Sunday, November 03, 2013

LUST in hospitals

My colleagues* David A. Lax and James K. Sebenius tell a story in their excellent book 3D Negotiation: Powerful Tools to Change the Game in Your Most Important Deals.

The EPA had promulgated new standards for gasoline underground storage tanks, requiring an owner of any such tank to repair or replace it if any leaks were detected (making it a LUST: a leaking underground storage tank.) A start-up company had developed a new detection system that was a hundred times more sensitive than anything on the market, and faster, and substantially cheaper than the competition. Lax and Sebenius relate what happened:

"When the new [EPA] standards were implemented, [the company] was sure it had a winner: not only faster, cheaper, and better, but now mandated. Its sales engineers began negotiating with potential buyers--and were astonished to receive a grand total of one order in the marketplace. One after another, potential customers walked away from the table."

Why? Well, the technology did not solve a problem that the consumers cared about. Indeed, it had only the potential to create a problem: If a gas station owner now was able to detect even tiny leaks in his tank, he would have to incur thousands of dollars in costs to dig up and replace or repair the tank. The authors present this as a classic case of failing to understand the interests of the other party in a negotiation.

I'm struck by how often I see this in the health care arena. There are a huge number of start-ups in this field, all trying to tap into the fact that health care represents over 1/6 of the US economy. They think that their device, technology, or information system will "sell itself" once the people in hospitals hear about it.

People offering to sell such products often do not understand that their new idea might work too well, creating extra work or obligations or liability for the hospital.

They also often fail for two other reasons:

First, hospitals have major capital constraints. CFOs are reluctant to allocate funds away from absolutely essential needs. They have been trained to be exceedingly skeptical about future savings that promise to generate an acceptable return on investment.

Second, the sales cycle in the health care world is interminable. No one is in charge of a hospital and can say "yes." But lots of people can say "no." A place in which "there are a 1000 points of veto" is a difficult sales environment.

It is possible to sell great new ideas to hospitals, but they need to satisfy the interests of several constituencies in those organizations.  They must improve the work flow of the staff on the floor and units, making day-to-day life easier and not harder. They must improve the safety and quality of care, but in a manner that does not expose the hospital to greater liability: Indeed they should help reduce liability. Finally, they should demonstrate cost savings and be priced in such a manner as to allow the hospital to show cash flow improvements rather than be a drain.

We all lust after technological improvements in the health care world, but let's recall the excellent advice of Lax and Sebenius. If an invention does not address the interests of those doing the work and paying for the work, it will rest comfortably on the shelf.

* Disclosure: I am Senior Advisor at Lax Sebenius, LLC.


Anonymous said...

Having worked a bit on the consulting side, I can't believe how many people do not understand why their technology or solution will not be something that hospitals purchase. Great post!

Anonymous said...

I've read that book and highly recommend it for life as well as business. Here is the relevant quote:
The authors present this as a classic case of failing to understand the interests of the other party in a negotiation."

This is a universal truth - how many wars have been fought, marriages have failed, etc. from lack of this simple skill.


Anonymous said...

The LUST story also illustrates another truth (also relevant to health care): that financial incentives are not necessarily aligned with the common good.

Mitch said...

Good post about the need to understand the customer and payment system. I see this problem often in the mobile app world; seems every company believes putting same-old same-old ideas on a mobile device will somehow make their particular program work. The graveyard for these is growing rapidly......

AkikoaCom said...

Innovation for hospitals might then come from surprising places. I believe that hospital innovation will not be driven by the leading centers like the MGHs or Mayo's of this world but rather from small hospitals with young and daring CEOs who might have less to loose or fewer windmills to fight. Choose wisely when you look for your first customers and don't get blinded by size, name and/or repuation. Look for insiders with an open and hungry mindset!