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This quarterly column is intended to prompt and promote device company thinking beyond price by better understanding the provider environment and by pursuing provider partnerships that convert one-time sales into long-term strategic and trusted partnerships.
Relative to the smaller device companies, this article explores core elements of hospital value analysis and purchasing, and ways that your sales channel can successfully navigate the processes.
The History
In the not too distant past, selling orthopedic products into hospitals was oftentimes informal. If the physician wanted a product and believed it to be safe and effective, it was approved for purchase, often with scant regard for cost. Today’s purchasing environment is much more developed in terms of product evaluation, with a focus on not only price, but also performance. As device companies strategize their approaches to purchasing, the following are suggested considerations for navigating the purchasing and value analysis processes.
Involve an advocate who will champion the product (most often a physician) or clinical user in the preparation and presentation of products. Value Analysis Committees (VACs) tend to view advocates less skeptically if they are not paid for their support.
- Articulate how the product is different from similar products and what problem the product solves. How is it different from similar products?
- Transparently communicate additional non-product costs such as complementary equipment, disposables, maintenance, etc.
- Conduct detective work on the product interests and sensitivities of VAC members and processes.
- Preemptively gather and organize supplemental materials and relevant research, selecting and presenting with educators and sales professionals as needed.
- Offer product trials if indicated.
The Environment
Across the country, hospitals, community-based services and practices have merged into multi-site, multi-service organizational entities over larger geographies, oftentimes called Integrated Delivery Networks (IDNs). This has resulted in fundamental changes with a more robust and cost-conscious VAC process. Exhibit 1 illustrates both the traditional and emerging states of VACs.
Exhibit 1: Traditional and Emerging States of Value Analysis Committees
Traditional:
- Physician as primary decision influencer; hospital deferential to physicians
- Lack of data rigor
- Vendor emphasis on relationship/historical precedent
- Duplicate products creat additional costs (training, inventory, etc.)
- Single site purchasing process
- Adequate reimbursement
Emerging:
- Multidisciplinary membership guide purchasing
- VAC more robust, data informed, quality driven (clinical evidence, peer review)
- Mandating clearly differentiated outcomes: clinical, economic, functional
- Standardized protocol for product consideration
- System or IDN-wide VAC process
- Fixed and/or declining reimbursement
The strategic and tactical implications for manufacturers are numerous, including increasingly centralized decision-making, proscribed physician influence, a heightened focus on demonstrable quality and the need to appreciate the variables that impact purchasing.
Device companies tend to be largely product focused, believing that features will sell themselves. On the VAC side, bias can occur when the primary focus is on lowest price in the category, regardless of product capabilities. Not understanding these potential realities can create disadvantages for device manufacturers. A sampling of challenges for the smaller vendor can include:
- Selling into highly-competitive product spaces against well-resourced vendors with larger portfolios
- Single, niche or limited product portfolios
- An inventor or founder who is passionate about
- their products but may be naïve about selling
- and purchasing processes
- A small sales staff and limited promotional resources
- Insufficient evidence of effectiveness and differentiated clinical value
- Purchasing departments that are evaluated based on maintaining or decreasing spend that may lack clinical knowledge and broader product context
With these market challenges in mind, this article offers five purchasing and value analysis perspectives representing hospitals, consultants, executive leadership and device company points of view.
Strategic Sourcing Perspective
Phil Gaby is Director Strategic Sourcing for Coastal Community Health in Jacksonville, Florida. Coastal comprises Baptist Health and Southeast Georgia Health Systems that include seven hospitals with a vigorous system-wide value analysis process.
Mr. Gaby states that their buying environment can be daunting for a niche orthopedic company. With Coastal’s typical focus on aggregating vendors where standardization drives value, smaller vendors may face barriers that larger vendors have previously overcome. He offers the following insights.
- Many device companies state that they have good outcomes. The question is, can they substantiate their claims? Stryker’s Mako robot is example of a niche product—unique technology, outcomes and physician support.
