As the final speaker of the day shared his closing thoughts at Becker’s ASC Conference, held Oct. 18-20 in Chicago, one thing was clearer to me than ever before: Healthcare delivery is finally starting to operate like a “business” similar to what you’d typically expect with most other industries in a free-market model. And ASCs—ambulatory surgery centers—come closest to the free-market model in healthcare. Consumers often are paying a big chunk out of pocket for their treatment and, as a result, shop around for the best price and quality. Similarly, providers are competing to drive efficiency while maintaining costs. With the help of these forces, ASCs are ripe for growth.
And why not? Migration to lower-cost avenues has occurred in many other industries, and it's only natural for it to accelerate in healthcare delivery. Let's take the automotive industry as an example: When you need an oil change, would you rather pay $40 at a quick-lube place down the street and get it done in 20 minutes? Or would you rather spend $80 at the dealership, where you’ll need to leave your vehicle all day because they’re running behind schedule as usual? Let’s take it even further: If you need to change a wiper blade, are you going to do it yourself or pay someone $15 to do it? On the other hand, if you get in a wreck—perish the thought—are you going to go to the quick-lube place or the dealer to get your vehicle repaired?
Healthcare, like the automotive world, is starting to move procedures to the lowest-cost setting of care with equal outcomes. Total knee replacements, which used to be on CMS’ inpatient-only list (and were removed), are moving to outpatient as they become more "routine" and surgeons become more specialized in their profession. Now we see that some patients (with the right profile) are getting their knees and hips replaced at ASCs for half the price that it would cost at a hospital (as an inpatient procedure). Though it may be unnerving to some, joint replacement is becoming more and more comparable to an oil change at the quick-lube place, and consumers are asking “Why pay more for the same outcome?” Some procedures, such as pain management, are starting to move to an even lower cost setting than an ASC—a physician’s office—which is analogous to changing your own wiper blade (not quite but you get the idea). At the other end of the spectrum, if you slip and break your leg, you’re going to go to the emergency room and receive inpatient treatment. You’re not going to shop around; you’re going to get it repaired at the “dealership” and not think twice about being unable to “travel” the same day.
We can expect this growth trend in ASCs to continue, enabled by the spread of information and transparency, improvements in technology, surgical techniques and pain management protocols, and the need to reduce healthcare costs. Signs of this include:
CMS proposing changes to increase the breadth of possible procedures in ASCs
Private equity firms purchasing orthopedic, gastroenterology and women’s health ASCs at greater rates
Hospitals acquiring or partnering with ASCs
Surgeons, who are often entrepreneurial, joining or starting their own ASCs to gain independence from hospital systems
More routine, simple procedures, such as pain management and colonoscopy, moving to an office-based setting
So what does this disruption mean for manufacturers or service providers who sell their products and services to healthcare providers? Many are starting to work with this unfamiliar customer but aren't quite sure how to do so. ASCs are different from the hospital customer, perhaps more diverse and definitely more fragmented. They are small businesses, and not the large, often non-profit entities that most manufacturers are used to. Their ownership varies and can include any mix of multiple parties, such as management companies, private equity, hospitals and physician owners. Some specialize in one branch of procedures while others perform cataract surgeries and joint replacements in the same center. Some simple entities have two operating rooms and two surgeons and others have multiple facilities, some of which span the continuum of care (such as physical therapy and rehab).
For manufacturers to succeed in winning ASCs, the first step is to avoid jumping straight into “How should I cover these customers?” Instead, apply the lesson I discussed at the beginning of this post: Treat this like any other business (problem). Step back and ask yourself the following questions first:
Are these customers relevant for our business?
What’s our value proposition to these customers?
Does our current portfolio of offerings meet their needs or are we just trying to sell them the same stuff as a hospital?
How are ASCs different from one another in a meaningful way? How should we segment this population so that we can differentiate our approach to each sub-group?
Then ask how you should cover these customers. These fundamental questions are simple but deceptively challenging to answer. One thing is certain: You don't want to delay answering them or you'll always be behind your competition.
About the author:
Prateek Harsh is a consultant in ZS’s Evanston, Ill., office and works within the firm’s medical products and services practice. He has advised numerous medtech clients on topics including market insights, go-to-market strategy and operational excellence. Prateek’s more recent areas of focus have been the U.S. outpatient surgical market, the orthopedics market, sales force deployment and incentive compensation.