Vying for Value in 2015

Value-Based Healthcare; it sounds good, but is it? What does Value-Based Healthcare look like in a sales opportunity? To answer that question, we have to ask these questions:

• Are deals getting harder to win?
• Are your margins being squeezed?
• Does winning increasingly result in waiting for the revenue?
• Are any of your current customers trying to revisit their contracts and get “better” pricing?

Providers are squeezed, and they are passing the pain along to suppliers.

The healthcare industry is moving from a Volume-Based to a Value-Based Reimbursement system, and that changes everything. Consequently, in the current state of healthcare reform, your customers’ weapons are aimed at you, the supplier. Contact with purchasing or supply chain management, or presentations to value-analysis committees are designed to increase competitive rivalry, negotiating leverage, and ultimately, to reduce pricing.

When you hear “strategic supplier,” “partnership” and “preferred supplier” from the lips of your customers, you should be hearing “we’re trying to decimate your margins, and then we’re going to try to do it again.”

This behavior is not caused by malevolent intent. Providers are pursuing value, and they will employ the customer’s Bill of Rights to do so. The first three rights are:

1. Challenge the Price
2. Challenge the Value
3. Challenge the Evidence

These challenge points are increasingly present in any significant transaction. Not convinced? Read the following customer statements.

Your customers’ words:

We have directly observed prominent V.P.s of Supply Chain Management saying:

• “I think manufacturers’ margins are too high! We work with our vendors to find cost savings in their business, so that we can get better pricing…Manufacturers should have margins that are similar to our margins; that’s partnership.”
• “We shouldn’t have to pay more because the vendor employs salespeople, and has big marketing budgets. All of that is waste.”
• “We want to reduce our spend by 20%, and our volume is going to grow, so prices need to come way down.”
• “We’re ready to open up any, and every contract for re-bid if there’s better pricing out there.”
• “Win-win negotiations are great. We win on our price, and we win on our terms. We make the rules because everyone wants our business.”

These are the words of the “best customers” in the industry; internationally known health systems, with strong brands and sterling reputations. The kind of customers that you have traditionally targeted in the past.

If that is what the “best customers” think, what about the rest? To answer that question, we need to introduce a few options, and we will do that in this series of posts.

What do you think of this hostility and adversarial tone in the marketplace?

Leave a comment, and join the discussion. Next week we will describe a pathway toward sustainable and mutual value.

By:

Sam O’Rear
Total Innovation Group Inc., Senior Partner

and

Gunter F. Wessels, Ph.D., M.B.A.
Total Innovation Group Inc., Practice Principal, Partner