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Health Industry Today

What hospital CEOs buy

What hospital CEOs buy – market analysis

Donald E.L. Johnson

What hospital CEOs buy

Hospital chief executive officers are much more involved in evaluating and buying major pieces of clinical equipment than in buying clinical supplies or pharmaceuticals, but they may not be as important as chief operating officers.

Yet, according to a telephone survey by National Research Corp., Lincoln, Neb., about a quarter of surveyed CEOs said they see all or most sales representatives selling pharmaceuticals and clinical supplies but only about 17% see all or most reps for manufacturers and distributors of major equipment.

Results of the survey are important to marketing, sales and product line managers, because the survey indicates when trying to sell or promote a product to a hospital CEO is most likely to pay off. But because the decision-making process is so complex, the figures tell only part of the story.

The survey of 150 CEOs found that about two thirds recommend and specify major equipment and make final purchasing decisions. Only 14.7% claimed no involvement in purchasing major clinical equipment.

At the same time, less than 20% claimed significant involvement in buying pharmaceuticals for their hospitals and 73% reported no involvement. More than 62% of the CEOs claimed no involvement in buying clinical supplies, while 22% said they recommend or specify those products and 29.3% make final buying decisions. (CEOs gave multiple answers to the questions so that totals exceed 100%.) The study was sponsored by Modern Healthcare, a leading magazine for hospital CEOs.

While it is generally agreed that end users–physicians, nurses, physical therapists, pharmacists, data processing managers and materials managers–play significant roles in specifying products bought by hospitals, the role of the CEO has been difficult to pin down. Generally, the CEO is seen by marketers as an important ally and a potentially fatal enemy.

The most important reason to sell the CEO is to sell him on a product or service concept and the reputation of a supplier so that he won’t veto a deal.

Decision-making process

But the decision-making process isn’t that simple. It is hard to believe that many CEOs make final decisions about anything. They approve recommendations made by clinical and administrative personnel, and they go along with decisions made by medical staffs and boards.

By their natures and job descriptions, many CEOs are administrators of other players’ decision-making processes and of their decisions. They are in very political jobs, and they try to avoid making decisions when they can delegate or shift that responsibility to a committee or product champion. Once a hospital CEO sees which direction the wind is blowing, he goes along unless he has a strong reason to say no. And then he’ll try to get someone else to block the decision or make a better decision.

Thus, it is hard to believe that 16% of CEOs recommend or specify pharmaceuticals. Less than 2% are physicians, who make those decisions. What the survey probably means is that some CEOs get involved in deciding to use generics, participate in group purchasing of pharmaceuticals, make some manufacturers preferred providers and establish formulary committees.

CEOs are very concerned about the unpredictable surges in demand for well detailed and new pharmaceuticals, and they are fighting as hard as managed care organizations to control those costs. Pharmaceutical companies should take advantage of the willingness of some 80% of CEOs to see their reps.

When the figures say that 62.7% of the 150 responding CEOs aren’t involved in buying clinical supplies, one has to wonder why Baxter, Abbott and Johnson & Johnson hold big parties for CEOs at the American Hospital Assn. convention. The answer is that a CEO may not buy surgical drapes, but a CEO plays important roles in selecting prime vendors, stockless distributors and just-in-time programs. The CEO knows whether he’s running an Abbott, Baxter or McGaw hospital.

How CEOs spend time

Several years ago, the American College of Healthcare Executives, Chicago, published a study of how hospital CEOs spend their time. And it found CEOs spend the bulk of their time working with their boards, their medical staffs and various industry and community organizations. Another study by Richard Gifford, director of health care recruiting for Rus sell Reynolds & Associates, Chicago, found that CEOs work closely with their COOs.

And, indeed, the COO and CEO often are a team, with the CEO acting as mister outside and the COO as mister inside. Almost all large hospitals that buy the most medical supplies, pharmaceuticals and equipment have strong COOs. Their titles range from COO to executive vice president, senior vice president, vice president and, in some larger hospitals, president. COOs may be more important to suppliers than CEOs and may be a bit more accessible, but only the reps and companies that know how to ask the right questions have identified these important decision makers.

CEOs see reps

CEOs may say they frequently see sales reps, but that’s not the story told by the reps. And other studies show that CEOs have plenty of demands on their time other than talking with sales people.

So when do reps see CEOs? When the hospital is about to make a major decision and the CEO takes charge of the decision-making process. Then the CEO and board may sit through half a dozen presentations by vendors or the consultants and architects who are proposing to help the hospitals select a vendor. Also, a CEO may see vendors if he thinks he will have to justify a decision to his board or a public agency or if he’s simply interested in keeping in touch with new medical technology.

In today’s climate, if a hospital is small enough for the CEO and board to sit in on sales presentations, it may be a credit risk and not worth the supplier’s time.

COPYRIGHT 1990 J.B. Lippincott Company

COPYRIGHT 2004 Gale Group