Healthcare in 2013

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Healthcare in 2013 A View From the Street:

Healthcare in 2013 A View From the Street William McIlhargey WPM Enterprise 1

Something about myself:

Something about myself Specialize in the area of buying/selling of physician preference products, commonly referred to as OR Implantables . Started my career “carrying a bag”, progressing through management and corporate positions within a corporate environment. Executive exposure with DePuy/S&N establishing customer centric teams promoting performance based customer relations . As a Consultant, advise companies on leveraging the value of their technologies. Have published on the need for collaboration between suppliers and economic buyers. 2 INTEREST INVOLVE POSITIONING THE VALUE ECONOMICS OF REVOLUTIONARY TECHNOLOGY

A COMMON THREAD:

A COMMON THREAD A “street” view of the health care system from a manufacturer’s/supplier perspective, both macro & m icro The “Supply Chain” segment A bridge for manufacturers and suppliers Building a Business Model An Industry in Evolution Ongoing Adjustments What to Watch For . . . . 3

A MACRO PERSPECTIVE:

A MACRO PERSPECTIVE 4

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5 Economic buyer making in-roads on decisions Hospital becoming more price aggressive , boarding on hostility Dealing with customer silos Need to find the economic value of their technology Maturing market producing increased price pressure Competitor inconsistency (survivorship or shareholder pressure Business models tested via market share focus Finding the time for skills training, not just clinical training A MICRO PERSPECTIVE SUPPLIER

WHAT IS THIS THING CALLED “SUPPLY CHAIN”:

WHAT IS THIS THING CALLED “SUPPLY CHAIN” 6

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Stakeholder Value from Supply Chain Supply Chain Distributors Hospitals VALUE Reduced Costs Increased Market Share Financial Incentives Doctors Manufacturers VALUE Increased Market Share 6 4 VALUE Preserves Clinical Decision Making Reduced Costs Increased Market Share Financial Incentives 10 VALUE Increased Market Share 7

A SUPPLIERS VANTAGE:

A SUPPLIERS VANTAGE 8 National IDN/Hospital Supplier Regional Administrative fee (% of sales) Agreement for pricing of goods Contract price for goods Membership dues Surplus fund distribution Administrative fee (% of sales) Agreement for pricing of goods Agreement for sharing of fees and/or rebates The Lewin Group May 2003 P&L responsibility

HOW SUPPLIERS BUILD THEIR BUSINESS:

HOW SUPPLIERS BUILD THEIR BUSINESS Recognize the Value Proposition of Technology( ies ) Create Go-To-Market Product Position Segment the Market Based on Business Model Understand the Selling Channels Communications – upstream & downstream Leverage Opportunities 9

CLARITY OF BUSINESS MODEL:

CLARITY OF BUSINESS MODEL Commodity Business Narrow margins demand volume orientation Channel strategies married to distribution industry Attention demands GPO collaboration Seek innovative marketing platforms Fees used to position volume 10 Differentiated Business Economic value can be positioned in market Share of market determines direct channels Where plausible (physical) will use distribution channels GPO relations is an extension of value & market share Focus will be on sales development Highly Preference Business Clinical value establishes position Sales force clinically trained Token exposure to national/regional groups Local discounting to minimize exposure Minimal fee involvement Believe price/volume models not effective

FINANCIAL IMPACT:

FINANCIAL IMPACT 11 Highly Preference Differentiated Commodity DIRECT MARKET EXPOSURE GPO’S VALUE PROPOSITION

ABOUT SELLING CHANNELS :

ABOUT SELLING CHANNELS Community Urban/Rural Centers IDN/Health Care Systems Regional Groups National Groups Peripheral Markets 12

MARKET SEGMENTATION:

MARKET SEGMENTATION National Groups Accounts having national corporate offices with enough purchasing volume and member support to disrupt the selling process at the local level. Generally they will have their own sales and marketing teams and always involve marketing, administrative or rebated fees. 13 Regional Groups (<50) Regional Groups representing geographical or Groups with offices in a regional local affiliation or subgroups to larger organizations. Typically they will have a common affiliation with local geographic focus. IDN Systems (~500) The most susceptible to clinical influences, IDN”s and some community facilities are increasingly interested in negotiating agreements that meet the needs and wants of their physicians, which will be benchmarked from national contracts.

Leverage Your Technology:

Leverage Your Technology Rules of Engagement Performance Based Criteria incremental rational for pricing Larger customers receive better discounts “glass house” effect Evaluate product categories individual margins used to effect profitability Achieve agreement on a “quid pro quo” consensus of needs by both parties Look for residual value pricing hinged to prevailing price list (yearly) 14

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15 AN INDUSTRY IN TRANSITION

WHAT TO WATCH FOR:

WHAT TO WATCH FOR Ongoing Saga of the Affordable Care Act Possible Repeal of the 2.3% Excise Tax Further Employer Cost Shifting Technology Near Term – advancing the Biotech Era Far Term – earlier diagnosis via the genome factor Recognition of our Litigious Society Unhealthy Lifestyles & Progression of Diabetes 16

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