Healthcare Provider Consolidation Trends - Considerations for Adapting Distribution Channel and Sales Force Strategy


Healthcare Provider Consolidation Trends are causing Life Sciences executives to initiate major changes in their distribution channel s and sales force strategy.

Life Sciences Executives understand they are facing a rapidly changing business environment - and that their strategic challenges in navigating the changing healthcare market are getting increasingly complex.  In the past newsletters (See  Integrating Healthcare Economics and Economic Value into Business Strategy and Market Access and Payor Requirements), we have focused on healthcare system-level Economic Value and Payor Requirement trends - and their impact on strategy. In this issue we will focus on a trend changing the structure and scope of the healthcare market - that trend being Provider Consolidation.  In particular, we will discuss the potential impact of ongoing Provider Consolidation on the Go-to-Market, Share Gain, Distribution Channel and Sales Force strategies.

Healthcare Provider Consolidation Overview

Provider consolidation - hospital mergers, acquisition of physician practices, or independent physicians  forming associations - has intensified across the US market, spurred by a number of incentives set in motion as part of the Affordable Care Act.  Market data illustrating this trend includes:

*    $143B in 2012 healthcare mergers and acquisitions

*    # of independent MD's in US has dropped from 57% to 39% from 2000 to 2012

*    >75% of all US metropolitan areas have experienced enough merger activity to be considered highly consolidated

Figures 1 and 2 illustrate some of these trends


Figure 1 - Hospital Merger Activity:  2000-2012


[Hospital merger and acquisition activity has increased nearly 50 % since 2009, reaching its highest point in the last 10 years ]


Figure 2 -Physician Groups Merger Activity  



The overall consolidation trend is being driven by several factors - fundamentally by policy-level incentives embedded in ACA and flowing thru to the Private Payor environment.  The following incentives are driving the consolidation trends:

Greater Care Coordination/Integrated Care: ACA incentives including payment system pilots (ACO's, Medical Homes, etc.), Value-based Purchasing (quality-based incentives utilizing hospital payment/ penalty incentives), and EHR adoption incentives are designed to drive greater care coordination/integration- shifting focus from an individual visit or service view to care continuum and a Population Health model.  Consolidation is occurring to provide greater control/ability to manage patient care and control outcomes across the entire spectrum of care

*   Payment System Pilots:  the ACA includes several payment (reimbursement) system pilots that move payment from a volume-based Fee-for-Service system to a population health-based value payment system - with Private payors following rapidly.  Common to most of these payment systems is that the provider is paid a fixed amount per patient or per a specific episode-of-care and is responsible for all patient care costs covered within that definition. Hence it is the provider at risk for cost overages or utilization of higher cost inputs.  Providers are consolidating to achieve sufficient financial scale in order to manage risks inherent in these emerging payment systems and to contract directly with employers (essentially act as an insurer)

Implications on Distribution Channel/Sales Force Strategy

This changing market structure has significant implications for Life Sciences marketing strategy. Product adoption incentives are being changed and, therefore, market access and share gain strategy.  On a general level, Provider Consolidation trends in the hospital and physician practice market mean:

Fewer potential customers:  for those Device/Diagnostic/Pharma products targeting Hospital Inpatient and Outpatient sites-of-service, there are, and will continue to be, fewer call points

Changing New Product Decision-maker: as hospitals merge and aggregate with physician practices, hospital/practice financial executive resources have increasing weight in product selection and usage vs. the "traditional" independent physician product choice model.  In other words, product choice is being aggregated and standardized across larger provider populations - and is increasingly driven by clinical quality and financial outcomes.  

Value proposition changes: as payment systems shift risk from payor to provider, and more effectively align payor and provider incentives, cost inputs to achieve quality outcomes become even more important decision criteria.  In essence, the common theme in all these payment system pilots is that the provider is paid a fixed amount to deliver a defined care set, so the Provider's motivation to manage and reduce cost inputs is far more important than current payment systems


Product adoption incentives are being changed, therefore, market access and share gain strategy must change. So what does this all mean for Distribution Channel and Sales Force?   A few key considerations to keep in mind:

 Purchasing Group Aggregation - Importance of GPO's:  as Provider's consolidate, market access - hence a Distribution Channel Strategy -fundamentally shift.  Specifically, Group Purchasing Organization (GPO) models (for hospital site-of-service) and GPO/Specialty Distribution models (for physician office site-of-service) become a critical strategy.  These organizations increasingly control access to product adoption and usage.  In the Biopharma world, the ability to target key access points including the Pharmacy Benefit Manager (PBM) and Payor formulary access/utilization management call points become the aggregation call points  

Fundamental Shift of Sales Process:  the traditional Medical Device and Pharma model of building physician-office focused sales forces to "detail" physicians to drive product adoption has been changing for awhile, but Provider Consolidation accelerates this trend.  The existing sale model of product feature and benefit is no longer sufficient.-The Sales Process must be able to clearly articulate the clinical and financial outcomes of the Device/Diagnostic/Drug.  In other words, Sales Organizations will need to shift more of their focus from building individual physician relationships to an Institutional Solution/Financial-Selling Account Management Model

Changing Sale Rep Profile:  Increasingly, this requires a consultative selling model, one that orients towards understanding and being able to sell to, the Provider's financial impact.  The new Sales Rep must (1) understand Financial statements and financial impact selling, (2)  be comfortable with institutional selling processes, and (3) be able to effectively position population health outcomes across larger populations   


Failure to adapt distribution channels and sales force strategies to the new market realities can result in extreme organizational frustration and lack of success, not to mention wasted resources.  Many companies have reported that their products have seen lackluster launches and failure to hit revenue/market share goals as their sales reps have reported significant difficulty gaining access to decision-makers. The market is changing rapidly and life science executives need to adapt their marketing strategies to succeed with the new market dynamics.


We can help.  The Mead Consulting Group has done this before - we have developed and executed Distribution Channel and Sales Force strategies in the Medical Device/Diagnostic and Biologic space for such companies as Medtronic, Summit Medical Systems, Accredo Health Group, Medco Health Solutions, United Therapeutics, Actelion, and Baxter.

MCG's Senior Consultant team has extensive experience across the spectrum of healthcare from device/ diagnostic/biologics firms, provider sites-of-service and Payor Coverage/Benefit design in assessing and building Economic Value Strategies - and integrating them effectively into a company's marketing strategy including Key Opinion Leader network development, proof statement/sales tool development, distribution channel strategy, formulary strategy, GPO strategies, etc.   

For a free consultation, please contact me at (720)273-8014 or or Dave Mead at (303)660-8135 or