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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.
A study by the Center for Studying Health System Change noted that hospitals view physician employment as a way to prepare for payment reforms that shift from fee-for-service to methods that make providers more accountable for the cost and quality of patient care.
Insurer Highmark’s pending deal to acquire the Pittsburgh-based West Penn Allegheny Health System adds an interesting twist to our title question. The Wall Street Journal last June reported that Highmark would pay salaries to doctors, offering them incentives to achieve quality and efficiency goals. Their integrated model would also rely on primary care doctors to coordinate patients’ care and focus on preventive efforts.
The drivers behind these emerging collaborative relationships are spiraling healthcare costs and efforts to become more efficient.
Interestingly, device companies and many other stakeholders continue to be conspicuously missing-in-action as new models set like wet concrete. Time will tell if Highmark’s move will set trends in the industry, but it is certainly indicative of strategic thinking on their part.
Highmark sees the writing on the wall: healthcare stakeholders that address our nation’s core challenges, decreasing costs while increasing value, will be winners in this new healthcare environment.
Last November, Cogency Group Institute hosted Sales Leadership in the New Healthcare Environment, an online interactive workshop series to discuss these and other emerging trends in healthcare with respect to their impact on healthcare sales.
One of the speakers, John Ogunkeye, Executive Director/Vice President of the Jefferson University Physicians Group and COO of Jefferson Medical College, fielded a question from a spine executive who asked how the trend of physicians seeking employment at hospitals will impact a surgeon’s choice for implants in areas like orthopaedics, spine, pacemakers, etc.
Ogunkeye’s response was that hospital administrators are now asking whether those implants are being selected because they are cost-effective and proven to result in the best outcome, or because the physician has a relationship with the device company.
Those in orthopaedic implant sales typically follow the “champion selling model” in which reps have developed relationships with physicians who stand up for them and their products when challenged. That physician would be the rep’s “champion.” In the past, sellers in orthopaedics were able to successfully leverage the dual hierarchy within hospitals to their advantage.
The trend of physicians leaving private practice is causing the line in between that dual hierarchy to blur. Hospital administrators are working with physicians to standardize devices and supplies based on proven outcomes, which complicates the rep’s champion selling model.
Dr. Robert Kocher and Nikhil Sahni, in their New England Journal of Medicine article “Hospitals’ Race to Employ Physicians – The Logic behind a Money-Losing Proposition,” share Ogunkeye’s outlook. They state that as more physicians become employees, hospitals will be better able to reduce excess costs associated with unnecessary practice variation and unnecessarily expensive supplies selected by physicians.
These reductions will be achieved through such actions as standardizing surgical supplies and using evidence to choose cost-effective medical devices.
In the workshop, Ogunkeye stressed that device companies, especially smaller ones, must re-evaluate their business models and sales strategies with a focus on innovation. They must make a case for the value that they add to the hospital organization—value being defined as quality over cost.
Just being a vendor that comes along to sell something, even if it is the best mousetrap, is antediluvian and outdated. It is no longer sufficient for physicians to provide fee-for-service volume activity. Device companies have to start looking at it the same way.
Opportunities for Strategic Customer Collaboration
Orthopaedic implant manufacturers and sellers should see these coming changes as an opportunity to engage in strategic customer collaboration, to ensure relevance in this rapidly changing healthcare landscape and gain a competitive leg up over champion sellers simply looking to sell more than they did last year.
Another audience member in Cogency Group Institute’s workshop series, a regional Vice President of Sales from a prominent orthopaedic device company, asked Mr. Ogunkeye what device companies could do, specifically, to help hospitals and providers in the efficiency pursuit.
Ogunkeye answered that one approach would be for device companies to start knocking on the doors of hospital administrators as they begin examining the efficiency process for hospital service lines and their applicable disease states.
Service lines are being wrapped up under their own umbrella and marketed as such. They are mini-hospitals, if you will. Physicians and administrators run them with committees that include financial staff and social workers. Device companies should aggressively work to include themselves in this mix.
As the dual hierarchy in hospitals becomes ever more obscured with the promotion of integrated healthcare delivery models, orthopaedic device companies should recognize this shift as an opportunity instead of a threat to their traditional sales models.
Professor Dylan Roby, Ph.D., a research scientist from the UCLA Center for Health Policy Research, was also a speaker in the workshop series and offered additional insight on the changing device company/customer dynamic and possibilities that exist for device companies seeking to engage in strategic customer collaboration. Accountable care organizations (ACOs) that are successful in driving down the cost curve in Medicare will receive bonuses as a share of the savings.
Roby remarked that it will be important for device companies to negotiate with ACOs what their share of the savings could be if they have a product that increases the quality of care, makes care delivery more efficient or affordable or reduces duplication of services.
Professor Roby echoed some of the themes touched on by John Ogunkeye. He noted that in the past, businesses grew up into specific silos, dealing with a specific population and product, trying to sell to providers without thinking about the integrative model.
Now more than ever, these companies must think about the value that their core business can add to developing the integration that is sorely needed in the healthcare system.
Are You Taking the Next Step?
The customer dynamic is changing. How will the sales strategies of orthopaedic implant companies and suppliers of all manner of healthcare products change to reflect this new reality? When coupling this trend with the fact that many sales reps are having a hard time getting beyond case coverage, asserting your company as a strategic partner that adds value becomes an acute imperative.
Is active C-Suite engagement at the core of your strategy? How are you positioning yourself to deliver in terms of technology, innovation and research in collaboration with hospitals, providers and even insurers as this new healthcare environment is being ushered in?
Orthopaedic device companies – it’s time to take your rightful seat at the table.
REFERENCES
CNNMoney, “Doctors Going Broke.” January 6, 2012.
The Wall Street Journal, “Insurer’s Cost-Cut Plan: Buy Hospitals.” June 29, 2011. http://on.wsj.com/iVBq89.
New England Journal of Medicine, “Hospitals’ Race to Employ Physicians – The Logic behind a Money-Losing Proposition.” May 29, 2011. www.nejm.org/doi/full/10.1056/NEJMp1101959.
Malcolm Vivian is a consultant at Cogency Group, a Phoenix, Arizona-based strategic management and sales leadership consulting firm. Cogency Group has extensive experience in driving breakthrough performance for companies in medical devices, pharmaceuticals, biotechnology and healthcare capital equipment.
