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Do You Know Your Customer’s Boss?

Device companies, including those in orthopaedics, have traditionally recognized that their primary customer has been the physician. With the recent trend of hospitals acquiring physician practices and physicians seeking employment at hospitals, most device companies would admit they really don't know their customer's new boss.

The hospital executive and administrator are entering the sales equation as an unknown, with priorities and expectations that haven't been part and parcel to the device company's product positioning strategy.

Merritt Hawkins, a Dallas, Texas-based physician search and consulting firm, reported in their 2011 Review of Physician Recruiting Incentives that 56% of their physician search assignments in 2010 to 2011 featured hospital employment of physicians, up from 51% the previous year and up from 23% in 2005 to 2006. The Medical Group Management Association's 2009 Physician Placement Starting Salary Survey stated that hospital-owned practices have been the most successful in attracting physicians.

Many in upper management and executives at medical device and pharmaceutical companies have said that this has happened before. In the 1990s, hospitals were buying physician practices only to turn around and divest them.

Device company executives should ask themselves if this line of reasoning justifies a wait-and-see approach, especially considering that the competition is always seeking an edge.

There are several reasons supporting this trend. Many doctors have indicated that they would prefer to treat patients rather than run a business. All of the responsibilities of billing, malpractice premiums, negotiating with insurers, implementing EHR systems and other administrative hassles would be left to the hospital. Hospital employment also provides greater work/life balance for physicians, which becomes prohibitive when running a practice.

According to a CNNMoney.com report entitled Doctors Going Broke, physicians also list shrinking reimbursements and changing regulations along with rising business and drug costs as factors preventing them from keeping a private practice afloat.

Hospitals are on-board because employed physicians provide a steady stream of patient referrals while allowing for more integrated models of care and better coordination of care services, which ultimately drives down costs.

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