Health systems have undergone a seemingly interminable transformation through an ever-increasing progression of mergers and acquisitions (M&A) activities that have escalated over the past decade. With its emphasis on accountable care and clinical integration, the Affordable Care Act helped accelerate the formation of integrated delivery networks (IDN). An IDN is an organization or health system that owns and operates a network of healthcare facilities. They often contain many different types of inpatient and outpatient care facilities, including hospitals, physician groups, health clinics, ambulatory surgery centers, and imaging centers. Due to the shift from volume to value in healthcare delivery, hospitals had to adapt as Accountable Care Organizations (ACOs) began to form.1 While the pace of M&As initially slowed during the early part of the pandemic, the rate of consolidation within the industry not only returned to its previous tempo but accelerated, due in part to the injection of billions of dollars from COVID-19 aid directly to the health systems. Despite the current global health crisis, the driving forces behind the consolidation of these systems remain the same:
.As a result of this consolidation, there are numerous impacts on the hospital landscape. Overall, the average number of hospitals per health system has increased while the total number of health systems has decreased. According to the American Hospital Association (AHA), at the beginning of 2021, there were 6,090 US hospitals—67% of them were system-affiliated.2 As more hospitals are acquired or merged with other systems, this percentage will continue to increase. This growth in affiliated hospitals is most prominent among the largest health systems, where the top 10 systems account for 24% of the market share (Figure 1).3
Figure 1: Health System Share of Market
Source: American Hospital Association2 and Deloitte Insights3
There has been extensive research and much public debate about the impact of health system consolidation on patient access, care, and outcomes. But the question remains: what are the implications for the MedTech companies that sell into these ever-expanding systems? As physician practices and specialty groups merge, the potential exists for reducing redundant facilities and operating rooms, thus reducing the need for capital equipment and associated consumable products. Additionally, as hospitals and systems fall under another system’s umbrella, the potential also exists for the newly merged organizations to leverage “best of the best” contract pricing, resulting in a sales margin reduction that would not have occurred if the systems had not merged. As health systems grow, so does their bargaining position, creating downward price pressure.
From a customer-facing perspective, how do health system M&As impact sales representatives and key account managers? Let’s first explore this from the corporate/organizational level and review the effect of the mergers on key account managers (KAMs). These associates are often the first point of contact for a customer. A KAM’s main point of call is not a medical facility, but typically a health system home office or business office. In this regard, the items below demonstrate how selling to IDNs is more complicated than selling to just one care facility:
As the number of health systems diminishes, there is a corresponding reduction in a KAM’s points of call. Moreover, KAMs are frequently account-aligned rather than geographically aligned, making it interesting, as well as vexing, to revise alignments, quota impact, and sales credits among KAMs. Consider the following scenario: KAM A is aligned to Health System 1, KAM B is aligned to Health System 2, and the systems merge. Within one sales plan period, only Health System 1 remains (Figure 2).
Figure 2: M&A Impact on Alignment, Sales Goals, and Sales Crediting
Source: Axtria Inc.
From an alignment perspective, deciding which KAM should manage the relationship with the new system can be challenging. The importance of the KAMs’ existing rapport with the customer cannot be overstated. In instances where cost-cutting measures are deployed, and operational units are eliminated or merged/blended, consideration must be given to the composition of the Value Analysis Committee (VAC) when determining which KAM is better suited to continue their engagement with the health system (Figure 3). VACs determine product value, control the product formulary, and ensure clinicians comply with the formulary. The VAC is frequently the gatekeeper for adding a product to the IDN-approved product list or adding it to a contract. The VAC will evaluate numerous factors to determine the most appropriate vendor selection, including existing vendor contracts, overall cost/benefit, and alignment to IDN core values.
Figure 3: KAM Alignment Determination based on New System Composition
Source: Axtria Inc.
For data-driven companies tracking customer engagement, the voice of the customer, and other customer interaction measures, assigning a KAM to the account should be both straightforward and transparent. KAM alignment should be based on the values captured in the Customer Relationship Management software, thus eliminating the need for subjective, qualitative, and “gut feel” approaches to assessing the strength of each KAM’s relationship with the customer. Besides these customer-facing metrics, other quantitative means, such as system sales volume vs. KAM portfolio size, can be applied to determine the most equitable way of assigning the account.
