Amsco International announced last week it had sold its troubled hospital-laundry business to the division's former head, ending months of uncertainty about the unit's future and its customers' fate.
Clearwater, Fla.-based Sterile Recoveries pledged to meet Amsco's contracts with all 200 hospitals now served. It also will maintain the six sterilization facilities and eight distribution centers now operated, said Richard Isel, president of the new company.
Instead of continuing Amsco's aggressive pursuit of new clients, however, it will concentrate on expanding services to current customers, he said.
Mr. Isel founded Sterile Recoveries in 1991, sold it to Amsco soon after and agreed to head the division. He bought it back with two other investors.
The company rents reusable surgical gowns and drapes to hospitals, washes and sterilizes them, and delivers the products daily.
Pittsburgh-based Amsco won't disclose the terms of sale, and its agreement with Mr. Isel prevents him from doing so. Amsco, however, took a $60 million after-tax charge in its second quarter when its board voted to divest or close the business (June 27, p. 16).
The division lost $4.3 million in the first quarter of 1994-defying earlier expectations that it would break even.
Soon after the division's launch, industry analysts predicted average quarterly sales of $9 million in 1994 and as much as $20 million in 1995. Amsco set a more optimistic goal: average quarterly sales of $23 million to $30 million in 1995.
Companies compete fiercely for the $600 million to $800 million hospitals spend annually on surgical drapes and gowns, often undercut-ting one another's prices. At the same time, many sell their products partly by selling trends.
While analysts talked of continued losses at the Sterile Recoveries division, Amsco aggressively pitched news stories about hospitals' growing use of reusable products to cut medical waste and protect workers from blood-borne disease. Competitors told stories about the resurgence of disposables and the failure of reusables to meet promises.
The Amsco division's troubles, however, largely were due to timing, Mr. Isel said.
It hit the market in late 1992, when the possibility of healthcare reform was making hospital executives cautious buyers, he said. Expecting quicker adoption of its services, Amsco built facilities before it had contracts to support them.
Internal cost-cutting should mean the new company will break even this year, Mr. Isel said. Reprocessing centers now operate with more independence. The corporate staff is down to 20 people from 70, while the sales and marketing department has been cut to 14 people from 46.
For customers, such as 613-bed Hermann Hospital, some concerns remain. It relies on Sterile Recoveries for 300 gowns a day.
"Our big issue is, `Will the service level be maintained?"' said Carol Champagne, director of perioperative nursing services at Houston-based Herrmann Hospital. "If it is, I'm happy to stay with the new owners."