My Prescription: Demonstrate Systemic Cost Minimization
So what can a producer do except cut price to avoid being shut out of a future, altered U.S. healthcare system? My answer is to demonstrate in compelling fashion how your product indeed minimizes
as a consequence of its use. The demonstration must be quantitative and valid -- if necessary a result of a clinical or pseudo-clinical trial -- and directed at three audiences: hospital administrators, insurers (most importantly CMS), and healthcare providers. Systemic cost minimization must be front and center throughout a product's development from gross concept through product renewals, and it must be the centerpiece of market launch and marketing communications throughout the product's life cycle. In essence you must do the hard work to quantitatively justify your product's existence in an increasingly cost-conscious environment.
The work that needs to be done is to
focus your customers away from very visible product costs and toward nearly invisible systemic costs
. These systemic costs need to be quantified and made visible so that your various "customers" will come to appreciate the real -- hopefully reduced -- system-wide costs associated with use of your product. This is not an easy task, but I've listed many of the categories of potential cost reduction in
a chart that you may find useful
. Once you've identified the most important
cost parameters that apply to each of your products, you must then devise processes for
these parameters and get to work filling in the numbers. Finally, the extent to which these numbers and associated analyses are presented in a convincing manner will be key to your ultimate success.
In my view the alternative to doing this work is not attractive. You will be stuck in the lower right-hand box of
competing purely on the basis of price and in all likelihood having to reduce your margin aspirations, trim your costs of goods sold, or both. I think the hard, analytical work is worth it.