New Commercial Models in Medical Devices


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For medical device (MD) comapnies, we offer a multichannel, holistic model to bolster their bottom lines when marketing to healthcare professionals (HCPs) - including Accountable Care Organizations (ACOs) - and contending with healthcare reform such PPACA, new sales channels, advanced analytics and oher factors.

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New Commercial Models in Medical Devices

  1. 1. • Cognizant 20-20 InsightsNew Commercial Models in Medical DevicesHealthcare reform, new sales models, emerging social channels anddraconian cost-cutting imperatives are forcing medical devicecompanies to transform how they operate. By embracing a holisticmodel, these companies can remake their commercial operations. Executive Summary Impending change will impact product perception, salesperson relationships and ultimately the Enormous change is on the horizon for medical successful revenue model that has been in place device (MD) companies. For years, MD companies for years within the MD marketplace. Successful built their commercial models around a combi- MD companies must embrace the changes to nation of innovative products and strong rela- established commercial models to effectively tionships with healthcare professionals (HCPs). compete in the marketplace of the future. These products and relationships have resulted in preferred product designations, comfort with Market Challenges single companies as suppliers of choice and an interdependency that rewarded the salespeople, The dramatic transformation in the MD com- companies and the HCPs. mercial model is being driven by four factors: healthcare reform, complex sales and contracting models, new promotional channels and demands to reduce and reallocate costs (see Figure 1). Commercial Model Transformation Healthcare Reform Complex Sales & Contracting Models • Pervasive reforms across all major markets • Demand for outcomes-based models. to address cost and quality of care. • Physician influence diminished in hospital • In U.S., includes 2.3% tax on medical purchase decisions. devices; Medicare targets $500B savings • Emergence of vertically integrated ACOs. from hospitals. • Consider “bundled” product sales. New Commercial Models New Promotional Channels Cost Reduction/Reallocation • Increased use of digital and social media. • Price pressure strains profitability and drives • Move towards intimate, bidirectional cost reduction initiatives. communications. • Need to shift investment from major markets • Demand for integrated 360° view of customers. to higher-growth markets. Figure 1 cognizant 20-20 insights | september 2012
  2. 2. • Healthcare reform: Healthcare costs continue reporting on costs for IMDs to use in setting to grow worldwide, as new expensive therapies payment rates and linking payment to quality and innovative devices are introduced to and efficiency of care.1 address the needs of an aging population. Government and private payers are struggling • Complex sales and contracting models: Clinical effectiveness has been the foundation to ensure clinical effectiveness while controlling of the MD sales model. MD sales reps provide costs of a healthcare model that is considered details on the clinical value of their products to “unsustainable.” become the preferred solutions for physicians, who had considerable autonomy in product Governments around the world are introduc- decisions. While physicians continue to have ing policies designed to control the cost of substantial input to MD purchases, hospitals healthcare. In the U.S., the Patient Protection and payers are exerting greater influence and and Affordable Care Act (PPACA), recently increasingly focusing on clinical and economic upheld by the Supreme Court, will have a value. direct impact on the financial results for MD companies. For example, starting in 2013 Hospitals are increasingly hiring physicians there will be a 2.3% excise tax levied on all directly and buying group practices. The device sales. In addition, there are a variety New England Journal of Medicine reported of programs embodied in the legislation in May 2011 that more than half of practicing targeting cost reduction at hospitals, including physicians were employed by hospitals value-based purchasing programs, compara- or integrated delivery networks.2 Direct tive effectiveness research and innovative employment offers hospitals the opportunity care programs for Medicare. The Centers to establish standard care approaches and for Medicare and Medicaid Services (CMS) is hold physicians accountable for the cost of targeting a $500 billion reduction in hospital care. Physicians working within hospitals have expenses over the next 10 years. diminished influence over purchase decisions. Many hospitals have procurement functions MD companies can expect continued pricing or value analysis committees to review and pressure from the federal government in approve MD purchases (see Figure 2). These response to escalating