Mark Hanley transformed a failing company into the profitable O2 Science.

"Ohhhhh-Two Science! How may I direct your call!” chirps receptionist Stevee Jones each time she picks up the phone at O2 Science in Tempe, Ariz. Her bright, cheerful, helpful manner is the first indication of the tone that marks every aspect of business at this company.

“People like working here,” says Zachary Madrigal, vice president of sales and marketing. “We have created a positive, energetic environment. Stevee has a real passion for what she does, and that goes through every department of O2 Science. Our people go above and beyond.”

The employees of O2 Science were, in fact, hand-chosen for their passion and energy, and they represent the new face of a company that only a year and a half ago was bankrupt. Back then, O2 Science was Phoenix-based Valley Home Health Services Inc, a company that once reaped $35 to $40 million in annual revenue from its HME, respiratory, infusion, and nursing operations. However, by July 2000—after 2 years of bankruptcy, during which the home health nursing services arm was losing $150,000 a month—the company’s reputation was suffering tremendously.

Enter Mark Hanley, a former executive of Abbey Medical and Apria Healthcare Group Inc, both of Costa Mesa, Calif. Hanley bought out Valley Home Health Services with the backing of DVI Inc, a financing company based in Jamison, Pa, and christened the new company New Valley, which does business as O2 Science.

His solution to the problems that plagued his new acquisition: Exit the home nursing business altogether and concentrate instead on respiratory therapy.

Hanley’s strategic decision paid off in spades. In the last 6 months, O2 Science has done more business than it did all of last year; a recent patient survey found that 98.5% of the company’s customers rated O2 Science’s services as “excellent”; and the company averages about 100 new oxygen patients a month. “That is a complete turnaround of prior surveys when we first began,” Hanley says. “Back then, we were losing patients to other companies at probably four to five times the rate we were bringing in new patients. Scaling back on our other services freed up time to focus on the respiratory component.”

Specifically, Hanley transformed the product mix for the company to about 80% respiratory care and 20% DME, infusion, or pharmacy service. “Respiratory is what we do best, because most of management has a respiratory background,” Hanley says. “We provide across-the-board services, with the majority being home oxygen, as well as continuous positive airway pressure therapy, bilevel positive airway pressure therapy, and respiratory medications.”

Valley Home Health operated massive warehouse spaces in Phoenix, San Diego, Las Vegas, and Denver, but when Hanley took over, he relocated the existing locations into smaller, nicer offices and warehouses. “Although Valley in its heyday was doing $35 million in revenue and therefore needed larger locations to house its supplies, that is no longer the case with us,” Hanley says. “Since O2 Science focuses on respiratory therapy, we need a lot less warehouse space. Our locations typically run 5,000 to 6,000 square feet, with 60% of that being warehouse space and 40% being office space. Our Denver location also has some retail space.”

The decision to relocate the existing locations saved O2 Science $150,000 a year in rent and freed up capital to expand the company’s range. Hanley’s 5-year plan involves investing $25 million to open another 20 offices throughout the Southwest. A new office already exists in Omaha, Neb, and three more are pending in Nevada, Nebraska, and California. At press time, he had closed deals to purchase TXE of Nevada’s Bullhead City, Ariz, location and RCC Medical in Arvada, Colo.

“It is not our goal to make O2 Science as large as some of the major players,” he says. “We have the infrastructure to support 25 locations, and once we get more than that we risk not maintaining the creativity and the entrepreneurial spirit we currently have.”

To grow the company, Hanley first had to overcome its previous reputation. This was the biggest challenge, he says, and the reason behind the decision to change the company’s name.

The company also changed its staff—95% of O2 Science’s staff of 50 full-timers and 30 per diem employees are brand-new. “One of the first things we needed to do was to breathe new life into the company, and what makes a company is its employees,” Hanley says. “We cut back on a lot of staff by exiting the home nursing aspect of the business, and we hired more professionals focused on respiratory therapy.”

