Adapting to the Evolving Healthcare Delivery Marketplace

Medical device makers need to rethink their sales approaches and consider risk-based agreements if they want to compete in the new healthcare landscape.

Kimberly E. White, MBA, and Michael N. Abrams, MA

Earlier this year, HHS secretary Sylvia Burwell announced that by 2018, at least half of all Medicare payments would be made through programs that put providers at risk for quality, cost, or value. On the heels of that announcement came another by the Health Care Transformation Task Force that also vowed by 2020 to move at least 75% of their payment arrangements from fee-for-service payment models to alternative payment models and value-based payments. The task force is a coalition of some of the largest healthcare systems, insurers, and employer groups.

These organizations recognize that the current business model for healthcare is no longer sustainable and are actively committed to moving to value-based care. As they make this transition, they’re experimenting with many new models for payment and care delivery, such as ACOs, PCMH, bundled payments, and population health. Key to success will be developing ways to gain control of variation in cost and quality. In order to ensure the organization is delivering the best outcomes at lowest cost, they’ll look closely at treatment protocols and products used, and make decisions that are in the best interests of their organization and populations served. As these changes unfold in the delivery environment, there will be significant implications for many parts of the device manufacturing business, starting with the sales approach, the structure of health system deals, and the management of key relationships.

Rethink the Sales Approach

Historically, manufacturers approached sales of their products with a features and benefits message that sometimes promised clinical benefits for the patient and often promoted features that principally were matters of convenience to the surgeon. Depending on the complexity of the device being sold, this approach might be augmented by technical support designed to provide guidance on how to use the device. The goal was to ensure it was used appropriately so that the promised benefits could be achieved.

But the landscape is changing. As hospitals and systems consolidate, decisions about which devices to use are no longer the sole providence of clinicians. Increasingly, committees of administrators and clinicians weigh in, and their criteria are increasingly sophisticated. They want information about how the product saves money, in the OR or downstream, and how it improves clinical outcomes or the patient experience. In short, they want to see evidence of value. If your sales force doesn’t have it, or it doesn’t know how to present it in a compelling way, that’s a problem that will show up in your numbers.

These decisions are being made from an institutional value perspective, not that of the individual surgeon. As time goes on, the questions will get harder, not easier. Committees will want to know what makes your product better than its alternatives, especially if you’re looking for a price premium. As clinical practice in critical procedures becomes subject to care paths, decisions about which products are among the options can make or break your sales. The insights your sales force brings about what matters from an institutional perspective—like which service lines, procedures, or disease states are high priority, or whether cost or quality is at the top of the list for the institution—could make all the difference.

As decision-making changes, the sales process becomes more complex. Manufacturers must be able to identify the challenges and opportunities each system faces and identify how their products and portfolio support those goals. This will require engaging with different members of the organization and conducting strategic discussions beyond just the product. Doing this requires a different skill set. Account managers will need to be able to prepare for these discussions, determine how their portfolio fits organizational needs, identify solutions that may be broader than a specific product, leverage organizational resources to demonstrate fit with system goals, and communicate how the portfolio impacts the system’s bottom line.

Consider Risk-based Agreements

Risk-sharing is gaining momentum as a way for payers and health systems to align interests and control costs. Payers have begun multiple experiments with providers to spread their risk for the cost of care. These are coming in the form of bundled payment and population health agreements, as well as joint ventures and other models. As providers assume more risk, they are looking within their own systems to find ways to lower their cost structure, and manufacturers are prime targets. Although manufacturer-based risk-sharing arrangements have been more popular outside the United States and with pharmaceutical products, they are gaining more interest in the United States and with medical devices. Companies such as Boston Scientific, Johnson & Johnson, Medtronic, and St. Jude Medical have all stated that they are exploring these types of relationships.

These contractual engagements can vary from finance based agreements (e.g., limits on expenditures per patient or for a population) to outcomes based agreements (e.g., performance guarantees for individual patients or populations). They can have upside and/or downside risk for one or both partners depending on how they are structured. In addition, they can help address concerns about overutilization, product dependability, and cost maintenance. However, structuring them can be a challenge. Getting clarity as to the specific outcomes or measures used is critical and is often a barrier to success. However, the process of working with a provider partner to structure these engagements—successful or not—might extend relationships with these organizations and provide them with greater insight into product and manufacturer value.

Prepare Now for Tomorrow

Pressure on systems to improve outcomes and lower costs continues to grow, and leaders within healthcare delivery recognize that value-based payment models are the future. Waiting until the dust settles to change the way your organization works with delivery is not an option. Building new capabilities in your sales force and providing them with the necessary economic and clinical value data and tools to tell the story takes time to get off the ground. As consolidation enables systems to grow larger, so do the stakes. Wait too long, and manufacturers can run out of runway for change, and the end to that story needs no elaboration.

 

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Kimberly E. White, MBA, is a senior consultant at Numerof & Associates Inc. (St. Louis, MO), a strategy, development and implementation firm serving pharmaceutical, medical device, and diagnostic companies as well as payers and healthcare delivery organizations.

Michael N. Abrams, MA, is managing partner at Numerof & Associates Inc.

[image courtesy of STOCKIMAGES/FREEDIGITALPHOTOS.NET] 

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