As the chief information officer for 12-hospital North Shore-Long Island Jewish Health System, Great Neck, N.Y., Patrick Carney routinely deletes what he considers a lot of unwelcome "junk mail" from companies new to healthcare.
One morning last week Carney erased not one, but two e-mails from a company that somehow finagled his assistant into scheduling time with him for a conference call. The call wasn't going to happen, he vowed.
"I see a lot of consulting companies that typically haven't sold into healthcare that are suddenly trying to tap into this market because healthcare is one of the few industries that is still spending," Carney said. "They are becoming much more aggressive. I'd say I get a dozen e-mails a day from companies trying to drum up business."
Skyrocketing expenses and reduced reimbursements getting you down? Although the hospital outlook might look pretty dark-41% of Pennsylvania's hospitals lost money in fiscal 2002, according to a report released last week-a spate of revenue-hungry companies, some from industries far more battered than healthcare, is salivating over those wafer-thin operating margins.
Hospitals and nursing homes rang up $356.6 billion in expenses in 2000, a 6% increase over the prior year, according to the American Hospital Association. As an industry, healthcare constitutes one-sixth of the national economy, said Howard Widra, managing director of the newly launched healthcare group of Merrill Lynch Capital Services. "If it grows at the same pace as the economy, it's a huge market," Widra said.
A bevy of seemingly improbable outfits, everything from carpet companies to trucking firms, have rolled full force into healthcare in recent years, and they are all expertly speaking the lingo. Waving statistics and homegrown case studies before prospective customers' eyes, they promise to slash costs, improve efficiencies and-the hot-button issue of the day-reduce medical errors and improve quality of care.
The basic premise fueling the interest: People will always get sick, even in bleak economic climates. Reinforcing the premise is the incessantly quoted demographic that the population is aging and bound to get even sicker.
The recently implemented Health Insurance Portability and Accountability Act of 1996 has only fertilized the newfound interest, especially for wilting companies that are rooted in information technology in even the remotest ways.
To be sure, most companies venturing into the arena are not expecting to get rich quick and effortlessly. In the board game Monopoly's terms, investing in healthcare doesn't promise the same stunning returns that building a hotel on Boardwalk or Park Place might, but it does at least guarantee the steady income of a Waterworks or railroad.
"Healthcare profits are never going to be astronomical. However, it's never going to go away," said Lori Livers-Hess, a partner with Charterhouse Group, a private equity firm in New York.
`It's only furniture'
Michael McLean, owner of Spec Furniture, a Canadian-based manufacturer of furniture for hospital seating areas, said he noticed a flood of new competition during the last year. With the corporate market on a tight budget, office furniture companies aren't expanding as they were when the economy was booming in the late 1990s. Healthcare looks like "a vibrant market" next to that, he said.
"All of a sudden they get a chair, put a Kryton fabric on it and say, `This is now a healthcare stool,' " McLean said. "We're not saving people's lives here. We're just giving them some place to sit. It's only furniture."
Some of the larger companies making a splash, such as Merrill Lynch & Co., Sprint, UPS and Xerox Corp., are not new to the industry but now are marching into healthcare with a renewed sense of purpose, organizing full-scale divisions to expand on an existing customer base. Smaller companies, such as Immersion Corp., a San Jose, Calif., developer of gaming technology, view healthcare as a frontier that can sustain them as their more traditional markets weather the economic slowdown.
"The medical market is a nice stable business, and our offerings are in line with what the medical market needed," said Dean Chang, chief technology officer at Immersion. "It's not necessarily high-growth, but it was very clear that there was a market we needed to be in."
Immersion, which posts $20 million in annual revenue but has yet to turn a profit, entered the healthcare market in 2000 with the purchase of H.T. Medical, Gaithersburg, Md., a developer of medical simulation equipment that boasts that it takes the patient out of the physician-training process.
"We saw our technology as cost-effective in terms of taking cost out of the system," said Richard Stacey, vice president and general manager of Immersion Medical. Immersion to date has sold 750 of its simulators, which cost $10,000 to $100,000, primarily to teaching hospitals, medical schools and nursing schools. With $8 million in revenue in 2002, Immersion's medical business grew 58%, representing by far Immersion's fastest-growing business line, Chang said.
Acquiring a company, as Immersion did, often can smooth an entree to the healthcare market, some companies have found. Atlanta-based UPS, which not only moves product by rail, truck and plane but manages inventory as well, broke full force into healthcare in 2000 when it bought a Canadian company called Livingston that had extensive supply chain experience in the healthcare field, said Lynnette McIntire, a spokeswoman for UPS Supply Chain Solutions.
