Med Tech: Growing Threat of Price and Value Transparency – Part II

March 19, 2014 — Leave a comment

th-42In a previous post, I wrote about the growing threat of price and value transparency for the medical technology industry. If you missed it, you can read the details here. In summary, there are a number of forces converging that make price and value transparency a significant threat for medical technology companies.

While there have been businesses that provided transparency to pricing and some feature benchmarks in the past, now there are many new entities emerging that are bringing a new level of value and price transparency to buyers. More importantly, there are a number of new forces making transparency a real lever in the buying process. These include things like reimbursement cuts, physician employment, aligned physician-hospital incentives, value-based purchasing, and accountable care.

In total, there are three key areas of transparency emerging. These are price, value, and outcomes transparency. There are many new entities working on bringing transparency to all of these areas. With the Internet, big data, and continued pressure on reducing costs and improving quality, expect that there will be an acceleration of pressure due to transparency. What does increased transparency mean for suppliers? From a pricing and value management perspective, smart companies are taking the following actions to deal with this threat:

  1. Actively Manage Regional and Global Pricing Rules: This means putting in place clear rules for how customers earn a discount and backing the rules up with a process to measure and manage price. This often includes investments in price management software and tools. It also includes smartly managing price variation across markets. Given the differences in the healthcare systems and economics around the world, it’s unrealistic to have one single global price. However, price differences across markets should be well thought through and defendable. Allowing local operating units to set price independently is a recipe for disaster. As an example, if you work in the US, just ask yourself what would happen if US hospitals suddenly had access to your prices from around the world? It’s not that far fetched of an idea. With the growing transparency and smart entrepreneurs trying to make money on $300 billion dollars in annual spend, it’s bound to happen eventually.
  2. Get a Handle on Your Value: Many companies struggle with understanding the value of their solutions. If you think this is an exaggeration, just count how many of the solutions in your sales bag have a clear, quantified value proposition. This includes aligning the value proposition to the key elements of healthcare reform if you sell in the US. If you don’t control the value message, there are now start-ups that enable hospitals to create value analyses and share these through the web with other hospitals.
  3. Prepare the Sales Team to Sell and Defend Value: With all of the changes in healthcare, no function is under more pressure and is more critical to the success of the company than the sales organization. Yet, the MedTech sales organizations probably face the biggest change in this new market. Beyond the traditional clinical selling skills, sales teams now need to know how to: navigate the new buyer, use and connect value to the customer’s varying reimbursement models, call on new stakeholders, and defend value against sophisticated buyers. It’s not an easy job. Smart companies recognize that the sales team is the frontline in helping to defend value against the emerging transparency. Ask any purchasing agent and they will readily admit that they try to use price or value references to negotiate with and intimidate salespeople. With greater transparency on the horizon, salespeople need to be prepared to deal with this.

It feels like there has been more change in healthcare in just the past few years than in the previous twenty years. If you work in pricing or value management in MedTech, having a plan for dealing with the growing transparency is critical to managing your value and margins.

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