ADVERTISING, DISTRIBUTION, & SALES
Matters aren't getting any easier for medtech sales reps. Already challenged by a fickle third-party payer system and intense competition in nearly every sector, today's reps are also facing an increasing array of vendor credentialing requirements and tougher legal scrutiny than ever before. For this issue's roundtable discussion, MX called upon a panel of experts to provide their views about the current state of medtech company sales efforts, and the implications of current trends for sales management in medical device companies (see sidebar).
MX: Gaining access to hospital purchasing decision makers is becoming increasingly difficult for medical device manufacturers. In recent years, medical device sales reps have seen a proliferation of requirements that providers are demanding vendors meet in order to call on them. How prevalent are vendor credentialing programs among hospitals, and what types of requirements are most common?
Mark Adams: On the East Coast, Philadelphia and Boston seem to be the cities that are jumping on vendor credentialing requirements faster than anywhere else. Hospitals are telling reps that after a certain time they will not be allowed in the hospital unless they have paid a fee. But the fee is expensive, and it's becoming restrictive.
One hospital system in Philadelphia also wants vendor reps to take a proficiency test to ensure that they know their products. I'm not exactly sure how they are going to be able to quantify that.
For the Philadelphia area, a company called Status Blue (Marietta, GA) has begun to tout itself as a healthcare vendor certification service. According to this firm, the company pays $180 for each rep, and then the rep is certified for several different hospitals in the area. The materials I saw didn't say which hospitals had signed onto the program, only that Hahnemann University Hospital was going to begin using the program.
Mark Miller: The way that these requirements are being imposed by certain hospitals or groups of hospitals does seem to be a little bit dependent on region. For instance, the University of Wisconsin charges $250 to register a rep. The rep may also be required to take some kind of test. That registration allows the rep to call on people throughout the university, and to bring in their managers.
Other places are requiring reps to come in on a Saturday and complete 48 hours of training before they will be permitted to come into that single institution. Obviously, for smaller companies such as Zonare, that represents a significant barrier that could prevent our reps from selling successfully.
Another vendor credentialing company is called RepTrax (Lewisville, TX). I guess it costs $175 a year for a rep to join that service. In addition, the reps have to go online and enter a lot of information, and then prove through some kind of certification that they have the proper vaccinations and immunizations and so on. Hospitals also have to pay a fee in order to join this service.
How are medtech sales forces adapting to vendor credentialing programs? How does the effect on small manufacturers differ from the effect on larger companies with more reps?
Miller: There's no question that larger companies are at an advantage because they can negotiate for their entire company across a large number of hospitals. And since those hospitals would have more than a single rep calling on them from that company, it makes sense for them to set up an agreement on a companywide basis.
Adams: It's also not good for the hospital. Because smaller companies that are just ramping up may very well have a better mousetrap.
Vendor credentialing amounts to a revenue center for hospitals, which means it's an expense line for sales managers. Overall, what are you having to put in your budgets to accommodate the fees that hospitals are charging?
Adams: That's the problem; we honestly don't know. I can't budget for something that I have absolutely no information about. And that's really what it boils down to at this point. We don't have any kind of information from these people at all.
Even before pay-to-play arrangements began gaining traction and making it difficult for reps to get into hospitals, many institutions had already begun to change their ways of dealing with medtech sales reps. How has the purchasing power in the medical device marketplace changed in recent years?
Marshall C. Solem: We've definitely seen a continued increase in the involvement of other stakeholdersbeyond the physician, surgeon, and clinical staffin the decision process. Now, specialists in areas such as infection control, quality, materials management, purchasing, and so on, are playing a much larger role. And increasingly, depending upon the product, IT specialists are also getting involved.
These changes are really shifting the dialogue from a sale based on clinical effectiveness to a sale that relies on economic factors and a much more overarching value proposition.
How does that trend change the relationship that your sales reps have with physicians? And how does it affect your company's sales strategies?
Adams: It's clear that physicians have lost a lot of power and clout. Our company sells into the electrophysiology lab, and the connection has always been to their interventional partners. But now those partnersbecause of the diminished status of the stent marketdon't have the same financial clout in the hospital that they had in the past.
If your reps are selling less to physicians than in the past, does this also reduce the feedback and input that they get from physicians?
Adams: It's very clear to us that physicians don't know what they can purchase. When asked, they all say they want to buy those disposables and that console. But then they will also admit that they don't know if they have any money.
So then the sales rep has to go from the physician who is specifying the product to other hospital employees. And at this point, the whole game changes.
The lab director says, 'I don't have any money for that. I can't buy a piece of capital equipment. I can't even rent one.' And then the rep has to climb the ladder from there to the hospital administration, while at the same time coordinating every step with the purchasing department.
And at every rung of the ladder, the rep has to have a really, really good story to tell about why this product is going to be not only beneficial for patients, but also an enhancement to the hospital's profit centers. Without that, even a product that already has FDA approval and third-party reimbursement coverage is not going anyplace.