costs. For example, in new economic stakeholders require different January 2012 the Government Accountabil- sales approaches, including comparative effec- ity Office (GAO) reported concern regarding tiveness studies, outcomes-based contracts or pricing for implantable MDs (IMDs) used in bundled purchasing models. hospitals to the Senate Finance Committee. Medicare expenditures for hospital IMD procedures increased by 4.3% per annum from 2004 to 2009, to $19.8 billion. New MD Sales Stakeholders The GAO noted that substantial price variations exist for the same devices across 31 hospitals sampled in their analysis — implantable heart defibrillator prices varied by as much as 50% Payers and drug eluting stents prices varied by as much as 48%. The GAO noted that current ACOs, Physician purchasing practices lead to higher costs GPOs, IDNs for hospitals and ultimately higher Medicare expenses. Factors contributing to the variance include: Sales >> Physician influence/preferences impacting Other HCPs Value purchase decisions. (Nurses, Analysis Techs.) Committees >> Lackof transparency in pricing inhibiting Hospital competition. Admin./ >> Limited bargaining power of some hospi- Procurement tals. The GAO recommended adjustments to CMS’s approach to IMDs, including more granular Figure 2 cognizant 20-20 insights 2
  3. 3. Health outcomes are a key tenet of the PPACA almost 80% of the market, growth in those and are embodied in the Accountable Care geographies has decelerated to 3%. However, Organization (ACO) provisions of the law. growth in the rest of the world is expected to ACOs are groups of providers and HCPs that exceed 10%, to over $88 billion by 2015. Asia take responsibility for cost and quality of care Pacific represents the largest segment, growing and receive a share of savings they achieve from $34 billion in 2011 to for Medicare. As hospitals and HCPs position $55 billion in 2015.3 Given Given pricing themselves to become ACOs with outcomes- pricing pressure in the major pressure in the major based rewards, MD companies must rethink geographies and accelerated their sales and contracting approach in terms growth in emerging markets, geographies and of clinical and economic outcomes. They need MD companies need to find accelerated growth to consider how their products fit within the and execute on opportuni- in emerging markets, medical procedures they support and the ties to optimize their cost hospital ecosystem to provide more holistic base and shift investment to MD companies need solutions with more compelling value proposi- higher growth markets. to find and execute In the new dynamic market on opportunities tions.• New promotional channels: MD companies are environment, MD companies to optimize their faced with an increasing variety of channels by which to promote their products, from must also consider their cost base and shift technical and analytical direct sales and customer support to e-mail foundations. From a product investment to higher campaigns and wellness communities. HCPs design perspective, new growth markets. and patients are increasingly using digital mobile and digital tech- channels for medical information, offering nologies offer opportunities to provide more MD companies an opportunity to establish effective linkage into the emerging hospital intimate, bidirectional connections with stake- ecosystem. The adoption of cloud-based tech- holders, often at a lower price. nologies, social listening solutions to more The combination of personal and nonper- effectively understand customers, predictive sonal promotion provides opportunities and analytics and wellness portals can provide challenges for MD companies. The new channels new market insights and accelerate response must be leveraged in a coordinated fashion, to market changes. Again, none of these new ensuring delivery of consistent messages and solutions are free, so leading MD companies will interactions. Done correctly, the new channels cut expenses in noncore functions to support will provide a rich source of information accelerated investment in these growth oppor- regarding customers and their perception of tunities. specific products. New information sources and Commercial Model Transformation the need to determine the optimal approach by Leading MD companies must transform their channel and target segment will drive adoption commercial models to respond to new market of new technologies and analytic approaches, realities. Leveraging a comprehensive transfor- from social customer relationship management mation approach, MD companies are assessing and marketing to multichannel promotion opti- and adapting critical commercial processes (see mization models. Figure 3).• Cost reduction and reallocation: MD compa- nies have a substantial need to optimize their Commercial success must be driven by a holistic cost base to address price pressures, shift transformation model that addresses key resources to higher growth markets, invest in operating paradigms: innovative solutions, promote products to a larger stakeholder base and address continued • New sales model: Enhance the sales model to incorporate new skills; augment the model performance demands from Wall Street. with new roles to ensure effective customer Among the top opportunities is geographic engagement and reduce cost. expansion. The MD market is projected to grow to over $346B in 2015 with a 5% CAGR, • Promotion optimization: Revise the pro- motional approach to address a broader according to a study by Espicom Business Intel- stakeholder base using both traditional and ligence in June 2011. While the major markets emerging channels. (U.S., Western Europe and Japan) represent cognizant 20-20 insights 3
