10 Things to Remember When Selling to Hospitals in 2015
With a new year comes new challenges, but also new opportunities. The health care market is changing as technology is playing a larger role, patients are taking their health into their own hands and the overall hospital customer base is changing.
Are you equipped with the proper products, training and pricing to sell this year?
Thomas Williams, managing director of Strategic Dynamics Inc., recently outlined the following ten things to remember when selling to hospitals to meet or exceed your revenue plan this year.
1. Supply chain costs account for 20-30 percent of a hospital’s budget so aggressive expense reductions will continue to prevail.
You should expect product standardization efforts to increase, Williams writes, continued focus on proper product utilization to eliminate unnecessary waste and usage, increasing difficulty getting new products into the system (committees) and continued pressure to reduce the prices paid for all items.
“Value analysis committees (VACs) will continue to delay the introduction of new products because each new potential entrant will need to be vetted. To displace an existing product or be added to the approved list will require evidence,” Williams stated. “These committees have been in existence for years now and they are growing in their level of sophistication. Use of VACs and other committees adds a level of complexity to the sales process and delays the introduction of new products.”
With an increased focus on price reductions and decreased utilization, sellers will be fortunate to get the same product volume in 2015 as they received in 2014, according to this outlook. Therefore, sellers will need to be aggressive in their competition tactics to grow, or offer new products to sell.
2. Capital budget money will be tight.
According to Williams, clinical information technology encompasses 25-35 percent of a hospital’s capital budget. In the average hospital, this doesn’t leave much for other departments. Sellers should therefore “articulate their measurable value and then be able to prove it.”
3. Hospitals are full of empty beds.
Inpatient census is down in most suburban and rural areas of the country, leaving most available hospital beds unfilled. This can be attributed to demographic defections, investments in new buildings and technology, and changes in how hospitals are paid.
“The end result is that in most communities across the U.S. there are too many hospital beds versus the need. Hospitals will continue to close or be forced to consolidate. Many of the smaller hospitals will be converted to community centers and/or out-patient diagnostic centers,” Williams writes. “If you sell to hospitals this means fewer selling opportunities for many sellers.”
4. Physician employment will continue.
As hospital and physician partnerships flourish, physician preference items will decrease in cost or alternatives will be used. Sellers will need to learn how to sell to new buying influences with marketing providing buyer personas for these individuals as well as an in-depth understanding of how to interface with them.
5. Demographic trends are re-shaping the services each hospital provides.
Predict trends before they happen so that sales quotas can be adjusted properly and territories can be re-aligned if required.
6. Data mining can pinpoint price discrepancies and areas of product over-utilization and product utilization.
According to the Medicare Payment Advisory Committee, in 2013 Medicare paid hospital out-patient departments 78 percent more on average than ambulatory surgery centers for the same procedure.
“This shows that there is a huge price disparity between surgery in a hospital out-patient center and an ambulatory surgery center. This is not going to continue. If your company sells products into these two markets then you can expect hospital supply prices to fall and more patients to be cared for in out-patient surgery centers,” advised Williams. “This means your in-patient product utilization will fall while it increases in the out-patient market. What affect does this have on your sales coverage model and pricing strategy? Suppliers should expect that hospitals will increasingly deploy data driven digital health strategies to reduce costs and improve patient outcomes. If you sell to hospitals that own surgery centers ensure that your data mining is as good as your client. Don’t be embarrassed in a negotiation.”
7. Bundled payments are the future.
This implies strict clinical pathways and a thorough understanding of all the individual costs included in the patients care such as labor, equipment, supplies etc.
8. Consumer price transparency is gaining momentum.
Sellers must be prepared for bundled pricing as hospitals define and scrutinize each cost in the product and service delivery chain.
9. Population health is here to stay.
As new financial models determine how hospitals will get paid, it affects how they deliver patient care.
“New care pathways are emerging to provide cost control and patient outcomes for specific diseases like diabetes, COPD and CHF, to keep these patients healthy and out of the hospital,” said Williams. “This will open up opportunities for new care models outside of the hospital and physician office. This will require new sales channels.”
10. Hospital consolidation will continue and GPOs and IDNs will prevail.
Further consolidation of hospitals has to occur because population health cannot work unless you are the low cost provider. GPOs and IDNs will control decision making for capital equipment, purchased services and supplies using real-time data and placing it into a dashboard.
“If you don’t have a robust GPO and IDN strategy start one now. If you have one, improve it. Your future revenue and margins depend upon it,” concluded Williams.
The challenges to vaccine distribution affecting everyone
While it is comforting to know that vaccines against COVID-19 are showing remarkable efficacy, the world still faces intractable challenges with vaccine distribution. Specifically, the sheer number of vaccines required and the complexity of global supply chains are sure to present problems we have neither experienced nor even imagined.
