Copyright©March 2001 IMDA
INDIAN WELLS, CA--In today’s hospital, where clinical and financial goals are sometimes opposed to each other, the specialty distributor’s most productive call point might very well be the department administrator.
That’s because that administrator understands and answers to clinical and economic sets of demands. In other words, he or she has to satisfy clinicians while controlling the department’s bottom line.
IMDA members are well-positioned to address that department head’s concerns, maintains Nancy Reaven, president of La Canada, CA-based Strategic Health Resources, who spoke on “Valuing New Technology” at the IMDA Annual Management Conference in Palm Springs.
To do so, the specialty distributor has to understand the financial condition of the customer, and how the technology affects that.
“It’s absolutely essential to pay attention to the business context of the hospital you’re working with in order to come up with a value proposition,” says Reaven.
What makes up that business context? Perhaps most important, it is the way the hospital gets paid for delivering care.
In most if not all cases, the hospital receives money from some combination of Medicare, Medicaid and commercial insurers.
The difficulty for the hospital – and, by extension, its suppliers – is that each of those payers reimburse on a different and sometimes opposing basis.
For example, Medicare DRGs encourage hospitals to reduce costs per procedure and length of stay, but not the number of admissions. Medicaid, which pays on a “discount-of-billed-charges” basis, can actually encourage more admissions and longer lengths of stay.
Commercial insurance
programs, on the other hand, can pay any number of ways. Per-diem contracts
incentivize the hospital to reduce the cost of caring for patients, but not
length of stay. Case rates, which include both the physician and hospital (and
outpatient) components, encourage the hospital to cut the costs of outpatient as
well as inpatient services. Capitation – though largely failed – reimburses
providers on a per-member-per-month basis, regardless of whether they need care
or not. Capitated providers wish to promote health and, negatively, create as
many barriers to accessing the health care system as ethically possible.
Enter the rep
Into this strange and complex environment walks the technology salesperson.
In order to sell effectively, he or she must know the department’s payer mix and how the technology will maximize reimbursement. (It almost goes without saying that the distributor should be able to prove that the technology in question improves patient care.)
He or she must also keep in mind that hospitals “would rather not buy one more unit of technology, because they perceive that every unit of technology drives them further into the hole,” says Reaven. And that’s a scary thought, given that the average hospital’s operating margin continues to drop (to as low as a predicted 2.7 percent in 2001).
The sales rep must also know the potential customer’s definition of value, as it relates to new technologies. For example:
· Must new technology be cost-neutral, that is, no more expensive than the existing standard of care?
· Should it actually reduce total costs, either by reducing procedure costs, costs per admission, etc?
· Must it improve such “intangibles” as employee morale or market competitiveness, which ultimately could translate into greater market share?
Here are some other factors for the specialty dealer to consider:
· How does the technology affect hospital admissions, length of stay and per-procedure costs?
· What are its per-unit costs, for example, cost per day, cost per admission, cost per unit of OR time?
· Will it affect throughput? In other words, will it shorten procedure times and allow the provider to schedule more cases? (And if so, is the provider in a position to take advantage of that benefit?)
·
Will it reduce complications or medical errors (a very important
consideration at this point in time)?
Case in point
Reaven demonstrated how she used her “Evidence of Value” model to help a manufacturer of vascular sealing devices make its case to potential hospital customers.
The device seals the femoral artery following cardiac catheterization. It could replace the current “goal standard,” of treatment – that is, the nurse applying pressure on the patient’s groin for 20 to 30 minutes, then making the patient lie still for several hours.
It’s clear that patients would prefer the sealing device, which requires them to lie still for only 10 minutes following cardiac catheterization instead of five or six hours. But the question is whether hospitals can justify the additional expense – as much as $250 per cardiac catheterization.
Studying cardiac cath procedures in four institutions and interviewing the personnel there, then drawing their reimbursement picture, Reaven’s group found that by using the vascular sealing device, hospitals could dramatically increase the number of cardiac catheterization procedures they perform. If its market demands more procedures, then the $250 investment is a good one. But if the geographic market is already saturated, it might not make economic sense.
“If clinicians
don’t buy off on the technological benefits of what you’re selling, you
won’t sell anything,” says Reaven. But if the technological benefits are
clearly there, a good cost-effectiveness argument will surely help.
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