- Most device companies believe that they have a unique product, but the selling environment is daunting due to the high-demand purchasing department and its many competing priorities.
- Although dual- or sole-source vendors are the preferred option, 5% to 10% of spend is reserved for niche products.
- Smaller, niche device companies might consider partnering with an established company that seeks to expand its market portfolio with an additional product offering that could be leveraged into their current book of established business to overcome barriers to new product adoption.
Supply Chain Perspective
Lucretia Lyttle, MBA, MSM, Associate Principal, Vizient Advisory Solutions, knows both the healthcare provider and buyer environments well. Ms. Lyttle’s supply chain subject matter expertise spans sourcing, clinical value analysis, clinical resource management, supply chain optimization, group purchasing and hospital/physician alignment.
Her advice to device companies includes articulating whether new products may require complementary and incremental products and costs, assuring that supporting documentation demonstrates differentiation from existing products. Further, products must match or exceed established products and create value, not merely be a “me too” product.
Specific to physicians advocating for new products, Ms. Lyttle suggests that physicians have no financial ties to the product, which can result in additional scrutiny and skepticism among VAC members. If there are financial ties, she urges transparency. Ms. Lyttle, like each commentator for this article, notes that introducing a new product is challenging. To be successful, device companies need to be prepared in their selling strategy.
Surgeon / Device Company Founder View
Patrick Sweeney, M.D., an orthopedic spine surgeon, is Founder and President of Flow-FX, a developer of precision biologic and medication delivery systems that are FDA 510(k) cleared for fracture fixation and bone void filler delivery. The Class I disposable devices can be used alongside other nails, screws and orthopedic devices. In business since 2010, Flow-FX has upheld a heavy emphasis on FDA compliance and regulatory approval. Current priorities are commercialization of the products and regulatory approval for diabetic osteomyelitis indications, as well as gains in usage by well-known physicians who could champion the products.
A small device company, Flow-FX has encountered challenges in competing with larger vendors that are advantaged by size, longevity in the market, broader product portfolios and price flexibility. Dr. Sweeney states that innovation can be hampered by an FDA approval structure that is lengthy and complex. Additionally, Dr. Sweeney notes that smaller device companies are often dependent upon an independent salesforce that can vary widely in quality and focus of representation. One certainty for Flow-FX is that having an influential surgeon who advocates for their products is an absolute prerequisite. Per Dr. Sweeney, “Precision biologic delivery will change the outcomes of orthopedic problem cases in the future. We just need to survive the market realities and get the devices to the right surgeons.”
Device CTO Outlook
Troy Schifano is Chief Technology Officer for Omnia Medical. As a small device company, they have had both successes and challenges in selling niche products. Challenges have included limited brand recognition and skepticism among some potential buyers who may view a new or smaller company in a negative light based upon size alone. However, the reality is that smaller companies are also introducing innovation to the market. Another frustration for Omnia is the lack of communication from health systems regarding when a request for proposal is introduced, sometimes resulting in delayed or even lost opportunity.
Omnia’s strategy for growth has centered on leveraging innovative offerings and developing surgeon support for products. Once approved by a health system, smaller companies like Omnia are able to further develop hospital and surgeon relationships and ideally bring additional innovative product lines to the market.
IDN View
Fred Slunecka recently retired as Chief Operating Officer after 36 years with Avera Health. Mr. Slunecka now consults and advises health systems and device manufacturers with his tremendous depth of knowledge and credibility gained through innovative hospital leadership. His comments reflect his personal observations and are not necessarily those of Avera. His knowledge of purchasing and the VAC process across multiple service lines and product categories informs his perspective, and elucidates common strategies and tactics that result in success, regardless of product categories.
According to Mr. Slunecka, it is difficult for a company with a small number of products to compete with the large companies. To do so requires “old fashioned detailing” of products to the end-user. To “detail” successfully, the company must understand pain points of the user and demonstrate clearly that the product lowers cost, improves patient care, improves productivity or ideally, does all three. In short, new products need champions if they are to break into complex supply chain organizations that rule American healthcare today. Smart detailing identifies the champions that will carry the product forward to key decision makers.
