4 Can’t Miss Opportunities That All Medtech Companies Need to Consider

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According to a recent L.E.K. survey of hospital executives, 56% of the respondents haven taken steps to reduce medical device sales rep access to their facilities. In fact, the CEO of an Illinois hospital stated,

“We’re constantly trying to limit the sales reps…We want to see what they’re selling before they get a hold of a doctor who brings it in without our knowledge.”

At least one answer is obvious, right? Hospitals are clearly not looking for advice from medical device sales reps. So what solutions are they looking for? Here is what a Director of Purchasing at a Minnesota hospital wants:

“We would really like clinical outcomes data…For example, we want to know if a knee replacement that costs two times as much as a competitor’s knee is actually going to last double the time as the competitor’s model.”

In other words, hospitals want to understand the cost/benefit analysis for the medical devices they purchase. That’s one idea medtech companies need to embrace. But what are the other 3?

In this interview with Jonas Funk, Managing Director in L.E.K.’s Chicago office, we learn about the 4-step process that medical device companies should consider in light of the current healthcare environment. And by the way, if you want a copy of L.E.K.’s most recent survey of hospital executives, contact Jonas via email at j.funk@lek.com.

Interview Highlights with Jonas Funk

  • What are the most pressing challenges that medtech executives are facing right now?
  • Overview of L.E.K.’s most recent strategic hospital priorities study. How was it conducted? Who was involved? Etc.
  • Are hospital administrators the new KOLs?
  • In the pursuit of customer excellence, what are the 4 key questions that medtech companies need to answer?
  • The 4-step process that medtech companies need to embrace.
  • What is the one concept that medtech companies need to implement now? And what is the one concept that medtech companies absolutely must have on their radar for the future?

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1) You can listen to the interview with Jonas Funk right now:

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3) Read the following transcript from my interview with Jonas Funk.

4) Or, click here to download a copy of the transcript from my interview with Jonas.

Read the Interview with Jonas Funk

Scott Nelson:    Hello everyone, it’s Scott Nelson, and welcome to another edition of Medsider. And for those of you who are new to the program, this is a show where I interview experienced med tech and medical device thought leaders in an effort to learn as much as possible and then hopefully implement one or two big takeaways. And today’s guest on the program is Jonas Funk, who is a Managing Director and Partner in LEK Consulting’s Chicago office. He has more than 15 years of experience in LEK and has directed hundreds of consulting engagements primarily focused on growth strategy and mergers and acquisitions support within the med tech and life sciences verticals. Jonas also cofounded the Tokyo office and has assisted dozens of clients in developing their Asian strategy. So without further ado, welcome to the program, Jonas.

Jonas Funk:      Great to be here, Scott. Thanks.

Scott Nelson:    Okay. So Jonas, let’s start here. You have the opportunity to consult with, discuss with and probably in a lot of cases present to a lot of med tech executives and decision-makers. 00:01:09 So in your opinion, what do you are the one or two most pressing challenges that those folks are facing right now?

Jonas Funk:      Yeah. I think the biggest challenges that they face kind of relate to how to navigate some pretty substantial changes that are occurring in the healthcare industry, and particularly with respect to transforming their organizations to be successful med techs going forward. And fundamentally, what we’re seeing is a shift from the old fee-per-service world to a new world where outcomes are going to be much more important and [00:01:51] costs are much more important, and the old model that med techs were very successful with is not going to be as successful in the future. So the kind of making great products and convincing clinicians to use them worked well for a long time, but given some of the macro changes that we’re seeing, that model is very much changing, and the challenges that a lot of our clients are facing is how to essentially respond to those changes given that a lot of the historical focus and capabilities have been in kind of areas that might not be as well aligned with the success in the future.

Scott Nelson:    Sure.

Jonas Funk:      So that’s probably the high-level summary of what’s keeping them up at night.

Scott Nelson:    Got it, and we’ll definitely get a chance to dig into some more details for sure. But you’ve been with LEK now for quite a few years. 00:02:55 Before I ask you a little bit about your background in LEK in general, does it seem like now is just a more crazy time than it ever has been within sort of the healthcare space?

Jonas Funk:      Yeah, I think that’s right, and I think some of the changes are actually happening faster than the healthcare industry has been used to.

Scott Nelson:    Mm-hmm.

Jonas Funk:      So it is kind of required for executives to be able to respond faster than I think was required in the past. So yeah, I think that’s right. A lot of changes both from a reimbursement regulatory perspective are out there, but at the end of the day it’s hitting the manufacturers in very specific and important ways that I think they’re collectively trying to get their heads around and respond to.

Scott Nelson:    Got it. [00:03:49] Okay, so we’re definitely going to dive into the release of your 2013 Hospital Priorities Study, but before I ask you about that study and then some of the ramifications or outcomes that you uncovered in this most recent study, give me and the audience a little bit of an overview about your background and then also LEK in general.

