VHA assesses the hospital environment - VHA Inc - Industry Overview

Hospitals face a number of changes in their business environment that may change the ways they evaluate medical devices and capital spending decisions.

Many medical device companies already are feeling the effects of these changes and adjusting their product and marketing strategies accordingly.

To a certain extent, the song is the same sad melody we've been hearing in recent years, but the words are slightly different. And, as a result of subtle changes in the thinking of leading hospital industry strategists, marketers to hospitals and health systems need to rework their sales strategies, Web sites, brochures, trade show exhibits and sales pitches.

VHA Inc., Irving, Texas, and the accounting and consulting firm, Deloitte & Touche, Detroit, say there are six categories of issues that hospitals must face.

In Health Care 2001, a strategic assessment of the health care environment in the United States, they say the six issues are:

* The financial crunch. The current delivery model is ineffective because of eroding earnings streams, limited access to capital and strategic flexibility and the rush to increase market share and financial margins. What's needed are "improved decisions plus reduced expense structure." For suppliers, the question is, how do your products reduce costs, improve margins and attract financing?

* The rise of consumerism. Today's system creates confusing and inconvenient patient experiences. Consumers are empowered by Internet access to health care information. And consumers will demand personalized service and convenient patient interfaces or they will choose other providers. What's needed are "quality, convenience, personalization, efficiency and service as centerpieces of customer experience." How are medical device manufacturers building answers to these consumer demands into their products?

* Labor and talent shortages. Hospitals are coping with a "skill set shortage [that is] exacerbated by growing job dissatisfaction." They are having "difficulty managing careers, job rotation and improving compensation. And they are finding that "undifferentiated benefits and compensation limit recruiting success." What's needed: "job enrichment, focus on clinicians (core), [and turn to] professional employer organizations (non-core)." Does this represent increased empowerment opportunities for your key users? How will you help them use their new empowerment to buy your products?

* Scientific advancement. Hospitals have limited capital to buy and promote new technology. They experience a lot of excitement ahead of doability. There is slow acceptance of cell and gene therapies. But telemedicine allows expanded choice and access to care. VHA and Deloitte&Touche recommend "pharmaceutical and biotech ventures as part of the enterprise." What about medical devices? Where's the buzz for advanced diagnostic and treatment devices?

* Physician unrest. The traditional hospital view is that "physicians must be viewed as an external customer versus an internal user." Today, it is believed that "increased entrophy and fragmentation will spur further adversarial relations." What's needed: "Greater empowerment and personalized attention to physicians as customers." One way hospitals will empower physicians is to give them more buying power, if the money is available. How do you take advantage of this opportunity?

* Assessing and applying information. Hospitals and consumers have "sporadic connectivity to needed, useful data." Ideally, "all connected customers [should] have access to their patient histories and health planning tools." HealthSouth and Oracle are working with more than a dozen medical device companies to get more information to the hospital, physicians, nurses and, ultimately, consumers. Are you an early adapter and believer or are you hanging back?

VHA and Deloitte & Touche say the "Salient realities of the new economy are:

* "The business world has become too complex for one organization to do everything on its own.

* "To succeed, value must be created in an organization's core competencies.

* "Excellence in non-core activities can be achieved more easily through value networks and partnerships--rather than owning all processes.

* "Selection of business partners is important--organizations will be viewed by the company they keep."

VHA is urging its hospitals to concentrate on their core competencies. Core competencies of hospitals include what VHA calls "clinical processes and people," physician relations and patient/customer-centric services.

Hospitals and integrated health care delivery systems can create value by empowering physicians, according to VHA and Deloitte & Touche. To do this, hospitals must:

* "View physicians as an external strategic partner;

* "Reduce the time needed to complete non-patient care activities;

* "Improve access to and accuracy of patient medical histories and clinical data;

* "Understand physician needs by asking for input;

* "Encourage loyalty and productivity through compelling partnerships;

* "Provide information for the practice of evidence-based medicine."

Hospitals are urged to outsource

The better a marketer and salesperson understands that these are top priorities for hospitals, the better job they will do in positioning their products and services as the solutions that their hospital customers are seeking.

At the same time, top managers need to anticipate changes in their markets, including the possibility that the professionals and institutions who have been their customers might delegate important responsibilities to others. Over the years, for example, hospitals have increasingly outsourced certain laboratory procedures that used to be considered core competencies.

Thus, the VHA and Deloitte report also identifies hospitals' non-core functions and strategies for managing them. VHA is saying in this report that non-core activities should be structured so that they can be outsourced. This means that hospitals and health care systems must be organized to manage outsource vendors.

Hospitals need to define what they value in various non-core activities and "encourage innovation in relationships and contracts." And, according to VHA and Deloitte & Touche, hospitals need to create information technology structures that will support outsourcing relationships. Thus, a hospital's IT structure must be able to communicate with outsourcing vendors' information systems easily and transparently to both hospital managers and vendors.