He also noted that device companies need to understand that there is very little opportunity to pass on higher costs to patients. Payments are increasingly fixed through inpatient DRG or outpatient bundle arrangements. In addition to equal or better quality, all equipment or devices must make the economic case of lower cost, reduced length of stay and/or improved care (e.g. reduced readmissions, revisions, etc.).
While not a common consideration in smaller health system buying, Mr. Slunecka observed that larger IDNs, while attending to cost, may also focus on population health initiatives in which cost is viewed more broadly and value is realized over a large population for an extended period of time. Further, those IDNs with their own health plans may be more interested in products that address issues beyond purchase price, such as patient experience and lifetime cost of care.
Summary
Opportunities for innovative products in orthopedics and spine will continue to proliferate. In addition to the unique challenges for smaller vendors, the pace and dynamism of both the device company and hospital environments will accelerate, resulting in ever more complexity for all organizations selling into the healthcare industry. Regardless, several critical value analysis factors that every vendor will need to address, regardless of size, are listed in Exhibit 2.
Exhibit 2: VAC Essentials
- Strategic educational and sales readiness
- Multiple venues: hospital, inpatient, outpatient, ASCs
- Solution profiles: clinical and economic
- VAC process compliance
- Full cost transparency
- Physician advocacy
- Product trials and ease of use
The variety of perspectives and advisements offered in this article suggest that the most successful products and initiatives are undergirded by detailed planning, a thorough understanding of the protocols and compliance requirements of each specific VAC (whether single hospital, system or nationally-based), relevant supporting research and local physician advocacy.
This quarterly column is intended to prompt and promote device company thinking beyond price by better understanding the provider environment and by pursuing provider partnerships that convert one-time sales into long-term strategic and trusted partnerships.
Relative to the smaller device companies, this article explores core elements of...
This quarterly column is intended to prompt and promote device company thinking beyond price by better understanding the provider environment and by pursuing provider partnerships that convert one-time sales into long-term strategic and trusted partnerships.
Relative to the smaller device companies, this article explores core elements of hospital value analysis and purchasing, and ways that your sales channel can successfully navigate the processes.
The History
In the not too distant past, selling orthopedic products into hospitals was oftentimes informal. If the physician wanted a product and believed it to be safe and effective, it was approved for purchase, often with scant regard for cost. Today’s purchasing environment is much more developed in terms of product evaluation, with a focus on not only price, but also performance. As device companies strategize their approaches to purchasing, the following are suggested considerations for navigating the purchasing and value analysis processes.
Involve an advocate who will champion the product (most often a physician) or clinical user in the preparation and presentation of products. Value Analysis Committees (VACs) tend to view advocates less skeptically if they are not paid for their support.
- Articulate how the product is different from similar products and what problem the product solves. How is it different from similar products?
- Transparently communicate additional non-product costs such as complementary equipment, disposables, maintenance, etc.
- Conduct detective work on the product interests and sensitivities of VAC members and processes.
- Preemptively gather and organize supplemental materials and relevant research, selecting and presenting with educators and sales professionals as needed.
- Offer product trials if indicated.
The Environment
Across the country, hospitals, community-based services and practices have merged into multi-site, multi-service organizational entities over larger geographies, oftentimes called Integrated Delivery Networks (IDNs). This has resulted in fundamental changes with a more robust and cost-conscious VAC process. Exhibit 1 illustrates both the traditional and emerging states of VACs.
Exhibit 1: Traditional and Emerging States of Value Analysis Committees
Traditional:
- Physician as primary decision influencer; hospital deferential to physicians
- Lack of data rigor
- Vendor emphasis on relationship/historical precedent
- Duplicate products creat additional costs (training, inventory, etc.)