Jonas Funk:      Sure. So I think you summarized my background pretty well. I’ve been doing this for about 15 years. I spend pretty much all of my time in what we call the med tech space and helping our med tech clients grow and develop strategies to grow. LEK is a global management consulting firm, about a thousand people worldwide, offices in 20-plus countries, and our hospital survey that you alluded to is our fourth annual hospital survey. So we’ve done this four years in a row, and the goal of the study is to essentially get a good sense of what hospitals are thinking in terms of their purchasing patterns and their needs with respect to med tech companies, and so we’ve been surveying and monitoring those needs and perspectives for the last several years to get a kind of ongoing sense of what their wishes are, of their suppliers, as well as to get a better sense of how some of the industry changes are manifesting in kind of the hospital’s mind.

Scott Nelson:    Got it. Okay. 00:05:27 And I want to ask you a little bit more about how this particular study is conducted each year, but in regard to your background—if we have time I definitely want to ask you about your time in Asia because that’s definitely interesting, so hopefully we’ll have time for that—but one question in regard to LEK, LEK’s consulting services, you span a lot of different verticals, it’s not just med tech and life sciences, correct?

Jonas Funk:      That’s right, but in the US almost 50% of what we do is healthcare-related…

Scott Nelson:    Okay. Okay.

Jonas Funk:      And then within healthcare we have sectors that are focused on the payers or the providers, biopharmaceutical companies, and then for me personally I’m focused in our med tech practice…

Scott Nelson:    Okay.

Jonas Funk:      …working with one of the big medical device and diagnostic players.

Scott Nelson:    Got it. Okay. So let’s transition to the 2013 hospital study. 00:06:23 Can you provide us with a little bit more detail in regard to how it’s typically conducted, who’s involved, and maybe more specifically, where are you getting the responses from in terms of the role at the hospital that a particular person would play? And then we’ll segue sort of into some of the key outcomes of the study.

Jonas Funk:      Yeah, of course. So for the last four years we’ve done it and it’s been focused on hospital administrators versus clinicians. So very intentionally we’ve been focusing on the administrators, and about 200 respondents to our survey across a representative mix of hospitals big and small, academic, nonacademic, urban world and so on and so forth. And of the respondents, about a hundred of those are C-suite, so CEOs, CFOs, COOs, versus the other 50% that are kind of other administrators that are involved in the purchase decision-making process, so VPs of procurement, materials managers, and people basically in the purchasing functions at hospitals.

Scott Nelson:    Got it. Okay. 00:07:45 And you mentioned, that’s an interesting sort of side note, but you touched on it just real briefly – these are responses not just from larger 500-plus-bed hospitals in major metropolitan cities…

Jonas Funk:      Mm-hmm.

Scott Nelson:    …you’re also getting responses from the outlying community hospitals as well?

Jonas Funk:      That’s right. That’s right.

Scott Nelson:    Got it.

Jonas Funk:      It’s intentionally representative mix of the overall market.

Scott Nelson:    Got it. 00:08:08 And your hospital priority study, has it always focused on administrators versus or in contrast to clinicians?

Jonas Funk:      It has, although I think over the last year or two we’re particularly, I’d say, glad…

Scott Nelson:    Yeah.

Jonas Funk:      …that it’s been focused on administrators because several years ago we saw the beginning of a trend for greater influence among the administrators in purchase decision-making, so with thought it would be a good group to start surveying. And indeed, over the last several years, we’re seeing a very pronounced trend for a greater, greater involvement and influence of the administrators in the decision-making process and their respective needs for kind of more economic considerations, not just the clinical considerations that we’ve typically been used to among the clinician stakeholder groups that have been the primary call point targets for med tech companies for a long time.

Scott Nelson:    Yeah, and that’s why I’m pretty anxious to get into the outcomes of this study and what it means for med tech and medical device companies. But I love the fact that it’s administrator-focused because so many times the word KOL or key opinion leader, you know…

Jonas Funk:      Right.

Scott Nelson:    …within the med tech space is often thought of as the clinician or the physician, but [laughs] more so now than ever it’s going to be probably administrators within large health systems, or not just health systems but administrators in large hospitals as well that are…

Jonas Funk:      Yeah.

Scott Nelson:    …you know, going to be consider KOLs, which is kind of an interesting concept if you’ve been sort of entrenched in med tech for a while.