  4. 4. Commercial Process Transformation PLAN Account segmentation Pricing strategy BUs Account level profitability Multichannel promotion optimization Brands Regions Brand Strategy, Forecasting Accounts & Segmentation Promo Strategy & Resource HCPs Allocation Payers Patients MONITOR IMPLEMENT Promotion ROI DATA Account-based selling Digital analytics Report FOUNDATION Size & structure Managed care & Strategy Role realignment analytics Analyze Management Tactical Call planning Pricing analysis Provisioning Planning Cross-channel coordination Smart alerts Report rationalization Execution Support Performance Management CRM solutions Goal setting Mobility Incentive compensation Training Customer satisfaction eDetailing Pay-for-performance analysis ENABLEFigure 3• Digital marketing: Embrace digital and social are available at a different price point, enabling media channels to influence consumers, HCPs leading MD companies to optimize costs while and other stakeholders. effectively engaging with an evolving client base.• Advanced analytics: Leverage advanced Promotion Optimization analytics to continually refine commercial MD companies are faced with a variety of channels approaches in response to rapid market to promote their products, from e-mail campaigns changes. to symposia to patient wellness communities.• Comparative effectiveness: Define outcomes- These channels offers marketers new options based solutions and contracting approaches to for reaching healthcare providers, payers and enhance clinical and economic value. patients in more intimate and often more cost- effective ways. While marketers welcome thisThe New Sales Model plethora of choices, management and integra-The MD sales organization of the future is a lean, tion of promotional campaigns across channelsagile organization that aligns itself to provide remains a challenge:effective clinical and economic information toa growing stakeholder community. They are • How do these various channels overlap with myfocused on solutions and outcomes, not products. target audience?The new sales team considers the needs ofindividual decision makers and their preferences • What mix of channels will maximize my reach?for interaction, and then aligns the organization • What is the right frequency of touch points foraccordingly. They are ready and willing to adapt each channel?their model to changes in the hospital ecosystem • How can I best integrate the execution acrossand the overall market. channels?To that end, new sales roles are being created Multichannel promotional approaches can bebeyond the typical geographic model and include used for a wide variety of purposes — fromkey account managers, inside sales, clinical spe- creating awareness to education to increasingcialists, administrative sales and contract special- brand preference — but success will be limited ifists. These new roles provide different skills and each channel operates in isolation of the others. cognizant 20-20 insights 4
  5. 5. The complex mix of promotional channels must customers. Using emerging social listening capa-be integrated to effectively support the device bilities, companies can gain new real-time insightsbuying process. Leveraging advanced multichan- concerning market perceptions of their products.nel analytics, MD marketers can optimize theirspend and improve performance by effectively Advanced Analyticsintegrating these new channels in their promo- Emerging promotional channels are highlytional mix. measurable and provide opportunities to better assess performance and react to the market.Digital Marketing Collecting and mining the “big data” proliferat-Nonpersonal promotion opportunities are ing across channels forgrowing for MD companies. Leveraging digital insight about decision Leveraging advancedand social media, MD companies can increase makers, product per-awareness, support diagnosis and treatment ceptions and the com- multichannel analytics,choices and improve compliance with best-prac- petition can inform and MD marketers cantice clinical approaches. guide brand strategies. optimize their Combining this new dataMany companies have embraced product portals with traditional data and spend and improvefor providers and patients, but this is only the analytics can offer a com- performance byproverbial tip of the iceberg. These solutionsprovide a mechanism for these stakeholders to prehensive view of the effectively