Selling amidst healthcare reform: Part 2, Selling through Uncertainty

Edition: April 2014 - Vol 22 Number 04
Article#: 4464
Author: Repertoire

After a rocky rollout, the Affordable Care Act – healthcare reform – has put the wheels of change in motion. Just as reform is affecting healthcare providers, so too is it affecting the sales reps who call on them.

Repertoire asked a number of sales professionals to discuss how reform is affecting their customers, and how they are responding. We collected their responses and present them as a virtual roundtable. Our participants in this month’s roundtable are:

• John Rademacher, president, ambulatory care, Cardinal Health.

• Jeff Schimbeno, senior vice president, sales and marketing, Bell Medical Services.

• Alexandra Caldwell, director of sales and marketing, Claflin Company.

• Matt Wright, president, Tarheel Physicians Supply.

• Darin Sharp, regional vice president, primary care, McKesson Medical-Surgical.

Repertoire: As you look to the year ahead, do you foresee some of your physician practice customers getting acquired by hospital systems?

John Rademacher: The trend continues to be quite vigorous. We certainly saw it last year among our existing customer base, and we see it in external data too. As a national company, we see that it’s hotter in some areas than others, depending on the integrated delivery networks and their appetite for growth. But the general trend remains strong, and we believe it will grow.

Jeff Schimbeno: Hospital systems’ purchases of physician practices have seemed to slow down recently, as they evaluate the effects of the Affordable Care Act. But I see consolidation in our markets continuing, though not at the same rate as the past two years.

Alexandra Caldwell: Many hospitals are still in a search to acquire physician practices, and many more practices will be acquired. That’s when [hospitals and IDNs] come to Claflin; they are asking what we can do to assist them following the acquisition.

Matt Wright: Absolutely. But I think the trend is slowing down.

Darin Sharp: We believe that there will continue to be a need for increased efficiency and therefore, scale. To meet this need, varying models of integration will emerge. It may be hospitals or payers acquiring providers and/or it may be physicians merging into bigger groups.

Repertoire: Judging from your conversations with your customers, what are the one or two most important factors driving your physician customers to sell their practice to a hospital or IDN?

Rademacher: We hear a couple of things consistently. First, with some of the pressures associated with healthcare reform – certainly the reimbursement cuts – practice leaders desire some stability, in order to maintain patient flow. Second, the ability to be part of a broader network or integrated delivery system has some appeal. Third, some practice owners want to move away from being both a caregiver and an entrepreneur; the opportunity to [shed] some administrative burden and become an employee has some appeal. Fourth, depending on the practice, there is some opportunity to monetize their hard work.

Schimbeno: Uncertainty of the future is causing physicians to question whether they should remain independent business people. It’s not one thing that’s causing them to do so, but a multitude of factors – reimbursement, technology, labor, insurance, etc. Hospitals and IDNs have done a great job selling the concept of physicians getting back to practicing medicine while the hospital worries about all the business factors. That concept is appealing to many.

Caldwell: Everything is in a state of flux today; there’s a lot of uncertainty about what healthcare reform will bring. Part of it is, it’s too costly for physician offices to stay independent. Partnering up with a hospital system helps them with their capital expenses. And we’re seeing that a lot of the young physicians starting out are aligning themselves with a hospital network rather than as standalone practices. I think that’s due to expense.

Wright: I think the primary driver is the need to share costs with a hospital or IDN. For example, a chain of urgent care centers in our territory recently partnered up with a hospital system because they didn’t want to invest heavily in EMR technology. The hospital offered to share its EMR with them if the urgent care centers shared their referrals. That’s a perfect example of what’s going on.

Sharp: Several significant factors may be driving our physician customers to sell their practices to hospitals or IDNs, but the two reasons that we hear most often are declining reimbursements and increasing expenses. Costs are rising in many areas of their practice, much of it due to new regulations and requirements.

Repertoire: In your experience, after a physician practice has been acquired by a hospital or hospital system, does its influence over purchasing decisions increase, decrease, stay the same? How does it change your selling approach to these customers?

Rademacher: Any type of acquisition and post-merger integration goes through three phases. Most organizations take a slow approach. Their first area of focus is moving people and getting them onto their payroll systems – going through the change management curve. Second, they migrate [newly acquired entities] onto a technology platform that starts to drive interoperability. And third, they work to drive down administrative costs, and that includes taking broader control of supplies and suppliers. We have customers across the entire spectrum. Some are going after consistency of product selection – formulary management – across the entire spectrum of care. Others are consolidating vendors. Still others have been left alone to operate as they always have, in a loose confederation around the hospital; but they know there is this “gravitational pull,” and that materials management and the sourcing organizations within the enterprise will take a greater and greater amount of responsibility.