Jonas Funk:      Yeah, I think that’s generally right. I don’t want to kind of overstate it. The clinicians in particular, leading clinicians and key opinion leaders and department heads certainly have a point of view that they will share that can be very influential in specific departments or for specific products. But the general trend that we’re seeing is kind of gradual migration from kind of the clinician’s shoes as what product he or she uses to, at the minimum, kind of a conversation or a value analysis committee decision that involves administrators where there’s much more scrutiny on, well, what’s the benefit here that we’re potentially paying more for. And we’re seeing obviously the clinicians becoming employees of hospitals [00:10:43] and hospital systems…

Scott Nelson:    Mm-hmm.

Jonas Funk:      …so their kind of independence and kind of ability to kind of dictate what products they want to use is also kind of declining. So there is this trend that we do think is important, but I don’t want to give the suggestion that it’s completely outside of doctors’ and clinicians’ hands entirely.

Scott Nelson:    Right. Yeah, no, no, I wholeheartedly agree with you, and anyone who thinks that physicians have no impact, I mean, it’s foolish. In fact, in my opinion, they still have a lot if not the majority of the influence, but with that said, they just have less arrows in their quiver…

Jonas Funk:      Yeah.

Scott Nelson:    …[laughs] to sort of use when they’re in some of these value analysis sort of meetings and whatnot. 00:11:36 But anything else about the survey that stands out before we kind of get into some of the key outcomes?

Jonas Funk:      No, I think we’ve covered the main points of it.

Scott Nelson:    00:11:44 Okay, so let’s jump to sort of the four key questions…

Jonas Funk:      Mm-hmm.

Scott Nelson:    …that med tech companies need to answer in light of the data from the survey as well as just your research and sort of insight in dealing with this space.

Jonas Funk:      Yeah, sure. So I think there are four key questions that we have kind of identified that I think together help kind of illuminate the need for companies to kind of build from just thinking about excellent products to be thinking about what we call customer excellent in addition to product excellence. So the four questions that kind of relate to customer excellence is, first and foremost, what problems can we solve or at least help solve for our customers?

So, obviously, every company has a portfolio of products and there’s a range of different things that those products do, but often it can get very muddled, particularly from the point of view of a hospital administrator that’s looking at a large number of potential partners and that’s trying to find a smaller number of partners to work with more closely, and it’s really helpful if those partners can be very clear about they’re solving. Is it they’re going to help reduce hospital-required inspections or are they going to help lower readmission rates for certain types of patients like heart failure patients? Are they going to help improve productivity or efficiency in a certain department like the OR or the cath lab? Are they going to help reduce medication errors? There’s a whole host of problems that hospitals have, and having good clarity about what problems a med tech company is really all about solving is a pretty critical first question to answer. And it’s not to suggest that there isn’t multiple problems that a single company can be trying to solve, but I think that’s a good starting point – what are the key problems that you’re trying to solve for your customers?

Scott Nelson:    Got it. And before you move on to the second one, I love the fact that you touched on this and that that seems fairly obvious, you know, figure out what problems customers are motivated to solve that are relevant to your exact offerings, but so many med tech companies lose sight of the fact that they need to be more clear and communicate better in regard to how their products solve those problems. So I’m glad you touched on that.

Jonas Funk:      Mm-hmm. The second one is, given that problem, what’s the optimal solution for that problem in terms of not just the products but also some of the services that could be part of that solution? And sometimes the optimal solution can involve kind of capabilities that might be outside of a med tech sweet spot, and that doesn’t mean that that can’t be part of the solution. Whether it’s the acquisition or partnership, med techs, we think, are going to need to be more proactive in essentially reaching out, finding both product and service kind of extensions to make their solution really come to light. And a lot of that’s going to involve healthcare IT platforms and partnerships as so much is kind of moving towards a need for better metrics and monitoring of outcomes, so just having a good product isn’t good enough if you can’t help monitor and measure its outcomes. And so a closer review of what actually is the solution and what appropriate products and services should be part of that is the second question.

Scott Nelson:    Got it. 00:16:03 And a recent example of that—tell me if you agree with this—would be Medtronic’s recent acquisition of, is it Cardiocom, I think was the company? Would that be an example of this?

Jonas Funk:      Yeah, that’s a perfect example.

Scott Nelson:    Okay.

Jonas Funk:      I think Medtronic is probably taking the lead in communicating at least the broader goal of becoming more of a solution player…

Scott Nelson:    Mm-hmm.

Jonas Funk:      …of expanding into more healthcare services, recognizing how the landscape is shifting. And Cardiocom, which is a company that Medtronic just acquired, I think it was just a week ago, maybe two weeks ago, to help with the remote monitoring of patients for heart failure and ultimately for other chronic disease states as well, that kind of bridges the gap between acute settings and nonacute settings, and ultimately Medtronic, I think rightfully, is positioning itself to be a broader kind of solution player that isn’t just dealing with the problems within the hospital but also is helping kind of take it outside of the hospital, which I would expect to be attractive to ACOs and more integrated systems as they take on more accountability and care a lot more about things like readmissions for heart failure patients.