integrating market and enable rapidpull information about a product, but lack the response to changing these new channels inrich, bidirectional communications of emerging market dynamics (see their promotional networks. Leading MD companies are Figure 4).embracing wellness portals and other socialcommunities to engage in the decision dialog Leading MD companies are taking steps toand ensure that patients, providers and payers improve their data management and analytics tounderstand the value of their products through leverage these data. Over time, these companieseffective engagement with current and future will set up customer innovation labs that allowIntegrated Commercial Analytics Analyze the Conduct state, competition hospital and Managed HCP level Care Augment analysis Analytics HCP base with Maximize competitive data Framework for strategic HCP value contracting by segment Pricing Digital Analytics Analytics Integrated Commercial Analyze the online/offline Build the Analytics Penetrate path to Combine value pricing and new markets conversion proposition outcomes analytic Identify new efforts Optimize segmentation promotional Offline strategies Outcomes Channel Analytics activities Analytics Analyze the cost of careFigure 4 cognizant 20-20 insights 5
  6. 6. them to effectively analyze the data in near real more effective patient intervention that reducestime and adjust their promotional approaches readmission may be more valuable to the hospitalaccordingly. than the device itself. Leading MD companies will use comparative effectiveness and patient flowComparative Effectiveness analyses to better understand their customer’sWith payer influence on the rise and concern customer, the patient, and provide services thatover quality and efficacy, MD companies must optimize the clinical and economic effectivenessbetter understand how their products fit within of their solutions.the procedures in which they are used and inthe hospital ecosystems overall. Leveraging new Leveraging these new commercial approaches,health economics teams that are closely aligned leading MD companies are positioning themselveswith marketing, they craft effective messaging to effectively respond to substantial changes inand consider alternative business models to the healthcare marketplace. Ongoing commercialensure market success. transformation allows MD companies to become more intimate with patients, providers and payers,In some cases, a stronger integration with the and to enhance their important role in healthcarehospital ecosystem through remote monitoring or innovation.Footnotes1 “Lack of Transparency May Hamper Hospitals’ Ability to Be Prudent Purchasers of Implantable Medical Devices,” U.S. Government Accountability Office, January 2012.2 Robert Kocher, M.D., and Nikhil R. Sahni, B.S., “Hospitals’ Race to Employ Physicians — the Logic Behind a Money-losing Proposition,” New England Journal of Medicine, May 2011.3 “Medistat Worldwide Medical Market Forecasts to 2016,” Espicom Business Intelligence, June 2011, the AuthorsBruce Carlson is a Principal Director who manages Cognizant’s analytics work with Midwest-based lifesciences companies. He has over 20 years of experience in the pharmaceuticals and medical deviceindustry and has led consulting engagements with clients in over 40 countries around the world. Theseengagements have focused on both strategic and operational aspects of sales and marketing effec-tiveness. Previously, he worked in the diagnostics division of Abbott Laboratories in strategic planningand worldwide marketing. Bruce received his B.A. in chemistry and business administration fromWittenberg University and an M.B.A. with distinction from Northwestern University. He can be reached Lincoff is the Medical Devices Practice Leader within Cognizant’s Life Sciences Business Unit.In this role, he works closely with MD companies across North America to define and execute innovativemanufacturing and commercial strategies. He has over 20 years of senior leadership experience workingin the life sciences industry and serves on the editorial advisory board of Medical Device and Diag-nostics magazine. Richard holds a bachelor’s and a master’s degree in business. He can be reached cognizant 20-20 insights 6
  7. 7. About Cognizant’s Life Sciences PracticeCognizant’s Life Sciences Business Unit is a leading provider of consulting, analytics, IT and businessprocess support to pharmaceuticals, biotech and medical device companies. With more than 13,000dedicated global resources, Cognizant’s Life Sciences Business Unit is committed to helping our clientsimprove their business and rapidly respond to market opportunities. Whether it’s driving processimprovements to your clinical operations, increasing sales and marketing effectiveness, meetingregulatory requirements or enhancing drug safety, Cognizant is redefining the way companies benefitfrom and experience global services.About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 145,200 employees as of June 30, 2012, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.