Are You Value Able?



By Marshall Solem, Managing Principal, ZS Associates


Hospitals are focused on longterm clinical efficacy, system-wide impact, and overall economic ramifications

Just a few facts to ponder:

• Over 60% of hospital beds are part of an integrated delivery network (IDN) today

• The top 150 networks account for about 70% of the network beds

• Hospitals or integrated networks employ more than 60% of all physicians, up from about 20% in 2003

All of this started happening prior to the Affordable Care Act, or “Obamacare,” but the ACA has certainly driven it faster. The evolution and experimentation in provider delivery models since the ACA was signed into law has been profound: horizontally integrated hospital networks, vertically integrated healthcare delivery networks, providers integrating with payors, ACOs, and all manner of provider-provider affiliations.

One of the key changes in these new models is that providers are changing both the criteria and processes by which they make decisions to purchase products and services. The important point for vendors is that basic clinical efficacy is no longer sufficient to make a sale. Providers’ focus has shifted dramatically to making such decisions based on long-term clinical efficacy, system-wide impact, and the overall economic ramifications of the medical product or service under consideration.


Unfortunately, many medical product manufacturers are ill-equipped to address these changes. When it comes to showing value, a simplistic product bundling and volume discounting program are too frequently the only offering manufacturers bring to their offer customers.

Yet a 2012 Aberdeen Group study commissioned by ZS Associates showed that the small subset of companies that do focus on understanding and effectively communicating the broader value and economic impact of their products far outperform others in revenue and profit growth, market share and customer retention.

Companies that do focus on communicating the value and economic impact of products far outperform others in revenue, growth, market share and customer retention.

In addition, providers’ heightened focus on system economics has brought many new faces—mostly administrators—to the purchase decision-making process. These and other types of new stakeholders, both at the individual healthcare facility and at IDNs, are not just participants in the decision process. They may often have significant influence over the final purchasing decision.

The slowing pace of innovation in medical technology has also made economics more important: The clinical differentiation across many products is often insubstantial, making economics the primary decision criterion. (This has been true in low acuity products, like supplies, for years.) Many providers feel the technology gap has narrowed so significantly that even high acuity products, like implantable cardiovascular products, are largely undifferentiated clinically, making economics the critical factor for these as well.

Manufacturers traditionally have not carefully studied the economic impact of their products. While pharmaceutical companies know all sorts of drug interactions and counter-indications for their products, most manufacturers have little understanding of their products’ economic impact on the patient, the institution, or the payor. The same can be said about most medical device manufacturers.

So we have to change to navigate the landscape

In order to deal with these challenges, industry leaders are making adaptations:

Understanding & communicating economic value

• Industry leaders are conducting comprehensive health economics studies on both their in-line and all-new products. One major manufacturer has taken a strategy of launching new products only after it has developed an economic story as strong as its clinical story

• Companies are highlighting the economic impact of their products in marketing messages. We all know that nobody wins a price war, and leading firms in the Aberdeen study were more than twice as likely as other respondents (85% versus 34%) to communicate their product’s or service’s broad, longterm economic value and visible, customized benefits clearly to their customers

• As an example, if a product reduces hospital-acquired infections or hospital-acquired wounds (which payors no longer reimburse), this translates into improved quality and financial outcomes for the hospital. Or a product may result in lower cost of ongoing care, or lower hospital readmission rates. In either case, manufacturers need to calculate and communicate those economic benefits to the right decision makers at vertically integrated IDNs, ACOs and payors

Reconfiguring sales forces and targeting new decision makers

• Leading manufacturers are targeting sales force efforts on administrative decision makers at both the individual facility and IDN level. This often involves reducing the size of traditional field sales forces that call on clinicians while emphasizing Key Account Managers (KAMs) who have the business skills and training to call on the new provider stakeholders and communicate about economics and financial issues

• Because the KAMs cost more than the traditional field reps they replace, companies are also replacing some of their traditional field activity with alternate channels, like inside sales and digital marketing tools. In essence, we’re seeing the traditional field sales force get squeezed by KAMs on the high end and lower cost channels on the low end

• Progressive companies are changing their entire sales process to be more consultative with their provider customers. Manufacturers consult with new stakeholders to understand the unique nature of the provider’s patient case mix and operating processes. Sales reps and KAMs develop the best solution for the provider, understanding the system-wide impact on operating processes, quality, safety and economics. When done right, leading manufacturers are adding significant value to the customer in the sales process itself. In the Aberdeen study, companies that demonstrated these practices showed significantly larger deal sizes, revenue growth and customer retention

Developing new contract structures & governance processes

• Innovative contract structures involving a broad portfolio of a manufacturer’s products are helping providers realize cost savings. While this seems like an obvious and simple strategy, developing these contracts can be extremely complex. Often, in multi-divisional companies the internal incentives and governance processes work at cross-purposes and discourage cooperation. Many companies have developed “deal desks” and accompanying governance structures to streamline the process of responding to RFPs and constructing large, innovative deals

• As more deals are being made across divisional and business unit boundaries, large multi-divisional companies are investing significant resources to synchronize their customer databases. This is no small task, but, if not addressed, often inhibits a new customer-centric sales and marketing strategy. Given the size of the effort, leading companies are getting in front of this infrastructure requirement even in advance of figuring out their new customer facing strategies

The rapid changes in the provider and payor environment require nothing short of a transformation in healthcare manufacturers’ go-to-market strategy. Such transformation is often necessary for companies to remain relevant in a market proliferated with products that show little clinical differentiation.

On the positive side of all this change, however, the financial success of the leaders in the Aberdeen study suggests there is great promise for companies that are able to understand the economic value of their products and services. Those that can implement an effective go-to-market model to communicate that value to new decision makers will have significant competitive advantages far into the future—no matter what direction health care reform will take over the next decade. •

Marshall Solem is a Managing Principal at ZS Associates and leads ZS’s Sales Solutions area. He has worked with over 75 sales organizations ranging in size from startups to the Fortune 50. His expertise includes go-to-market strategy, sales and marketing organization design, new product launch effectiveness, territory alignment, incentive compensation, talent management and sales force effectiveness. He has worked in medical devices, pharmaceuticals and biotech, building products, consumer products, financial services and utilities with clients worldwide. Marshall holds a Master of Management degree from the Kellogg School of Management at Northwestern University


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