The “rep-less” medical device sales model has generated a lot of focus and discussion recently. Some people believe it’s just a fad and will go away. Others feel it’s an inevitable piece of the puzzle of extracting costs out of our healthcare system. Regardless of where you stand, you have to admit that it’s an interesting debate.
I like to look at these situations through the “lens” of procurement and supplier management. Since hospital purchasing practices tend not to be on the leading edge, it’s often helpful to look outside of the industry for insights. Many other industries have gone through a transition in procurement practices and buying behavior for various supply items that might be informative for the future of the rep-less medical sales model.
Analogues from Other Industries
There are a lot of similarities between the evolving buying behavior now occurring in hospital purchasing of medical technologies and what other industries have gone through for certain supply items. Just prior to the transition in buying behavior in these other industries, the buying situation could have been described as:
- Buying decisions dominated by extremely high-influence users who want “one-stop shopping”
- Very tight relationships between the solution user and the supplier salespeople
- Important supply items where quality is critical to the success of the customer’s business
- A bundle of high value and lower value components (service+service or product+service) provided in one bundled solution by suppliers
- Considered an area where procurement had little influence
- A high budget area
- Lots of pressure for lower costs due to changes in the environment and competitive dynamics
- Lower cost disruptors and technologies available
If you work for a hospital or a medical devices company, does this sound familiar? It sounds a lot like physician preference items – orthopedics, CRM, spine, and other areas. In fact, the list above actually describes the buying environment for corporate legal services in the last decade.
Outside law firms traditionally built very tight relationships with the General Counsel (GC) and staff at corporations (users and deciders). The GC turned to their partner firms for almost everything – it was one stop shopping. With the onset of the great recession, there was tremendous pressure to lower costs.
This cost pressure, along with growing procurement sophistication and new disruptive service providers, accelerated the move by businesses to try to unlock value from legal services spend. Companies started to change relationships with law firms. Buyers employed new procurement practices. One procurement practice was to unbundle.
In the past, law firms bundled lots of services together and sold them to companies in packaged solutions. This package could include, for example, highly valuable litigation service or patent expertise along with more mundane clerical activities. The law firms billed out the clerical and mundane activities at relatively high rates.
With unbundling, buyers seek out the best value for each of the components of the offering. Companies might buy the high value litigation or patent expertise, but do the clerical activities themselves or, more likely, source these from a third-party that performs the activity at a substantially lower cost. This had a significant adverse impact on law firm margins and revenue.
This unbundling strategy is not just a trend that has impacted legal services procurement. It has squeezed many industries across areas like media, advertising, professional services, and manufacturing. Any buying situation where there is a bundle of services or products plus services that can be unbundled to save money are possible candidates for this procurement strategy.
Rep-Less MedTech Model from a Procurement Perspective
So, the rep-less medical technology sales model is just an extension of a broader “unbundling” trend occurring in many industries. Of course, everything seems a bit more complicated in healthcare. In the case of many device manufacturers, they are providing a bundle of products along with a variety of high and low value services and technical expertise.
In order to assess how widespread this rep-less sales model might become, you have to look at it from a hospital and physician perspective. Hospitals have to answer 4 key questions:
- Can enough savings be generated by unbundling to make the change worthwhile?
- Will outcomes and quality be at least as good in an “unbundled” model?
- Can the “unbundled” services be efficiently and effectively performed in-house or sourced from a third-party?
- Can all of the stakeholders be aligned and rewarded to effectively manage the change?
The learning from other industries outside of the hospital industry is that unbundling does work and saves money. It requires a fair amount of sophistication in procurement, internal project management resources to operate in the new model, new technology and service providers, and internal change management skills.
In the hospital industry, just like in other industries, entrepreneurs and capital funding have entered the market to try to take advantage of this opportunity. Companies like NuRep, Intralign, S2Interactive, and others are focused on helping hospitals make the transition to the new model.
As in other industries, the unbundling model won’t be right for every account and every situation. However, if you consider it a fad that will go away, you’re most likely wrong. It’s a part of a broader trend of customers becoming smarter buyers and finding new ways to extract value out of supplier costs.
You could also argue that it is part of the broader “consumer self-service” trend – think IKEA, ATMs, and in medical devices Nayamed. Some customers are willing to do self-service to lower costs or just find it more convenient.
The penetration of the rep-less medical sales model will depend on how well hospitals and external service providers can address the four questions above. Since we operate in a dynamic not static world, the penetration of the model will also depend on the response by manufacturers. Manufacturers may accelerate the trend or can disrupt it with innovative new business models. In any case, it will be interesting to watch!
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