Time for providers and suppliers to find out what the market really wants

By Thomas M. Lubotsky, FACHE

As we arrive closer to the day where fee-for-value truly emerges as our new payment model, hospitals and healthcare systems will redefine how healthcare will be delivered and managed.  Clearly, there will be more emphasis on the coordination and efficiencies of care, with a keen focus on measuring expected dimensions of quality as set by the Centers for Medicare & Medicaid Services (CMS), various regulatory agencies and payers of care. Moreover, we will turn the switch toward providing only what is necessary and appropriate for patients, ensuring that they do not need to return to the hospital or seek additional care. Proper handoffs from one care setting to another will be expected, and they will support efforts to manage the health of the population. Primary care medicine will be in high demand.

Healthcare organizations like Kaiser Permanente have operated under this payment model for years. Their patient care experience and culture is one from which many of us can benefit and learn. It will be this new mindset – one that is built on perfect transitions, access, coordination of care, and post-acute care networks – that will drive our daily management. The day of earning a margin from care delivered in the inpatient setting, physician’s office, or same-day surgery center will disappear, to be replaced by an environment in which providers earn margin by managing a patient’s entire care from year to year. Margin will come from providing value, that is, by providing care that is absolutely necessary and appropriate, and that results in clearly defined dimensions of care and its associated cost.

A re-examining of patient care services

This “value” will be our new culture. And with this new mindset will emerge a transformational clinical enterprise, which centers on the efficiencies of delivering and managing the entire care pathway of a patient with services tailored to meet his or her exact needs. There will be a reexamining of what patient care services truly work. Those that fail to improve outcomes or results will be eliminated. In short, what has traditionally been a supply-driven enterprise, in which more and more care alternatives are offered to patients, will become a demand-driven enterprise, in which providers offer only those solutions that have been proven to improve care.  It is now our challenge to identify and define the patient care services that the market wants.

Suppliers of products and services will also need to shift from a supply-driven to a demand-driven approach. Providers will challenge new clinical products and services, and they will reject those that fail to meet the new demand model of delivering improved patient care. Suppliers may have to concentrate more on lowering inventories, reducing SKUs, reducing complexity, creating efficiencies and generating proven value based on the total economic understanding of treating a patient.

‘Precision’ is the fifth ‘P’

In their book, How Companies Win, authors Rick Kash and David Calhoun discuss how companies today need to adopt better competencies of precision toward understanding this new demand model. “Precision” will be the additional “P” of marketing, added to product, price, place, and promotion. In what has been a flagrantly expanding economy over the past several years, suppliers of products and services are now competing for flattening and even contracting demand. This new reality requires healthcare suppliers to pinpoint the most profitable demand in the market and fine-tune its proprietary understanding of customer demand. Kash and Calhoun offer several examples of how to employ analytical tools to develop a precise operating system of understanding demand. Furthermore, the authors discuss the need to better understand “demand pools” of customers to drive out better products and services.

Under this new demand model, suppliers of healthcare products and services may have to adopt some of the following strategies:

  • A pay-for-performance model, in which suppliers are rewarded for helping achieve defined and measureable patient care outcomes and safety.
  • Economic analytics for a clinical product, which offers insight on how that product will affect the total episode of care over a 90- to 120-day period.
  • Solution sets that measure and assure that products are used efficiently and appropriately.
  • Different pricing models that not only address the cost of the product, but its entire solution set for managing population health, necessity and appropriate use.


Finally, Kash and Calhoun discuss how companies today need to develop “mental models” for success and a thesis for winning – management’s set of beliefs and objectives. Organizing to win in this demand-driven economy will require exceptional leadership and courage. Infrastructure, strategies, tactics and contingencies are just some of the areas to be considered. Collaboration and shared accountability will also be key ingredients among suppliers and hospital and healthcare systems if they are to develop working relationships that address the new healthcare demand model.

As important as supply chain is to bringing products and services profitably to market, suppliers need to pay equivalent attention to the demand side of the equation. They need to examine how demand may change tomorrow, next year, and further down the road, especially as the market shifts from a supply-driven economy.

Tom Lubotsky is vice president supply chain, clinical resource management, Advocate Healthcare, Oak Brook, Ill.

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