At Cardinal, we are able to deliver consistent and high-quality products across the continuum of care. We can go from the hospital to the home, and add consistency in product and deliver value across the continuum. We work very closely with our Hospital Supply and Services organization to make sure we have a comprehensive offering in the integrated delivery network. That’s not to say we don’t have a lot of independent practices as well. Our ability to look at both ends of that spectrum and provide solutions that meet the independent, newly acquired practice as well as the fully integrated practice are areas we are investing in, both in the approaches our sales team is taking and the support mechanisms behind it.

Schimbeno: The majority of the time, the influence of the practice diminishes. The hospital system’s preferred vendor takes over the supply business. For the distributor, a 30-year relationship can be gone as soon as the physician signs the sale documents.

Caldwell: It’s a work in progress right now. Our experience is, hospitals give their newly acquired practices free rein for a while; they don’t want to come in and steamroll the practices, and tell them, “This is what you’re going to do.” Our role is to educate the practices about standardization and best practices, based on supply chain utilization. We look at their supplies and tell them which items are on hospital contract, and what price they would pay if they used the contract.

Wright: Our call point does change. Instead of going to a nurse manager for an order, now we go to an administrator in the health system who oversees all these locations. Over the past three years, our reps have come to recognize the opportunities these relationships present. We have realized that the administrators in most of these health systems are not prepared to meet the needs of the physician practices they acquire. We can be an asset, a service arm, and an additional support for them. Our reps have had to change their presentations and, again, their call points. And we’ve done a lot of training. Now, instead of presenting features and benefits, it’s all about solution-selling and relationship-building.

Sharp: The influence over purchasing decisions depends on the hospital or health system, but for the most part, the practice’s influence is decreased. Some health systems centralize the purchasing process, while others allow the practice to make those decisions on their own. Because of this, we have changed the way we approach these customers. We have adapted our approach to meet the needs of new and additional decision-makers. We bring different solutions that meet the needs of the CFO, head of procurement, and the physician.

Repertoire: After a physician practice has been acquired by a hospital or hospital system, does the practice become more price-sensitive, less price-sensitive, or neither?

Rademacher: The local practice itself becomes less price-sensitive as it proceeds down the integration path. No longer are they worried about cost, as that’s [now the concern of] the materials management organization. But the broader organization becomes extremely price-sensitive, as it looks to aggregate its volume and gain more purchasing power and leverage across the entire spectrum.

Schimbeno: Price is always an issue, but after an acquisition, physicians typically don’t see the bills, so it’s less of a topic with them. They do become service-sensitive, though. For example, the rep from the new distributor may not be able to give the account the same attention as my rep did. That distributor might deliver via UPS; perhaps it’s an item the practice used to buy from Bell Medical, and that we specially stocked. All these things add up. Doctors may not see the bill, but they do see that the service they were accustomed to, and which they expected, is something they might have taken for granted.

Caldwell: All along, physician practices have done their due diligence, trying to save money. But once a hospital network acquires them, a new model arises. We can bring new opportunities to them. Technology is an example. How are they placing their orders? Are they sending them through the website? Do they have a par level system for inventory control? Some large practices may benefit from handheld technology. This is what makes our job as a distributor fun. It’s not just, “Here’s your product, here’s your price.” It’s about bringing solutions. I think we’re in an exciting time. One thing we are not doing is having an acute rep cover the alternate care market. It’s a different market, and a lot of opportunities can be lost or missed.

Sharp: As with healthcare in general, there will be a greater focus on overall cost. That may or may not be solely a price conversation. The prices customers pay will always be relevant. However, our ability to impact their overall costs is an important part of the picture and decision.

Repertoire: In light of healthcare reform, do the majority of your physician practice customers anticipate an influx of patients in the year(s) ahead? Decrease? No big change? What can sales reps do to help them respond?

Rademacher: There is certainly much debate around the success of the exchange and the ability of to drive enrollment into the program. Fewer than 11 percent of those enrolled [as of January 2014] were previously uninsured. So you have a lot of shift of individuals, but not a major influx, at least at this point in time. Most of our customers are anxiously awaiting the arrival of the 35 to 50 million Americans who did not participate in the healthcare system, other than use the emergency room or other urgent care scenarios. From our perspective, this continues to put stress on the system. The reimbursement rates continue to add pressure. The ability to serve that growing population will continue to put pressure and stress on the system.

A big part of our message to customers is our ability to make certain they’re getting products – not only the national brands, but also Cardinal-branded products – at the appropriate price. Another is our ability to deliver products and solutions that help them operate more effectively, reduce the cost to serve their patients, increase their throughput, and take complexity and waste out of the supply chain.

Caldwell: I think they are expecting an influx of patients. Point-of-care testing can help. Rather than sending a test to the hospital lab and waiting for results, physicians can get test results while the patient is in the office, and make necessary changes right there. And that’s just one area.

Wright: Our family physicians and internists have been preparing for an influx, but I think they would tell you they haven’t seen it like they expected. We don’t see lots of new construction, but we do see expansion inside existing buildings – adding exam rooms, for example. We have also seen significant expansion in urgent care. Long wait times in the ER and patient convenience are two reasons.

