Lifeline Systems, Inc.

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Lifeline Systems, Inc.

Ill Lawrence Street
Framington, Massachusetts 01701-8156
U.S.A.
Telephone: (508) 988-1000
Toll Free: (800) 451-0525
Fax: (508) 988-1384
Web site: http://www.lifelinesys.com

Public Company
Incorporated: 1974
Employees: 840
Sales: $96.6 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: LIFE
NAIC: 334290 Other Communications Equipment Manufacturing

Lifeline Systems, Inc. is the dominant market leader in personal emergency response monitoring systems (PRS) and related services geared towards the elderly or disabled individuals. The Framington, Massachusetts, company markets its products and services to hospitals, nursing homes, and other health care providers. It has approximately two-thirds of the 600,000 subscribers that make up the North American PRS market, comprised mostly of women in their 70s and 80s who live alone. Subscribers in distress contact Lifeline’s central monitoring facility located in Framington, which processes more than 21,000 call per day and dispatches appropriate assistance.

Personal response systems such as those sold by Lifeline provide two essential services—monitoring their subscribers and acting to dispatch appropriate assistance to them if necessary. A control console located in the subscriber’s home connects to portable and installed sensors strategically placed throughout the residence. Like home protection systems, the PRS includes smoke sensors as well as motion detectors but also offers more advanced features. In addition to checking or changing the system through the console, users have access to a hand-held wireless touch pad with the same controls. In case of dire emergency they can use a pendant sensor and by pressing a single button call for help. When the console receives an emergency signal, it is programmed to alert appropriate parties—which may be emergency medical services, police, or fire—then transmit pertinent information about the user. The console immediately commandeers the telephone line in the home, reserving it for emergency communication. In more advanced systems, a speakerphone can communicate with the user from anywhere in the home. Moreover, users do not have to consciously seek assistance. A timer will call for help if the user has not used the telephone or checked in by pushing a special button on the console after a specified period of time has elapsed. The second component of a monitoring system is the emergency response center, which may be located in an area hospital, local social service agency, or Lifeline’s Framington facility. Because PRS helps to reduce the time a subscriber spends in the hospital or a nursing home, Lifeline and similar services are an effective way for health organizations to help contain costs and have become increasingly added to the care plans of elderly patients. Beyond the prospect of saving the lives of its users, PRS provides a psychological benefit—a sense of security for both subscribers and their families.

Lifeline Origins in 1974

Lifeline was founded by Dr. Andrew S. Dibner and his wife Susan in 1974. Born in New York City in 1926, Dibner had firsthand knowledge about the frailty of older people. At the age of 12, he was awakened by his grandmother in the throes of a heart attack in the hallway of the family home. Years later, an elderly family friend suffered a stroke while staying alone in a summer cottage, and four days passed before a neighbor discovered her. By then it was far too late to provide successful treatment, and she died six months later in a nursing home. As an adult, Dibner became a psychologist, earning a doctorate at the University of Michigan, and began working with older people as chief counselor and chief clinical psychologist at a Veterans Administration mental health clinic in Boston. He was also involved with the Age Center of New England. In 1964, he began teaching psychology at Boston University and became a founding member of its Gerontology Center. It was during 1972, when he was spending a year studying personality changes in advanced age at Duke University ‘ s Center for the Study of Aging and Human Development, that Dibner experienced a moment of inspiration that changed his life and led to the creation of Lifeline. He was shaving one morning, listening to a radio broadcast from astronauts on the moon. While musing about the technological feat that made such communications possible, he reflected on the plight of frail individuals, living alone, who perhaps had fallen and were unable to summon help. If we could talk to men on the moon, he reasoned, surely there must be a way to communicate with elderly persons who lived alone in a house or apartment. As he pondered the problem, he conceived of a timer-and-alert mechanism that would automatically tap into the telephone line and call for help if it was not reset by a person’s normal household routines, such as turning off lights or opening a refrigerator.