Scott Nelson:    Got it.

Jonas Funk:      So yeah, that’s a great example. You know, others like the Stryker acquisition of Ascent, a reprocessing company that takes devices and reprocesses them to give hospitals an option for a lower-cost kind of solution for its instrumentation in the OR. So kind of giving not just the existing products but a reprocessing service on top of that is another good example.

Scott Nelson:    Got it.

Jonas Funk:      BD made an acquisition of a company called Cato. That’s a software company, you know, kind of outside of BD’s kind of traditional core, but again kind of expanding their reach and broadening their solution to help hospitals reduce the risk of medication errors. So just a couple of examples of companies that are taking some step kind of outside of their comfort zones, but expanding their offerings to be a bit broader solution that ultimately I think will be kind of the way that all companies will need to be successful.

Scott Nelson:    Got it. No, those are great examples, and in fact I don’t know when BD acquired Cato. I’m not sure when that was, but that’s another interesting example. 00:18:50 So good, let’s shift to that third kind of key question.

Jonas Funk:      Yeah. So we talked about knowing what your problem to solve is, that’s the first one. The second one is around understanding what the optimal solution should be. And the third question is, well, how much value can you actually bring to your customers with that solution, and how do you quantify it? Because, increasingly, the threshold for kind of success, or the need that the hospitals are asking for is just a much higher threshold for “how does this solution actually help me?” So, you know, just saying that your products or solution is going to help reduce, say, hospital-acquired infections, isn’t good enough. You have to actually be able to show very specifically, “Well, these are the types of infections that the solution will address. This is the frequency by which those infections will be reduced. This is the cost of those infections.” Being very clear about what that value is that the med tech company is bringing to the customers is really become much more critical as hospital customers and administrators are just putting, you know, looking at things in a finer light and needing to have a strong economic argument to justify any sort of significant change, and certainly to justify any sort of solution that’s priced at a premium.

Scott Nelson:    Got it.

Jonas Funk:      You know, we’re talking a lot about economic value, and I’m emphasizing that over kind of the clinical value because I think med tech companies have historically placed a lot of emphasis on the clinical value and communicating that to the clinicians. I’m not suggesting that that clinical value is still important. I’m just kind of making the point that increasingly the need to communicate how much value in economic terms is becoming [00:20:51] stakes as well even though permanently the med tech companies aren’t doing a great job of that.

Scott Nelson:    Mm-hmm. Yeah. Great. That makes sense. 00:21:02 And so let’s move on to that fourth major question.

Jonas Funk:      Yeah, well, that’s just an extension of the last question about the value proposition, and that’s, what’s the best way to communicate and deliver on that value proposition? So what types of documentation or evidence and tools can help the med tech company focus and clarify the value proposition to the right stakeholders?

Scott Nelson:    Mm-hmm.

Jonas Funk:      So, in many instances, the stakeholders that might benefit from a solution might be in multiple different departments and in very different needs and kind of perspectives. So, for example, helping reduce medication errors, we’ll say infection control, that can help administrators reduce cost associated with those HAIs, it can help kind of the risk management people within the administration, and obviously it can help the clinicians and other nurses and doctors as well. So a bunch of different stakeholders will benefit, but actually being able to put together kind of a clear set of documentation and tools that kind of appropriately focus the right message to each of those stakeholder groups in their terms is the last thing that I think med tech should be thinking about in terms of, how do they effectively take that solution, define the value proposition, and communicate it to the right folks?

Scott Nelson:    Got it, yeah. And like you just said earlier, that four key questions, basically we’ve got our sales and marketing arm, how do we take what we’ve learned and what we feel like hospitals need and the problems that we can address, how do we actually communicate that effectively?

Jonas Funk:      Yeah. And you know, one of the things that, going back to your earlier question about kind of the challenges that executives are facing, I mean, there are existing large, established sales forces out there that have been doing things well for a long time, and it’s hard to suddenly shake that up and say, “Well, now we need to be talking to these stakeholders and be making these different types of arguments and messaging,” and that’s just a bit of a [00:23:25] sea change that takes some time for companies to transition through.

Scott Nelson:    00:23:29 And while on that topic, I presume you see that as a slow transition, but maybe can you speak to like how you see that transition actually taking place? Is this taking an existing sales force, for example, kind of just focusing on sales for lack of time versus marketing, and coaching them up to be better communicators or maybe sell to different stakeholders, or do you see that transitioning happening where sales forces are simply reduced or replaced by folks that are maybe more proficient in communicating economic value, for example? Can you speak to that topic?

Jonas Funk:      Yeah, I mean, I think it’s a little bit of all of the above…

Scott Nelson:    Mm-hmm.

