Two of our more distinguished alumni, Vince Forlenza, WG’80, chairman, president and CEO of Becton, Dickinson and Co. (BD), along with Audrey Meyers, WG’80, president and CEO of The Valley Hospital and Valley Health System, participated in a roundtable discussion this past December about how they are conducting business based on the changes taking place due to the Affordable Care Act. We were also lucky to have one of our Wharton professors, Bob Town, take part in the discussion. This roundtable was hosted by Becton at their headquarters in Franklin Lakes, NJ, and attended by more than 50 Wharton alumni. It was a great evening of conversation regarding these changes and how they are affecting the evolving business of health care.
Most interesting to learn was how Becton was selling to institutions like Valley Hospital, and how Valley was evaluating products for use in their system. Valley Hospital is one of the busiest hospitals in New Jersey, and while defined as a community hospital, it operates like a much larger medical system caring for northern New Jersey—a fairly affluent community.
During the discussions, Meyers mentioned that the evaluation process for new products goes through a new product committee whose main charge is to determine not only if the product is clinically beneficial—whether there exists evidence in the medical literature of an improved health outcome—but also if the product is cost-effective. In other words, the evaluation incorporates a value analysis along cost-benefit lines.
Becton is also selling along these lines. It has developed a marketing and sales process to assist the provider, Valley, to determine what value its products provide. Value-based selling includes selling the clinical benefits of using a product, as well as the overall economics as to its use (e.g., its cost-effectiveness in the overall care of a patient).
To add value-based selling to their armamentarium of marketing/selling tools, firms such as BD require a certain level of expertise and a specific skillset to pull off, as well an acceptance of the additional cost. It also can lengthen the selling process. Only the more progressive companies are doing this, though it is likely to become mainstream over time.
It represents a significant and necessary shift in how new medical products and technology has been sold. If one were to review the marketing and selling “arc” of new products, the hurdles for convincing providers that a product is useful have become more rigorous for manufacturers. This makes sense based on how payment for these products has shifted. Payment by insurers up until recently has been based on volume—you use it, we pay for it. The insurer bore the risk of the care for that patient and the costs associated with that risk. Increasingly, however, insurers have put the onus on the provider and patient. Payers such as Blue Cross Blue Shield now provide a lump sum amount to the provider to care for that patient. The provider then allocates care in such a way as to ensure care is provided for less than this amount.
Based on this new relationship, providers seek value in what products they use. The goal has become one where payers and providers try and keep healthy people healthy and improve sick people’s condition so that care is provided judiciously and affordably.
This shift will likely require sacrifices by patients and providers, and my next blog will explore what those sacrifices are.