Dibner believed in his vision of a personal monitoring device but was unable to convince manufacturers to develop a marketable product that could be used in a viable response system. He and his wife Susan, who had a doctorate in sociology and was a consultant for the Center for the Study of Aging and Human Development, refused to give up, becoming virtually obsessed by the PRS concept. Reflecting years later on that period, he recalled, “We nearly went broke. Almost lost our house. We had young children. It was Awful! My wife and I were both academics and we despised business at the time. But, we believed it was so important that we were determined to make it happen.” Despite the daunting challenges, this unlikely pair of entrepreneurs co-founded Lifeline Systems in 1974, headquartered at first in Watertown, Massachusetts. They spent the first two years attempting to develop a prototype with next to no money. According to Dibner, “I found an unemployed engineer who built the first model, then a small manufacturer who made burglar alarm equipment. It was hard to get venture capital. At first, even the company’s accountant and lawyer worked on the cuff.” Two more years passed before Lifeline was able to make its first sale to a Veterans Administration research center. It was a major government research grant, however, that stabilized the company’s finances and helped Lifeline begin to establish itself. Moreover, the two-year study funded by the grant confirmed Dibner’s belief in the value of a personal monitoring system. The project involved 200 elderly people using the Lifeline system and 200 without it. Those connected to Lifeline spent less time in the hospital or in nursing homes, resulting in appreciable cost savings and invaluable peace of mind.

During its first few years in existence, Lifeline unsuccessfully attempted to market its product directly to consumers. Dibner believed that physicians would be key allies in endorsing Lifeline to their patients but, as he noted years later, “Unfortunately, many of them have failed to place much emphasis on help beyond what they themselves do for the patient. Dibner and his wife began to step back from active management of the company. For a number of years, Dibner served as a vice-president of marketing, but eventually he and his wife sold their interest in the business. Lifeline’s current chairman, L. Dennis Shapiro, took over as chairman and CEO in July 1978. Several months later, the company changed its marketing strategy, opting to target hospitals and nursing homes rather than the patients directly. The institutions would purchase or lease Lifeline equipment, then rent it to their patients at reasonable rates. In this way, social workers and discharge people were the ones who sold Lifeline to patients and their families. Revenues began to grow steadily for Lifeline in the early 1980s, despite the fact that Medicare, Medicaid, and most private insurers did not yet consider the Lifeline service to be essential, choosing to categorize it as a preventive measure that did not warrant reimbursement.

Going Public in 1983

Annual revenues reached $6.4 million in 1982 and the company turned profitable. In 1983, Lifeline went public at $13 a share, with the proceeds earmarked for the development of new products, plant expansion, and the implementation of a new equipment leasing program. It was an attractive offering because the number of Lifeline programs had grown from 500 in 1982 to more than a 1,000 a year later. With the United States having some 5,000 acute-care hospitals, Lifeline’s primary market, which cared for an estimated three million patients, there was considerable room for growth. Telephone answering machines and burglar alarms were becoming commonplace in American households, making people more comfortable with the idea of an electronic home monitoring system. Moreover, despite the reluctance of insurers to accept PRS, the demographics of America’s aging population favored Lifeline, with an ever-increasing number of potential users able to afford the service. When the cost-savings of using personal response systems became apparent to these organizations and patients were actively encouraged by insurers to rely on them, Lifeline could expect its prospects to improve considerably in the future.

Lifeline’s annual revenues totaled $9.6 million in 1983 and reached $17.4 million in 1985, with $1.2 million in profits. By now, the company was well established and had carved out the lion’s share of the emerging PRS market with about 70 percent of the business. Along the way, however, Lifeline developed some problems. It made ill-fated attempts to develop and launch new types of monitoring products. In February 1984, it introduced a bedside arrhythmia monitor to check the electrical activity of a patient’s heart. Money was also spent on developing a pulse monitor as well as a dietary management system for hospitals. These attempts to expand Lifeline’s product line was partially responsible for the company losing its focus. According to a 1991 Boston Business Journal profile of Lifeline, by 1987 the company’s business “was well established but sluggish. Chronic problems with customer service and employee morale were holding the company back from fully taking advantage of its growing market.” Product quality was also inconsistent, and the units were difficult to install. As a result, revenues leveled off at the $17 million level and the company began to lose market share to its competitors. To reverse this trend, new upper management was recruited, in particular a former Xerox executive named Arthur Phipps.

Company Perspectives:

Lifeline Systems connects individuals to the support of neighbors, friends, and emergency services in the community.