Jonas Funk:      …and there isn’t kind of a single right solution. But I think arming the sales organization with the right tools, and a lot of that is the economic tools, is certainly part of that, and whether it’s kind of making changes to kind of the existing people or kind of [00:24:49] retooling and rearming those same people I think is kind of dependent on individual companies and obviously individual people.

Scott Nelson:    Yeah, right.

Jonas Funk:      But I do think there is an organizational element to this as well where instead of having an army of kind of current traditional sales reps that are relatively kind of product-focused, kind of going at the same institution, and frankly often causing some frustration among the administrators and causing kind of confusing messages for clinicians who are getting a lot of different reps talking to them, I think what we’re seeing at least from our hospital survey is a wish for a more coordinated approach, fewer people, fewer touch points, but much higher kind of value delivered when those coordinated kind of visits are made. And so you might have a single point of contact for an entire idea or at least for kind of, you know, key stakeholders at large systems that bring in specialists in health economics, or product specialists or clinical specialists as needed to help address specific questions with a deeper, kind of more valuable answer versus [00:26:14] a generalist that is forced to try to touch a lot of different stakeholders asking for different things. So I do think there’s kind of some structural change in how the sales organizations are deployed and some corresponding rearmament of the…

Scott Nelson:    Yeah.

Jonas Funk:      …of the tools and messaging that needs to go with that.

Scott Nelson:    Yeah, I like that description, a kind of a retooling is probably what we’re going to be seeing over the next several years.

Jonas Funk:      Right.

Scott Nelson:    00:26:47 So using those four key questions as sort of the foundation, let’s talk about kind of the four-step process that you feel med tech companies need to embrace in order to get to that level of customer excellence.

Jonas Funk:      Sure. So the first one is what we call developing a deep understanding of customer needs, and that’s obviously related to understanding what problems a med tech is intending to solve for its customers.

Scott Nelson:    Mm-hmm.

Jonas Funk:      So you have to understand your customers’ needs, and that’s just basic marketing 101. The problem though is that a lot of med techs have historically spent less time in understanding customers’ needs as opposed to trying to figure out ways to kind of incrementally improve products or kind of tweak the products to add additional features and functions, often independent of understanding how those might fit to customers’ needs. And when we talk about customer needs, definitely don’t want to give the impression that hospitals are monolithic and all have the same needs. In fact, there’s such huge variation that one of the things that we find a lot of our med tech clients asking for these days is understanding hospital segments and how is the right way to think about the universe of hospitals out there so that you’re not kind of giving the same solution or the same messaging to a small-world hospital as you are to a Mayo Clinic. They just have a very different kind of set of behavioral characteristics, and the need to understand how those behavioral characteristics vary and what the appropriate segments to go after we think is an important kind of element of understanding customer needs as you’re developing solutions to address those problem areas.

Scott Nelson:    Got it. Okay. Okay.

Jonas Funk:      The second one would be around kind of that optimal solution for the problem at hand and we what call here as an integrated portfolio that almost necessarily includes services that help make those products come to life more. And again, this is not limited to…yeah, you don’t have to have all of the components yourself as a med tech. You might partner with a healthcare IT company or partner with a service-focused company to help provide that, but you’re quarterbacking that delivery, pulling it together, and making it into an integrated solution that can actually address that need to reduce hospital-acquired infections, reduce readmission rates or whatever the problem is that you’re targeting.

Scott Nelson:    Okay. 00:29:49 And do you have an example maybe what that looks like or will look like if it’s not being offered right now for med techs?

Jonas Funk:      Well, that’s where I think the Cardiocoms and the Stryker Ascents or the BD Cato software acquisitions come into play. I mean, I think you’re seeing companies that are starting to branch out their portfolios in kind of new ways. We, LEK, are also seeing our med tech clients coming to us and saying, “Gee, what about services? What can we do in services? Are there things that we can do in procurement or inventory management or in clinical decision support systems and analytics…”

Scott Nelson:    Okay.

Jonas Funk:      …that go beyond kind of just the products? And what’s the need out there? What are companies that are doing these things today? How can we partner with them or potentially even acquire to offer that broader functionality?”

Scott Nelson:    Got it. And that’s why you mentioned maybe a big growth engine looking into the future is going to be health IT, because so many of these, you know, whether it’s an analytics platform or a clinical decision-making platform or some sort of economical platform, it’s going to be largely driven by technology or more specifically by software. So that’s why I can see that you mentioned health IT is going to be big looking into the future.

Jonas Funk:      Yeah, or at least data and data analytics…

Scott Nelson:    Sure.