How does a merger impact sales targets and sales credit for companies incentivizing their KAMs based on system-aligned performance? Quotas based on alignment can be complicated when healthcare providers move in and out of different networks. Likewise, if the quota was initially based on a specified number of sites within an IDN, newly-added sites would require a quota adjustment. This may not sit well with the KAMs, since they may feel their leadership is “moving the goalpost.” In this case, a quarterly quota would better suit the complexities and fluidity of IDN movements. For instances such as these, it is imperative to continuously monitor and analyze the impact of new IDN M&A activity and one-off site additions or removals. Additionally, timing may play a prominent role in handling this question. A sales performance management (SPM) platform with the flexibility to change the roster of health systems and the hospitals in those systems, along with the associated sales, can produce a very different result from one that requires data to remain frozen with the KAMs throughout the sales period. Each scenario has different and compelling angles to consider.
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While IDN roster changes may pose the biggest impact on KAMs, there are also implications for the “boots on the ground” sales reps who actively sell into the IDN member hospitals. With buying decisions shifting from clinicians and department heads to central purchasing, points of call will also shift. As a result, not only will sales reps need to talk about the clinical outcomes of their products as they would have with a physician, but they will also need to talk about ROI impact and other financial benefits. Specific to the financial angle, sales reps will likely feel the downward price pressure caused by this restructuring and face tighter margins and lower sales prices as IDNs leverage larger economies of scale.
One of the most challenging aspects a sales rep may face is the possibility of being “locked out” of formerly “friendly” hospitals. As hospitals and health systems change hands, the influence of vendor empanelment (e.g., the addition of a vendor to the approved list) and IDN contracts is key. The health system making an acquisition may have more favorable contracts in place with competitors than with the existing supplier. Some reps and KAMs may collaborate, as there may be an opportunity to demonstrate the value of the acquired hospital and attempt to flip the entire IDN. In reality, while it is possible the preexisting contract will be honored through its original term (typically 36 months), being able to make large sales or introduce new products is usually difficult. The more likely scenario is that the acquired hospital will begin to shift its purchasing to the preferred system vendor or “wait out the clock” on the existing contract.
The business functions that support sales and account management teams must consider a broad spectrum of possible problems:
Marketing – Different audiences need different value propositions based on their local market needs.
Team Dynamic – As systems increase in size and KAMs shift IDNs:
Training and Upskilling – The right training is critical to developing and maintaining a sales force that can readily navigate changing alliances.
Technology – With IDN consolidation, more time is spent researching the customer's needs, wants, and demands to create a value proposition. This effort goes beyond just the technical knowledge of a product. It also factors in financial and behavioral aspects. Sales reps and KAMs must be adept at using technology to pull in such information and analyze the data.
Infrastructure – As needed, the sales reps and KAMs should be supplemented with assistance from additional teams who can help prepare the value proposition.
Data – As IDNs change, it is critical to keep data current and accessible so teams can use it effectively.
Omnichannel – With more stakeholders in different decision-making roles:
Given the current rate of acquisitions and the frequency with which hospitals shift ownership, the impact on MedTech sales teams can be nuanced and complex. Companies selling in this environment need robust and dynamic mechanisms that adjust to M&A changes with speed and agility. Groups supporting sales functions must be equipped to deal with the ongoing variability in IDN membership. MedTech companies must be prepared to flex with changes in hospital ownership/rostering and have a data and SPM solution that is fine-tuned to this high degree of variability. Does your sales/commercial operations team have the appropriate tools and solutions in place to be able to handle these changes? Our deep knowledge and experience in MedTech, along with our industry-proven thought leadership, services, and solutions, allow Axtria to help prepare your organization for future commercial success amid an environment of constant change. With the landscape continuously evolving to meet the demands of a complex commercial model, Axtria empowers you to make intelligent decisions and reach the right customers at the right time with flexibility and agility.
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