Many medtechs have found they need more capabilities to price their portfolios accurately. Across-the-board price increases have backfired for some, while others have struggled to make pricing decisions. AI and advanced analytics offer opportunities for medtech to solve its pricing conundrum. One area where this technology can have an impact is post-deal performance management—maximizing the value of a contract after it’s signed. By Abhishek Rathi, Matt O'Rourke, and Bhargav Mantha, ZS.
ZS intimately understands the complexities of the medtech market, and we can help you connect the dots across your organization, from strategy through commercialization.
Reducing the cost of care. Investing in innovation. Delivering growth for shareholders. These are just a few of medtech’s strategic goals. It will take focus and precision to achieve them, especially in light of growing competitive pressures and increasing commoditization. These goals and obstacles both have forced medtech companies to revisit how much they charge providers for their products.
|This story originally posted on Sept. 7, 2023.
Many companies have found they need more capabilities to price their whole portfolio accurately. An across-the-board standard price increase has backfired for a few companies, while others have struggled to make pricing decisions.
Thankfully, AI and advanced analytics offer opportunities for medtech to solve its pricing conundrum. While medtech has been late to use analytics to drive commercial efficiency and effectiveness, pricing and contracting leaders have the opportunity to develop lasting analytics capabilities—especially given C-suite focus on price optimization. One area where this technology can have an impact is post-deal performance management.
What is Post-Deal Performance Management in Medtech?
Post-deal performance management refers to maximizing the value of a contract after it’s signed. While medtech companies are understandably proud and excited when they win a contract, they often need to increase their focus on meeting the contract’s commitments and continuously improving performance. Post-deal performance management is an essential lever of growth because:
- Typical gross margin levels enable medtech companies to meet their growth targets
- Sales teams are often hesitant to discuss price increases, for the understandable fear of losing volume
- Losing market share could lead to a long-term competitive disadvantage
Ensuring the company is meeting the performance it committed to, increasing the share of contracted products and cross-selling or up-selling non-contracted products are all examples of how post-deal performance management can be improved.
How Can Medtech Improve Performance With an AI-Driven Analytics Program?
Effective performance management requires uncovering feasible opportunities worthy of the sales team’s time. Companies can leverage analytics to manage performance effectively by understanding and bridging the gap between expected and actual performance. Using analytics also creates the rationale for stakeholders to take action. By taking four important steps, companies can build analytics capabilities incrementally while delivering business benefits immediately.
Step 1: Understand which accounts are underperforming and review their contracts
Defining target or expected performance is crucial when identifying which accounts need intervention to improve performance. Medtech companies and clients typically agree on one of two types of contracts: a contract with explicit commitments or a contract with no commitment and an implicit expectation of performance.
Contracts are often captured in PDF form, and historically they’ve been challenging to digitize. However, advancements in optical character recognition and AI have helped, with one solution now accurately able to digitize more than 500 contracts per day—and fewer than 10% of those require manual review.
If the contract doesn’t include a clear commitment, there is an inherent expectation of performance. That expectation—revenue and margin numbers—can be quantified by benchmarking growth to industry, company, customer segment or divisional targets. While defining target performance versus current performance can help identify growth opportunities, you should aim to understand performance over the length of the contract, rather than a specific point in time.
Step 2: Identify how these accounts are likely to perform over the contract term
Consumption can be seasonal and medtech products can be procured inconsistently. This means measuring performance at a single point in time could result in misplaced priorities and negatively affect the relationship between a sales rep and customer. Medtech companies will be better served by examining and projecting the difference between the expected and predicted performance over a contract’s entire term. Forecasting term-end performance considers seasonal purchase patterns, historical trends, changes in contractual terms, competitor actions and other factors.
Estimating the gap between actual and expected performance doesn’t guarantee that the projected growth is feasible, however, as providers can only buy up to their demand. To further optimize how sales reps drive growth, medtech companies should estimate the feasibility of the expected performance.
Step 3: Determine if accounts have the potential to meet expected performance
Misplaced performance expectations can lead to missed targets and damaged customer relationships. To deliver more accurate projections, medtech companies should develop an analytical and scalable method to determine if expected performance is actually feasible. This method should consider an account’s potential and the relationship between market share, prices and contract structure.
The account’s potential and your market share: Many companies have some sense of their market share, though their estimates often have varying degrees of accuracy, coverage and confidence. While there is no surefire way to project market share, companies can make robust estimates of potential and share. They can achieve this by triangulating information across consumption patterns by procedure volume, while also considering providers, sales team estimates, historical trends and procedure-product consumption mapping. Companies can use the relationship between procedure volume and sales to voluntary group purchasing organization members to project expected potential for each account.
