Can a bad economy lead to a golden opportunity? Is now the right time for biomedical technicians to boldly strike out and start an independent service organization (ISO)? Those who have taken the leap—and know what it takes—are more bullish than you might think.
In 1998, Sandy Morford, CCE, MBA, started Genesis Technology Partners after a long stint with nationwide ISO Masterplan. With help from seven other founders, Morford grew his San Dimas, Calif-based company into a corporation with well over 200 employees. While it may seem counterintuitive, he believes the current economic climate is an excellent environment to start an ISO if you can manage to get proper capital funding.
“For the last 30 years I have been doing this, the economy has gone through ups and downs,” Morford says, who sold Genesis back to Masterplan 3 years ago. “We’ve gone through periods where hospitals have prospered and suffered. But the health care market is somewhat recession proof for service providers. Hospitals will always look for ways to reduce operating costs, and in tough economic times they will search even harder.”
According to Morford, payroll represents a hospital’s single largest financial outlay, and equipment maintenance is also considered a large expense. Therein lies the opportunity for ISOs, which often charge considerably less than original equipment manufacturers (OEMs). “ISOs don’t have near the overhead or the profit expectations that an OEM has, and they can pass those savings on to the customer,” Morford explains. “Most ISOs will attempt to charge 10% to 20% less than a comparable OEM contract. Most OEMs require a margin on their equipment service of 40% or greater, but most ISO expectations are 15% to 30%.”
For ISOs that can swing it, getting all of a hospital’s equipment under one contract is a great way to lower expenses and gain a competitive advantage. “Our goal was to go in and capture everything from anesthesia to x-ray under one umbrella agreement,” Morford says. “This would eliminate all the individual service providers and individual service contracts that a hospital might have, because we would bundle services into one comprehensive program.”
Despite the higher costs associated with OEMs, Morford warns that these entities remain a competitive threat to ISOs. Not content to merely repair their own equipment, OEMs such as GE, Philips, and Siemens have entered the multivendor service arena—meaning they work on other manufacturers’ equipment. While the divisions within these companies are not technically ISOs (since they are owned and managed by manufacturers), they have used their virtually limitless coffers to claim a large market share.
“The multivendor service division of GE, from a revenue standpoint, performs more multivendor service than any truly independent ISO,” Morford says. “And that is because they were the first to capture the largest single multivendor health care account in the country—the Healthcare Corporation of America (HCA) contract—and they still service all of the HCA hospitals across the nation. So they are certainly a competitive threat to true ISOs.”
Another aspect of competition is the in-house clinical/biomedical engineering department. Will hospitals respond to harsh economic times by training in-house people to do repairs? Not likely, says Wayne Morse, CCE, MBA, FACCE, MSBME, president of Morse Medical, Bellevue, Wash. “I agree in principle that training a person will ultimately save money for the hospital,” Morse acknowledges. “The question is, what is the return on the investment? In an economic downturn, training is one of the first things to go in a hospital budget.”
Paying for training is also a notoriously risky proposition for hospitals, since employees can take that knowledge elsewhere and start their own ISO. In-house employees require health benefits and competitive salaries—two things that can be avoided by outsourcing work to ISOs. Ultimately, many hospitals choose to focus on their core competency, which is usually taking care of patients, not maintaining equipment.
TIMES ARE GOOD
John J. Hess, owner of Santa Barbara, Calif-based Biomedical Services, agrees that despite today’s economic turmoil, times are good for smart ISOs. Much of his optimism stems from a burgeoning tendency for hospitals to repair, not replace, old equipment. “We went through a spell there of throw it away and buy a new one,” Hess says, who runs a successful one-man show from his garage workshop. “But right now people are fixing things, and it is a great time—a boom time. If you can make it now, you can certainly make it when the good times are rolling.”
