They’ve Found Success You Can’t Buy : Medicine: Renting equipment to doctors has made Rockford Industries a rising star in an emerging niche industry.
Dr. Robert Jones, an ophthalmologist, couldn’t get a bank loan to buy equipment to set up a private practice in Newport Beach in 1989. The bankers told him start-up medical practices were poor risks.
“They consider you like any other small business--the same as a doughnut shop,” he said dourly.
Then Jones was directed to Rockford Industries Inc., a small Santa Ana company that specializes in leasing medical equipment to doctors, dentists and physical therapists. He soon had $125,000 worth of top-of-the-line equipment in his new office.
Such quick and satisfying service has made Rockford a rising star in an emerging niche industry. The company’s sales have grown from $843,000 in 1985 to $16.1 million in 1989, earning a place on Inc. magazine’s list of the nation’s fastest-growing small private firms.
Brian Seigel, executive vice president of Rockford, said one reason for the company’s success is its willingness to do business with doctors on the basis of their projected earnings.
“We knew that if Dr. Jones used the equipment the way it was meant to be used, the income generated would far exceed the cost of financing,” he said.
Thus far, the Rockford formula has paid off. The company’s earnings in 1989 were just under 5% of sales, or about $800,000. And it projects continued growth with sales estimated to be $20 million in 1990 and forecasted to exceed $25 million this year.
Rockford was founded in 1984 by three young men: Seigel, Gerry J. Ricco and Larry Hartmann. Seigel and Hartmann had just graduated with business degrees from Cal State Fullerton and teamed up with their employer Ricco, owner of an air-conditioning and heating company.
The partners started a general equipment leasing company but soon decided to specialize in medical equipment because the health-care industry is relatively resistant to recessions, and they consider doctors to be exceptionally credit-worthy because of their income potential.
Ricco, the company’s chief executive officer, said Rockford’s entry into medical equipment leasing in 1986 was well timed. Demand for such equipment has burgeoned in response to efforts by Medicare and private insurers to reduce medical costs by encouraging more care to be provided outside the hospital, he said.
Many doctors, meanwhile, have been eager to obtain high-tech equipment such as surgical lasers, mammography machines and blood analyzers to gain a competitive edge and add new sources of income to their practices. At the same time, the cost of computerized diagnostic equipment has been dropping. For example, Ricco said, a heart stress testing machine that cost about $70,000 five years ago would today cost about $20,000.
“The trend is for doctors to increasingly get more and more equipment in their offices,” said George S. Conmikes, an economist and medical practice management consultant in Los Angeles. “It is more convenient for the doctor and patient, and it is more profitable.”
Because of an increasing reluctance by businesses to make large out-of-pocket investments in capital equipment--especially in a recessionary economy--equipment leasing in general has been on the rise. And medical equipment makes up an increasing share of the total market.
The annual volume of equipment leasing increased in the United States from $36.5 billion in 1980 to an estimated $132.9 billion in 1989, with $143.7 billion forecasted in 1991, according to the U.S. Department of Commerce. The American Assn. of Equipment Lessors said that between 1987, when it began to track medical equipment leases as a separate category, and 1989 medical leasing has expanded from 3.1% to 4.2% of total equipment leases.
Some health-care officials are critical of efforts by private practitioners to equip their offices with expensive, sophisticated machines commonly used in hospitals. David Langness, vice president of the Hospital Council of Southern California, said this creates duplication of services and will ultimately lead to higher medical costs.
“It is sad to me to see that this is the way things are going, because inevitably what you get is escalating costs somewhere down the line,” he said.
But Rockford officials contend that the better equipped doctors are, the better they will be at detecting disease early on. And that will reduce the cost of patient care.
Despite the debate, those that have dealt with Rockford give the company high marks. Manufacturers of medical equipment who have done business with Rockford said the company provides a specialized financing service that can be important in closing sales.
“I think the availability of a lease program mitigates the concern of physicians to make a lump-sum payment,” said John E. Skvarla III, president and chief executive officer of Isotechnologies.
The Hillsborough, N.C.-based company makes a $70,000 machine used for diagnosing and rehabilitating muscle injuries in the lower back. Skvarla said more than 50% of the company’s sales stem from leasing arrangements.
Rockford officials said their company buys equipment outright from the manufacturers or distributors by borrowing funds from a group of financial banks, including Chase Manhattan, Fleet National Bank, Ford Motor Credit and Sanwa Business Credit.
Then Rockford leases equipment to doctors on three- to five-year contracts. At the end of that period, the lessees customarily buy the equipment for about 10% of its original sales price.
Ricco said Rockford owns about $60 million of medical equipment for diagnostics, rehabilitation, surgery and medical office management. He said the company works with about 500 manufacturers and sales organizations throughout the country and maintains 4,000 leases.
“The cost of the equipment ranges from $5,000 for a small EKG machine that might lease for $120 a month to as much as $150,000 for an ultrasound machine that would lease for about $3,300 a month,” he said.
Ricco said Rockford has been able to increase its market share in the medical leasing business by stressing convenience, swift service and flexibility in meeting the demands of clients. He said this translates into rapid credit checks and providing experienced advice to physicians on whether new technology will be of value to their business.
He said Rockford also prides itself on “creative financing,” such as postponing loan payments for several months until a physician can meld the new technology into his practice and it starts paying for itself.
“We make it simple, we make it easy and we make it quick,” he said, often approving a lease the same day a doctor applies. He adds that losses and delinquencies have been kept at a minimum by having an understanding of the market.
Ricco said Rockford plans to keep growing and has been plowing much of its profits into automated business systems and personnel training. The company has 35 employees, with more than half working in Santa Ana.
Rockford last year opened three new sales offices in Atlanta, Nashville and San Francisco. The company also has offices in New York and Salt Lake City. Hartmann, based in New York, is managing the company’s expansion through the East and Midwest.
“We are postured right now to be able to double the sales of our company over the next 18 to 24 months,” Ricco said.
Leasing’s Growth The general leasing business has shown strong growth in recent years. Medical equipment leasing grabbed a larger share of the total market over the same period. Value of leased equipment (in billions) ‘87: $98 ‘88: $113 ‘89: $123 Market share of leased medical equipment ‘87: 3.1% ‘88: 3.3% ‘89: 4.2% Source: American Assn. of Equipment Lessors and U.S. Department of Commerce’s Bureau of Economic Analysis
