Imagine swallowing a convincing sales pitch by a company offering to provide your facility with comprehensive capital equipment management services designed to help you remove and resell excess medical assets.

As the supply chain manager negotiating and ultimately inking the deal, you manage to free up costly storage space in your facility for other uses – potentially revenue-generating – and generate some needed funds for your cash-strapped facility as opposed to booking equipment as a tax write-off. Your CFO is elated that your organization can financially benefit from disposing a replaced or no-longer-used piece of equipment.

But once the contracted service provider removes the excess or "surplus" medical equipment payment doesn’t arrive when promised. Ninety days pass. Then 120 days. Repeated telephone calls and e-mails by your office to the company are not returned. Suddenly, the company’s Web site disappears – and seemingly your thousands, or tens or hundreds of thousands of dollars dissipates with it.

Within a year, familiar contact names start to surface under a different corporate banner for an organization offering similar services. Unfortunately, however, your efforts to link previous transactions to the principals of this new organization fall flat. Not even pleas to attorneys or local, state and federal authorities and other watchdog groups seem to solve the matter in a timely enough fashion.

So what do you do?

• How do you spot companies that conduct business like this with seemingly no record of alleged malfeasance? And how do you spot companies like this before it’s too late?

• What questions do you ask?

• What online searches and search terms are effective?

• How do you effectively recoup any of your lost revenue, if at all?

• Who do you contact for restitution, if not peace of mind?

• What are some effective and useful strategies to proactively prevent being victimized or retroactively account for loss?

Aside from trolling message boards, listservs and blogs, rife with complaints and warnings that go so far as to name names, point fingers and reveal staggering amounts of financial losses, Healthcare Purchasing News sought out supply chain professionals well-versed on the topic, some of whom have been fiscally sideswiped by unscrupulous players that cast a pall on an otherwise useful industry segment, as well as credible and relevant consulting firms, group purchasing organizations and service companies with useful tips.

It’s important to note that HPN doesn’t reveal specific company names, regardless of their alleged improprieties and infamy, nor does it reveal any financial amounts lost by any healthcare organizations, which aren’t limited to smaller rural facilities but include large, high-profile urban organizations with otherwise revered and stellar reputations.

The bottom line: This can happen to anybody. And it does.

Don’t show them the money

Ask any expert familiar with this situation – either victim or "know better" not-yet victim – and they’ll advise you to start with the requisite background checks, be it with a consulting firm, GPO, Better Business Bureau, Dun & Bradstreet, references and a host of other sources via telephone, online or face-to-face interviews.

For Charles Platt, director, contracts and purchasing, Medical Center of Central Georgia, Macon, GA, that’s fine but not nearly enough.

"Even if we would have done every type of check on the company, this would not have prevented what happened to us and others who were ripped off by [this company,]" Platt said. "The model of allowing a company to pick up your equipment, sell it and send you a check is high risk and open for potential disaster. It’s almost impossible to spot in advance. You can check with D&B, BBB, references, etc., but this will not protect you."

For Platt, following the money, or better yet, holding onto the money until the very end, will make the difference. "[You have] to find a local/regional company who will come to your location and pay you before the equipment leaves the building," he said. "Never give your equipment to a company to sell without receiving the money in advance."

Brad Andrew, managing partner, Manage Resource Group Inc., Brunswick, OH, agreed. "Our first advice to providers is to understand that no matter who they choose to deal with if equipment leaves their property before payment is in hand and has cleared in their bank account they are at the mercy of whoever removed the equipment," Andrew said. "This includes direct purchases and contracted services such as consignment or charitable organizations."

The operative word is "proactive," according to Andrew. "When you think about your equipment disposition needs try to be proactive and include the disposition strategy into your capital replacement strategy," he continued. "Companies that are looking to take advantage of hospitals use this to their advantage. They want you to be reactive, and if you don’t have a plan in place for a piece of equipment once it’s decommissioned they have the upper hand because now you have a piece of equipment sitting in your hallway and it needs to be removed."

Platt, one of the many stung by a suspect vendor that has reportedly changed names and locations several times while offering similar services, advocated developing a "black list" of these types of companies to build and maintain awareness of names, locations, principals and experiences.

Search and seize the day

Aside from withholding payment until services are rendered, good old-fashioned detective work – the more thorough the better, of course – makes a difference.

