Location: Chicago, Illinois, United States United States
Founded in: 2008
Stage: Revenue generating
Number of employees: 1-5
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Scrubs helps hospitals measure their surgical successes, one patient at a time.
Chicago, Illinois, United States United States
  • About
Company description
Scrubs helps hospitals measure their outcomes for elective surgical procedures like joint replacement and spine surgery, enabling them to benchmark their performance and identify performance improvement opportunities.
Business model

Executive Summary

Today's hospital administrators know whether a patient lived or died, had a complication while in the hospital, or whether they liked the food.  But what they can't tell you is how well they do their job.  They can't tell you if the avid skier with a knee replacement is walking pain free one year later.  They can't tell you if the grandmother with a hip replacement is able to play with her grandchildren.  They can't tell you how well they do their job because they don't measure their own performance.

At the same time, emerging trends like consumer driven healthcare and pay for performance reimbursement are pushing hospitals to better understand the true quality of the services they provide.  To help hospitals respond to these trends, Scrubs Inc. will launch a wholly owned subsidiary of Marshall Steele & Associates (MS&A) to focus on measuring long term outcomes for a range of elective surgical procedures.  The strategic partnership with MS&A, an established consulting firm that helps hospitals develop Centers of Excellence for joint replacement and spine surgery, is critical to the success of this venture.  Leadership and initial financing will be the responsibilities of Dr. David Steele and MS&A, respectively.  David's father is the founder of MS&A and is committed to transforming the healthcare experience.

Under this strategic partnership, Scrubs will utilize industry recognized surveys and a telephonic data collection channel to capture patient outcomes at six and twelve months post surgery for elective procedures such as joint replacement and spine surgery.  We will then analyze and share results with hospitals and their surgeons to identify performance improvement opportunities. 

Scrubs intends to capitalize on first-mover advantage and build an industry leading outcomes database that can be sorted by hospital or surgeon and benchmarked against competitors.  Whether hospitals use this information internally to improve performance or externally to market their outcomes, the expected benefits to them are increased referrals from patients (contributing to top line growth) and preparation for pay-for-performance trends to maximize future reimbursements (leading to an improved bottom line).   

Scrubs' initial target market is the 2,100 hospitals performing joint replacement surgery in the U.S. and 1,600 performing spine surgery.  These procedures generate roughly 10% of a hospital's contribution margin, making them very important profit drivers.  At the same time, demand for these services is growing rapidly as a result of an aging population.  Accordingly, competition among hospitals for joint and spine patients is intensifying, creating incentives for top performers to separate themselves. The desire to create separation is most intense among urban community hospitals who have long resided in the shadows of larger, well-known teaching institutions.  Scrubs will provide the critical data and tools necessary for these hospitals, which make up 90% of the target market, to create the separation and compete with results. 

Scrubs will initially rely on MS&A's distribution channels for sales leads, which significantly increase our expected close ratio and lower cost of customer acquisition.  MS&A has 70 existing customers, many of whom have already expressed strong interest in surgical outcomes measurement services.  MS&A also has an existing relationship with Biomet, an orthopedic medical device manufacturer with hospital relationships in over half our target market.  That relationship produces over fifty well qualified leads per year.  Long term, Scrubs is exploring partnerships with the Joint Commission and Humana to increase industry demand for outcomes data.

We expect to contract with 500 customers within 5 years and achieve $32MM in revenues.  To realize these projections, we will need $4.5MM equity investment over the first three years, with the first 5-years of free cash flows alone yielding an IRR of between 32% and 44% or a 3.3x to 4.9x cash on cash return multiple.  If we include an exit multiple in 5th year at 5x EBITDA, the investment would yield an IRR of between 77% and 90% or a 20.8x to 29.2x cash on cash return multiple.  With this investment, Scrubs Inc. will address a critical unmet need in the industry and become the gold standard in helping hospitals measure their surgical successes, one patient at a time.