Trilogy Tidings
April 2009
in this issue

     With the flurry of important activity in Washington these days you may have overlooked or forgotten the current Administration's pledge to reform healthcare.  Yes, I know, that intent right now seems to be but a pipe dream.  But I predict it will happen -- eventually; frankly, it must happen because the current upward trend in healthcare costs relative to GDP is unsustainable.  Mark McCarty concludes in his March 11 piece in Medical Device Daily Perspectives that the despised HMO model is "our only way out of the cost dilemma ... there simply is no other proven way".  You may or may not agree, but I believe "reform" will occur, and medical product suppliers had better start preparing now for that day.
     Carry on, and remember: Refuse to participate in the recession!



Trilogy Logo

Product Makers Will Bear the Brunt 

Healthcare CostsSure, medical products contribute mightily to the quality of healthcare throughout the world.  And producers of such products are not blameless in contributing to the cost of that care.  But suppliers of medical devices, pharmaceuticals, imaging systems and laboratory diagnostics will not be permitted to make rational cases against the governmental powers that be; these suppliers are all-too-easy targets.  Just read the newspapers and blogs.  Makers of medical products will therefore bear a great burden as a result of the coming healthcare "reform".  We may have one or two years to prepare, but prepare we must.  Specifically, we must make systemic cost justification and cost minimization the centerpiece of industry marketing and product commercialization efforts -- starting now.
     You may be aware of the U.S. government's Agency for Healthcare Research and Quality (AHRQ).  If you're not, check it out here, where you can get a flavor for its cost tracking and control efforts.  This agency has labored in near obscurity for at least a decade; now cost seems to have been added to its quality mission.  It now appears likely that AHRQ will become a data-gathering vehicle for the nation's healthcare cost control efforts going forward, so it's worthy of your attention.
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 system costs 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 qualitative cost parameters that apply to each of your products, you must then devise processes for quantifying 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 my chart 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.

Resources from our Archives 
     Check out our Reading Room to view my published articles, presentations and white papers on a variety of topics.
     And, you can examine an archive of my prior newsletters (since February 2007).
What does Trilogy do? 
     Trilogy Associates facilitates business growth and renewal through commercialization of new products, providing the following services:
  • Opportunity assessment
  • Business planning and enterprise growth strategies
  • New-product conceptualization, commercialization and marketing
  • Market research and competitive assessment
  • Business development and partnering
  • Market and technological due diligence
  • Assessment of the therapeutic and diagnostic potential of novel technologies
  • Design of efficient and effective development strategies for early-stage biomedical products
  • Business and technical writing/publishing

     Inquiries to establish whether and how we might support your business initiatives are always welcome.  Contact us.

Contact Information
ContactInfoJoseph J. Kalinowski, Principal
LinkedIn Profile: www.linkedin.com/in/trilogy