Already in 2006 Michael Porter kicked off the transition to value-based healthcare (HC) with his book “Redefining Healthcare”. You might expect that this transition has already become reality. Michael created a pattern-breaking idea and an ideal image of the future; however, the practice of implementation is a different story so far.
The ever-increasing demand for care and shrinking HC budgets should be sufficient stimulus to embrace this concept worldwide. The HC market has undeniably changed: increasing digitalization, the diminishing role of relationship-based field sales, and the expectation of HC providers that suppliers behave more like partners and make a visible and measurable contribution to treatments’ efficiency and effectiveness are all driving growth.
Suppliers are aligning their go-to-market strategies with these radical changes, but the pace at which they are doing so seems too slow, and they risk losing market share. Traditional reliance on existing networks and contacts is no longer sufficient. Especially now, value-based HC will take off due to the pressure of the market conditions; suppliers who have their act together will make the difference.
Value based operating models, how it works
Diverse, dynamic and interconnected environment / creating a new environment
The unsustainable cost increase in HC and unexplainable variances of treatment results push the HC ecosystem under pressure. As a result, all HC providers will create a more diverse, dynamic, and interconnected environment —far less predictable for sales and Key Account management staff. Before we get into this, let’s explain what Value Based Health Care (VBHC) all is about and why adoption of the concept has been so slow.
VBHC
‘Value-based health care’, shortly VBHC can be described as a delivery framework to improve health outcomes at a lower cost. It focuses on what patients experience as value and how resources are allocated according to the health outcomes delivered by the system.
Implementing VBHC
Implementing VBHC is a complex process requiring all system stakeholders (clinicians, administrators, technicians, technology partners and supply-chain partners, policymakers, and governments) to commit to a “measure-optimize-repeat-lean” methodology where standardized data formats to support standard platform integration, are prerequisites.
Increased complexity
In recent decades, biomedical knowledge contributed to increased healthcare complexity in hospitals and communities. New knowledge has led to effective new diagnostic and therapeutic alternatives. But it has also led to increased specialization. For all the benefits of specialization, it has contributed to the fragmentation of care delivery and a dilution of accountability, making it difficult for HC practitioners and economic stakeholders to work together to develop a holistic perspective.
The current reality of VBHC
Develop strategic relationships
Confronted with growing cost pressures, the impulse for any individual organization is to “keep its head down” and focus conservatively on its immediate interests and current business model. As a result, the hospital decision committees focus on price and move towards transactional purchasing. On the other hand, they desire to develop strategic relationships with HC partners and aim for long term clinical results and better control of costs along the patient pathway.
Consolidation
Hospitals consolidated and built even more giant conglomerates. In the USA, they managed to reduce costs by 15 – 30%, but the price for treatment rose by 6% or more. Consolidation didn’t result in better clinical outcomes or higher patient satisfaction. Hospitals represent about 30% of the entire healthcare costs, and costs are growing by 2% YoY, faster than other HC providers. During the pandemic, hospitals lost 322 billion in 2020 and an additional 53 billion the year after.
Inhabiting effects
The strategy to survive and to lower the purchasing costs for drugs, medical technology, and supplies won’t solve the issue because 50% of the expenses are employee related. In addition, employee engagement is low, and as a result, the turnover is high and increased during the pandemic. Another inhabiting effect is that Hospital leaders assume the transformational change towards value-based treatment could be overwhelming for the existing staff and lead to higher turnover and lower engagement.
All in all, these competing interests have led to the delay of a development that will undoubtedly continue, and industry-leading organizations must prepare for this. Nevertheless, VBHC is ultimately the solution and is expected to gain momentum.
Drive for VBHC will increase
What eventually will happen is that hospital management better understands treatment outcome variations:
- To monitor an increasing number of desired patient outcome criteria.
- To increase overall clinical results.
- To engage employees and retain talents and stabilize costs.
Hospitals need to overcome their fragmentation and specialization, develop processes along the patient pathway, and enable collaboration between specialists and outpatient departments. Because of the increasing cost pressure, hospital leaders would like to keep costs under control and avoid risks or risk-sharing. But unfortunately, every potential partner is waiting for the other to move first. Payers expect evidence from service providers; providers expect risk sharing from suppliers and financial support from payers.
While hospital consolidation has a limited positive impact on the overall system, the potential integration of payer and provider systems will be one of the most dynamic aspects of today’s healthcare market. The line between sectors blurs as cross-sector collaboration accelerates and cross-sector acquisition activity increases. Payers are acquiring hospitals; providers are adopting their insurance models; suppliers and technology companies develop communication, patient monitoring and integration technology, and hospitals and service providers. For example, in March 2022, UnitedHealth, the largest healthcare insurance company in the United States, announced that it intends to purchase LHC Group, a leader in home healthcare services, for approximately $5.4 billion.
Collaboration between HC Providers and MedTech Companies
Both HC providers and MedTech companies perceive VBHC as revolutionary and essential. When opening new tenders, hospital procurement is asking now for the VBHC readiness of the supplier. VBHC criteria became part of the tender requirements already in the Netherlands, Denmark, Wales and Catalonia. As a result, suppliers are more and more willing to invest in increasing their tender win rate, knowing that successful pilots will help them for future projects and will be a competitive advantage over the competition. The opposite is also true; not moving with this undeniable trend also means that some HC companies will lose their position, mainly if they sell interchangeable products and are recognized by their customers as commodities.
Gradually hospitals are ready to move to VBHC. They are increasingly willing to collaborate across specialities. They conduct a more significant number of elective and already standardized procedures along the patient pathway. They have more and more IT systems in place to support standardization and communication. They become a potential strategic partner for MedTech companies.
To become a strategic partner for a hospital, to become really customer centric, MedTech needs to be able to define and monitor its real-world clinical evidence. They may need to identify the relevant tenders and projects and adapt their tender management process. They need to build their internal capabilities. Once a promising project is identified, they need to build multidisciplinary teams. The commercial team needs operational support for medical, clinical, marketing or market access. The buying and selling process needs to be more in sync and less linear than before. So, being agile is imperative to win deals.
All these developments will have an enormous impact on the role of key account management—a revolutionary change. HC providers have an increasing need for guiding insights and information to make the right decisions. Helping HC providers set up VBHC initiatives is imperative. Industry-leading companies and suppliers to the ecosystem should play a proactive role in making this all happen. The new Key account manager should orchestrate that process. It is a role that requires different capabilities and skills compared to today’s traditional approach.
This white paper is co-written by Peter Rademakers, founder, and owner of Motion5, and Christian Popp, healthcare professional and associate partner at Motion5.
Peter Rademakers Christian Popp
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