It’s important to discover whether any company actually has a clean record, according to Kenneth Maddock, corporate director, biomedical technology services, Baylor Health Care System, Dallas. "I’m not convinced that everyone does this," he said. "But if they truly do not have a record of alleged malfeasance, you need to check to see how long a history the company has. While there may be an advantage to dealing with new companies when you are talking about devices or equipment so you can get a jump on the competition, this is seldom, if ever, true with service companies. Why go with a company without a well-established record of excellence? I would not go with anyone who has not been in business for at least five years."

Maddock advised checking into the company’s resource pool. How many employees do they have? Are they well-funded? Have your finance department check them out. There does not have to be formal action for people to have logged complaints somewhere, and if they did, chances are you can find it on the Internet, he added. "Another thing you can do is to ask for complete list of customers, not those they are prepared to offer you."

Even ask questions to which you already know the answers or that you can verify, Maddock continued. "The main thing you are trying to determine is their openness and honesty," he added. "If they give you inaccurate answers, run away as fast as you can."

But if you end up working with a "suspect company," you need to look out for warning signs, according to Maddock. "You need to be much less tolerant of questionable performance with a new vendor than you would be with a vendor with whom you have established a relationship," he noted. "Watch for poor communication, missed deadlines for pickups, invoices for equipment pickup and storage you did not agree to in your negotiations, delays in paying invoices, etc. If you get any of these warning signs, give them at most one chance to correct the problem. Then drop them."

While supply chain professionals may not be trained gumshoes they can channel their basic investigative/sourcing skills through a variety of pointed questions to help identify if a company is legitimate.

1. Does the company offer direct contact names on its Web site or identify its owners?

"Companies that may not have the interest of the hospital in mind will typically be vague on background or direct company information," Andrew indicated. "They tell you all about their services but only have an ‘info@’ e-mail or an 800 number to call. Ask if they are private or public. Most will be private. Find out who the principles are and talk to them before making decisions on next steps. Owners of reputable companies are always willing to talk to a prospective client. If you’re only allowed to speak with a sales representative, then chances are the owners behind the scenes may not want you to know who they are."

2. Develop a business relationship before conducting business.

"Unscrupulous companies also typically only contact you by phone or e-mail blasts," Andrew noted. "If they are not willing to develop a relationship with you and meet with you in person they may not want you to know who they really are. Another red flag would be if you’re getting contacted by different sales people from the same company. You ask what happened to Jimmy, and they tell you he moved on, and there is a pattern to the turnover of employees. Why is there a high turnover rate? There are also Web sites where you can check out people’s names to see if they are who they say they are. Get a first and last name of the individual that contacts you. Ask how long they have worked for the company and try to get a little background on them.

"Questionable companies use the sales reps as their pawns,"Andrew continued. "They have them use scripted material and don’t keep them well informed. The owners stay behind the scenes and let the sales reps take the blows from irate customers. Also find out who the contact person would be in accounting if you have payment questions. Try contacting them before you do business with the company and see how hard it might be to physically speak with them."

3. Trace and track state legal charters, incorporations and any ties to charitable organizations.

"Most states’ attorney general offices have Web sites where you can type in a business name to see background information on when they were incorporated and if they are who they say they are," Andrew said. "If the site shows that an attorney filed on behalf of the individual when incorporating call them to see if they are willing to share with you who the owners are."

Furthermore, "check to see if the company name has been assigned to someone else or another company acting as their statutory agent," he continued. "This may take you down an eye-opening path. These sites will also tell you if they are active or the company name is cancelled."

If and when charitable organizations contact you, find out who is on their board of directors and ask if you can speak with them, Andrew advised. "You can also request that they show you their last year’s tax filing to see what money actually went to the charity and what went to administrative costs. Some states offer Web sites and forms where you can request this information."

Maddock indicated that "cold" Internet searches can be fruitful if you use terms, such as "medical equipment resellers" or "medical equipment disposal," collect a number of company names and then search those names followed by such terms as "fraud," "lawsuit," "court findings, complaints," etc. "Use any negative term you can think of," he added.

Furthermore, Andrew stated, you can run searches in the clerk of courts for any county to see if there are any lawsuits or liens on the company or individual.