Non-core functions identified

It follows, then, that medical device companies need to be thinking about whether their buyers will be "outsourced" and to whom. Some services, indeed, are being taken from hospitals by new competitors, such as heart hospitals and various types of diagnostic clinics rather than being outsourced. This, again, changes market dynamics for suppliers.

In the management literature, core competencies are defined as those that an organization is in business to develop and maintain, while non-core competencies are those that can be outsourced and performed better by other organizations. The report identifies non-core functions in hospitals as:

* Facility management;

* Revenue cycle;

* Supply chain;

* Information systems;

* Human resources;

* Food service;

* Other.

Enablers of success outlined by VHA

The report promotes what VHA calls "Enablers of success in the personalized health enterprise."

"The 10 enablers of success encompass the entire personalized health enterprise model and effectively address emerging business issues," the report says.

"Marketing initiatives create connections with the community. Outsourcing non-core functions refocuses management's attention on customer service;

"New business models maximize the three key core competencies;

"Information technology is used as a competitive differentiator through the extraction of integrated clinical and operational data;

"Alliances provide access to new technologies and revenue-generating ventures;

"Effective leadership rebuilds and maintains financial acumen;

"Service team orientation builds a sense of community among all employees who interact with patients; and,

"Patient safety is addressed through established protocols and guidelines."

The 10 enablers of success in the personalized health enterprise are:

* Marketing/brand development;

* Financial acumen through effective leadership;

* New organizational design and skill sets;

* Quality of service, application of "employer choice" strategies;

* Make/buy approach to non-core functions;

* Information technology viewed as competitive differentiator;

* Patient safety;

* Alliance approach to biomedical technology; and,

* Service team orientation.

Hospitals, of course, are in a terrible bind. While investor-owned chains are doing well, not-for-profits are hurting. All hospitals are contending with soaring prices for new drugs and rising labor rates. They are looking for new ways to generate revenues, replace labor with automation and cut costs.

When your customers are in turmoil, it is important to stay on top of how they see the world and may change the way they position themselves and their suppliers. The VHA and Deloitte report offers some critical clues to where hospitals are trying to go.

VHA Inc., www.vha.com, 972-830-0000; Deloitte & Touche, www.us.deloitte.com, 800-877-1298.

RELATED ARTICLE: We're bringing buyers and sellers together

by Donald E. L. Johnson, Publisher

The market talks to buyers and sellers. And Health Industry Today and its sister publication Hospital Materials Management increasingly are in the business of helping buyers and sellers talk to each other.

The subtitle for Health Industry Today is, "The market letter for health care industry vendors." And the subtitle for Hospital Materials Management is, "The newsletter for materials management and group purchasing." HMM is as much the market letter for materials managers as HIT is for medical device suppliers.

HIT and its predecessors began as a magazine more than 50 years ago, and it has been published in its current newsletter format since we bought it in 1990. HMM goes back to the mid-1970s, when it was a how-to journal, and has been in its current staff-written, market-oriented format since we took it over in 1988.

The goal of both publications is to be an objective, originally-reported source of news about what and how hospitals, GPOs and hospital chains buy and how and what their suppliers sell.

During the last couple of years, both publications have increased their coverage of e-procurement by hospitals and integrated delivery networks (IDNs). And both have increased their coverage of IDNs and health systems as buyers and customers of manufacturers, distributors and GPOs.

Consolidation of hospitals, IDNS, GPOs and medical device makers and distributors has changed the ways both buyers and sellers track the market. Top level materials managers want more news about their primary contractors, and national accounts managers and sales managers want us to do a better job of reporting on their most important customers.

It is clear that the large organizations that dominate both the hospital and medical device industries need a newsletter that reports on both buyers and sellers.

Therefore, beginning with the August 2001 issue, Health Industry Today is being merged into Hospital Materials Management, the monthly newsletter for health care industry buyers and sellers.

In addition to its reporting on hospitals and GPOs, the new, expanded HMM will increase its coverage of important medical devices, national contracting, suppliers, e-procurement and e-commerce.

In April, HMM's editor, Paula De John, received this e-mail: "Hospital Materials Management has been named Gold Award recipient as Best Newsletter in the American Society of Healthcare Publication Editors Awards 2001 Competition.

"The judges stated: `The editors clearly have a handle on what is needed to meet the needs of their readers. The format, presentation, diversity of information and quality of writing are exactly what is required. It's on target.'"

"For background purposes, you should know that there is no Silver or Bronze Award given ... this is THE best newsletter according to our judges."

Now you know why we are sure that Paula's award-winning, in-depth reporting in Hospital Materials Management will serve you well.

Donald E. L. Johnson is Chairman and CEO of The Business Word Inc., publishers of Health Industry Today, Hospital Materials Management, Health Care Strategic Management, Profiles in Healthcare Marketing, Healthcare Advertising Review, Financial Advertising Review TWINS Magazine and www.BusinessWord.com.

COPYRIGHT 2001 J.B. Lippincott Company
COPYRIGHT 2001 Gale Group