Sharp: They don’t know. They know what they hope. Will new patients materialize? Will they show up in enough volume to offset current trends of lower utilization? Anyone who says they know the answer to that is probably a consultant seeking an engagement. The truth is that either way, we will need to help our customers become more efficient and cost-effective.

Repertoire: The Affordable Care Act attempts to reduce healthcare costs by encouraging doctors, hospitals and other healthcare providers to form networks – or accountable care organizations (ACOs) – to coordinate care. How would you characterize your customers’ interest and/or participation in ACOs? Has that changed their expectations of their sales reps?

Rademacher: Generally, there are more questions than answers around accountable care organizations – their effectiveness, the willingness of providers to participate in them, and the rewards and risks. The thought of assuming risk on a patient population is not foreign to larger group practices and higher-level integrated delivery networks, and that’s where these discussions are taking place in earnest.

How does it affect our reps? When the customer is focused on capitation, patient outcomes, efficiencies, price points and cost, the dialogue changes. Our approach is to help customers standardize around products, narrow their formularies and make sure they’re considering total cost and quality as being the right inflection point around price. Our sales organization receives a lot of questions from customers that extend beyond products. These customers want to know trends in the industry, what’s happening on a macro level. So our salespeople have to be good not only at selling products and services, but they have to be students of the industry. Their ability to articulate broader messages about what’s happening in the healthcare environment is increasingly important.

Schimbeno: A friend of mine, an OB/GYN, joined an ACO 18 months ago. His reasoning had to do with resources. He needed to purchase an EMR; the ACO did the research and provided a report on why one particular EMR was the right one. In addition, the ACO provides coverage while he is on vacation, and negotiates malpractice insurance on his behalf. In the long run, he felt it was a good decision – and it’s hard to argue it wasn’t.

Wright: We do see ACOs. We’re a small independent company. We don’t try to be a one-stop-shop for everyone, as we thought we could be in the past. Instead, we have highlighted niche areas in which we have good products and good contracts. For example, we excel at equipment. So to ACOs we say, “Let us take on that challenge for your organization.”

Sharp: While some ACOs have been formed, we are still in the infancy of the movement. The transition from a fee-for-service model to a more outcomes-based model will be a big change for everyone. As ideas become reality, the companies and sales reps that can best help their integrating customers navigate through these changes will win. During this time, technology will play a major role, and we will respond with technology that drives efficiencies for our customers.

Repertoire: Comparative effectiveness research is designed to provide evidence on the effectiveness, benefits, and harms of treatment options, medical devices, tests, drugs, etc. Have your customers expressed an interest in comparative effectiveness (whether they call it by that name or another, such as “outcomes”)? Have they discussed it with you? If so, how has this changed your approach to sales?

Caldwell: We are bringing our knowledge to our customers, and we are telling the story of cost, quality and outcomes. If they are looking at a product, we make sure they have white papers on it. I’ve encouraged my team to avoid using studies by the manufacturer, and that are printed on the manufacturer’s letterhead. Presenting clinical studies will enhance our credibility. Speaking about cost, quality and outcomes may be a learning curve for sales teams today. But with everything predicated on outcomes, you have to know this. When a customer presents an opportunity, we want our team to be the ones leading that discussion.

Wright: This is being driven by the Affordable Care Act. Today, part of our approach with customers is to discuss outcomes, patient satisfaction and patient convenience.

Repertoire: How has – or how will – healthcare reform affect your approach to sales?

Rademacher: Our sales organization needs to continue to be forward-thinking in delivering solutions to our customers. A big portion of our message to our team is, “How are we saving our customers money?” “How are we taking cost out of the system?” We will continue to drive our sales organization toward higher relevance and greater value for our customers. We’re moving well beyond just being able to distribute products, and moving much more toward providing the right products.

Schimbeno: First, we need to understand healthcare reform as sales representatives. Our physician customers need help deciphering reform. We need to be a resource to help them do so. Second, we need to be more aggressive in expanding our customer base. Not everyone is being purchased by a hospital or hospital system. We need to turn over some rocks to find those opportunities. That might mean looking for other markets to explore. Third, manufacturer partnerships need to be stronger, with better communication. GPOs are a tool in the sales approach. But ultimately, distributors are still facilitating the manufacturer’s relationship with their true customer – the physician. We need to work together to do a better job.

Caldwell: It makes selling more fun. In the past, a lot of physician selling was transactional. Now we’re engaging them in discussions, and educating them about supply chain. We’re having one-on-one dialogues with the person doing the ordering. We’re very sympathetic to the changes they’re undergoing, and we try to show them the bigger picture. Our approach is to work with them, to make the transition as seamless as possible.

Wright: All I can say is, with change comes opportunity. We are doing everything we can to capitalize on opportunities and welcome change.