BBI Contributing Editor
If sales personnel sometimes seem perplexed and frustrated about how hospitals make decisions about technology purchases, they're not entirely to blame. It can be a confusing and seemingly irrational process. And trying to seek reason in this process won't necessarily lead to helpful conclusions either. The process of decision-making is a highly variable one, with individual hospitals employing very different approaches.
Some hospitals engage in a largely ad hoc and somewhat disorderly decision-making process typically characterized by the exercise of political influence by high-powered doctors, while others have attempted to implement highly formalized approaches geared to objective decision-making and with minimal regard for the influence of individual stakeholders. One element is fairly standard, however. Medical technology requests still come largely from the hospital's clinical leadership and tend to flow upward from clinical departments to financial departments. It is the process, or seemingly lack thereof, in the way these requests get addressed that stumps outside observers.
Shifting hospital focus
Recent events in the hospital industry can shed some light on the unpredictable nature of its decision-making. Prior to the Balanced Budget Amendment of 1997 (BBA), a hospital's primary focus was dealing with the growth of managed care, anticipating the impact of managed care contracting methods on hospital profitability and engaging in a series of mergers and acquisitions designed to both improve hospital efficiency and develop stronger bargaining power. At that time, the future seemed reasonably certain: big, consolidated hospital chains were going to dominate the landscape, and in states where hospital ownership of physician practices was allowed, the hospitals that controlled physicians and their admissions were the likely winners. Consequently, most hospitals spent their time and resources looking for appropriate strategic partners, negotiating the complex relationships between merging administrative and clinical staffs and trying to make the newly merged entities function. For the most part, hospitals were not thinking strategically about service offerings or specialty market dominance. Rather, the generalized goal of expansion took precedence over strategic positioning within individual hospital markets. And increasingly it was thought that decisions about technology purchases would be a centralized function carried out by hospital system corporate staff in order to maximize volume discounting and other incentive programs offered by group purchasing organizations and large technology vendors.
Passage of the BBA along with changes in other market forces forced a change in that vision. The BBA mandated a number of reimbursement rollbacks in the Medicare program, long the most profitable part of most hospitals' business. The rollbacks were a rude awakening for hospitals as positive profit projections suddenly reversed direction. As hospitals responded to impending budget cutbacks, they began to focus almost exclusively on short-term operations, trying to ensure they would be able to survive the budget cutbacks being imposed by Medicare. At the same time, some of the hospitals that had expanded so aggressively in the mid-1990s were finding it more difficult to generate the expected efficiencies from their mergers and hospital consolidations. Even worse, the administrative and clinical staffs weren't able to effectively mesh and a number of high-profile mergers came undone.
As hospitals struggled with short-term profitability pressures, other industry changes further complicated their situation. First, after years of declining admissions and hospital census, hospitals have recently experienced a surge in demand for inpatient beds. At the same time, serious labor shortages have emerged, particularly for experienced nursing staff. The very structural changes that hospitals had implemented to improve profitability under managed care proved problematic when market incentives changed. Increasing demand for inpatient beds is largely due to an aging population, a trend that is not going to abate for many years. However, in the lean 1980s and early 1990s hospitals sought to close marginally profitable or unprofitable units in order to conserve on operating expenses. And nursing staff was routinely cut by hospitals to reduce expenditures under tightly reimbursed managed care contracts.
In this climate, the larger issues of service differentiation and strategic direction have largely been ignored because hospitals have focused on short-term survival, not long term strategic positioning. Widespread reductions in staffing of hospital planning departments contributed to short-term thinking because decision makers primarily included individuals whose functional roles were focused on quarterly returns, not long-range planning. And in many institutions, the hospital's budget is also partitioned along these lines, with the lion's share allocated to operational activities and a declining portion allocated to strategic activities.
The process, such as it is
For hospitals with a less-formalized decision-making process, clinical advocates who govern significant numbers of inpatient admissions are often key to product positioning success. These doctors have the influence to insist that financial administrators entertain the possibility of technology adoption. Typically, clinical advocates will direct the technology request to the department administrator. If the technology is a relatively inexpensive one, or falls within the definition of a "medical supply," the request may be forwarded to the materials management department for review. If the technology is more expensive, the department administrator might take the request to the leadership of the clinical division or directly to the budget request process if the request was made during the early stages of the normal budgeting process. The clinical division will then forward the request to the finance department. There the request is typically discussed by representatives of the finance and clinical departments, those discussions covering, among other things, the perceived benefits of the technology, whether it represents a replacement product or is additive to the clinical process, the price of the technology and whether any reimbursement is available to cover the cost of the technology. The importance of the requestor is also discussed, with greater influence afforded to clinicians who govern large or particularly profitable patient populations.
In these settings, product marketing and sales materials that support the clinician's desire for the new technology are likely to be most successful. In practical terms, this means that materials describing both clinical and economic benefits of the technology will be most effective if they are easily interpreted by the clinician who is advocating the technology. They are the individuals who will be most directly involved in discussions about the technology. Indeed, it isn't unusual for the technology company representatives to play a very small role in this process, working primarily behind the scenes to furnish data to the clinical advocate who then forwards the information on to the facility decision-makers.
More formal processes
Other hospitals have implemented more formalized decision-making processes. These processes might contain some or all of the following steps:
1) Development of criteria for evaluating technology purchases.
2) Development of a weighting system to "score" technology according to formalized criteria.
3) Cross-institutional committee review of technology under consideration.
4) Evaluation of high scoring technologies compared to other potential institutional investments.
5) Final decision about technology purchases.
On occasion in these settings, technology companies may be completely excluded from the decision-making process, their involvement limited to the provision of specific information used by decision-making committees in their evaluations. In other situations, the committees may seek to work closely with company representatives, requesting their participation in fact-finding meetings or in providing documentation designed to address specific issues and questions posed by committee members.
In both situations, the information requested is likely to include published clinical studies, cost-effectiveness studies, descriptions of the technology and its applications, FDA clearance documents, especially documentation pertaining to clinical indications, and so on.
How tech companies can participate
Given the lack of standardization in decision-making, technology companies need to remain very flexible. Preliminary inquiries into a prospective customer's technology decision-making process can provide the company with important clues about the probable course of decision-making. If the process appears to be more ad hoc than formalized, good relations with clinical advocates should be a strong priority, as is development of materials that can be used by the clinical advocate to present the case for adoption. If the process appears to be more formalized, care should be taken to develop and provide all requested information promptly.
In addition, the formalized process typically will require more sophisticated documentation of clinical and economic benefits so medical technology companies should be prepared in advance for these requests. In either case, plenty of time should be allowed for product positioning. The formalized process is typically a fairly lengthy one, and the ad hoc process is subject to significant delays if other issues sidetrack decision-makers.
Stability in the hospital industry, a distant hope in the currently volatile marketplace, should allow hospitals to turn their attention to more strategic matters. As they do, the process of technology adoption will likely become more strategic as well, and hence, more rational and proactive than it is currently. We can only hope ... and wait.
(Next month: Creating a value proposition that addresses hospitals' financial concerns.)