While established ISOs may find the trend toward cost savings to be an undeniable plus, those looking to start a new ISO still face considerable challenges. After all, a nationwide credit crunch makes it doubly hard to obtain crucial capital funding. Morse, who also serves as vice president of Linc Health, says any new ISO should establish a strong banking relationship and be able to marshal the financial resources to go for as long as a year without a salary.
“When I started my business, I did not need the money from the bank, but in operating the business, I did,” Morse says. “Especially today, you will find that customers are not paying in as timely a manner as a year ago. So your accounts receivables are going to be different today than they were before the economic downturn.”
For one-man-band Hess, the saga started in the mid 1970s in economic conditions not unlike today. He began working out of his home, despite the fact that the Small Business Administration would not lend money to home-based businesses. Hess’ funding depended on a friend who was willing to loan him the money for half of the business partnership. “In the first 3 months of 1976, we made $680 profit for 3 months’ work, and I was paying $250 a month in rent and supporting three kids,” Hess says. “In the last 3 months of that first year, I did as much business as I had in the first 9 months. And from that point it was an exponential increase.”
As soon as he could, Hess rented workshop space, vowing never to move the business back into his home. Despite that pledge, Hess moved back just 6 months ago. “I closed my shop, moved back into the house, and converted my garage,” Hess says. “But the kids are grown, and I’m on the other side of the spectrum now, and I’m looking at retirement.”
TAKING THE LEAP
For younger technicians who are hesitant about making the entrepreneurial leap, it is possible to dabble with a part-time ISO. Boyd S. Campbell, CBET, CRES, did just that until taking his company, Southeastern Biomedical Associates, Hudson, NC, full time in 2005. Prior to making the jump, Campbell and his business partner, Greg Johnson, CBET, CHFM, put away enough money to see them through 6 months without a paycheck. “What made the decision to take the business full time difficult for both of us was that we had very good-paying, stable jobs, which in hindsight may have held us back,” Campbell says.
Eventually, the decision to abandon their full-time jobs became a matter of survival—and sleep. “While we were doing this part-time, we were working 45 hours a week at our day job, and then working until 10 PM a lot of nights after that,” Campbell says. “Needless to say, it was tough, and that was part of our decision. We were going to have to give up one or the other.”
Not surprisingly, a full-time commitment for a biomedical ISO is a 24/7 proposition. Hospitals are open all the time, and equipment can break down at any moment. For mom-and-pop ISOs, being on call 7 days per week is all part of the job. “The good thing about working for yourself is that you only have to work half days,” Hess jokes. “And you can pick any 12 hours you want.”
Hess counts himself a generalist in the relatively isolated geographic area that is Santa Barbara. Others, such as Morse in Bellevue, have capitalized on niche markets such as cruise ships. Today, Morse Medical is the largest service provider for cruise ships in the United States, with accounts such as Disney and Princess Cruises counted among its prominent clients.
The decision to focus on specialized or general work is largely a function of local competition and regional realities. In the greater Los Angeles area where Morford plied his trade, there are several general biomedical ISOs and a fair number of specialized ones. In fact, he says any large metro area is likely to have intense competition. On the other hand, less populated areas may be ripe for savvy ISOs looking to fill a niche.
In Santa Barbara, Hess goes beyond the acute care market to serve veterinarians, chiropractors, laboratories, physical therapy practices, and freestanding surgery centers. For sizable outfits such as the one that Morford used to head, acute care represented the largest clients and the lion’s share of revenue. “If you want to be a large player, you are going to have to focus on the acute care market,” Morford says. “If you want to be a niche player, go to those alternate care sites.”
The good news is that clients can usually be found in any city that has medical facilities. Campbell and Johnson market to several different specialties outside of the normal practices—working with research groups and facilities that range from community colleges to major universities.
TIME TO GET CERTIFIED?
Few topics raise as many strong opinions as certification for biomedical equipment technicians. Under the auspices of the Association for the Advancement of Medical Instrumentation, the ICC (International Certification Commission for Clinical Engineering and Biomedical Technology) offers the CBET, CRES, and CLES certifications. Other organizations such as the American College of Clinical Engineering bestow the certified clinical engineer (CCE) title.
