Getting the medical technology industry's commercial model out of the 1980s will pay significant dividends for years to come. Here's what needs to change.
Brian Chapman and Peter Masloski
The 1980s were a time of great innovation for the medical technology industry. The field of in vitro diagnostics was exploding with relevant diagnostic tests being released every month. Self-monitored blood glucose meters were being commercialized, changing how diabetics managed their diseases. Implantable cardioverter defibrillators dramatically reduced the risk of death from ventricular fibrillation. Angioplasty, pulse oximetry, mainstream use of laparoscopic procedures, and more—the list of product innovation is staggering.
In those days, sales and marketing were straightforward. A product was invented, approved, and reimbursed. The key task of marketing was to set a price, create some nice communications material, and focus on getting the word out. Salespeople could focus on educating eager surgeons on the latest products and procedures. Companies sold products—based on their features and benefits—to clinicians who used them, one patient type at a time. Hospitals rushed to offer the latest innovation to their patients.
But a lot has changed for the industry since then. In 2017, there are fewer compelling innovations and an assemblage of older products that are less exciting but need to be maintained. Many incremental innovations have been launched as line extensions that have not created real value. The hospital faces choices that look like the bewildering options offered in the toothpaste aisle of the grocery store. Sales reps struggle to keep up with all their responsibilities. Their focus is splintered across these products and they are challenged to communicate a value proposition beyond features and benefits. Hospitals have erected walls to slow down what they perceive to be needless innovation at higher prices.
Hospitals have become sophisticated buying entities with strong organizational and managerial talent. They have consolidated and formed integrated networks that push the standard of care, negotiate with payers, may engage with patients before they come to the hospital, and assist in patient recovery after intervention. The environment has become tremendously complex.
Examining the priorities of hospitals also reveals a big shift: perform better on quality metrics, minimize cost, increase throughput, and reduce length of stay. There are too many products on the shelves, offering too much choice. Hospitals want to hear about how to achieve these objectives and are open to new services and partnership models. They want to train staff, reduce infections, mobilize patients, eliminate never-events, and manage assets. Hospitals still have walls, patients, nurses, and doctors, but much has changed from the 1980s.
Medtech companies have been slow to respond. Marketing is often still organized around products. Products are still sold mostly on clinical features. We do see some exceptions, but often the organizational structure supports an insular product focus with few integrative roles looking at the value created across products or by offering additional services. The Medtronic/UnitedHealthcare insulin pump deal is a notable exception, with a strong outcomes-based element to what has been promised, interestingly, to the payers instead of the hospital. Otherwise, this kind of innovation in how the offering is priced, including outcomes-based contracting, risk sharing, or capitation, is rare.
Sales teams remain relatively inflexible, with a one-size-fits-all model applied even when there’s market heterogeneity. Key account positions are growing as integrated delivery networks become larger and more powerful, but they struggle to move beyond constructing rebating deals to value-based discussions. Some companies make big bets on the capability, but often still must make progress in skill and sophistication as well as the empowerment to act independently.
Sales teams typically sell product features and benefits to surgeons one at a time. We see interesting innovations in packaging and in pricing full procedures, but so often the products still stand alone. Innovation and flexibility are coming, but it’s taking time to adapt the old commercial models to a new way of approaching regional heterogeneity. Despite a dramatically changing data environment, many medtech companies struggle to manage their data, let alone use analytics to develop actionable insights. There are notable exceptions, but many companies rely on bolt-on solutions and ad hoc processes. Incentive structures are often rigid and may not empower collaboration across businesses and between roles. The ability to administer complex contracts is well beyond the capability of commercial operations teams today.
Here we are today, in 2017, and we believe that medtech needs to change to get out of the 1980s. The challenge is to design value propositions in step with the needs of the hospital. The sales force of the future needs to focus on selling outcomes that are priced based on the achievement of those outcomes. Our focus should continue to shift toward B2B relationships that span the entire medtech company and offer an approach that reduces the cost of doing business, creating partnerships of meaningful value.
Additionally, the focus should continue to evolve toward larger buying entities that are making the decisions today, and the selling model should flex to the local environment. Ultimately, commercial operations will need to continue to evolve to be broader in scope, with substantial improvement in capability that is designed to be in step with the needs of the commercial organization.
The needs of 2017 are very different from the 1980s. We all know the overall need for change but often struggle on the daily hamster wheel of quarterly numbers to make the required investments. Transformations are hard and require significant investment and time to overcome organizational inertia and move the needle, but it will be worth it. Getting our commercial model out of the 1980s will pay significant dividends for years to come.
Peter Masloski is a principal with ZS in Evanston, Ill., and leads the company's global medical products and services practice. His clients have been primarily in the medical devices and medical diagnostics industries, and his projects have included work in the United States, Canada, Latin America, Japan, and across Europe.
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