Jonas Funk:      …which everyone knows that that’s important, and that’s obviously where most of the hospital spending growth is. Most of the spending, you know, a lot of spending, has been done on developing IT systems. Now a lot of the money is being shifted toward how do they integrate those systems and do analytics with the data that they have so that they can actually use the data, not just collect the data. So that spend on healthcare IT will continue in the future for sure, but I think that the challenge for the med techs will be to leverage the data that is useful and help the hospitals convert that into something that can actually result in kind of improved efficiency or outcomes within the departments or hospital functional areas that those med tech companies are focusing on.

Scott Nelson:    Okay. Yeah. That makes sense. Great. 00:32:34 Is there anything else to add under this bullet point of kind of the integrated portfolio and value-added services umbrella?

Jonas Funk:      No, I think the next point probably brings it to life a bit more, which is around making very sure that that value, that that solution that you are offering is clearly articulated. And it might sound obvious and easy to do, but it’s shocking how rarely we see med tech companies do a good job of this. I mean, in most other industries, whenever you make a claim about your value proposition, you often have to back it up and show it, but yeah, I think in healthcare it’s tricky, and med tech companies historically have not had the need to do so because clinicians have been very happy to adopt the latest and greatest technology without really kind of putting the pressure on to say, “Well, how exactly is this helping in terms of reducing our costs or improving outcomes in nonclinical ways?” So the bar I think is growing for med tech companies to do a better job of articulating the value proposition in economic terms.

A good example here, we’ve done some work helping a client that had a prefilled syringe solution that would help hospitals in a lot of ways. So everyone knows that, well, prefilled syringe solutions are good at helping reduce medication errors, they reduce some of the labor that’s involved in preparing the syringes, they can help reduce some types of waste, and there are some other kind of smaller benefits that are out there, but the problem was the benefits accrue to different types of stakeholders, and a lot of these benefits are just very difficult to quantify.

Scott Nelson:    Mm-hmm.

Jonas Funk:      And that made it difficult for our client to be able to actually get the pharmacy directors to approve purchasing of prefilled syringes because the pharmacy directors really just cared about their budget and didn’t care as much about some of the things that were happening outside of the pharmacy, and it required a robust effort to kind of walk through the process, identify all the points in the workflow where medication errors can occur, what the rate of medications errors is, what type of errors could be addressed by prefilled syringes, how much direct cost those errors tend to incur, how much the indirect costs can incur, and turning this into a clear economic model that actually shows how all of those different benefits that those, in this case prefilled syringes, could provide to the hospital that went well beyond just a pharmacy director. And that’s the type exercise that I think med techs are going to have to do much more consistently to show in economic terms at the end of the day why a hospital should adopt their solutions versus either staying with the status quo or going with someone else’s.

Scott Nelson:    Got it. Okay. No, that’s good stuff. That’s good stuff. 00:36:19 Let’s move on to that fourth step in this process.

Jonas Funk:      Yeah. Well, the fourth step is then just taking that kind of clearly articulated value proposition and turning it into the appropriate set of tools and documentation and knowing which people to share that with. So, for example, even knowing at an individual hospital, who are the right influencers? Is it part of an IDN? Is the decision being made at an even more centralized location? What is the right target to go after is often not as clear as it used to be, right? The call point in the past was the orthopedic surgeon that was in the OR, but now there’s more centralized decision-making, and obviously the IDNs are consolidating and buying up other hospitals. So it’s becoming a little bit harder to know even, how do you define an account? Who are the decision-makers within that account? And then once you can answer those questions, then it’s a matter of, well, who are the right people within the med tech’s organization that should be calling on those decision-makers? And oftentimes we’re talking about pretty senior centralized decision-makers that are going to need to see very compelling arguments backed up by economic models and clear value proposition articulation that frankly is not really being delivered today in many companies.

Scott Nelson:    Right.

Jonas Funk:      So you don’t want to develop a value proposition but leave it kind of on the table or trying to share it with people that aren’t going to be able to do anything about it.

Scott Nelson:    Right. Yeah, that is sort of the clear and last step [00:38:26] in the process, is taking that data, that value, that message, and actually delivering it at the right time to the right people. And I think, if I remember correctly, leading up to this interview you sent me maybe a different report, and I remember reading a comment from…or maybe it was a couple of comments from hospital administrators to that point of they’ve got like a lot of contacts at med tech companies but they were rather frustrated that they would actually prefer one contact versus many, for example.

Jonas Funk:      That’s right.

Scott Nelson:    Yeah.

Jonas Funk:      And that goes back to the kind of single point of contact with a set of specialists…

Scott Nelson:    Mm-hmm.

Jonas Funk:      …versus kind of a generalist army that goes after primarily clinicians.

Scott Nelson:    Got it. And that’s obviously in contrast to a lot of how device companies are organized and oftentimes divided into sort of business units by a therapeutic area that maybe looking into the future it’s not the best way or maybe the most effective way from an organization standpoint.

