The goal of aptitude LLC, the Amazon.com-style marketplace for medical device companies and hospitals, is to reduce costs while speeding up contracting in the healthcare supply chain for buyers and sellers of medical equipment.
On the surface, the aptitude model represents another disruption to the way devices are bought and sold – a daunting prospect for medical device sales professionals who’ve watched their jobs become more difficult as physician-influenced buying gives way to purchasing committees and value-based decision-making.
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But aptitude executives tell MassDevice.com that their marketplace is not built to supplant medical device companies’ sales forces. Instead, they say, it’s a tool salespeople can use to improve the efficiency of their efforts.
One year after its launch, Irving, Texas-based aptitude, a spinout of group purchasing organization Novation, has grown up. The online marketplace boasts more than $10 billion in purchasing power from a user base of 600 hospitals, which are purchasing products medical device and supplies across 140 product categories – ranging from commodity products to high-end physician-preference devices.
This new method of contracting has benefits for both medical device buyers of medical devices and their suppliers, the executives tell us. Those include reducing contracting time and creating a new level of transparency in a marketplace that has long been frustratingly opaque.
MassDevice.com sat down with members of aptitude’s executive team, including Pete Allen, Novation’s president of sourcing operations, and aptitude general manager Troy Kirchenbauer, to learn about the benefits of the platform for medical device sales teams. What follows is a transcript of that conversation, edited for clarity.
MassDevice.com: Pete, your career has taken you from sales at a medical device companies like Baxter (NYSE:BAX) to executive positions at Kimberly-Clark (NYSE:KMB) and Becton Dickinson & Co. (NYSE:BDX) and now Novation. If this tool had been available to you then, do you think you would have been a more effective salesman?
Pete Allen: Absolutely. I’ve had this discussion with plenty of suppliers around this. If they go to their sales team and say, ‘How we are doing at St. Mary’s?" that sales rep inevitably will say, "Oh, St. Mary’s? We have all the business at St. Mary’s."
Not only does the sales rep not know, but St. Mary’s isn’t likely to tell him because often times they don’t know. It’s not just what’s in the storeroom. Stuff comes into a hospital a thousand different ways. To have the ability to actually manage a customer’s participation over time, to set up performance-based criteria that reward the hospital for the behaviors you want to reward them with, it just is a win for everybody.
I think also from a hospital perspective and from a materials perspective, they’ll sign an agreement and promise a supplier 80% compliance and they honestly want to give it to them. They do. But they often times either don’t know whether or not they’re actually doing it or they have no real easy way of pinpointing what changes they need to make. aptitude solves for all of those issues.
I was a sales manager for years. What a fantastic tool, to be able to actually look at your sales reps’ performance and base it on their ability to try penetration within a facility. You can actually measure attacks. It just doesn’t exist today, because the data in balance between suppliers and buyers is heavily weighted down at this point to the buyer’s side.
Troy Kirchenbauer: As I reflect on the supplier value proposition and the understanding of aptitude and the market, 1 of the things we experienced was a growing perception that aptitude is a reverse-auction platform, similar to eBay.
When we spoke last year, I was talking about eBay from the market perspective, but the component people gravitate to when we use that example is they think about reverse auction, and that’s absolutely not what aptitude is.
Aptitude has been built to automate essentially a traditional [request for proposal], where price is not the only consideration. We understand that in healthcare, hospitals have to choose based on a combination of things. Price is 1 of those things, but quality is certainly very, very important in the decision-making process. We’ve seen that reverse auction, while it might be okay in certain niche scenarios, was definitely not the approach we wanted to take with regard to aptitude.
The reality is there isn’t anything quite like what we are doing in aptitude. From a business-to-business perspective it essentially is establishing futures contracts around healthcare supplies. Unfortunately, that analogy, while it may make sense to you and I, it just doesn’t resonate with the everyday user.
MassDevice.com: Pete, you’ve been on both sides of the supplier-buyer equation. Looking at this from the supplier side, what do you think is their mindset right now toward a marketplace approach to contracting?
Allen: I think as we’ve been able to have the discussions with the suppliers, they’re seeing a real opportunity that aptitude brings to them, because for the first time they will have the ability to do contracting with an individual hospital, with a network, with an aggregation group, where they actually have facts to deal with.
Aptitude brings to them a definition of the landscape they’re operating in: How much business are they bidding for, how much business do they have today? And then they can set a group of parameters around customer performance they value and they can reward them if they achieve those. It’s management of that contract over time. That’s something today they just don’t have at all.
If I’m a supplier and I’m bidding on a category of products in a health system, I rely on the health system to tell me how much business it is. It’s likely or always not accurate. Then once I write the contract, I have no way of validating whether or not the customer’s performance is what we agreed upon.
It’s an exciting time to allow the suppliers to contract in a far more efficient manner on actual data and facts and then be able to manage it over time.
