can be even greater. This is clearly an area of opportunity for smart hospital supply chain executives.
A report published by the Carey School at Arizona State University identified the top 2012 trends in hospital supply chains. Five of the top trends will directly impact medical technology companies. These trends are:
- Integration of supply chain into the overall organizational strategy to deal with healthcare reform
- Advancement of physician-organization engagement to focus on clinical value, evidence-based purchasing, and cost-containment
- Focus on development of new partnerships with key stakeholders
- Involvement in assessment of value and use of comparative effectiveness in supply decision
- Consideration of supply chain contribution to patient centered healthcare (including patient satisfaction)
At the same time that the hospital supply chain is rapidly evolving, many medical technology companies still rely on physician relationship selling or try to sell on features. Without compelling evidence of differentiation or economic benefit to the hospitals, these companies face a new reality in the years ahead. The changes coming to the hospital supply chain will put tremendous pressure on these suppliers.
As the hospital supply chain and materials management function becomes more mature, they will play a bigger force in the buying decision. This isn’t something new. In other industries, there’s a clear pattern that occurs when the procurement function becomes more influential. There is a movement towards more evidence and data-based buying decisions, and a lessening of users’ influence in the buying decision. Next, there is a push for more value from suppliers. Finally, there is also a much more aggressive negotiation approach with suppliers. Many of these patterns have been occurring in hospital supply chains.
Unfortunately, based on experience working in and discussions with many med tech companies, many are not fully prepared to deal with this new hospital supply chain and materials management function. Many companies lack a basic understanding of the value of their products and solutions. Importantly, many sales teams lack an understanding of the hospitals purchasing function and sourcing tactics. All of this means that med tech suppliers can end up giving away value and margins. With all of the changes occurring in healthcare, companies’ margins will be under enough pressure.
The marketing function should play a critical role in helping med tech suppliers deal with this evolving market and the challenges of healthcare reform. There are four specific actions smart marketing organization need to take:
- Get clear on your differentiated value for key offerings – clinical, economic, and psychological value
- Map value to the various buying center members and healthcare reform elements
- Segment the hospital customers based on buying-behavior and customize your offering and communications to different segments
- Train the sales team on how to use value in negotiations/communications; develop negotiation “trades” that can be used to combat aggressive buyers
The sales team represents the front line in defending your value and growing the business. If marketers don’t prepare them to face the evolving hospital supply chain and healthcare reform, sales teams run the risk of being steamrolled (along with your margins and growth!).