Written by Dan McCarty, Chief Executive Officer at Infusion for Health
Forgive me while I state some obvious realities about the market we’ve chosen to work in:
Surviving as an independent medical provider in today’s environment is difficult. The fact of the matter is that regulations continue to change and the costs to effectively address these changes – while maintaining high quality care for patients – continue to rise. Meanwhile, there is significant downward pressure from the government and payors on reimbursement amounts. In order to thrive in this environment, we not only need to operate with precision both clinically and financially, but we also need to be intentional in selecting our partners.
In order to be intentional in selecting the right partners for our businesses, we need to start by defining who we are and what we want to be. What are our strengths and weaknesses in the care process and where will we need help to accomplish our goals? In my experience, my team and I at Infusion For Health defined this process as a Value Creation Plan. This term may sound esoteric, but essentially, we start with the end in mind. We accomplish this by focusing on creating a picture, as vivid as possible, of where we want to be in three years. We answer questions such as, “Where are our greatest opportunities? What about the risks? How can we grow?” From there, we analyze where we will need to invest and allocate funds to capture that growth or insulate ourselves from risk. Finally, we work to quantify the cost and potential return of these opportunities. To quote Monte Holm, “Where the mind goes, the body will follow” so taking time to focus the mind on where we want the business to be greatly improves our chances of making it a reality. My team and I have found this process to be incredibly valuable to our evolution and success.
A question that comes up frequently in this process is, “Where do you buy, build, or partner to capture an opportunity?” In this instance, we are going to focus on partner relationships as relates to drug distribution and reimbursement. Since drug acquisition and reimbursement make up 70%-95% of our businesses, it makes sense to start there.
When it comes to picking a distribution partner, there are three main variables to consider – price, payment terms, and service. Unfortunately, these are sometimes mutually exclusive criteria. The premier service providers often do not make the best partners from a terms or price perspective. In order to pick the right distribution partner, you need to prioritize which bucket is the most important for you and your business. For example, my business has strong control over our inventories, revenue cycle analytics, and compliance. We are also experiencing tremendous growth. Thus access to capital, flexibility in terms, and acquisition cost are higher priority than the services offered by some of the premium service providers in the space. As we mature our business, those services will become more valuable and our needs and our partner relationships will continue to evolve as well.
Once we select a distribution partner, we then need to shift our focus to drug reimbursement, where revenue cycle management is critical. I encourage anyone in this space to invest in developing analytics and excellence in revenue cycle management. When it comes to reimbursement, this is likely the most difficult and valuable opportunity. We work on slim margins, so a 1% increase in reimbursement can translate to a 20% increase in our net profitability. But how do you capture it? My recommendation is to start with benchmarking. Understanding where your reimbursement stands compared to others in your market is key. Companies like Oliver Weidman, McKesson, PWC, and many other companies offer services that can provide important insights on the size of your opportunity. Next, we need to answer two important questions: Who and when? Who do we pick to help us capture the opportunity and when do we do pursue it? Size and density matters when negotiating. If you are planning for rapid growth, it makes sense to wait to realize that growth as you will then have more leverage. When selecting the “who”, make sure you evaluate their track record, their experience in your market, and the relationships they have with your payors. Many companies will share success stories, but the payor landscape is incredibly fragmented. Remember, a success in Chicago does not necessarily translate to a success in Los Angeles. These factors will be crucial to keep in mind as you shop around.
In the end, there are many good choices in the market for partnership when it comes to optimizing your business’s growth and development. As long as you take the time to understand what you need, why you need it, and what it will mean for your business, I am confident you will find the right partner.