US Med-Equip’s storage facility in Jersey Village resembles a Costco warehouse. But rather than pallets of M&M jars and bulk flour bags, the company stocks infusion pumps wrapped in plastic bags and incubators for premature babies.

A veritable candy store for hospitals looking for pricey equipment, when a customer calls US Med-Equip looking for a monitor for vital signs, for example, its team checks if it has the piece, puts it on a company vehicle and delivers it to the hospital — often within three hours of the request.

Having the latest tech and spending a fraction of the price for when hospitals actually need it is a no-brainer, Greg Salario, the company’s chief development officer, said.

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“As technology changes, hospitals, like everybody else, have to plan for that capital,” Salario said. “If they don’t have the money allotted yet, they’ll rent that new or latest technology that gives them the greater opportunity to have better patient care.”

Rental market

US Med-Equip is no newbie to the game; Salario and CEO Gurmit Singh Bhatia began the company in 2003. Salario was based in Baton Rouge. La., at the time; Singh Bhatia, who started working for biomedical equipment companies in 1991, in Houston.

Salario followed his father, a pharmacist and home infusion business owner, into the health care industry 24 years ago. He eventually moved onto open branches of a medical equipment company in Texas, and in the early 2000s met Singh Bhatia through his work.

They began their business in Louisiana armed with “50 credit cards and personal guarantees,” Salario said.

The venture nearly sunk before it took off - 90 percent of its business was in the New Orleans area, and Salario and Singh Bhatia lost much of their equipment in flooded and abandoned hospitals when Hurricane Katrina hit in 2005.

“You couldn’t get in touch with anybody if you tried,” Salario said.

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Singh Bhatia said he saw “tremendous demand” from hospitals in Baton Rouge, Lafayette and Alexandria in Louisiana, along with some Houston and Dallas-area providers who took in hurricane victims. The duo pleaded with their vendors for equipment loans to meet hospital demands.

“It was to the point where some nurses were waiting outside the hospitals to receive that equipment because there were only so many patients they could treat by hand,” he said. Those vendors were eventually paid, and that crunch has not happened since. Afterward, they decided to try in a new market - the company moved to Houston in 2005.

Sigh of relief

In 2007, the partners began investing in respiratory therapy equipment, a gamble that paid off after it became a very large part of the rental market.

In the early 2010s, US Med-Equip began getting contracts from large health care providers such as the Louisiana State University hospital system.

US Med-Equip closed out 2019 with $63 million in revenue, Salario said, twice what it saw three years ago. In April 2019, the company announced its acquisition of Medical Support Products, a $100 million investment in its nationwide expansion. It expects to build out hubs and more facility locations along the East Coast over the next four years.

Part of the equation is that as equipment has improved prices have shot up. For hospitals, renting is seen as a time-saver and a way to improve access to equipment they ordinarily would not purchase, analysts said.

“Those caregivers are under certain stress, and we provide equipment to reduce that stress for them,” Singh Bhatia said.

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US Med-Equip’s acquisitions are funded largely through those contracts. Salario estimated that 85 percent to 90 percent of its income is from rentals, while the rest is made by selling off older equipment to hospitals overseas.

The company stocks approximately 40,000 pieces of equipment, ranging from cardiograph machines that track heart muscle activity to parts to fix broken defibrillators. It works with roughly 150 Houston-area health care providers and more than 2,200 nationwide, nearly half of the hospitals in the country.

Addressing high costs

Rental medical equipment, particularly to big clients like medical centers, is not a new business. Hospitals have rented day-to-day equipment such as wheelchairs and hospital beds for a long time.

What is new, industry experts said, is the increasing dependence by hospital systems on those rental businesses for more complex devices.

Hospitals previously purchased equipment, investing in pieces that matched their projected needs, said Yadin David, former director of the biomedical innovations department at Texas Children’s Hospital.

As equipment becomes more sophisticated and manufacturers race to churn out new technology, the window to buy the latest and greatest devices has gotten smaller. At the same time, health care providers are hesitant to pay big bucks for machines that only get used for a handful of patients each year.

A hospital has to make a considerable investment to prepare for worst-case-scenario events, said David, who now runs a biomedical engineering consulting firm.

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“Suddenly I’m looking at the large number of dollars that I need to park on the occasion the flu season would be really bad this coming year,” David said. “If it’s not, I have an investment that does not serve a purpose, does not improve patient care and does not provide for reimbursement from insurers.”

Rather than have a basement filled with unused ventilators, hospitals would rather sign contracts that allow them to pay for just the amount of time the equipment is in use. For instance, one of those ventilators would cost $15,000 to $25,000 to buy. Renting it from US Med-Equip could run form $500 to $1,000 per month.

US Med-Equip’s representatives are on-call 24/7. If a part or piece of equipment isn’t available at the warehouse nearest the hospital calling, vehicles will truck the needed apparatus from the second-nearest facility and relay-race it down to where it needs to go.

US Med-Equip has also seen spikes in demand when a major natural disaster or mass casualty event happens, like the August shooting in El Paso which left 22 dead and 24 injured.

Other events are easier to plan for. US Med-Equip is not sending any equipment to China for hospitals treating the novel coronavirus, but it has seen an uptick in orders from India, where hospitals have ordered ventilator rentals in preparation for any possible outbreaks there.

The company has invested heavily in respiratory equipment in recent years to meet hospital needs; bad flu seasons and global pandemics like COVID-19, the new coronavirus, drive up demand.

“US Med-Equip has invested more than $30 million in thousands of new ventilators and other life-saving equipment in the last 18 months to help health care providers in Harris County and across the nation brace for a viral outbreak,” Salario said.

Reimbursement woes

Hospitals frequently find themselves at the whims of insurers who change what equipment they’ll reimburse health care providers for.

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“Every time the … schemes change how they’re reimbursed by Medicare or insurance companies, they have to scramble and try to be smarter and better,” Singh Bhatia said. “The smartest hospital systems will use rentals to supplement their short-term needs.”

Recent proposals to cut Medicaid funding, which is used to cover the costs of care and equipment for people who cannot otherwise afford it, may also lead to a cut in how much hospitals spend on acquiring new equipment.

Also factoring into the decision is the necessity of maintenance. Once they buy the equipment, health care providers also incur costs of software licenses and “preventive maintenance” to get it checked out every six months to a year.

If an accreditation organization inspects their inventory and finds that technicians have fallen behind on maintaining them, it could put their accreditation at risk.

Developers recently launched an app that would allow US Med-Equip to quickly rent equipment out to hospitals, and it’s in the process of creating an app to help hospitals find equipment they own or have rented.

gwendolyn.wu@chron.com

Twitter: @gwendolynawu