Show Me The Money: Capture the Benefits and Avoid Risks of Healthcare Reform

November 17, 2014 — Leave a comment

th-2I have to admit that I didn’t make up the title of this post. No, I didn’t copy it from a seminar given to pharmaceutical or medical device executives. Likewise, it’s not from a recent webinar given to health insurance executives. “Show Me The Money: Capture the Benefits and Avoid Risks of Healthcare Reform” is the title of a workshop given to hospital finance executives.

If you supply goods or services to hospitals or providers, this is what’s on the mind of the finance staff as well as the top executives. A recent survey by the American College of Healthcare Executives showed that healthcare reform implementation was ranked as the second biggest concern of hospital executives right behind financial challenges.

It’s not hard to understand why healthcare reform is on their minds. In Medicare’s fiscal year 2015 payments (beginning October 1), hospitals have 5.5% of their Medicare inpatient revenue “at risk” for various pay-for-performance programs. Hospitals generally have low-single-digit operating margins and Medicare inpatient revenue represents a large chunk of revenue. So, poor results on the pay-for-performance programs could have a big bottom line impact.

As a supplier, one of the things you have to do is get clear about the value you bring. By value, I’m not talking about the features or benefits of your solution. Features are facts and data about the solution. Benefits describe how the features address a customer need. While benefits are a good start, you still leave the quantification of value up to your customer.

From a sophisticated buyer’s perspective, value is really about first “showing the money.” In other words, it’s about being really clear about how your solution creates economic value for the customer. This economic value could be in, for example, lower costs, improved productivity, better performance on healthcare reform programs, lower risks, reduced working capital, and other areas that can be quantified. This is always compared to the alternatives a customer has which includes do nothing.

Healthcare reform presents new challenges and opportunities for suppliers to quantify their value. The good news is that hospitals are being paid based on value. This should cause them to be more sensitive to value in supply decisions. The bad news is that there is so much pressure to reduce costs, there’s often a temptation for buyers to look for the “good enough” solution at the lowest possible price. So, it’s up to the supplier to connect the dots and use its value story to educate the customer and take advantage of the heightened value sensitivity.

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