Q: Since evidence will be a big driver of value and trials are costly, do we see emergence of other types of evidence being accepted to demonstrate value?
A: Part of this goes to, what is the product or solution, who is ultimately paying, and what are you asking for in terms of a price premium? Obviously there’s a connection between your value proposition, the price that you are trying to capture, and the amount of evidence you want to invest in to prove that. ACO and other models will evolve, and it will be much easier than it has been to do some kind of simple demonstration projects with either ACOs or large hospital systems, to find ways to develop evidence that is not hugely costly like it has been in the past. What may also happen in the future is that, maybe it won’t be evidence development, but maybe you’ll have some risk-based model with the ACO where you go at-risk for some of the price that you’re putting out there and some of the value you want to capture. Because the ACO by nature will have to track outcomes and costs, it will be much easier to follow that patient over time to see what kind of costs and clinical events occur over time. So I think it should be easier in the future than it has been in the past.
Q: Buying decisions are increasingly being driven by committees or materials management, how do you use value with the different non-clinical buyers?
A: I’m going to take a step back first. There are actually two new societies in healthcare from a provider level. One is the Society of Value Analysis Professionals. Another is part of the American Hospital Association whose mantra is “Cost, Quality, and Outcomes”. They’re training people throughout the organization on this, and in their case they are looking at having the supply chain function within hospitals lead this mantra to help take a value-based purchasing approach.
There are a couple of issues with this. The first is that a large percentage of hospitals have a Value Analysis committee. It may or may not be deployed within every service line of the hospital, but they are certainly in one or two at least, and it is typically comprised of people who are clinicians and non-clinicians who are trying to make value-based decisions on whatever solution they are trying to purchase. The good news is, if you do think your service is highly differentiated, now there’s a forum to go and explain your value. But if your sales team has been selling purely on clinical benefits, then that requires a much more sophisticated salesperson who can range from the clinical side all the way to the economics, and then connect it to reimbursements, value-based purchasing, and some of these other incentives we’ve been talking about. So if you have a good value proposition you’ve got a great start. The bad news is, if you don’t have a handle on your value then going to these committees is going to be a difficult process.
Q: ACOs seem more like insurers since they take on risk, how will this impact value communication and pricing?
A: ACOs are providers who do take on risk, and some providers who are ACOs are creating their own insurance products. So what’s happening in the marketplace is a convergence of provider and insurer into this new entity. In the past, if you were a provider and you got paid for the in-patient event, you would get paid again if that person left the hospital and had to come back in sixty days to have something else done. And if they had to do a lot of imaging or other things outside of the hospital, they got paid again for those services.
It was a volume-based system where the more you did, the more you got paid. That’s completely changing where, for a particular population of patients, if it costs a hospital $100 to manage them and the hospital can get that down to $98 next year, the ACO will share that $2 difference with it. So the hospital will be thinking about value in terms of what it does to costs, and also whether costs are reduced somewhere else in the healthcare system, like if repeat procedures are reduced. So, connecting your value proposition to that whole chain of clinical events to the costs is going to be very important.