Current projections estimate that we could need 12-15 billion doses of vaccine, but the largest vaccine manufacturers produce less than half this volume in a year. To understand the scale of the problem, imagine stacking one billion pennies – you would have a stack that is 950 miles high. Now, think of that times ten. This is a massive problem that one nation can’t solve alone.
Even if we have a vaccine – can we make enough? Based on current projections, Pfizer expects to produce up to 1.3 billion doses this year. Moderna is working to expand its capacity to one billion units this year. Serum Institute of India, the world’s largest vaccine producer, is likely to produce 60% of the 3 billion doses committed by AstraZeneca, Johnson & Johnson and Sanofi. This leaves us about 7 billion doses short.
Expanding vaccine production for most regions in the world is complicated and time-consuming. Unlike many traditional manufacturing operations that can expand relatively quickly and with limited regulation, pharmaceutical production must meet current good manufacturing practice (CGMP) guidelines. So, not only does it take time to transition from R&D to commercial manufacturing, but it could also take an additional six months to achieve CGMP certification.
The problem becomes even more complex when considering the co-products required. Glass vials and syringes are just two of the most essential co-products needed to produce a vaccine. Last year, before COVID-19, global demand for glass vials was 12 billion. Even if it is safe to dispense ten doses per vial, there is certain to be significant pressure on world supply of the materials needed to package and distribute a vaccine.
It is imperative drug manufacturers and their raw material suppliers have clear visibility of production plans and raw material availability if there is any hope of optimizing scarce resources and maximising production yield.
It is widely known by now that temperature is a critical factor for the COVID-19 vaccine. Even the regions with the most developed logistics infrastructures and resources needed to support a cold-chain network are sure to struggle with distribution.
For the United States alone, State and local health agencies have determined distribution costs will exceed $8.4 billion, including $3 billion for workforce recruitment and training; $1.2 billion for cold-chain, $1 billion vaccination sites and $0.5 billion IT upgrades.
The complexity of the problem increases further when considering countries such as India that do not have cold-chain logistics networks that meet vaccine requirements. Despite India’s network of 28,000 cold-chain units, none are capable of transporting vaccines below -25°Celsius. While India’s Serum Institute has licensed to manufacture AstraZeneca’s vaccine, which can reportedly be stored in standard refrigerated environments, even a regular vaccine cold chain poses major challenges.
Furthermore, security will undoubtedly become a significant concern that global authorities must address with a coordinated solution. According to the Pharmaceutical Security Institute, theft and counterfeiting of pharmaceutical products rose nearly 70% over the past five years. As with any valuable and scarce product, counterfeits will emerge. Suppliers and producers are actively working on innovative approaches to limit black-market interference. Corning, for example, is equipping vials with black-light verification to curb counterfeiting.
Clearly, this is a global problem that will require an unprecedented level of collaboration and coordination.
Disconnected information systems
While it is unreasonable to expect every country around the world will suddenly adopt a standard technology that would provide immediate, accurate and available information for everyone, it is not unreasonable to think that we can align on a standard taxonomy that can serve as a Rosetta Stone for collaboration.
A shared view of the situation (inventory, raw materials, delivery, defects) will provide every nation with the necessary information to make life-saving decisions, such as resource pooling, stock allocations and population coverage.
By allowing one central authority, such as the World Health Organization, to organize and align global leaders to a single collaboration standard, such as GS1, and a standard sharing protocol, such as DSCSA, then every supply chain participant will have the ability to predict, plan and execute in a way that maximises global health.
Political influence and social equality
As if we don’t have enough stress and churn in today’s geopolitical environment, we must now include the challenge of “vaccine nationalism.” While this might not appear to be a supply chain problem, per se, it is a critical challenge that will hinge on supply chain capabilities.
In response to the critical supply issues the world experienced with SARS-CoV-2, the World Health Organization, Gavi, the Vaccine Alliance and the Coalition for Epidemic Preparedness Innovations (CEPI) formed Covax: a coalition dedicated to equitable distribution of 2 billion doses of approved vaccines to its 172 member countries. Covax is currently facilitating a purchasing pool and has made commitments to buy massive quantities of approved vaccines when they become available.
However, several political powerhouse countries, such as the United States and Russia, are not participating. Instead, they are striking bilateral deals with drug manufacturers – essentially, competing with the rest of the world to secure a national supply. Allocating scarce resources is never easy, but when availability could mean the difference between life and death, it becomes almost impossible.
Global production, distribution and social equality present dependent yet conflicting realities that will demand global supply chains provide complete transparency and an immutable chain of custody imperative to vaccine distribution.
The technology is available today – we just need to use it. We have the ability to track every batch, pallet, box, vile and dose along the supply chain. We have the ability to know with absolute certainty that the vaccine is approved, where and when it was manufactured, how it was handled and whether it was compromised at any point in the supply chain. Modern blockchain technologies should be applied so that every nation, institution, regulator, doctor and patient can have confidence in knowing that they are making an impact in eradicating COVID-19.