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Boost Sales by Understanding Healthcare Economics

Richard Ruff, Ph.D.

In times of transformational market change, there are new winners and losers. If you are an OEM, part of the strategy for remaining among the winners is making the investment in your sales team commensurate with the need for change and the opportunity to benefit.

Healthcare is a striking example of an industry undergoing unprecedented change. Most healthcare organizations are uncertain about the best strategic path forward. Yet, what is clear is that standing still is not an option. Among market leaders, the journey of change has already begun and will continue as the future unfolds.

On this journey, all decisions—including those that relate to quality, patient care and technology—will be viewed through a financial lens. Hospitals face significant financial pressures from reimbursement reductions; they are challenged to reduce the cost of care while improving its quality.

Hospital executives recognize that this requires transforming both the clinical and administrative sides of hospitals; they aggressively seek innovative and creative help from device companies to get the job done.

To succeed in this new market reality, manufacturers must be aware of the financial pressures and craft strategies to help surgeons and hospitals minimize costs and improve patient care.

This means that salespeople need to be more knowledgeable about hospital economics. They must be able to understand the bigger business picture vs. individual product snapshots.

For example: How do you reduce end-to-end supply chain costs vs. simply discounting the purchase price? How profitable is your solution to the hospital? Does the product bring pull-through revenue for other hospital services? Or perhaps, does the new equipment bring prestige to the hospital or to the physician by building a new revenue stream?

Ultimately, how does a sales organization move from where they are to where they need to be?

There are some overarching truths about excellence. First, it will not just be about doing something better, it will be about doing something different. Second, it will be less about relying on developing relationships and selling products and more about providing the ideas and insights that hospital staff need to reduce cost and improve quality. Third, it will require the salespeople to have the skill sets to not only communicate value, but create value—they will need to bring value by the way they sell, as well as by what they sell.

What are the new skill sets that will define the superior sales team? Here are a few:

  • The ability to sell economic as well as clinical value.
  • Institutional knowledge, including an awareness of increased pressure for risk sharing due to the shift to outcome payment models.
  • An alignment of products to a new set of metrics and stakeholders.
  • An understanding of the financial implications of cost control programs, industry standard contracting processes and the need to streamline ordering.
  • An awareness of the entire business chain—user, purchaser, hospital and payor.

In addition, customers will expect:

  • Fresh perspective on how to reframe the problems, with creative points of view on how to solve them.
  • Knowledge of the potential impact of cyber networks and interconnectivity for patient care.
  • Competence regarding high-demand disease states and special patient populations.
  • Marshaling and managing the totality of the company’s resources.

From a performance perspective, the bottom line is that salespeople must be more proficient at developing an understanding of a customer’s business environment that is being transformed by a disruptive set of economic considerations.

Salespeople need to develop a comprehensive grasp of this rapidly-changing business environment. Let’s examine three fundamental considerations that constitute this picture: understanding the buying process, understanding the business environment and knowing the decision criteria.

Understand the Buying Process

It’s hard to sell if you don’t know how people buy. If an effective sales strategy is to be developed, the salesperson must know who the players are, what role they will assume in the buying process and the degree of consensus among the players.

Sales staff also need to know what the buying process looks like in a rapidly-changing environment. Assuming that it mirrors the selling process could be a fatal mistake. Acting like the buying process is linear is a risky assumption.

Every salesperson needs to answer five key questions about the buying process:

  • Who will be involved in the buying decision?
      For example, what’s purchasing’s involvement? Will a value analysis committee be involved?
  • What is the importance of the role of each player?
      For example, is Dr. Smith the key decision-maker or simply an influencer?
  • What are the players’ opinions of your company?
      Are they internal champions, adversaries or neutral?
  • What is the timetable?
      Is this an immediate or a longer-term purchase?
  • Is budget allocated?
      Have funds been set aside for the purchase? 

Understand the Business Environment.

Events occur in the business environment that impact—positively and negatively—the probability of capturing the business. The salesperson must be aware of and manage these events and adjust their strategy accordingly.

Whether the customer is an integrated delivery network (IDN), hospital, accountable care organization (ACO), standalone center or physician practice, the winner will know the customer’s business better than anyone else. They can answer these questions: What factors will impact the healthcare provider’s future direction? What factors will the ACO consider when developing a value proposition for their patients? On what attributes will the surgery center try to differentiate itself from others?

Salespeople must develop a broad, deep understanding of the business environment in which their customer operates. But understanding the business environment doesn’t end there. Three more factors are important to more fully understand the customer’s business environment:

  • Business Context – e.g., changes in Medicare reimbursement or the drive to consolidate suppliers.
  • Your Company – e.g., a move to selling an integrated solution.
  • Your Customer – e.g., progressive improvements replace five-year plans.

Know the Decision Criteria

How will your customer decide among competitors? How does everyone stack up? Remember, fit is a two-way street. A salesperson needs to:

  • Objectively determine the degree of fit between the customer’s decision criteria and their company’s capabilities,
  • Obtain the customer’s perception of that fit.

It is often the case that the two assessments are not in alignment. An element of success is, knowing what to do about the misalignment.

In Summary

For years, medical device companies have enjoyed strong gross margins. As the economics of the marketplace shift, companies must produce high-quality products at a lower price and better equip their sales teams to understand hospital economics and sell strategically.

If you’re trying to get better at selling strategically, a great first step is to abandon the price sale and move to selling value. How do you make the switch?

Events occur in the business environment that impact—positively and negatively—your probability of capturing the business. Top sales performers are aware of and manage these events and adjust strategy accordingly.

For starters, keep it simple; selling value is first and foremost about developing a thorough understanding of the customer’s business. Whether an IDN, hospital, ACO, standalone center or physician practice, get to know the customer’s business better than anyone else so that you better position your solution.

I leave you with this last food for thought.

  • What’s different about the hospital’s future direction vs. where they’ve been in the past?
  • What is the ACO’s unique value proposition to patients?
  • How is the ASC trying to differentiate itself from others?
  • What role will value added services play, like supply chain management, in GPO sales?

Dr. Richard Ruff is a Co-Founder of two sales training companies: Sales Momentum, providing customized medical device sales training, and Sales Horizons, providing online sales training. He is the author of books, articles and white papers on sales effectiveness and sales coaching. You can download his white paper, Getting MedTech Sales Strategy Right, and subscribe to his blog, Sales Training Connection.