Each year, we collect and analyze the top questions raised by our members and use them to identify the biggest challenges affecting today's technology providers. Knowing where the problem areas lie, we can then gather together the right tools, resources, and tactics for overcoming them. Based on our latest research, we've noticed some industry-wide trends that are directly impacting the area of HT. Through monitoring our Healthcare IT 25 Index, we're able to track the performance of the largest global providers of technology solutions in the healthcare industry, and we've identified some key areas to look out for. Here are the top 5 trends we've noticed across the technology industry that are having a direct impact on HT.
There's a big change occurring in the healthcare marketplace where purchasing decisions are moving from the clinician to the “economic buyer,” which is limiting the impact of features on a technology purchase. When given the choice, clinicians will always opt for having the latest and greatest technology that will give them an edge in diagnostic power. While having the newest equipment available on the market is always ideal, the economic buyer understands the financial reality behind this request and has to determine whether these new, expensive features will truly improve patient outcomes, and if so, by how much. When new features are no longer the driving force behind a purchasing decision, this can cause new technology purchases to slow down. We refer to this as the “Consumption Gap,” and is something we've already been seeing in high tech.
The healthcare industry is starting to move along the Remote Services Continuum by delving into remote data capture through smart, connected products. Now, this isn't moving as fast as the rest of the tech industry, but this is primarily due to security concerns (such as HIPAA regulations), so as a result, this new capability is only just slowly beginning to be explored at a safe pace. Another influencing factor is that in the healthcare sphere, product sales are still experiencing double-digit revenue growth. In fact, our Healthcare IT 25 index has seen around 10-11% growth year over year, which is why there's hasn't been any real urgency to explore new consumption models.
However, many healthcare organizations recognize that if they start these initiatives today, it will take a few years before they can begin to reap the benefits. The takeaway message we've observed is that by the time healthcare organizations begin implementing data capture into their day-to-day operation, it will already be time to do it. To reference a favorite quote from Bill Gates, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction." Even though everything is going well in current healthcare business models, connected products will definitely come into play in the future.
Healthcare technology providers are starting to see less revenue and margin from selling technology as an asset, and more revenue from services and subscriptions. With the move to services, revenue recognition occurs over the service delivery time frame and is more often tied to achieving milestones, impacting net operating income (NOI). This pressure to tie performance and payment based on delivering projects on time and on budget is a precursor to the outcome offers we are seeing in the broader technology industry. As a result, CFOs are targeting an unsustainable Selling, General and Administrative level in the 30+% range to address the change in cash flow from the new financial models.
Because reimbursement rates are being tied to patient outcomes and patient satisfaction, the economic buyer is now more open than ever to the optimization of outcome offer types. The reality is, tried and true service portfolios are losing their appeal to customers, and expectations are changing. While traditional support, education, and professional service offers are designed implement technology and keep it running, customers want help with using the technology in a way that's most beneficial to them. This means that there's a greater willingness to have suppliers fill in the gaps in their Level 3 and Level 4 B4B offers such as adoption services, which help customers use product effectively, and outcome services, which help them achieve a specific business outcome with your technology.
Finally, all of these trends are forcing HT organizations to establish new organizational capabilities. These can include new employee skills, new business processes, and new performance metrics that align with changing customer demands and their revised business models.
You went to bed last night as an industrial company. You will wake up in the morning as a software and analytics company.
Jeff Immelt, CEO, General Electric
While industrial equipment is our fastest growing vertical for membership, HT is following close behind and includes members like like Intuitive Surgical, Varian Medical Systems, McKesson, and MedAssets, just to name a few. The reason is because there's a recognition that everyone is a tech company now, and how you align your services to these macro trends affecting the overall tech industry will determine your success for the future. Almost all of the trends we observe industry-wide through our extensive research initiatives can be directly applied to healthcare, and there's always something to learn from adjacent industries as well as your own. For example, there's not one problem you could encounter that one of our other members hasn't already dealt with and resolved, so membership is a great way to be a part of a larger community and ride out these waves together.
Post Date: July 12, 2016
Vele Galovski is vice president of research, Field Services, for TSIA. Using his nearly 30 years of industry experience, he has consistently helped companies both large and small drive double-digit top-line growth with a proven retain, gain, and grow strategy. Vele has also written a book, The Perpetual Innovation Machine, which describes a holistic approach to management based on ambitious goal setting, data driven analysis, skillful prioritization, inspiring leadership, and the lost art of employee engagement.
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