- Single site purchasing process
- Adequate reimbursement
Emerging:
- Multidisciplinary membership guide purchasing
- VAC more robust, data informed, quality driven (clinical evidence, peer review)
- Mandating clearly differentiated outcomes: clinical, economic, functional
- Standardized protocol for product consideration
- System or IDN-wide VAC process
- Fixed and/or declining reimbursement
The strategic and tactical implications for manufacturers are numerous, including increasingly centralized decision-making, proscribed physician influence, a heightened focus on demonstrable quality and the need to appreciate the variables that impact purchasing.
Device companies tend to be largely product focused, believing that features will sell themselves. On the VAC side, bias can occur when the primary focus is on lowest price in the category, regardless of product capabilities. Not understanding these potential realities can create disadvantages for device manufacturers. A sampling of challenges for the smaller vendor can include:
- Selling into highly-competitive product spaces against well-resourced vendors with larger portfolios
- Single, niche or limited product portfolios
- An inventor or founder who is passionate about
- their products but may be naïve about selling
- and purchasing processes
- A small sales staff and limited promotional resources
- Insufficient evidence of effectiveness and differentiated clinical value
- Purchasing departments that are evaluated based on maintaining or decreasing spend that may lack clinical knowledge and broader product context
With these market challenges in mind, this article offers five purchasing and value analysis perspectives representing hospitals, consultants, executive leadership and device company points of view.
Strategic Sourcing Perspective
Phil Gaby is Director Strategic Sourcing for Coastal Community Health in Jacksonville, Florida. Coastal comprises Baptist Health and Southeast Georgia Health Systems that include seven hospitals with a vigorous system-wide value analysis process.
Mr. Gaby states that their buying environment can be daunting for a niche orthopedic company. With Coastal’s typical focus on aggregating vendors where standardization drives value, smaller vendors may face barriers that larger vendors have previously overcome. He offers the following insights.
- Many device companies state that they have good outcomes. The question is, can they substantiate their claims? Stryker’s Mako robot is example of a niche product—unique technology, outcomes and physician support.
- Most device companies believe that they have a unique product, but the selling environment is daunting due to the high-demand purchasing department and its many competing priorities.
- Although dual- or sole-source vendors are the preferred option, 5% to 10% of spend is reserved for niche products.
- Smaller, niche device companies might consider partnering with an established company that seeks to expand its market portfolio with an additional product offering that could be leveraged into their current book of established business to overcome barriers to new product adoption.
Supply Chain Perspective
Lucretia Lyttle, MBA, MSM, Associate Principal, Vizient Advisory Solutions, knows both the healthcare provider and buyer environments well. Ms. Lyttle’s supply chain subject matter expertise spans sourcing, clinical value analysis, clinical resource management, supply chain optimization, group purchasing and hospital/physician alignment.
Her advice to device companies includes articulating whether new products may require complementary and incremental products and costs, assuring that supporting documentation demonstrates differentiation from existing products. Further, products must match or exceed established products and create value, not merely be a “me too” product.
Specific to physicians advocating for new products, Ms. Lyttle suggests that physicians have no financial ties to the product, which can result in additional scrutiny and skepticism among VAC members. If there are financial ties, she urges transparency. Ms. Lyttle, like each commentator for this article, notes that introducing a new product is challenging. To be successful, device companies need to be prepared in their selling strategy.
Surgeon / Device Company Founder View
Patrick Sweeney, M.D., an orthopedic spine surgeon, is Founder and President of Flow-FX, a developer of precision biologic and medication delivery systems that are FDA 510(k) cleared for fracture fixation and bone void filler delivery. The Class I disposable devices can be used alongside other nails, screws and orthopedic devices. In business since 2010, Flow-FX has upheld a heavy emphasis on FDA compliance and regulatory approval. Current priorities are commercialization of the products and regulatory approval for diabetic osteomyelitis indications, as well as gains in usage by well-known physicians who could champion the products.