Dale Hagemeyer: One way to combat possible decreases in feedback is to look to syndicated data sources such as Health Market Science (www.healthmarketscience.com), for data about which devices physicians are prescribing for their patients. These data are gleaned from actual insurance claims.
It is becoming critical that companies understand how effective their sales efforts are at influencing physicians. It is one thing for a physician to say that he or she favors a company's product. It is quite another for a company to be able to monitor physician behavior and have data to describe it.
In order to better differentiate themselves, some companies have begun to perform economic outcomes research so that they can provide that information to their sales reps. In your experience, what are companies doing beyond their clinical studies to support the economic case in favor of their products?
Solem: In our clients, we're seeing a lot of growth in health outcomes departments and reimbursement departments, so that companies can start tailoring their message and their value proposition to all these other stakeholdersparticularly the economic stakeholders.
Some companies are putting in place special business-oriented repsseparate from their clinically oriented repsto try to better understand and build a relationship with these other stakeholders in the institution. Sometimes a company can get its clinical reps to perform that role, so that there is only one person involved. In other cases, companies are splitting the business role and the clinical role into two different positions.
But they are clearly doing postapproval studies and tracking. And they are conducting lots of outcome studies in partnership with some of their best customers, so that they have a real story that they can tell to the economic stakeholders in order to be successful in this realm. Because it's clear that the clinical story alone doesn't cut it anymore.
Miller: When we teach and train our sales reps, we like to have them talk about the return on investment. We prepare them to perform a complete analysis of the economics of the decision to purchase or acquire a piece of capital equipment like ours, including the return on investment, how long it will take to pay it back, and what kind of revenues can be expected.
Sales and Ethics
The marketing and sales practices of medtech companies are coming under increasing scrutiny. How is this scrutiny affecting how medical device manufacturers (across all sectors) manage their sales functions?
Solem: We're hearing much more discussion from our clients about the need to keep sales and marketing practices within guidelines. Compliance is starting to become part of performance evaluations for regional vice presidents and managers, and obviously an expectation for individual sales reps.
Many companies are relieved that medtech sales practices are returning to an emphasis on which company can deliver the products with the best clinical and economic outcomes for their customers, rather than which company has the biggest or best entertainment budget.
However, in some of these discussions we still hear the lament that not everybody is playing by the same rules, and that competitors are playing outside the guidelines.
Adams: From my perspective, the ethics, morals, and principles of my company all trickle down from my chair to my sales force. And actually, each of us, as a sales manager, knows exactly what our people are doingor pretty closebecause the money that they spend has to come from someplace. And I'm the guy who has to sign off on expenses.
So I encourage our reps to do the right thing. And I explain to them on a regular basis that this is the way we're going to do business.
When I'm expounding to my reps and asking for more sales interactions with key positions and key opinion leaders, for instance, I make it very clear that those peoples' opinions should not be considered for sale. Because if they are, they are also for sale to somebody else with much deeper pockets that we couldn't compete with.
Miller: Our company is subject to two significant types of reporting requirements that limit the potential for abuses. First, because we have a contract to supply the Veterans Administration (VA), we have to report all of our deals to the government. And second, because we are a publicly traded company, the Sarbanes-Oxley Act requires that we follow the rules for revenue recognition, making sure that we have delivered on every verbal or written promise to every customer we've sold to. It costs companies a lot of money to track this kind of stuff, and those costs are especially stiff for small companies.
So ethics guidelines are only one means that companies can use to control sales practices. From a practical standpoint, reporting requirements such as those imposed by a VA contract or by the Securities and Exchange Commission's revenue recognition laws can be just as important.
Hagemeyer: I think that business strategist and author Don Tapscott has the right approach: transparency is a critical empowerer. Last fall I spoke at a conference with Senator Paul Sarbanes (DMD). We had a chance to talk a bit about transparency as a philosophy as opposed to a requirement. It is quite liberating once you 'get it' and have the ability to 'do it.'
Many companies have adopted the AdvaMed Code of Ethics as a guide for sales interactions with healthcare professionals. How do companies ensure sales force compliance with these policies (or others)? Are these policies adequate guides for keeping companies out of trouble? What kinds of activities do you undertake to make sure that all of your sales reps are trained in these policies?
Miller: We have not adopted the AdvaMed Code of Ethics. However, we have our own policies and processes in place to govern how our sales and applications people go out and make sales calls.
Solem: Particularly the larger clients that we work with have all pretty much adopted the AdvaMed code. But merely agreeing to such a code is never enough. To make sure that there is compliance throughout the company, the code really has to receive top-to-bottom commitment and buy-in, and programs have to be created to train employees about the code and promote its use.
Out of concern over the behavior of pharma sales reps, the District of Columbia recently voted to require the registration of pharmaceutical company sales reps. Do you think city, state, and regional authorities will begin to adopt this strategy for medical device reps as well?
