I question Buddy's ability to market without a large direct-sales force. I would say they're going to have to establish credibility and a reference base with doctors -- and that's expensive and takes a lot of time. You have to sell direct. The selling expense budgeted in the financial projection is not a particularly large percentage of sales, and I think that's unrealistic.
I think it's impossible to make money at this business in a year. Buddy Systems is going to have to put 50% to 100% of the top line into selling. In companies like this, sales costs are very high initially -- I don't see any way it can put money on the bottom line next year. Which is not bad; a venture capitalist is going to look at this and say there's no way they should be able to. But that they're showing they can ramp up that bottom line in a relatively short period of time suggests to me a significant . . . I don't know if the word is naïveté or ignorance or what. It calls into question whether they realize what has to happen to be able to sell to this market.
CUSTOMER
ARTHUR J. BERMAN
Director of medicine, Lawrence Hospital, Bronxville, N.Y.; past president, Westchester Academy of Medicine
What they've done well is simplify the procedure and recognize the market in terms of patients who may have difficulty even recalling when to take medications and who find any kind of machine or high-tech instrument threatening.
But would I recommend it be purchased? I don't know that I would. Physicians are conservative in that they make decisions based on judgment, and they may feel that judgment is interfered with by having just a few pieces of paper and bits of information to make decisions on. We need clinical information: whether the patient is short of breath or looks ashen, whether the lungs are clear. Doctors need to feel they know what the patient looks like. I'm not sure how big a hurdle this will create for Buddy Systems.
It's not the cost that might present a problem; for a hospital I think $90,000 is small potatoes. I just don't think general hospitals, especially given the question of physician confidence, will want to get involved with it unless they see it as a business venture they can profit from. It might do OK, but it wouldn't be anything I'd think every patient discharged with a cardiological problem would use.
CUSTOMER
KATHEEN DODD
Corporate director, home-care services, American Nursing Resources Inc., an Inc . 500 nursing-care company in Overland Park, Kans.
Providing another high-tech product in the home is creative and quite ingenious. I see the future of patient management moving from an acute-care setting into a home setting. But I wouldn't buy this system. I don't see that we would have any incentive whatsoever to put it in our agencies. They would either cut down the number of visits I would be able to charge to a payer for the nurse, or add to my costs for the person I've got to have in my office to call patients and process the information.
HMOs, however, could have a real need for this. They could determine the cost benefit of paying for a system to be put into a patient's house and then subcontracting a home-care agency like ours to monitor it. That way, the HMO would be paying for it, and we'd just help provide their services.
I can almost assure you Medicare is not going to pick up the bill for these systems. HMOs are much more sensitive than Medicare to the cost-containment arguments. Their livelihood depends on how judicious they are with their fiscal management. Medicare will see the systems as adding to the already high cost of managing the Medicare population. I think the cost-effectiveness argument has a lot of validity, but the federal government doesn't deal in reality. It's possible for Manning to get them to see the cost-savings benefits, but it's going to take a long time.
CUSTOMER
LAWRENCE I. SOSNOW
President, Patient Care Inc., a $23-million chain of home-care agencies based in New York City
Manning is way out in front in terms of timing. Other companies are beginning to develop systems like this -- AT&T is working on one -- but he has the advantage of getting there first. The second thing he did right was recognize the labor shortage home-care agencies are dealing with. This machine can save nurses' time, which helps spread the available labor over a larger number of patients.
But I'm concerned that insurers aren't reimbursing home-care providers for use of this system yet. To get Medicare or Medicaid reimbursement, you have to have generated a lot of convincing data; you must be able to prove that this will save money. For Manning to build a statistical track record, he may have to approach the insurers on a case-by-case basis at first. That is, go straight to an individual patient's carrier and say, "Here's proof that if this patient goes home from the hospital and uses this system, you'll save X number of dollars."
Making that case is partly a matter of getting the right personnel. Manning should hire somebody with a lot of experience working with insurers who really knows the reimbursement business. Manning himself doesn't have the background -- the credibility -- to approach insurers. He probably doesn't have the time, either. But it's essential. Without reimbursement a lot of potential customers won't make the purchase.
