The rep-less medical device sales model has gotten a lot of focus recently. In recent years, numerous device manufactures have announced creating new rep-less models. A lot of the press surrounding the rep-less model has focused on the high selling general, and administrative expenses of device manufacturers. Critics argue that it is the high selling costs that lead to high device costs.
This is a somewhat naïve perspective. In many, but not all, parts of the medical device industry, the sales representatives do less selling and more often are helping set-up, providing technical support, delivering specialized instrumentation and conducting post-procedure technical support. For example, a recent day-in-the-life study of an orthopedic sales representative showed more than 50 percent of the representative’s time was dedicated to technical support and pre-procedure set-up.
You could argue that hospitals have essentially been “outsourcing” many activities to device manufacturers through the purchase of the products. In a cost-plus, fee-for-service world, this model worked great. The costs were generally passed on to payers. In the new world of value-based purchasing, accountable care, aligned incentives and continued reimbursement cuts, there’s tremendous pressure to take costs out.
In other industries under cost pressure, the professional buying organization takes on a more significant leadership role in helping find new ways to take costs out. This usually starts with a more strategic approach to supplier management and aggressive sourcing initiatives. The drive to become lean eventually leads to creative thinking on insourcing (make), outsourcing (buy) and changing the model with suppliers to take big chunks of costs out. As hospital procurement practices mature, expect more proactive and creative approaches to taking costs out. Interestingly, in a cross-industry survey of procurement practices, health scored at the bottom for procurement’s role in driving make vs. buy decisions.
The appropriateness of the rep-less sales model will differ by supply area and will depend on a few factors such as the technology lifecycle, specialized technical support needed and the amount of savings opportunity. Smart buyers will continually look at the feasibility and benefits of changing the model with their supplier partners to drive real savings beyond the simple sourcing strategies.
How pervasive will the rep-less sales model become? It’s hard to say. For those who think (or hope) it will go away, there are many reasons to believe it’s going to stick and be here to stay:
- Maturing of hospital procurement/supply chain into a more sophisticated player.
- Leading hospitals are creating their own clinical support models to sever supplier-physician bonds and create a more leveraged strategic sourcing strategy.
- The growth of generic devices and distributor/GPO private label supplies will force continued pricing pressure on branded devices.
- New businesses and technologies are enabling the rep-less model (companies like NuRep and Curvo provide means to source and support direct purchasing).
- The movement of care to lower cost/lower reimbursed settings force continued pricing pressure (e.g., inpatient to outpatient to ASC).
- Continued cost pressures, reimbursement cuts, healthcare reform, growth of ACOs, etc.
- Increasing proportion of physicians who are employed by hospitals.
Chris Provines is an author, speaker and CEO of Value Vantage Partners.
Read his blog at http://chrisprovines.com/blog/.
Medical Device & Diagnostic Trainers Summit Featured Speaker
Author and business advisor Chris Provines will be a featured speaker at the annual LTEN Medical Device & Diagnostics Trainers Summit, to be held Oct. 6-7, 2015, in Chicago, IL. For more information, visit http://mddtrainerssummit.com/.