As hospital systems consolidate, and as more physicians become hospital employees, the business side of the hospital has taken control over the acquisition of new procedures and technologies. For medical device companies, the days of driving sales via physician champions is over.
Each time I seen an announcement like the new Bridge Clinic at MGH or the new bladder-cancer detection system at Intermountain Medical Center, I am reminded that providers are fundamentally regional service businesses.
For providers, acquiring an innovative new medical device means offering a new service to patients. For a provider, the decision to acquire a new medical device is a business decision to grow the hospital’s service share. The more novel the service, the more business risk faced by the hospital, and the more complicated the purchasing decision. Philip Kotler’s book “Strategic Marketing For Health Care Organizations” gives an example of the new reality:
A hospital is considering adding a sports medicine program to its portfolio of services. Before deciding whether to launch such a program, it plans to do market research to gauge the size of the community need, discover which competitors already offer such a program, consider how it will organize and deliver the program, understand how to price its various services, and determine how profitable the program is likely to be.
Medical device sales and marketing needs to adapt. Intuitive Surgical shows us how.
Intuitive Surgical is one of the biggest medical device business successes of the last 20 years, with a $26B market cap (up from $4B in 2006), and annual revenues approaching $3B for a product line introduced in 1999.
Intuitive’s success was not built on clinical breakthroughs. The clinical data on the DaVinci robot has never been compelling.
Neither was Intuitive’s success built on their advanced technology. Unlike car companies, Intuitive never extols the value of their micro-motors, precision machining, proprietary materials or advanced software algorithms.
So what’s their secret?
Intuitive sells programs to hospitals, rather than devices to physicians.
Take a minute to study this link. Intuitive focuses their sales effort as much on the business side of hospitals as the clinical side.
Read this 2013 white paper for more insight. Intuitive’s sales team focuses the hospital on the potential benefit to hospital-wide business metrics:
Defining the financial value of a strategic acquisition such as the DaVinci Surgical System requires looking beyond procedural cost‐accounting analysis. It includes assessment of the hospital’s ability to grow its business, attract new referrals, attract a younger, insured patient population and offer a competitive distinction within the community.
Table 5: Business Development Metrics
- New direct referrals for elective surgical procedures
- New referrals to ancillary services in the hospital’s continuum of care pre‐ & post‐robotic surgery, such as Radiology, Laboratory, Cancer Center, etc.
- Market share shifts beyond customary primary & secondary service catchment
- Shift in payer mix to a younger, insured patient population
- Change in private payer contract terms, in particular shift from per diem to case rates
- Change in open surgical volume to minimally invasive surgery volumes
- Change in adverse surgical events reported by Infection Control & Quality Assurance
- Reduction in surgical re‐admission rates
Intuitive targets hospitals that are looking for aggressive patient-share growth, and that want to improve their reputation in the community. As part of building the robotic program, these hospitals often recruit new physicians to lead the effort, e.g. in New York, Massachusetts , Pennsylvania and Alabama. The historical physician-champion sales model couldn’t work for these hospitals, as the physician champion was hired after the hospital made the decision to bring on the robotic services.
In a 2010 paper, leaders at St. Joseph’s Medical Center in Brainerd, Minnesota describe how they have built a successful program. They write that “With a well-developed robotics program, [any] hospital has the opportunity for great financial success in addition to providing patients with cutting-edge health care.” The paper goes on to describe St. Joseph’s initial market research into patient demand and competitive dynamics, options for obtaining outside financing for the program including acquisition of the device, hospital-wide program planning and management, and hospital staff education.
To obtain hospital board support, the author’s state that:
The reasons that we cited for adding a robotic surgery program included a noted decrease in surgeries because some that were regularly performed at our facility were being lost to other hospitals where the same surgeries were being performed robotically;
the ability to draw and retain talented surgeons by having robotic surgery available in our facility; and the growing trend of robotic surgery expanding to rural areas, making it more likely that if we did not obtain a surgical robot, one of our competitors might.
Not a word about offering a new clinical benefit.
Intuitive teaches the hospital to assemble a business team to manage the program across several departments. From their white paper:
While the da Vinci Surgical System is acquired for the operating room, management oversight is best assigned to a multi‐disciplinary team, chaired by a Finance Director (Table 2).
Table 2: Hospital Robotics Taskforce
- Director of Finance, Taskforce Chair
- Director of Managed Care Contracting
- Director of Strategic Planning
- Director of Marketing/Public Relations
- Operating Room Supervisor (or Robotics Coordinator)
- Financial Analyst for Surgical Services
- Director, Surgical Medical Records/Coding
- Robotic Surgeons
This taskforce should meet at least twice a year to review financial reports.
According to a 2014 article in Modern Healthcare, “To make buying a DaVinci financially viable, hospitals generally need to perform 150 to 300 procedures annually for six years to offset the upfront and ongoing costs of acquiring it.” In the article, a hospital CEO states that “he doesn’t mind if it takes awhile for the pricey new piece of equipment to pay off because it’s already attracting patients who previously would have traveled to other hospitals in Colorado or Utah to get robotic surgery. Also, it helps his hospital recruit and retain surgeons.”
To Intuitive, hospitals are businesses that compete with others in their region, for patients and for staff members. Unlike the typical medical device sales approach (i.e. buy our product to improve your clinical outcomes), selling the DaVinci robot means selling a program to make the hospital a stronger regional competitor. Quality of care is important, but it’s far from the only factor that hospitals consider when making a purchase decision. Most medical device companies focus on selling ‘improved clinical results,’ sometimes providing an ROI analysis to help the physician champion overcome objections from the business-side of the hospital.
Outside of the medical device industry, ‘improving your customer’s business results’ is a standard business-to-business sales approach. Intuitive is not the first medical device business to focus its sales efforts more on the business side of the hospital than the clinical side. But they’ve mastered it.