Capturable market share: After making a reasonable market share estimate, it’s important to establish a relationship between market share, volume and price. You should consider customer segmentation, contracting constructs and clinical demand when establishing this relationship.
- Provider segmentation: Varying provider economics, reimbursements and scale warrant separate relationships for each product category and product.
- Contract constructs: Understanding how volume and market share vary based on the type of contract—sole, dual or multisource—is crucial. This understanding will help you determine the optimal type of contract and the associated price for the expected share and volume.
- Clinical demand: Products are sensitive to price changes stemming from the product value proposition, clinician preference and price differential with competitors. Share and volume across other providers at various price points and contract constructs can reveal invaluable insights on product stickiness.
Make a Plan B: It’s often difficult to enforce provider compliance for various reasons, including concerns about damaging the relationship or fluctuations in demand. But if the expected performance or share isn’t feasible, medtech companies must develop creative ways to bridge the gap. These can include cross-selling, upselling, data exchange and adding favorable terms to contracts.
Step 4: Show sales reps how they can act on performance improvement recommendations
Even though analytics programs offer compelling insights, many aren’t fully adopted. We have noticed a few strategies and tactics that help teams extract the full value from new analytics capabilities:
Create prioritized and curated opportunities: The size, number and accuracy of opportunities presented to the sales team are critical to secure attention and adoption. After creating a short list of high-impact and feasible opportunities, sales reps can further curate opportunities based on strategic priorities—such as reaching academic institutions or managing competitor threats—and customer relationships.
Provide actionable insights: Offering specific and granular action items at the contract and product member level goes a long way toward adoption. Providing access to investigate the rationale and details behind the opportunity also “makes it real” and drives adoption.
Identify champions and develop success stories: An analytics solution doesn’t reach maturity and launch overnight. In the meantime, find advocates who believe in analytics and create a few success stories as soon as you can.
Gamify and share what’s in it for them: Once the solution is adopted across the team, demonstrate its impact for stakeholders. One way to do this is to show the share of the quota achieved. Another is to highlight how it incentivizes sales reps and drives motivation at an individual and personal level. Relatedly, it’s important to recognize top adopters and their impact. All of this can help create a sense of pride and encourage the entire team to invest their time in learning and mastering the analytics solution.
Starting the Medtech Analytics Journey Today
Building an analytics solution requires significant investments and can take 12-24 months. Organizational and leadership buy in is vital, which makes it critical for pricing and contracting leaders to communicate the opportunity effectively. As a starting point, they can identify quick wins, create a development roadmap tailored for the organization and make a business case for the solution.
As we have discussed, identifying underperforming accounts can lead to quick wins. You can develop a basic estimate and find opportunities by using sales transaction and third-party provider firmographic data, both of which are relatively easy to obtain. The size of an opportunity is understandably significant and estimates based on actual data are more likely to earn the attention of stakeholders.
Creating a development roadmap requires defining the vision and assessing current capabilities so that you can identify potential improvements. These capabilities can be sequenced based on the level of investment needed, business impact, stakeholder buy in, prerequisites and other company priorities. When developing the roadmap, it’s also important to understand how underlying capabilities can power various use cases. For example, estimating share and developing price-volume relationships can help pre-deal analytics as well.
Lastly, developing a business case will help leadership approve the analytics solution and encourage organizational buy in. Business cases that can show quick wins and offer a clear vision and roadmap will foster organizational conviction.
We believe post-deal performance management has the potential to affect the entire value chain positively. Medtech companies will grow while delivering more profitability to providers and lowering the cost of care for patients. This is an initiative worth pursuing.
Abhishek Rathi is an associate principal in ZS’s New York City office and a leader in the analytics and AI practice. He specializes in developing innovative AI applications across diverse business functions, including marketing, supply chain management, procurement and pricing.
Matt O’Rourke is a principal in ZS’s Boston office and a leader in the B2B marketing and pricing practice. He helps organizations drive margin expansion and build lasting capability in pricing and revenue optimization.
Bhargav Mantha, Principal, leads the commercial operations practice for ZS’s medtech vertical and is part of the leadership team in ZS's global analytics and technology practice. He works with global life sciences companies to develop and implement commercial operations, analytics and technology strategies.
ZS is a management consulting and technology firm focused on transforming global healthcare and beyond. We leverage our leading-edge analytics, plus the power of data, science and products, to help our clients make more intelligent decisions, deliver innovative solutions and improve outcomes for all. Founded in 1983, ZS has more than 12,000 employees in 35 offices worldwide.
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