"Obviously, it's a huge market and a fast-growing market and we saw some trends that made it particularly attractive," McIntire said. For one, frenzied merger and acquisition activity always means big changes, which means "they have to adjust their supply chains," McIntire said. The emergence of the home healthcare market also attracted UPS, which already had a strong presence in residential delivery, she said. Nevertheless, hospitals, which have their own way of doing things, have not jumped aboard like pharmaceutical and biotech companies-"the gazelles of the industry," McIntire added. To date UPS has no hospital customers.
It may be a stretch for some companies to make their case for healthcare, but they are finding creative ways to rationalize their presence in the market. Healthcare was a "natural step" for Interface Flooring Systems, LaGrange, Ga., after it developed in 1982 an antibacterial carpet fabric, said Gail Nash, Interface's vice president of healthcare strategy. Interface sold to the healthcare market for a long time but didn't focus on it until the last couple of years. It was hard to ignore the continuous, steady growth of healthcare, boosted in large part by an aging population, she added.
"Also, there are wonderful studies of how interiors can affect the healing process," Nash said. "So we're refocused. Also, because the economy is redirecting us that way. Everybody's corporate market is down."
The average 400-bed hospital will spend $70,000 a month on office document output, will have 10 outside vendors for forms and will spend more than $500,000 a year on forms production. The healthcare and life sciences segment within the Xerox Global Services division of Stamford, Conn.-based Xerox knows that because a study it conducted determined that hospitals can save 15% or better by partnering with Xerox to handle their forms management.
"Having some standardization to the forms process and business will not just reduce cost but improve processes in the hospitals and ultimately improve the quality of care," said John Jones, vice president and general manager of the healthcare segment. "Our story on the healthcare side is reducing errors, supporting HIPAA and helping (hospitals) to reduce costs so they can invest in some other way."
Xerox, which reportedly has fought off bankruptcy and lost market share in recent years, would not break out revenue for its global services segment. But the healthcare services industry has the largest revenue plan among eight segment markets within the division, said Patti Quinn, a Xerox spokeswoman.
Inspired by HIPAA
HIPAA has been a huge impetus for much of the focused attention on healthcare of late. Raytheon Co., Lexington, Mass., a $17 billion worldwide company that offers a wide range of information technology services, made a concerted move into the private side of healthcare in the past year. Principally known as a government contractor, Raytheon first ventured into healthcare in 1998 when it modernized information systems for what was then HCFA, said Steven Erd, Raytheon's manager of business development. The company's interest in healthcare was piqued when HIPAA issues burst on the scene.
"When we looked at HIPAA, we said, `We understand healthcare from our work at the CMS and security is a core business, and this is logical,' " Erd said. "We saw the opportunity."
HIPAA similarly was an impetus for Sprint's focused attention on healthcare, said John Fancher, Sprint's healthcare marketing group manager at Sprint Business, Dallas. The telecom company, which has witnessed troubles in its own industry in recent years, has increased its focus on healthcare for about a year now, pitching an array of wireless and data-transmission technologies to healthcare organizations.
"The simple, speedy exchange of vital information has great impact on operational efficiency and immediacy of care," said John Polivka, a Sprint spokesman.
"(Healthcare) is consistent and stable growth. It might not have the high double-digit growth every year, but it's a solid business," said John Lymberopoulos, managing director of strategic development for Sprint Mobile Computing.
Unlike other companies, which looked at the healthcare market and saw some strengths, Merrill Lynch saw a weakness. In January, the financial services giant, which also has had its share of troubles and controversy, launched a healthcare group within Merrill Lynch Capital focused on lending money to middle-market companies with revenue of $20 million to $500 million. Widra, managing director of the Washington-based healthcare group, said the middle market "has been underserved by senior debt lenders." The group will make cash flow and asset-based loans to the full range of healthcare providers: small hospitals, medical office buildings and nursing homes, he said. To date the group has completed a dozen transactions, each worth from $5 million to $30 million, he said.
"There have certainly been growth opportunities in segments of healthcare, but the availability of capital has lagged behind those opportunities in the market," Widra said. "Lenders haven't entered that fray."
Carney of North Shore-Long Island Jewish said he doesn't begrudge the interlopers. He, too, came to the hospital system from outside the healthcare industry, working in manufacturing, engineering, technology and accounting. Outsiders sometimes bring a fresh look or a different perspective, he said.
Still, he wonders.
"They all have my e-mail address," he said. "How do they get it?"
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