As to the value of these designations, it all depends on who you ask. As one of the first to get a CCE, Morse supports certification in principle, but not as a requirement for employment. “Certification has nothing to do with your ability to do the job,” Morse says. “It means you are able to pass an exam.”
As a 37-year veteran, Hess does not mince words when the topic turns to certification. “I am not certified. I have never been certified, and I don’t plan to be certified,” he says. “I read the articles saying we need to be licensed, certified, and pedigreed, and that will give us stature. But some of these certified guys I would not let carry my toolkit.”
As a former employer of more than 200 technicians, Morford never required his employees to become certified, but instead encouraged them to do it for purposes of personal growth. “Going back to our days when we had Genesis Technology Partners, we encouraged our technicians to take the classes, take the courses, attend the seminars, and attain certification,” Morford says. “But it was for personal growth reasons more than our view that it would help the business be more successful.”
Hess says that the lack of letters behind his name does occasionally cost him business. He says that 80% of the time it is not an issue. The remaining 20% of the time he is willing to let the business go. Morford estimates that about 10% of the time certification becomes an issue with clients. Most customers, he says, are more interested in experience and price. “The number one deciding factor in every competitive situation is always going to be cost—especially in today’s economic climate,” Morford says, who is now one of three partners in Irvine, Calif-based Clinical Equipment Consultants. “If I am explaining to a customer that I am going to put a technician on-site at their facility that has 20 years of experience in servicing sophisticated medical instrumentation versus a technician with 3 to 5 years of experience—but with a certification behind his name—99 times out of 100 they will want the tech with 20 years’ experience.”
Greg Thompson is a contributing writer for 24×7. For more information, contact .
It may sound touchy-feely, but the proper mind-set often determines the success or failure of any entrepreneurial venture. Independent service organizations (ISOs) cannot escape the fundamental truism that money follows dedication. “Don’t start a business to make a lot of money,” says Wayne Morse, CCE, MBA, FACCE, MSBME, president of Morse Medical, Bellevue, Wash. “That is a false premise. You do it because you want your independence. You want to be an entrepreneur. You want that ability to say, ‘this is mine.’ “
Unless you have an MBA behind your name, you may not be able to handle the stress of day-to-day business obligations without help. Biomeds are good at troubleshooting medical equipment, but payrolls, taxes, insurance, business licensing, and marketing are foreign tasks. “Have a team of experts support you as consultants—attorneys, bankers, accountants—and somebody to mentor you on running a business,” Morse emphasizes. “We are very good at one thing—maintaining medical equipment—but not necessarily running a business.”
For family members, the time demands can cause a lot of strife if expectations are not clearly outlined in the beginning. “The most important piece of advice is that your spouse has to be with you, and it must be a joint effort or you will never make it,” says John J. Hess, owner of Santa Barbara, Calif-based Biomedical Services. “My wife bore the hardship of starting a business. She was home with three small children struggling to make ends meet. Take time to think it through, and have a good adviser who will tell you if something is foolish—someone who can look at things objectively.”
Tapping the entrepreneurial spirit was a major factor for Boyd S. Campbell, CBET, CRES, and Greg Johnson, CBET, CHFM, when they chose to leave their well-paying jobs almost 4 years ago to form Southeastern Biomedical Associates, an ISO in Hudson, NC. Like so many others, transcending the money grab has paradoxically led to solid financial results. “It has never been about the money, but more about what we can accomplish,” Campbell says. “We believe that our motives are why we have grown so much in a short period of time.”
Hess agrees that chasing money is a sure recipe for disaster. “The number one failure is that people start an ISO for the money, instead of providing a service,” Hess emphasizes. “You will never make it looking for the money. But if you provide a service, you will have more money than you know what to do with.”