January 2019 | John Strong, ASPI
Most medical device manufacturers take a stab at segmenting the market as they seek to scale their business. Unfortunately, it is based too often on the size of a target alone. This may include revenue, number of acute hospital beds and other size-driven factors.
At Access Strategy Partners Inc (ASPI) we have segmented the market using those metrics as well as a host of others. These include the quality of IDN leadership, financial strength and the advancement of their supply chain operations. Now, we are turning to another segmentation tool as well.
Large employers are now requiring their employees to travel for certain high-cost procedures. For example, Walmart just announced they have selected Mayo Clinic (Rochester, MN), Geisinger (Danville, PA) and Memorial Hermann Health (Houston, TX) as their centers of excellence for spine surgery. That selection wasn’t a big surprise to ASPI, because all three appear on our first effort to segment the top 26 healthcare providers in the U.S.
The Walmart deal covers over one million of its employees. With healthcare costs at General Motors increasing 3% to 4% per year, it is now offering so-called “direct-to-providers” options for 24,000 of their salaried employees. Other employers are following suit.
As a result, casting a “broad net” over large healthcare providers across the country is likely not the optimal way to segment markets. ASPI is working to allow our clients to tightly narrow your sales and marketing focus to sales targets that will yield the biggest results. While the Walmart program does not yet require their employees to travel for heart and other orthopedic procedures, we expect it just a matter of time until they and other employers do just that.
Then there’s the Amazon/J. P. Morgan Chase/Berkshire-Hathaway’s new venture. It is hard to imagine they will invest in bricks and mortar (except for employee health centers at major employment sites) and may develop their own centers of excellence as well. With the potential for more than one million1 covered lives, targeting these centers will be critical, especially in local and regional markets. If this venture is successful, it may mean bigger changes for more of the 150 million Americans who get their healthcare from their employer.
Atul Gawande is the president of this unnamed venture, named in July of 2018. He has said publicly he is going after the costs imposed on the healthcare system from so-called middlemen. On his radar right now are high-profit insurance companies and pharmacy benefit managers. If I was a group purchasing organization (GPO) asking 5% or more in contract fees, I might be a bit worried about my business model, as well.
Impact for Medical Device Companies: Carefully targeting customers who are centers of excellence for major employers is more important than ever and needs to be considered as more direct-to-employer healthcare contracting occurs.
1 Tracer, Zachary, “Amazon-Berkshire-JPMorgan Health Venture Takes Aim at Middlemen"