A small device company, Flow-FX has encountered challenges in competing with larger vendors that are advantaged by size, longevity in the market, broader product portfolios and price flexibility. Dr. Sweeney states that innovation can be hampered by an FDA approval structure that is lengthy and complex. Additionally, Dr. Sweeney notes that smaller device companies are often dependent upon an independent salesforce that can vary widely in quality and focus of representation. One certainty for Flow-FX is that having an influential surgeon who advocates for their products is an absolute prerequisite. Per Dr. Sweeney, “Precision biologic delivery will change the outcomes of orthopedic problem cases in the future. We just need to survive the market realities and get the devices to the right surgeons.”
Device CTO Outlook
Troy Schifano is Chief Technology Officer for Omnia Medical. As a small device company, they have had both successes and challenges in selling niche products. Challenges have included limited brand recognition and skepticism among some potential buyers who may view a new or smaller company in a negative light based upon size alone. However, the reality is that smaller companies are also introducing innovation to the market. Another frustration for Omnia is the lack of communication from health systems regarding when a request for proposal is introduced, sometimes resulting in delayed or even lost opportunity.
Omnia’s strategy for growth has centered on leveraging innovative offerings and developing surgeon support for products. Once approved by a health system, smaller companies like Omnia are able to further develop hospital and surgeon relationships and ideally bring additional innovative product lines to the market.
IDN View
Fred Slunecka recently retired as Chief Operating Officer after 36 years with Avera Health. Mr. Slunecka now consults and advises health systems and device manufacturers with his tremendous depth of knowledge and credibility gained through innovative hospital leadership. His comments reflect his personal observations and are not necessarily those of Avera. His knowledge of purchasing and the VAC process across multiple service lines and product categories informs his perspective, and elucidates common strategies and tactics that result in success, regardless of product categories.
According to Mr. Slunecka, it is difficult for a company with a small number of products to compete with the large companies. To do so requires “old fashioned detailing” of products to the end-user. To “detail” successfully, the company must understand pain points of the user and demonstrate clearly that the product lowers cost, improves patient care, improves productivity or ideally, does all three. In short, new products need champions if they are to break into complex supply chain organizations that rule American healthcare today. Smart detailing identifies the champions that will carry the product forward to key decision makers.
He also noted that device companies need to understand that there is very little opportunity to pass on higher costs to patients. Payments are increasingly fixed through inpatient DRG or outpatient bundle arrangements. In addition to equal or better quality, all equipment or devices must make the economic case of lower cost, reduced length of stay and/or improved care (e.g. reduced readmissions, revisions, etc.).
While not a common consideration in smaller health system buying, Mr. Slunecka observed that larger IDNs, while attending to cost, may also focus on population health initiatives in which cost is viewed more broadly and value is realized over a large population for an extended period of time. Further, those IDNs with their own health plans may be more interested in products that address issues beyond purchase price, such as patient experience and lifetime cost of care.
Summary
Opportunities for innovative products in orthopedics and spine will continue to proliferate. In addition to the unique challenges for smaller vendors, the pace and dynamism of both the device company and hospital environments will accelerate, resulting in ever more complexity for all organizations selling into the healthcare industry. Regardless, several critical value analysis factors that every vendor will need to address, regardless of size, are listed in Exhibit 2.
Exhibit 2: VAC Essentials
- Strategic educational and sales readiness
- Multiple venues: hospital, inpatient, outpatient, ASCs
- Solution profiles: clinical and economic
- VAC process compliance
- Full cost transparency
- Physician advocacy
- Product trials and ease of use
The variety of perspectives and advisements offered in this article suggest that the most successful products and initiatives are undergirded by detailed planning, a thorough understanding of the protocols and compliance requirements of each specific VAC (whether single hospital, system or nationally-based), relevant supporting research and local physician advocacy.
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Patrick Vega is Consulting Director for Vizient Advisory Solutions. Mr. Vega consults to member hospitals, health systems and physicians in musculoskeletal services with a focus on high-value care by aligning cost, quality and performance.
