A Healthy Business

One of the healthier growth areas in the U.S. economy is caring for the sick. In the past 15 years, U.S. hospital admissions have shot up 51% while population has increased only 30%--not because more people are getting sick but because more people can afford, or are guaranteed, treatment. In the next ten years some $17 billion will be spent to build, equip and modernize hospitals. Soaring with this increase is American Hospital Supply Corp., whose aggressive acquisitions and imaginative selling have made it by far the biggest of the 600 companies that supply and equip hospitals. Already A.H.S. has 10% of the market. In the past six years its gross income has risen 165% and its profits 200%. Last year it made $4.2 million.

A.H.S. was started almost 40 years ago by Foster McGaw, the no-nonsense son of a Presbyterian minister. McGaw had $30,000 in capital, and paid the lawyer who drew up his corporation papers with a share of stock worth $100. Last week, with A.H.S. stock selling around 94 after a series of splits (another 3-for-1 split is due May 19), the lawyer's $100 fee has pyramided to $235,000. McGaw himself, now 64, has amassed a $35 million fortune.

Please Write. Though A.H.S. has showed a profit every year except 1933 (when it snowed a $26 loss), its big leap forward is the result of a master growth plan drawn up ten years ago by Chairman McGaw and President Thomas Murdough. Acquisition of 15 other companies has played a big part. Even more important has been the McGaw-inspired selling technique, which sends 450 A.H.S. salesmen, all experts in their products, swarming through the nation's hospitals dispensing technical know-how and money-saving suggestions. Says a competitor: "You just get surrounded by their tremendous manpower." A.H.S. bombards its clients with a monthly mailing of 25,000 "technical advisories," and whenever a customer has an anniversary or is promoted, he gets a personal note from his A.H.S. salesman or even from McGaw himself. A stickler for the personal letter approach, McGaw issues strict instructions to his staff on epistolary style; e.g., never sound professional, never start with "I" or "You."

But, says President Murdough, "if there is one thing that keeps us going, it's new products." Of the 30,000 items ranging from blood counters to bed sheets offered in A.H.S. catalogues, products introduced in the past five years account for a third of total sales. Every year A.H.S. polls 23,000 hospital employees and doctors for product suggestions, annually gleans better than a dozen usable ideas. Particularly interested in hospital automation, the company last week demonstrated what it hopes will be the forerunner of an electronic system allowing a floor nurse to check the temperatures and respiration of all her patients by tuning in on a central receiver to tiny radio transmitting capsules attached to each patient.

Disposable Forceps. Among A.H.S.'s fastest-selling wares are such items as plastic syringes, forceps and surgical packs, which are used only once and thrown away. Besides cutting the danger of cross-infection and saving the hospital sterilizing costs, the disposable items assure A.H.S. a steady replacement market. Says President Murdough: "Probably half of our business is now in products which by their nature are consumed in use."

To concentrate on more acquisitions, Foster McGaw will turn over his duties as chief executive officer to President Murdough at the end of the year. Says McGaw: "We serve a peculiar market. Although it is building frantically, the nation's hospital establishment becomes more obsolescent every day."

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