Solem: We're seeing a lot of moves directed at the pharmaceutical industry. People are trying to limit the access that pharma reps have to healthcare providers, and limit their ability to use information on physician prescribing behaviors and things like that. But a lot of these movesparticularly in New Hampshire and the northeasthave been thrown out of court as not legitimate.
The effort in Washington, DC, has something of a different twist to it. It is motivated by a combination of ethics concerns as well as a desire to restrict promotional efforts that lack content. Those promotional efforts might not be unethical, but they are often more hype than substance, so there is still an interest in controlling them. Whether these restrictions will survive future court challenges remains to be seen. But in the future, it seems likely we'll see more such efforts. How they will ultimately settle out is anybody's guess right now.
Hagemeyer: I work closely with pharma as well as medical device companies. I don't think this type of reaction will spread widely. The state gift laws have already restricted what reps can do in terms of influencing with things of value. It would take a lot of wrangling to get the states to agree on a federal version of this type of legislation. Watch for pharma to be the pattern, but don't expect much in the near future. The worst is over.
This summer, the French government is implementing a sweeping registration and certification program for sales personnel. It is a real nightmare for the companies behind those reps. Among all the EU nations, only the French are doing this, because it is so restrictive and labor intensive.
Fortunately, we're a long way from where the French are.
Structuring Sales Forces and Compensation Models
Medical device manufacturers have multiple options when it comes to structuring their sales forces. How are medtech companies determining whether to build direct sales forces, rely on independent sales reps, or formulate some sort of hybrid approach? What types of factors need to be considered?
Solem: A lot of things need to be factored in. One of the biggest considerationsparticularly for small manufacturers with a niche product, or even companies seeking to market a broadly appealing platform technology to medical specialists for a specific niche procedureis whether the company can afford to build the critical mass of a sales force by itself.
If the company can't afford to build that core group by itself, hiring independent reps, or going through a distributor or partner with a broader portfolio, can be the way to go. In fact, being part of a larger sector-specific portfolio is often a good way for a start-up company to gain access to the market for its product.
On the flip side are companies that choose to build their own direct sales forces. Doing so is quite expensive, but also gives companies a lot of advantages. Not the least of these is control over the way the company approaches its customers. Companies lose a lot of that control when they go through independent reps, which makes that a somewhat risky choice.
How strong is the competition to recruit medtech salespeople? How does that competition affect your strategic thinking with regard to elements such as Marshall just described?
Adams: CryoCor's area of specialization is electrophysiology treatment of atrial fibrillation. And in this realm, it takes a specific knowledge set for sales reps to be successful. I don't have any bias against distributors, but I don't typically find the knowledge set that we need in distributor reps. Moreover, I agree that overall, a company gets better coverage from a direct rep.
Nowadays, however, one important criterion is how fast the candidate can hit the ground running. Smaller medtech companies, especially, just can't give a candidate 90180 days to get up and rolling. We need somebody who is going to get in front of customers and begin making an impact in a very short period of time. Consequently, the candidate's history and what their experience enables them to bring to the table can be very important.
Merger and acquisition activity in the medical device industry continues to accelerate. Following a merger, overlap in account coverage and roles, downsizing, or even a need for relocation can lead to huge stress and unrest among salespersons. What are the most crucial considerations for medtech sales executives looking to effectively manage small- and large-scale sales force integrations?
Solem: One of the biggest issues that we see during integration is that the salespeople lose sight of the fact that their primary job is to sell to and support the customer. They wind up spending too much time on tasks related to integration, and the customer gets lost in the process. So one thing that absolutely has to stay in the forefront during integration is that the main job of the company and all of its employees is to take care of the customers.
A second big issue is for the newly merged company to focus on retaining its best people from both the buying and selling companies. Again, competitors are wise to the mayhem associated with mergers. Uncertainty within either of the merging organizations can make employees begin to look around for their best opportunities. And this impulse doesn't just come over recently hired or mediocre reps; even good, long-time employees will use company uncertainty to explore their options.
Adams: What's really challenging right now is the environment that's been created by all of the mergers in the cardiology space, by the problems that Guidant-Boston Scientific is having, and by Johnson & Johnson cutting back after its ill-fated purchase of Conor Medsystems. A lot of reps are on the street because of these issues.
So now, when repsand even sales managershear about a potential suitor, they are already heading for the door. This environment makes retention extremely difficult. Salespeople have to trust their company and its managers implicitly. But now, salespeople don't really trust anybody on a regular basis. That's why they are so independent and why they are doing what they are doing. But it's a real challenge for management.
Miller: I have been involved in a few mergers and acquisitions, and I believe that I've seen the good, the bad, and the ugly among them. But I do believe that the most important thing a merging company can do is to retain as many of its employees as it possibly can, focusing on the retention of salespeople in particular.
Very early on, companies must focus on what the sales management structure is going to be, so that they can quickly give their salespeople a sense of security. Companies need to get those teams focused, motivated, and going in the same direction, so that they can begin to make everyone feel comfortable working with one another.