Having earned an engineering degree from West Point and served four years in the Air Force, Phipps was well versed on the virtues of discipline, a quality much needed at Lifeline. Moreover, he held a master of science degree in Electrical Engineering from the University of Rochester as well as a degree from the Harvard Graduate School of Business in Program Management Development. He went on to work for Eastman Kodak and General Dynamics Corporation, and during his more than 20 years at Xerox held a number of executive positions. He joined Lifeline in 1987 as chief operating officer and subsequently took on the additional role of president of the company. By the start of 1989, he became chief executive officer. During his first few months with Lifeline, he focused on smoothing over problems with its customers, spending a lot of time simply listening to them. He then began tackling internal problems, turning to cross-functional committees to study such matters as why customers were often shipped the wrong item, resulting in an inordinate number of credit memos being issued. It soon became apparent that customers were simply confused about which item to order. Not only were order-entry clerks not properly trained about the Lifeline products, they were further hampered by the salespeople’s lack of a formal order form to complete. Communications were breaking down between the customer and sales, as well as between sales and manufacturing. Because of these findings, the catalog was redesigned, order clerks were better trained about Lifeline products, and visibility charts were posted to keep track of ongoing errors in order to take further steps to eliminate them. As a result, the amount of credit memos was drastically reduced, and the number of order clerks could be cut from six to just two. Phipps had brought the visibility charts from Xerox and used them throughout the company to not only isolate the source of problems but, by posting them, to also involve employees in solving problems. Lifeline’s success in improving its operations was recognized in 1991 when the company won the Shingo Prize for manufacturing excellence.

Growth in the 1990s and Beyond

Under Phipps, revenues began to grow once more, and Lifeline was able to begin spending money on advertising. In 1990, the company budgeted virtually no money for promotion. The following year, Lifeline budgeted about $1 million, an amount it doubled in 1992. It also established an in-house telemarketing operation. In addition to targeting the elderly, Lifeline attempted to expand its focus to include a wide range of people who might benefit from a personal monitoring systems, including “latchkey” children and single women, but its primary customers remained the elderly or physically-challenged individual. Phipps was replaced as president and CEO in January 1993, but he left the company well positioned for ongoing growth throughout the decade. His replacement, Ronald Feinstein, had been a director of Lifeline since 1985 and in the previous two years had been president and CEO of International Business Interiors.

In the mid-1990s, Lifeline continued to be the PRS market leader, a position it maintained in large part by continuing to roll out improved equipment. The Communicator Plus, a premium model introduced in 1994, incorporated a full-function telephone into the system with special features to accommodate users with visual or hearing limitations. CarePartner, launched in 1995, employed digital speech technology to clarify alarm messages sent by users.

Lifeline also grew its business through acquisitions. In 1995, it paid $1 million for Tele-Response and Support Services, Inc. of Raynham, Massachusetts, a distributor of Lifeline products and service. The following year Lifeline, through a Canadian subsidiary, acquired CareTel, Inc., a Toronto company that had 3,000 subscribers to its personal response service, ProtectAlert. For a period of time in the late 1990s, Lifeline was on the verge of being purchased itself. A tentative agreement was actually signed in October 1988 with Protection One, Inc., a leading residential security-alarm company with more than 1.5 million subscribers worldwide. By September 1999, however, with delays in the regulatory process, the parties agreed to terminate the merger.

Lifeline continued to maintain market share and improve its business in the late 1990s. Annual revenues that totaled $57.4 million in 1997 grew to nearly $71 million in 1999. To accommodate growth, the company moved its corporate headquarters into a 84,000-square-foot facility located in Framington, Massachusetts. As it entered the 21st century, Lifeline continued its push for external expansion. In February 2001, it acquired SOS Industries, a Florida-based PRS provider with more than 10,000 subscribers in 37 states. The Canadian operation also expanded by acquiring the Argus Emergency Medical division of Microtec Enterprises. By the end of 2001, Lifeline had over 400,000 subscribers and annual revenues stood at $96.6 million. Firmly entrenched in the marketplace, the company appeared well positioned to remain the dominant PRS provider in North America.

Principal Subsidiaries

Lifeline Systems Canada, Inc.; Lifeline Systems Export, Inc.

Principal Competitors

American Medical Alert Corporation; Napco Security Systems, Inc.; Response USA Inc.

Key Dates:

1974:: Lifeline Systems is founded by Andrew and Susan Dibner.
1979:: The company’s marketing focus shifts from individuals to institutions.
1983:: The company goes public.
1996:: CareTel Inc. is acquired.
1999:: The company’s headquarters are moved to Framington, Massachusetts.
2002:: SOS Industries is acquired.