Price It Right... Or You'll Be The One Paying The Price
By BILL STEWART
Partner
[APRIL 22, 2021] – When medical device companies approach Group Purchasing Organizations [GPO] or Integrated Delivery Networks [IDN] with what they believe to be the next great innovation, they must understand no two pricing strategies should be the same and no one price fits all. Every product presentation must be preceded by extensive homework done correctly, including rationale and proof that your product provides true clinical value and your price is fair – whether you’re seeking a premium or opting for greater access.
If not, you may as well waste your time taking a long walk. At least you’ll get some exercise.
More than ever before – due to economic pressures created by the pandemic, a migration to lower-cost sites-of-care and a growing demand for transparency – hospital systems are focused on price. They’re assessing all cash outlays and seeking ways to save on purchasing in order to return to healthier levels of profitability. This not only means you’ve got your work cut out for you, you must accept that old ways of forecasting price loss are no longer relevant. It’s all a delicate math problem with many, many factors but only one right answer – the appropriate price for that particular GPO or IDN.
Let’s take a closer look …
As I mentioned, there’s a massive migration to lower cost sites-of-care and Ambulatory Surgery Centers [ASC] and this has a huge impact on pricing strategy. The old days of taking X% erosion each year “because that’s what we’ve always done” are gone. You must also understand every major GPO and IDN benchmarks pricing and they share this information with their members. If you sign a deal with Hospital A, you better be willing to have that price revealed to Hospitals B, C and D or you will experience the “Red Face Test”.
The “Bird in hand …” dilemma
Some companies aim to price their products at a premium because they believe the product is not only clinically desirable, but also unique and superior to competition and, as such, deserving
of a higher price. When seeking a premium, you’re counting on the GPO or IDN agreeing with you which may or may not happen. You’re also accepting the fact that a contract, if it ever actually occurs, will likely take longer to secure. In some cases, when you do get that premium, your access may be restricted.
If you sense the wait will only be a month or two or three, it’s probably worth holding out for the premium. If it’s going to take a year, well, maybe you’re better served by easing off the price in exchange for greater access [the old “Bird in hand” thing, y’know].
It’s a judgment call that needs to be made once all factors are considered such as clinical value to the hospital as well as the patient, competitive landscape, market conditions, etc. Perhaps most importantly, you need to know how hospitals will be paid for procedures involving your product. They make decisions based on spending a percentage of that reimbursement so understanding this is imperative.
Ultimately, you need to decide what’s more important: Holding out for your price or getting immediate access and winning volume. It’s not an easy choice.
Don’t go it alone.
At Excelerant, we have experience with all types of customers. When it comes to manufacturers, we’ve worked with market leaders, we’ve worked with new and niche technologies, and we’ve worked with small companies seeking to gain a foothold. Each scenario involves a different pricing strategy. With health systems, we’ve worked with all the giants in the U.S. We understand their processes for evaluating innovative technology, and even have a team member who was tasked with this responsibility when she was with a major health system.
For less than the cost of hiring one novice, full-time employee, you get the experience and expertise needed to price your product appropriately and to gain greater access. Call us today and we’ll help you be seen as a true partner in shared success.
Now is a great time to contact Excelerant and discover how we can best serve you.
ABOUT BILL STEWART – Bill has more than a quarter-century of experience working in medical devices, having held positions in sales, marketing, and national accounts. He has led pricing strategy for organizations, including contract negotiation with national and regional Group Purchasing Organizations [GPOs] and Integrated Delivery Networks [IDNs]. He also has extensive experience developing relationships with senior leaders at health systems. Bill served five years in the U.S. Army, the bulk of his time as an infantry leader in the 82nd Airborne Division. During his service, Bill earned the Ranger Tab, the Expert Infantryman Badge, and Jumpmaster Qualification. He earned a Bachelor of Arts in Honors History from Georgetown University and an MBA from the Fuqua School of Business at Duke University.
bstewart@excelerantconsulting.com
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ABOUT EXCELERANT CONSULTING
Excelerant Consulting is the go-to organization for med-tech companies that need to position products and services successfully for value analysis committees, contract acquisition, and sales modeling and execution to commercialize the launch of medical devices or services with Group Purchasing Organizations [GPO], Integrated Delivery Networks [IDN], or Regional Purchasing Coalitions [RPC]. Our clients rely on us to enhance their product positioning, navigate corporate contracting opportunities, and provide sales support to accelerate sales growth.
For more info, contact Excelerant Consulting at info@excelerantconsulting.com.