Pressure to Cut Costs in Labs Acts as Catalyst for Creative Computer
Until earlier this year, Judy and Bill Lantz had three secretaries at their Woodland Hills medical laboratory who typed reports detailing the results of blood and urine tests.
The secretaries could prepare about 30 typed reports daily, drawing information from test results on strips of paper resembling airline tickets that were recorded by lab equipment or technicians.
But, four months ago, the Lantzes bought a $40,000 computer system from Creative Computer Applications, a Calabasas-based company that has been a leader in developing equipment to streamline the recording of laboratory test results.
The Lantzes’ test results are now automatically entered into the computer by machines or by lab technicians, then printed out for the doctors. By automating test results, the Lantzes say, they can perform tests for up to 100 patients a day without using the three secretaries and without risking transcription errors.
Strides in 7 Years
Since it was founded seven years ago in a bedroom, Creative Computer Applications has had considerable success persuading laboratory operators such as the Lantzes to use computers to collect and organize medical test results. It has reached more than $4 million in annual sales and has started to sell its products to major hospital and medical equipment companies.
The company’s growth is being fostered by a push in the health-care industry to keep a lid on costs, largely because of the tightening of Medicare benefits. It is also aided by advances in the personal-computer field that have brought the price more within reach of small laboratories.
“Whenever you get pressures on costs, computers end up being one of the solutions,” said James McCamant, editor of the Medical Technology Stock Letter in San Francisco.
Creative Computer’s sales have doubled each year since 1981. Company officials say that, after losing more than $700,000 in its 1983 and 1984 fiscal years, they will report a profit when they finish calculating the final results for the 1985 fiscal year, which ended Aug. 31. Creative Computer earned $215,559 in the first 11 months, according to an Oct. 1 prospectus the company filed with the Securities and Exchange Commission.
Automation Not New
Automation is hardly new in medical laboratories. Many blood and urine tests have been done by machine for years. One blood analyzer in the Lantzes’ lab, for example, will perform seven tests on a sample of blood, including a count of white and red blood cells.
Other tests, however, must still be performed by people using microscopes because they require judgments. Those procedures include noting whether there is a wide variation in the size of red blood cells, which could indicate anemia, and categorizing the white blood cells in a sample to help detect infections.
The equipment sold by Creative Computer does not change the way tests are performed but assists in recording the data. The Lantzes’ system, for example, consisted of three personal computer terminals, a computer memory system, a printer and so-called “interface” devices that link the computer with their lab.
One of the interfaces is a small black box that links a blood analyzer with a lab computer. The blood analyzer previously printed out the results on a card; now it feeds them electronically through the box into the lab computer.
Another device, which resembles a telephone answering machine, allows a lab worker to punch into the computer data describing characteristics of the white and red blood cells as the worker views a blood sample under a microscope.
Management System
Besides assembling the devices that help record test results, the company buys equipment from manufacturers and resells it as part of a laboratory management computer system called Cyberlab. That package includes software to help with administrative jobs such as keeping track of billing.
Many of Creative Computer’s clients have been small laboratories such as the one owned by the Lantzes. Potential clients, however, include some of the nation’s largest hospital chains.
Clinton L. Packer, president of Shared Data Research, a Hudson, Ohio-based firm that studies the use of computers in health care, projects that the nation’s hospitals will spend $2.4 billion this year on computers, $4 billion in 1987 and $6 billion by 1990. He believes that a significant part of that money will be for laboratory computer systems. In a recent study, Packer found that there are about 4,500 hospitals with labs that could be computerized. That is about three times the number that already have computers.
Creative Computer is beginning to penetrate that market. In May, it signed an agreement with Hospital Corp. of America, the nation’s largest hospital chain, to sell equipment and software for its hospital labs.
