The U.S. healthcare industry has changed dramatically in the last 10 years. The share of government spending on healthcare now is close to 50%, according to the World Bank and CDC; reimbursements tied to quality or outcomes now represent 80% of all Medicare-based payments, according to data from the U.S. Department of Health and Human Services; and more physicians now are employed by institutions rather than independently, representing nearly 50% of the workforce, according to The Physicians Foundation. These trends and many others have created a sense of urgency among medtech manufacturers to evolve their business and commercial models.
In our work across hundreds of companies every year, we’re seeing that they are pursuing a number of initiatives such as growing their portfolios beyond the product, focusing on real-world evidence and connected health, developing and nurturing key account management functions, testing out innovative contracting, and better positioning their business toward customer centricity, just to name a few. While these initiatives are worthwhile, companies haven’t gone far enough. Many medtech manufacturers are dabbling without committing, trying out ideas without the proper support, always hoping and waiting for a return to the good, old days, when the drivers that contributed most to profit and growth were products, sales reps and pricing.
Given the industry’s hesitation, even in light of extensive changes in the healthcare landscape, we spent a great deal of energy over the last six months conducting a principles-based assessment. We reviewed past studies, interviewed several industry leaders and conducted research projects to dig into trends. We think that the findings reveal a more complex picture than we had imagined.
- Hospitals’ needs are more nuanced than we believed. Between a hospital’s department levels and its corporate administrative levels, needs from medtech firms vary greatly and are evolving. Therefore, there’s a high degree of complexity in medtech firms’ relationships with each hospital, which means that key account management roles have to adapt. For example, medtech organizations often rely on one KAM role to fulfill strategic account leadership, value selling and contracting responsibilities, which is a big ask of one person. Moreover, the importance of each of these skill sets varies per account—or even per account contact. To suit the complexity of the KAM-hospital relationship, KAMs need a diverse skill set; in-depth information about account behaviors; and a focused number of accounts, rather than being assigned to large territories—all in the name of developing KAMs’ ability to customize their strategies and approaches to win in this diverse environment.
- Not every hospital wants a partner. The definition of partnership that some hospitals still prefer is, “You lower your price and I’ll buy.” The industry has a poor perception problem, and pricing still seems to be the basis of most transactions. However, as the healthcare industry shifts more towards an outcomes-focused orientation, medtech firms now have new opportunities to effectively and profitably partner with more hospitals—at both corporate and departmental levels.
- The medtech industry needs a clear call to action. The winds of change have been blowing for quite some time in the provider world, but many medtech firms are unsure as to how much or how quickly they have to respond. Generally speaking, senior leadership sees a future that’s sufficiently different from the present, but most mid-level management don’t feel a sense of urgency, presumably because they’re seeing that the traditional approach is still working. Some customers are still buying the old way, while others are leaping headlong into the future. For the most part, though, the industry is investing in tentative experiments, testing the water rather than leaping straight in. Medtech leaders must commit to action.
- Many important functions are under-funded and lacking scale. Most of the selling, general and administrative expenses go towards supporting expensive sales forces, and there’s a significant need to strengthen IT capabilities. However, marketing and commercial support functions that improve customer understanding, and business processes such as market research, sales operations and analytics are still in silos. For example, in one client engagement, it took us two months to merge data from sales and contracting systems to identify how contracting is driving sales performance. There are still limited business processes for KAMs to work with sales reps to drive integrated strategies.
The evolving healthcare ecosystem is going to require that medtech firms make bigger internal changes and commitments, and resources have to be freed up from other places—such as expensive sales forces—to fund them. Moreover, business processes have to be created that align internal silos. But how do you motivate a firm to invest in such changes if the returns of its experimentation have yet to be realized? If something has worked well for the last 10 years without making real changes, why should the next 10 years be any different?
Winner takes all in these strategic transformations. There’s an early mover advantage, and these capabilities take a long time to build. The cost of inaction is significantly higher than the cost of action.