Hanley set out to hire only the best, and the way to do that was to offer benefits and pay that exceeded those of the competition. “We shopped around and found out pay scales, the car allowance, the on-call pay, and the benefits, and then we beat every one of them,” he says. “That gave us the basis to attract good employees—not just good but the best.”

Once O2 Science hired the best, it concentrated on keeping them happy. “We should recognize our employees for what they do, so once a year everyone gets the day off, making it a 3-day weekend,” Hanley says. “There is cost involved as a company in that, but we received great feedback about it from employees and their families. In fact, in June we received such great feedback that we set a company goal for that month: If we hit a certain number of new oxygen referrals, then everyone would get another 3-day weekend. That is not just rewarding sales or management, but everyone in the company. We came up about six referrals short, but we still provided all the locations with a free lunch, and we are going to implement that incentive again.”

Weekly management meetings are the genesis of many of the elements that add to O2 Science’s success. Every Tuesday, six managers gather in a room and brainstorm ideas to help the company move forward, provide better patient care, minimize business costs, and implement better marketing plans. “We all know that O2 Science’s goal is to take care of patients better than anyone else. How we get there is what we have to agree upon during these meetings,” Hanley says. “Therefore, on a weekly basis the group comes up with several ideas and then we narrow them down to something affordable that will have the greatest impact.”

One such idea was replacing the company’s vehicles with Chrysler PT Cruisers. “When we acquired Valley, almost all the vehicles needed to be replaced,” Hanley says. “They were very old and most had more than 200,000 miles on them. We also had respiratory therapists using their own vehicles for patient visits. We wanted to project a consistent image to customers and patients.”

The company looked into buying minivans, but Hanley says that was not creative enough. The PT Cruisers, on the other hand, were creative and made business sense because they were less expensive than many minivans and had better gas mileage. The company now owns six, and plans to add six more to its fleet.

“Surprisingly, these cars are in the $15,000 range, and the beauty of the hatchback design is that the seats come out so we did not have to change the structure to fit the equipment,” Hanley says. “Plus they set us apart from our competitors. You would be surprised how many patients come out to see what a PT Cruiser looks like. This also gives our therapists something else to talk to patients about. It opens up communication.”

To capitalize on the match between the Cruisers and the company, Hanley renamed the cars RT Cruisers, and emblazoned them with O2 Science’s blue logo. Sales staff hand out Matchbox PT Cruisers with O2 Science’s name and phone number, and desk calendars featuring the unique company cars, to referral sources.

Weekly meetings also reduce the time between when the managers make a decision and when they can implement it. “When we sit down and discuss a project or marketing idea, we can handle that at the Tuesday meeting, and on Wednesday, it is rolled out,” Madrigal says.

Taking care of patients’ needs is the most crucial aspect of O2 Science’s success, and the company has committed itself to outstripping the competition in this arena as well. Since its beginning, O2 Science made customers’ concerns paramount. “When we first got off the ground, our staff contacted every existing respiratory patient on our service and asked if they had issues or problems. Those issues then became the company’s first priorities,” Hanley says. “I dislike using the phrase ‘stop the bleeding,’ but that is what it was. Once we took care of our existing patients and made sure they were happy, then the challenge was building the business back up.”

That has included offering a range of oxygen tanks, including smaller, portable ones, as well as improving the standard of care in the industry, which is to visit respiratory patients in their homes every 3 months, Hanley says. O2 Science’s respiratory therapists pay a visit on a monthly basis. “Our standard accomplishes a couple of things,” he says. “It gives the respiratory therapists a chance to spend time with and learn more about their patients, and it allows them to identify medical problems the patients may be having so they can report that information back to the physicians. The closer our patients become to our respiratory therapists, the less likely it becomes that they will switch companies.”

As Madrigal and Hanley look ahead, they see more good things on the horizon thanks to their emphasis on patients’ needs. “We care about patients and we do things right the first time; that’s our whole message,” Madrigal says.

Liz Finch is a contributing writer for Dealer/ Provider. For more information about O2 Science, contact the company at (866) 220-0202.