Creative Computer also has contracts to sell equipment and software to large medical equipment suppliers such as General Motors’ Electronic Data Systems subsidiary, the drug firm SmithKline Beckman and Boehringer Mannheim Canada, a major North American distributor of laboratory instruments. Those customers might distribute the equipment or sell it in a package with its own products.
Interest by Investors
Now that Creative Computer is making a profit and signing up such customers, it is also attracting interest from investors. Earlier this month, it raised about $3 million by offering 700,000 “units,” each made up of three shares of common stock and two warrants, which allow an owner to buy stock in the future at a specified price.
Opinions differ on the amount of competition that Creative Computer faces. Company officials insist that a major, direct competitor in computerizing laboratory test results has yet to emerge.
But Packer believes the market is likely to be dominated soon by some of the large companies that today provide extensive computer systems to hospitals for such uses as word processing, billing and Medicare administrative work.
Packer listed Shared Medical Systems of Malvern, Pa., which is not related to his business, and McDonnell Douglas, the St. Louis-based aerospace company, as two of those companies. He said his research firm recently reviewed information on Creative Computer and concluded that it will not be one of the dominant companies in the field.
Highly Competitive
George Stasen, chairman of the Medical Technology Fund in Blue Bell, Pa., said the medical technology field is so competitive that no one company is likely to be given a free run at a potentially profitable market.
“They say they don’t have any effective competition. But I can’t imagine, that, if there is something worthwhile there, that competition won’t develop. In this day and age, anybody can imitate anything,” Stasen said.
Stasen, who manages a portfolio of medical-related stocks, said he recently passed up a chance to buy the units offered by Creative Computer because the company has yet to prove to him that it can make money over a long period and because of his belief that a major competitor could emerge soon.
Creative Computer Chairman Bruce M. Miller said he isn’t particularly worried about large companies as competition because he believes many of them are reluctant to spend the time and money to develop from scratch the kind of equipment and software that Creative Computer is selling. Rather, Miller said, he fears competition from a small entrepreneur who designs a technological breakthrough.
“It’s the guy in a closet someplace. It’s somebody coming up from behind,” he said.
Creative Computer was founded in 1978 by Miller, a former director of medical systems for Metpath, a Teterboro, N.J.-based company that runs large clinical laboratories.
Home Enterprise
In the late 1970s, computer chips became available to allow Miller to develop the kind of equipment he believed would help laboratories handle their clinical test results. Miller said he bought a batch of the chips and set up shop in one of the four bedrooms in his Calabasas home, using as a workbench a door supported by two sawhorses.
Creative Computer eventually moved into an office park in Calabasas, where about 30 of its 45 employees now work.
Raising money was difficult, Miller said, in part because potential investors thought he wanted to sell too many products. “Venture capitalists take you to task if you have a lot of products,” he said. “They say you’re spread too thin and tell you to concentrate on one product.”
Miller’s break came when New Jersey venture capitalist Michael Miller, who is no relation, agreed to back the company. In 1983, Bruce Miller brought in a friend who had acted as an informal adviser, Steven Besbeck, as president and chief executive.
Push for R&D;
As chief executive, Besbeck has started a major research and development effort, which cost $400,000 in the last fiscal year.
He has also beefed up the company’s sales department by hiring a marketing vice president and expanding the nationwide sales force from two to eight. Besbeck believes sales opportunities for Creative Computer extend beyond medical labs to customers such as veterinary labs and environmental testing businesses.
Some health-care analysts believe that Creative Computer will soon be an attractive acquisition candidate if it continues to grow rapidly. Allen Zwickler, an analyst with New York-based Rooney, Pace whose father sits on Creative Computer’s board of directors, said it probably would be cheaper for a hospital chain or a medical instrument company to buy Creative Computer than it would be to start up a similar company.
Indeed, Besbeck said, some companies have been “sniffing around,” but none has made serious offers. Both men insist they would first like to prove that the company can be successful.
“We’ve put in a lot of work, a lot of sweat and a lot of years into this. We want to see it work,” Besbeck said.
