Medical Device Daily Contributing Writer
ANAHEIM, California — Forty thousand attendees and more than 2,500 exhibitors took part in this year's Medical Design & Manufacturing West meeting, held last week at the Anaheim Convention Center.
In addition to a widely varied exhibit floor, MD&M West also featured educational offerings for attendees. Presentations included forecasting future opportunities, suggestions to prolong a product's life cycle and a presentation on improving pricing and revenue management.
Gopkiran Rao, of the solutions management unit at Model N (South San Francisco, California), explained how some medical device manufacturers are addressing the problem of decreasing profit margins.
Medical device companies are increasingly concerned about pricing and revenue management. In today's healthcare marketplace a major percentage of sales is managed under sales contracts or government programs. In fact, Rao said, “10% to 15% of gross revenue is reduced by discounts, rebates, charge-backs, fees and overpayments. There is significant pressure from regulatory authorities and government auditors.“
According to Rao, failure to properly manage pricing and revenue can cost a $1 billion company as much as $40 million annually.
The problem is that companies have no way of tracking compliance to contracts. They don't catch expiring contracts. Customers may be “double-dipping“ to get best prices from more than one contract. In fact, regulatory compliance must be “top of mind“ for medical device manufacturing executives, Rao said.
He said compliance programs must consider how the company performs in meeting requirements of the Sarbanes-Oxley Act, the Medicare Modernization Act and the FDA, as well as the Securities and Exchange Commission and the Department of Justice. Internal systems should compare and control pricing compliance.
Rao offered an example of a leading, unnamed medical device company. In the device industry, Federal Supply Schedule (FSS) pricing represents a major compliance issue. FSS pricing covers national federal contracts and ensures that federal agencies receive equal to or better pricing than the “most-favored customer (MFC)“ prices. The contract with FSS establishes a price monitoring methodology whereby “best pricing“ is ensured for the life of the multi-year contract through monitoring the company's commercial market pricing trends.
The company in Rao's case study was not able to manage government regulatory compliance, and the risk of an FSS audit loomed large. The company lacked up-front analysis tools to determine contract pricing as well as adequate controls during the life of contracts to avoid overpayment of settlements.
Above and beyond the FSS issues, the management team issued a challenge for the company to grow by 10% without increasing prices or adding head count. This company was in the middle of an Enterprise Resource Planning (ERP) implementation but realized that the ERP tool could not support its pricing, contract compliance or settlements requirements. So it embarked on a project to update process and technology.
The company implemented a revenue management system for pricing, contract management and settlements from Model N. Compliance tracking tools ensured that incentive payments were paid only to customers that were compliant and gave the sales unit the information needed to identify potential accounts.
The risk of an FSS audit was removed and even though that benefit would have been enough to justify the investment, the company also saw lower unearned compliance incentives, fewer contract discrepancies, increased rebates and the elimination of overpayments. All told, through use of the Model N system, this company saw an increase of 1% of annual revenue, Rao said.
According to Rao, “[We take] contract management to a higher level. With patent-pending “revenue execution“ algorithms, its software prevents you from leaving money on the table while creating and executing contracts. Even when fully benefiting from the terms of a complex contract involves cross-departmental processes, Model N supports you.“
In other news from the MD&M West exhibit floor:
• Digital Dynamics (DDI, Scotts Valley, California), a manufacturer of rugged computing solutions, reported the introduction of the ToughStation family of waterproof, dustproof, shockproof computers. Designed for harsh industrial environments, ToughStations tolerate washdown, floor vibration, corrosive materials, extreme temperatures and other hazards common to medical device manufacturing.
“DDI has blazed the rocky trail for industrial computers for over 30 years,“ said President James Jerde. “The ToughStation products . . . [bring] true computing performance, reliability and durability where they're needed most.“
• Sud-Chemie Performance Packaging (Belen, New Mexico), a business unit of Sud-Chemie Group, announced the recent launch of the Desi Blanket, a thin, versatile sheet of desiccant pockets for protecting a full range of products from moisture in cases where size thickness, packaging and space constraints are a concern.
The Desi Blanket offers uniform coverage for areas typically difficult to protect. Because of its thin, flat design, the blanket helps uniformly protect small items such as semiconductor and microelectronics packaging from moisture while also avoiding bulges that occur when placing desiccant bags inside foil barrier packaging. This difference means that individual foil packages can be stacked, rather than individually boxed, saving money in both time and labor.