They have both an economic as well as an efficiency gain. It just simply makes sense. I think it’s a brilliant solution to a problem we’ve struggled with for at least the last thirty or forty years, as hospitals try to work together and they weren’t just individual units in a community.
MassDevice.com: Troy, how would you say the flow of customers has developed over the past year? Were hospital buyers quicker to jump onto the platform? Were you surprised at all by the uptake in the users of the platform?
Kirchenbauer: I think we were a little surprised. We came out and pretty quickly started knocking down a number of major health systems in the U.S. as participants in the marketplace, I think a little bit faster than we had planned, and found definitely more buyers before the end of our 1st year than we had on radar.
On the sellers’ side, what we saw predominantly was greater participation in terms of numbers than we expected, but we didn’t have necessarily the mix that we wanted to see. We had a lot of smaller players or maybe even mid-size players, but we needed more market-share leaders.
To be candid with you, I think it took us some time to start to articulate the value proposition to market leaders in a way that really resonated with them. I think we’ve really begun to do that now and we’re seeing real momentum with those players as we started to shape that message.
MassDevice.com: Why do you think it took a little longer for the large medtech companies to sign up?
Allen: If you look at the large companies, they get pinged pretty frequently with folks that want to change their business model. They’ve been pretty successful in the business model we all operate in, even with its inefficiencies.
I do believe aptitude is unique in this space in that there are defined, tangible benefits for the supplier as well as for the buyer. Other tools we’ve seen in the marketplace are very heavily weighted to buyer-side benefits. In aptitude, we’ve tried to take a more realistic view, that you have to attract both players to a market in order to make it successful, and we have to have a robust value benefit you can articulate well to the supplier side to get them to also play.
The reality is that for smaller, more nimble, innovative companies it’s easier to take a leap on stuff. I’ve worked at a lot of very large device companies. It is a longer process and you have to have more a defined benefit. I think as a result of the way we’ve been able to articulate that, we’re starting to see that’s the momentum that’s picking up that will drive both buyer and supplier participation in aptitude.
MassDevice.com: I imagine you’re going to be opening up new product categories soon. How many products do you currently have on the platform?
Kirchenbauer: Currently we’re in about 140 categories, from commodity products to the physician-preference space. I think as aptitude grows and expands, we’ll look to take on things like purchase services, capital equipment, perhaps areas that are maybe specialty pharmacies, et cetera. Those are things that are on the horizon for aptitude’s continued growth.
Of course, we’re seeing more and more of that today, initial buyers playing more of a role in the decisions regarding the procurement of those products. Obviously, the doctors will still be in theory a very important constituent, but as we’re seeing change in the landscape we’re seeing more physicians aligning closer with the hospitals, and the financial component of the decision is becoming a greater consideration for healthcare organizations today.
MassDevice.com: What feature most resonate with people? Is it the ability to see how much business they have in the current system versus what they could have?
Allen: I would say what aptitude is providing both buyers and sellers is a far more efficient way to make better business decisions, because both the buyer and the seller are given a lot more information about the deal they’re about to consummate, throughout the process, from the initial request through the decision-making process, all the way through the term of the contract. Much better information, far more analysis is done for them, in a much more efficient manner. It’s providing value to both sides, but I would tell you it’s that piece that I think is the critical feature.
Kirchenbauer: From the buyer perspective, I think the killer feature is speed to value. The ability to execute deals in 38 days because of all the things that Pete just mentioned is what keeps them coming back to aptitude. It’s that that they gravitate towards. From the seller perspective, it’s the ability to grow and manage market share based on the same data and intelligence around how they can measure the performance of their contracts.
MassDevice.com: Have you heard from any of your seller companies that this is indeed reducing some of their SG&A costs?
Allen: I will also say that just anecdotally, from a supplier perspective, any reasonable-size supplier has often a lot of people dedicated to the activity of receiving, analyzing and responding to this from the supplier side. Every 1 is new and it is just a repetition of work over and over and over again, where aptitude has automated the vast majority of that. There is no way this is not a far more efficient system for the supplier community.
MassDevice.com: How do you envision a medtech company using aptitude? Is it everyone in the sales process, or is it really for people in the sales management role?
Kirchenbauer: We’re seeing a couple different models that are emerging. Companies that are trying to deploy this a little bit more on a regional basis are having district managers work with their sales reps to respond to inbound bids. The predominant model is to take a national accounts approach to this and have a centralized individual, or set of individuals, who handle these inbound requests, coordinate with the local sales rep regarding intellectual knowledge or IP around the specific customer, and formulate the bid response. I think some of the benefits the suppliers see in that is there’s automation of the cross-referencing process which simplifies that, but also because they’re able to centralize that activity and get it in the hands of a product expert, it provides better-quality cross-references from a competitive perspective when they’re bidding on business and they’re able to get a little bit tighter centralization and control of the pricing, which many suppliers are having to do as we move forward into a landscape where transparency is much more the tone of the day.
Editor’s note: aptitude is a sponsor of MassDevice.com’s DeviceTalks event series.