IVDT_In Vitro Diagnostics Technology

IVD Technology, Fall 2013

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OUTSOURCING Declining Medicare reimbursement will continue to tighten margins, placing increased cost pressures on labs and their suppliers. Historic and projected Medicare reimbursement Hypothetical $10 clinical pathology test Medicare payment (US$) $10.00 $9.50 $9.00 Historic $8.50 Projected after rebasing and sequestration $8.00 2010 2011 2012 2013 2014 2015 Year Figure 2. Medicare cuts hurt smaller labs that struggle to stay afoat. annual performance review. Te contributions from engaged, motivated, line-level associates are invaluable and cannot be supplanted by topdown processes such as a center of excellence. A cost-saving culture celebrates winning and incentivizes every employee to identify and deliver cost reductions individually and as an organization. Without the achievement of cost savings, this type of program will crumble under its own weight, as employees will lose motivation and drive. Furthermore, CMOs capable of delivering lower costs throughout the product life cycle should be able to provide diagnostics companies with documentation on cost savings for other customers as a percentage of total purchases. By actively seeking a partner whose culture fosters a drive to reduce costs across all levels and who is able to provide evidence for achieving results, diagnostics companies should be able to diferentiate between CMOs that talk about delivering cost savings and those that actually live it. Cost-savings activities can only begin if a CMO is already making perfect parts that result from quality engineering, launch, process, manufacturing and control disciplines. To determine the extent of a potential partner's emphasis on quality, diagnostics companies should look to the defect rate refected by end user complaints, or the external rate of defects per million units (DPM/ PPM). If a CMO is chasing problems and reacting to issues, it will not be able to place appropriate emphasis on improving margins for its customers. Finally, diagnostics companies should be aware of the importance of experience and innovation when selecting a manufacturing partner. Diagnostics companies should look for a core group of engineers with diverse experience across technologies and applications. In this way, a CMO partner can bring a continuous improvement ethos and skills from previous successful projects to the table. As important as these experiences are, they are either muted or amplifed by the group's ability to innovate. Unfortunately, innovation isn't as easy to identify. Some of the most creative innovations appear obvious . . . after they have been introduced. To assess a CMO's ability to innovate, diagnostics companies may look at the CMO's track record of problem solving, once again asking for examples and referrals to ensure these eforts bore fruit. In sum, the examples above underscore the major ways a CMO can help a diagnostics company improve margins in an increasingly complex marketplace. When searching for a CMO, diagnostics companies should look for the following four attributes: 1. devotion to and experience in customer cost savings; 2. development of documentation and references to back all claims; 3. impeccable defect rate; 4. diversity of experience with multiple technologies. In reality, the vast majority of CMOs are focused on growth and building revenues. A culture of cost savings requires a frm belief that the approach will deliver long lasting partnerships. Te culture demands a discipline throughout the organization and a commitment to invest in this activity. Diagnostics companies looking for CMOs to help them improve margins in the face of new pressures will realize that these relationships are not transactional—they are the essence of successful and lasting partnerships. IVD Donna Hochberg is a vice president at Health Advances. She can be reached at dhochberg@ healthadvances.com. Kate McLaughlin is an associate at Health Advances. She can be reached at kmclaughlin@ healthadvances.com. Jeremiah O'Connor is director of sales and marketing at Injectronics. He can be reached at joconnor@ injectronics.com. 30 IVD TEC HNOLO G Y | FA L L 2013 magenta cyan yellow black ES320934_IV1309_030.pgs 09.19.2013 05:44 UBM

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