So let’s just review, because there’s a lot of really good stuff in those four steps. Let’s just review those real quick. So the first step would be have a deep understanding of what your customers, in this hospitals, need, not just physicians but all key stakeholders basically, what they really truly need; be able to offer an integrated portfolio of products and in some cases complementary services; third, being able to clearly articulate that value proposition; and then lastly, to sort of not necessarily to sum it up, but kind of the last step in the process, would be making sure that you present that data and that offering to the right folks, to the right audience and the right team. 00:40:30 Is that a decent summary?

Jonas Funk:      I think that’s right. I think for someone that might be outside of the med tech industry, that might sound just very, very obvious.

Scott Nelson:    [Laughs]

Jonas Funk:      And perhaps the people within the med tech industry too, but again, if you kind of apply kind of a reasonable perspective on kind of how med tech companies have been doing this for the last 30 years, I think it’s fair to say that these four steps are often not well-executed.

Scott Nelson:    Yeah.

Jonas Funk:      So understanding customer needs has not been kind of first and foremost. Having integrated portfolios that actually kind of holistically address a problem in a very kind of customer-centric solution-oriented manner – not often well-executed. Understanding and articulating the economic value proposition – very unusual and very rare for med tech companies to do that on a consistent basis. And then finally on the delivering the message to the right audience, given the changes in decision-making, it’s not surprising that it’s hard to flip the switch and change all the relationships that have been built up over the last few decades among the sales organizations and suddenly say, “Okay, now go talk to different people with a different set of needs.”

Scott Nelson:    Right.

Jonas Funk:      So it’s not surprising that it’s kind of evolved the way it has, but going back to your initial question, what keeps the executives up at night in the med tech industry? I think it’s, how do they evolve from kind of the past state to kind of the new world and the new world and the future where these four steps are just going to have to be like clockwork.

Scott Nelson:    Right. And as simple as those four steps sound, there are so many moving parts that when you actually take each step and sort of silo it, if you will, because of all the moving parts and the constant change, it actually gets somewhat overwhelming when you kind of begin to think about…

Jonas Funk:      Yeah.

Scott Nelson:    …you know, like a particular product franchise, for example. And so, you know, I’m not sure if you would agree with this, Jonas, but maybe a good exercise would be if you’re a director over a certain product franchise within a med tech company, maybe sitting down at each of your product buckets and going through this four-step process would be a great idea – do I really truly understand the needs that this product is supposedly meeting? What other value-added services could we potentially offer alongside this product? Are we clearly articulating the value of this product? And then lastly, are we presenting to the wrong audience? Do we have the right message, etc.? So yeah, I like what you said though: As simple as maybe those sound, because there are so many moving parts, it’s a really good thing to kind of go back to those basics in a sense.

Jonas Funk:      Yeah. Yeah.

Scott Nelson:    Great. 00:43:48 So in light of that—and do you offer this survey…I presume you’re willing to offer it to anyone who requests it, correct?

Jonas Funk:      Yeah. The hospital survey that we do every year is something that we do to share with our clients and prospective clients. So yeah, happy to share that with people that are interested.

Scott Nelson:    Yeah, and I presume…I guess let me ask you that before we move on to the next question. 00:44:20 What is the best way for folks listening to this that want to either reach out to you directly or maybe want a copy of this survey? What would be the best way to do that?

Jonas Funk:      I think probably just go to the LEK…

Scott Nelson:    Hey, Jonas? Jonas?

Jonas Funk:      Yeah, Scott, I was just saying, the best way to reach me [laughs] or LEK would be just go into the LEK website.

Scott Nelson:    Okay.

Jonas Funk:      So that’s L-E-K dot com, and within that it’s not hard to navigate to our med tech practice, and from there a lot of the information is in fact available in our executive insight documents, and my contact information is in there as well.

Scott Nelson:    Okay. So L-E-K dot com. I’ll of course link up to that in the show notes for this interview. So in light of that four-step process, and then even before that, you know, the four key questions that we covered, in your opinion, what do you think med tech companies need to implement like right now or immediately versus maybe something that they need at the very least have on their radar looking three, four, five years down the road?

Jonas Funk:      Yeah. I mean, I think the thing that I would recommend is something that I get a lot of calls about, which is making sure that the current products that med tech companies have do in fact create economic value for their customers, because I think the bar for clinical value is set. That’s just table stakes.

Scott Nelson:    Uh-huh.

Jonas Funk:      If you can do better, that’s great, but the “good enough” mentality is becoming pretty strong, and so in order to gain traction, there is a need to show the administrators that there’s an economic benefit as well. And so the discipline of putting into effect in the organizations a more clear articulation of that value proposition I think is very doable, because I think what will happen is in some cases, you know, people will look up in the mirror and see, “You know what? We’re actually not creating a lot of value with this product or this set of products.” That should raise a red flag to either kind of move to others or find ways to make the existing products actually do more.

