A State of Independents

Three years ago, when large companies subsisted on a steady diet of independent home medical equipment providers, a group of colleagues banded together to protect and preserve their small businesses. Today, those three Pennsylvania-based providers — East Suburban Medical Supply of Pittsburgh and Butler; Gatti Healthcare of Indiana, Dubois and Bradford; and Central Medical Equipment of Harrisburg and Camp Hill — are one company, Dynamic Healthcare Services.

The company’s leaders had known each other for several years through the Pennsylvania Association of Medical Suppliers (PAMS), and had noticed an alarming trend. “The independents were being gobbled up by the larger companies,” says Terry Luft, CEO of Dynamic and president of Central Medical. “We had a choice and decided we’re not ready to let that happen. So we formed a holding company and literally sold our company to ourselves.”

Four principals own Dynamic Healthcare Services: Luft; Lou Gatti, managing director of Gatti Healthcare and Dynamic’s secretary/treasurer; Robert Sovak, managing director of East Suburban Medical Supply and Dynamic’s COO; and Steven Brody, an Indiana, Pa.-based growth consultant who planned the merger. The agreement among the four principals ensures that each company remains autonomous and that each principal has financial incentive to keep the company profitable.

According to Brody, each leader’s ownership stake in the company mirrors his profit. As each company’s individual revenue ebbs and flows, so does the principal’s ownership. “So not only do you want the company to do well but you also want your own entity to do well, because you’re going to earn performance shares that match the percent of profits,” he explains.

“We have full control over our individual companies — full control over hiring, firing, debt,” Luft says. “What we share is education. We’re on each others’ board. We can sit around a table and say, ‘We think future growth is in respiratory,’ and Bob, who runs a respiratory company, can say, ‘I’ve already done it. Let me tell you what works and what doesn’t.’”

Luft says each month when the principals meet, they review each others’ financial situations and balance sheets to offer guidance and suggestions. “We target revenue, and we track timelines and patients,” Luft says. “I feel we operate like a large, regional company.”

But Dynamic’s best business practices come from the kind of customer service found among smaller providers. “There is nothing wrong with selling [your company]. We just weren’t ready because we felt we could do customer service better than a large [provider could].

“It’s a fact: If the owner is in the store, you’ll run a better, more efficient company,” he continues. “There’s a nice future for independents.”