Those were dark days in Northbrook. As Buddy Systems's bank accounts dwindled, marketing took a back seat to scratching around for capital -- which finally came in February 1988, when a team of investors led by pharmaceutical giant Johnson & Johnson put up $1.2 million. Manning's contract with J & J prohibits him from discussing the terms of the deal, but when huge medical-products companies back start-ups, they usually have an option to buy part or all of the business. The closest Manning will come to explaining why he waited so long to approach companies like J & J for money is to say, "Corporate backers, generally, have other expectations than the purely financial, and there's more potential for conflict." In his particular deal, though, he claims that "J & J brought very little baggage."
In any case, by the time J & J rode to the rescue, Manning had been forced to lay off 11 employees, their departure marked by a tearful staff meeting, and morale was badly bruised. "We had done very careful -- and, up to then, very accurate -- projections of our cash flow. But in the wake of the Crash, it was clear we hadn't left ourselves enough slack," Manning says now. "We had to pick ourselves up off the floor and focus on a very limited set of objectives. We're just now getting back on our feet. The main task was, and is, to learn the best ways to reach the customer and get market acceptance for the product."
The effort to make Buddy as user-friendly and as salable as possible has already led to some changes in the computer system's design. For one thing, there's the name Buddy. Early on, Manning called his company Biometrix Inc. But a focus group of nurses, asked to comment on the machine while it was still being developed, said that when people are ill, frightened, and newly released from the hospital, they need friendly reassurance, not high-tech dazzle. Manning's wife, Ellen, who has worked extensively with chronically ill children at the Rehabilitation Institute of Chicago, suggested renaming the company Buddy Systems.
The computer's name in turn shaped its -- pardon the expression -- personality. The data-entry key on the console's simple four-button keyboard is labeled BUDDY. Each time a patient is supposed to enter information, the instructions on the screen direct him or her to TOUCH BUDDY. Patients seem genuinely to like Buddy -- especially now that it's taken to speaking plain English. In the beginning, the computer was programmed to ask patients to enter yes or no for such symptoms as edema and palpitations. Buddy now inquires about swelling and heart flutters instead.
So far, Buddy has been used by 64 patients -- most of whom are suffering from heart problems -- under the care of 22 different doctors, for a total of 24,216 operating hours. The prognosis is good: the system not only won FDA approval and a U.S. patent, but users are impressed with its performance. Patrick Smith, a cofounder and president of New England Critical Care Inc., a rapidly growing national home-care company, began experimenting with Buddy in the summer of 1988. The company now has a dozen doctors using Buddy to monitor patients, and Smith expects to add more networks. "The biggest difficulty is hesitation from doctors, not over the system itself, but over whether cardiac patients ought to be treated at home at all," Smith says. "The medical community traditionally is slow to accept new modes of treatment. But once that acceptance is there, rapid growth can follow."
Buddy's ultimate success also depends in part on whether insurance companies will agree to cover its cost. If not, home-care agencies may be reluctant to install the system. Over the long run, Buddy is cheaper than any alternative at about $20 per day for each patient, but the initial investment that home-care providers must lay out -- up to $90,000 for a system that can handle 10 patients simultaneously -- may prove unappealing if insurers turn thumbs down.
"Insurance reimbursement is a big hurdle for any venture in health care these days," Paul Judy observes. A former CEO of the securities firm A. G. Becker & Co., Judy was Buddy's first major backer and now sits on the company's board of directors. "The key is to get yourself wired in with the big, reputable home-care organizations that are already submitting a lot of insurance claims and whose judgment the insurers trust. And the fact that Buddy is designed to reduce costs, at a time when that is so critical, is a real advantage."
Getting wired into the claims system isn't simple, and it takes time -- anywhere from six months to two years, depending on whose estimates you believe. But Buddy Systems's quest for widespread acceptance, and the insurance dollars that will come with it, is picking up speed. With more than 5,500 separate home-care agencies and about 15,000 doctors' groups in the United States, the company can't hope to make its pitch to every one. Instead, Manning is aiming to get national distribution by forging contracts with large regional customers who will buy and use hundreds of systems in dozens of states as part of their existing treatment programs. That plan has two advantages: it obviates the need for Buddy Systems to hire a big in-house sales force, and it will disseminate the product in enough places, with enough established claims-filing groups, to grab insurers' attention. Manning is now negotiating with 12 such megacustomers. He predicts that at least 3 of them will sign on by the end of 1989. To date, though, he has sold only two of the $90,000 systems.