Scott Nelson:    Mm-hmm.

Jonas Funk:      And the reason why this is particularly important is because in the next several years we expect that hospitals are going to increasingly look for some kind of risk-sharing and gain-sharing arrangements with their suppliers, and if you’re unable to clearly understand your own economic…if you’re unable to clearly understand the economic value that you’re bringing to your customers, you will not be in a position to offer any sort of risk-sharing or gain-sharing arrangement. So this is a kind of prerequisite for those types of programs which we think in the future will become much more likely.

Scott Nelson:    I think that’s really important. 00:47:50 We don’t have a lot of time, but can you briefly touch on that concept or that idea of risk-sharing and gain-sharing?

Jonas Funk:      Sure. I mean, if you ask the hospitals what they want to see from med tech companies in the future, the thing that pop to the top of the list in terms of kind of changes from today is they want to see more of that, more risk-sharing and having their suppliers basically put their money where their mouths are, right?

Scott Nelson:    Yeah.

Jonas Funk:      And say, “Hey, we’re going to adopt these products but we want you to be our partner and share in the risks and rewards associated with that.” And so there’s a strong latent need from hospitals for those types of arrangements, but frankly, hospitals don’t know much about what that involves other than wanting to shift some of the risk away from themselves, right? And so the current state of risk-sharing programs is very nascent, and you don’t really have any good examples within the device space of true risk-sharing arrangements that I’ve seen. But that’s not because there isn’t a demand for it, I think it’s more because the suppliers haven’t been able to figure out a way to offer it that actually works and that has available metrics to monitor to enable kind of a two-way win. But before they can get there, again, they need to understand how much value they’re creating in the first place…

Scott Nelson:    Right.

Jonas Funk:      …to be able to say how much they can share and how much risk they’re willing internally to take on.

Scott Nelson:    Yeah, nearly impossible to come up with some sort of risk-sharing agreement that would work without understanding, [laughs] clearly understanding the economic value that you actually bring to the table.

Jonas Funk:      That’s right.

Scott Nelson:    Yeah. No, great stuff. Yeah. You still have a few minutes? Is this okay?

Jonas Funk:      Yeah.

Scott Nelson:    Okay.

Jonas Funk:      Yeah.

Scott Nelson:    Real quick. 00:49:53 I mentioned this at the beginning of the interview, but you opened or cofounded LEK’s Tokyo office, correct?

                           Okay, so we’re back. Slight technical difficulty there, but the last question I had for you, Jonas, is I believe you opened or cofounded the Tokyo office for LEK. 00:50:14 Can you speak about that? Because you’re kind of a Midwest guy. You at least went to school in the Midwest. So how did you end up over in Japan?

Jonas Funk:      It was at the time a neat opportunity to spend a bit of time in Japan. The six-month project turned into a six-year stint, so it wasn’t planned but an interesting path to take nonetheless.

Scott Nelson:    00:50:40 I have to think though that your experience over in Japan is probably a huge value add that you bring to the table in terms of helping med techs focus on kind of their strategies 00:50:51.

Jonas Funk:      I mean, Japan was and still is a critical part of a lot of device companies’ geographies. It’s been a large profitable market even though it might not be growing as fast as some of the other Asian countries. But yeah, it has a lot of unique characteristics and challenges to overcome to kind of tap into that opportunity. So that was something I helped a lot of our clients deal with.

Scott Nelson:    Got it. No, great stuff, and I can’t thank you enough for coming out on the program and taking some time out of your schedule to kind of help us learn a little bit more about the insights that you gleaned from this most recent LEK hospital survey and what the impact is for med tech companies. So thanks again for your willingness to do this.

Jonas Funk:      No, my pleasure, Scott. Appreciate it.

Scott Nelson:    And for those listening who have hung on this long, if you’re interested in listening to other Medsider interviews, just go to Medsider.com and click on the radio button, and that will provide you with a couple of different links to download all of the audio files, whether you listen to them in iTunes or Stitcher Radio or whatever app you prefer. So check it out when you get a chance. But anyway, until the next episode of Medsider everyone, take care.

[End of Recording]

More About Jonas Funk

Ideas for Medtech Companies by Jonas Funk

Jonas Funk is a Managing Director and Partner in L.E.K. Consulting’s Chicago office. He has more than 15 years of experience at L.E.K. and has directed hundreds of consulting engagements, primarily focused on growth strategy and mergers and acquisitions support in the medtech and life sciences industries. He co-founded the Tokyo office and has assisted dozens of clients in developing their Asian strategies. He holds a Bachelor of Arts in Economics from Carleton College and his work in economics has been published in leading academic journals and national newspapers.

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