No industry likes the kind of attention that medtech has been getting lately.
There are front page stories in national publications that speak disparagingly of new device models and updates as only offering “dubious improvement.” They allege that much of medtech innovation amounts to “planned obsolescence.”
|James Varelis, Principal, PwC Health Industries|
At its core, the claim is that device manufacturers engage in a form of “incrementalism,” making minor changes in equipment year over year expressly for the purpose of enabling price increases and driving sales. All allegedly without delivering significant improvement in value for the customer.
While the industry might bristle at these charges, the fact is that the industry’s sales force plays into the hands of such critics.That’s because many medtech sales organizations today fail to highlight the real patient-focused and medical-customer-focused value that flows from the industry’s constant march for improvement.
The entire healthcare industry in the US is undergoing an irreversible transformation to a new paradigm in which reimbursement will be linked to patient-centric measures like patient satisfaction and clinical outcomes not only for procedures but also for medical equipment. To prepare for this new health economy, medtech should reinvent the decades-old sales machine that is hardwired in the current medtech business model.
In the emerging healthcare marketplace, it will need sales people who are not just sales “reps” but also true clinical partners. These would be people who aren’t exclusively focused on sales target metrics, but are thinkers and doers who can work out a business strategy and a P&L. That’s a path to a sustainable future in sales.
Where we were and continue to be today
In the current sales organization model companies are very process driven, punctuated with dashboards, performance metrics and quarterly or annual sales contests. From a management perspective, it is easy to track and standardize interactions with known customers and customer types. It is also easy to forecast sales and growth based on new device price uplifts and new usage indications.Customers are sold on periodic (and iterative) device features or updates and medical device service has been included for free as part of devices’ costs.
But there is collateral fallout from this model. In the face of traditionally high average sales prices (ASPs) and healthy margins, it is now harder to get uplifts on new technology every two to three years.
Further, while overseas markets and customer needs across the globe have been growing in importance, traditionally US-centered R&D routinely failed to take into account such local customer needs.
How did we get into the position we’re in?
Traditional customers in medtech were isolated and functioned in a siloed manner – physicians, hospital purchasing offices and so on.In an environment where competing products were often similar, sales reps perceived their relationship with purchasers as the selling differentiator.
They ended up downplaying the appreciation of a fuller value chain involving payers and even end user patients. But the selling model worked because the sales rep and customer (typically physician) relationship was a major influence on vendor and medical device selection. It is actually good news that the emerging new economic model for healthcare upends this cozy setup. Too much effort has been put into an unsustainable business model that will no longer serve medtech well in the coming years.
Where do we need to go?
In the evolving healthcare space, all participants should recognize the growing need to demonstrate value along every dimension of the value chain. That requires the sales function to gather input from all parties, not simply physicians. They need to pay particular attention to the real and perceived value delivered to provider executives, purchasing groups, and, last but not least, patients themselves.
Consider this example:
A major medtech manufacturer observed that in the lower income, heavily Latino neighborhoods of Los Angeles, the use of implantable cardiac devices with remote monitoring to treat and monitor heart issues lagged that of other cultural and ethnic groups. This was true both in initial implant and follow-up adherence.
Language, culture, education, and lack of tech-savvy all posed obstacles for sales teams targeting this demographic. The challenge for sales teams was to develop approaches that could help ensure access for that lower income Latino demographic that by all extrinsic clinical measures would benefit immensely from these therapies and capabilities.
Concurrently, payers were reducing reimbursement for clinic follow-up appointments in both value and frequency.Reimbursement for sources of revenue for cardiology practices such as EKGs and echoes were also falling. With large patient populations to care for, cardiology practices faced increasing revenue pressures.
Rising to that challenge, the medtech vendor adopted a new sales approach that involved understanding the value drivers of each stakeholder group – secured profoundly improved results. The solution involved targeting a single large medical practice with a predominantly Latino population that was underserved in terms of penetration of the new value-add remote monitoring capability. A key for the sales team was to learn the “pain points” of this population.
The largest pain turned out to be that patients had to visit the medical practice to download data from their cardiac devices. In Los Angeles that meant they would have to take public transit, typically spending almost an entire day on the trip, thereby sacrificing a day’s wages because of work absence.
To address this, patients were divided into cohorts of about 20 each that met to discuss and learn about remote monitoring. That leveraged the communal learning norm of the demographic. While patients could understand the medically significant value of remote monitoring through these small groups, the medtech vendor found the approach to be very important in gaining more insight about this population.
The providers also benefitted from this arrangement. Thanks to the technological emphasis in healthcare reform, reimbursement increased compared with the traditional clinic follow-up model. Smaller clinic schedules improved the practice’s ability to accommodate patient visits as well. With the prospect of increased revenue from superior operations, the practice enthusiastically adopted the new technology and workflow.
The improved results this sales team delivered could not be measured solely in terms of sales metrics. The new approach enabled the team to understand and appreciate where patients and providers could see value, and in turn communicate the added value the improved devices could deliver to all parties.
Given this example experienced by a major medtech company, how does the industry refocus its sales organization away from the traditional dashboard approach toward a model that enables it to capture and rely upon input from the customer?
There is no one magic bullet – but getting out and really listening to the different stakeholders can make a real difference.
What’s the path forward?
In building a new sales machine, these are some considerations to keep in mind:
- Medtech was previously shielded from payer influences compared to pharmaceutical firms that have sold into formularies
- Today’s convergence of physician practices increases the number of physician influencers and stakeholders in each practice and shrinks the number of decision makers
- Hospital acquisition of physician practices is disrupting the original value chain and sales reps’ previous relationships. Reps must now be able to build relationships with higher level executives and buyers of larger organizations. They need to know and communicate the economic benefits of the products they are selling instead of talking about feature or clinical benefits.
- R&D should increase its understanding of the true market and customer needs, and develop solutions that capture true differentiated product value in varied markets
Where will that take us?
The new sales structure will possess the ability to discern the new decision makers, cater to their needs and to truly identify differentiated value. Eventually, such an organization will be able to create value for customers by allowing them to, as we at PwC say, “Own the Disease” -- connect device and disease along a clear care pathway by increasingly integrating portions of disease care.
That will be the path to a sustainable future in sales.
[Feature Image Credit: iStockphoto.com user wakila]
- James S. Varelis is a Principal, PwC Health Industries, Pharmaceutical & Life Sciences sector