Andrew admitted that one strange trend he and his colleagues have noticed is when medical equipment resellers promote their partnership with a specific charity and say that "the hospital can donate their equipment to this charity instead of selling it to the person contacting the hospital. Why would a for-profit organization that makes money off selling hospital equipment encourage the hospital to donate instead?

If you’re being solicited by a company that has a partnership with a charity then find out what type of relationship exists between the two organizations and what does the soliciting company get from your donation, according to Andrew. "I actually had this happen to me when selling equipment for one of my clients," he recalled. "The reseller I contacted told me they really didn’t want the piece of equipment I was selling, but that they worked with a charity and asked if my client would donate the equipment instead. The red flags went off when this person contacted me multiple times over the next couple of days asking if I spoke to my client about donating. Most charities are not that aggressive. Resellers that want you to give away your equipment will be."

The name game

Once you catch on to what a company is doing it’s not uncommon for that company to make a name change, according to Andrew.

"Some will take the name they are incorporated under and abbreviate it," he said. "Or they may add a word to the end of their name. Simple changes allow them to look the same in the eyes of the state but different to you."

Whatever you do, cautioned Darryl Bammerlin, inventory control coordinator, University Hospitals Supply Chain Services, Chardon, OH, make sure you obtain reference checks and employee listings for the company, including photo identifications, if possible. "Ask if you can have a list of their board of directors if applicable," Bammerlin said. "Get their tax ID numbers, and if they are a charity, ask for their 501c3 reference number." 

Recouping losses

It’s widely acknowledged that if you fall victim to a company with questionable ethics and practices, it’s highly unlikely you’ll collect all, some portion or even any of your money.

"The sad part about this is that you may never recoup your loss," Andrew lamented. "Companies that are looking to take advantage of you know that if the dollar figure is under a certain threshold it will cost you more in legal fees to try and get the money repaid than it’s worth. If it’s a larger dollar figure you may be in a long line of creditors and other people going through the same thing you are. Understand that the legal system moves very slow and persistence may be required."

Persistence may be necessary with the vendor, too, according to Platt. "[You should] call and keep calling," he said. "If they are short on money, you will need to make at least daily calls requesting payment. The squeaky wheel sometimes gets the money. Ask for your money and keep asking. If they do say they are sending it, ask for a tracking number."

But the only way to prevent problems is to "not let the equipment leave without payment," Platt added.

Even though he booked one negative experience, Maddock downplayed the financial impact of selling old equipment as an "overrated" process. "For some reason people think they are not getting enough value when trading in old equipment, and they think that they have a gold mine sitting around in their warehouse, usually because they have been told that by the sales people for these companies," he said.

"For the most part you are not talking about a huge amount of revenue for most organizations," Maddock continued. "Most people enlist the services of these companies to free up storage space and capture revenue they believe they were losing out on previously. Healthcare organizations have a tendency to use equipment until it does not have much value, with rare exceptions. Since you are trying to gain revenue you did not have before, you can debate whether you are really losing revenue at all. Plus, you can also argue that if they pick the stuff up, don’t charge you for that service, but fail to reimburse you if or when they sell it, you may be coming out ahead anyway by saving on storage charges.

"The cold facts are that you probably won’t recoup your lost revenue," he added. "Unless you have an unusual situation where you are selling assets with real, demonstrable value, it is probably not worth pursuing. If it is, you are most likely going to have to work through the courts. Keep good records of your negotiations, contracts, etc, as well as signed receipts for anything picked up."

Maddock urged healthcare facilities to give companies a trial run using a batch of old equipment that you can afford to lose. "Don’t work with anyone who requires a contract," he said. "Make them earn the business on every transaction."

Another option for healthcare facilities simply is to trade old equipment in with the vendor from whom you are buying new equipment whenever you can. Or use a reputable company that provides medical equipment to under-developed nations. "Most of what we pull out of use is junk," he added. "There really is not much to lose to be honest. You weren’t getting anything out of most of the retired equipment anyway, so if you can find a company that will take old equipment off your hands and can even make a few bucks out of it, you’re way ahead of the game. You’re ahead of the game if you can just get people to take it off your hands without charging you."

Above all else, Andrew urged supply chain managers to "communicate
with one another and let others know if you’re running into issues or if
you have identified questions about companies that are aggressively contacting you."

Distinguishing the pros from the cons