Stevens explains that this move toward simplification, while embraced by Med One’s clients, raised concerns with the firm’s lawyers. “Everything that we eliminated from our documentation was the cause of a bloody war with our attorneys. But you can imagine that one of our biggest sales jobs was convincing our capital partners that this was a smart approach to doing business. We’ve gained a great deal of credibility over the years and none of our capital providers has ever suffered a loss because of this approach.”
Allen notes there have even been occasions in which no documentation whatsoever has been executed. He says, “In a few cases, the hospitals have told us that they can’t sign any form of documentation. In those cases, they have issued a purchase order and we have done the deal on the basis of the PO. That’s an example of where we have been willing to do what it takes to close a deal for our customers … and we’ve not gotten stung yet.”
Allen adds, “Another reason our capital providers are comfortable with us is because we focus on equipment that is critical to the operation of the hospital. In other words, we don’t lease furniture and telephone systems. We lease infusion equipment, respiratory equipment and the like. I can tell you that if things get tight, that’s the equipment the hospital pays for because this type of equipment is crucial in keeping patients alive.”
In addition to the critical equipment mentioned, Med One will finance electronic medical records software if the situation calls for it. Stevens says, “It’s not a big segment for us, although it’s growing because of the government mandates. At the same time, that segment is dominated by only a few major players … but there are a few outliers.”
Allen notes, “As Larry says, we don’t have a big portfolio there. The place where we shine is when we have an asset because we can get very creative in the way we finance it. If we get the asset back, we have effective ways of dealing with it.”
Stevens admits that over the years, Med One has gotten equipment back at the end of leases due to technical upgrades. “But again, that’s the thing that sets us apart. We have developed capabilities that no other leasing company has. We have a complete bio-med division which services and refurbishes equipment. We also have a sales division that resells and repositions our off-lease equipment. We also maintain a total sales force generating equipment rentals directly with hospitals. Leasing is only a part of what we do today. If someone were looking to replicate what we do, they would need to have a lot of capital and a lot of nerve.”
Unique Marketplace Dynamics Play a Key Role
Stevens is not surprised that some of the larger banks may have experienced less growth in the healthcare equipment sectors as compare to other equipment sectors. Part of this, he explains, is attributable to the existence of a unique dynamic in the marketplace. “There are those large industrial companies that manufacture healthcare equipment, so they are heavily involved in the financing of that equipment. It’s a perfect channel for them.”
Stevens continues, “Other than those major manufacturers, we see the preponderance of financings being done by regional banks that have a few hospital customers who come to them. We haven’t seen the regional banks going beyond their regions to seek other hospital customers. And then you have only a few companies that take a national approach with varying degrees of success.”
Yet both executives agree that in addition to the dynamics of the marketplace, the Affordable Healthcare Act has had a dampening effect on new business. But for Allen, there is no cause for alarm. He says, “We’ve experienced a little bit of backing off on the leasing end and at the same time, we’ve seen our rental business increase. Overall, the ACA has put people on hold. As the number of insured Americans increases, we’re pretty confident that the hospitals will need capital equipment.The big question then becomes where will they get the capital to finance this new equipment?”
Allen, who uses Med One’s leasing business as the barometer, explains that he’s noting that the sector is already beginning to pick up some steam. “Our leasing business is picking up and I think 2015 will be even stronger than 2014.”
Stevens adds that healthcare equipment manufacturers have fueled their own revenue streams in recent times by introducing new releases of technology. He notes, “We’re seeing more and more software changes to existing equipment. That’s another trend we are seeing and I expect we will be called upon more and more to assist clients with those types of transactions.
“But in general, I agree with Brent. We’re seeing our own business come back and we are continuing to expand our business horizontally. But as a company, we aren’t only relying on our finance segment because we don’t want to be tied to its cycles. We’ll always be a major player in healthcare equipment finance, but we are also providing other things to our clients like rentals and hospital equipment asset management. Our people are actually embedded in hospitals where they manage the assets on site. By offering these other services, we spread our own risk and bring a comprehensive offering to our customers.”