The Conglomerate Will See You Now
By REED ABELSON and MILT FREUDENHEIM
NY Times
July 18, 2004
nytimes.com
IMAGINE a small town where one person not only owns the
hardware store, but is also the banker and the doctor's
most trusted adviser. In a sense, General Electric is
trying to play such a role in the nation's $2 trillion
health care industry.
New York-Presbyterian Hospital, one of the country's
largest academic medical centers, is among the hospitals
making a bet on G.E.'s move toward one-stop shopping. Last
fall, it announced a seven-year, $500 million agreement for
that calls for General Electric to offer advice - and
discounts - on technology, as well as ways to increase
efficiency. G.E. is also offering options for financing.
Dozens of G.E.-trained "black belts" and "green belts" -
experts in a data-driven management method called Six Sigma
- are already wandering the hospital's halls, looking for
things to improve.
And, if New York-Presbyterian needs light bulbs, G.E. will
supply those, too.
With $14 billion in sales, G.E.'s health care business is
among its fastest-growing and most profitable units, and
one that is central to the vision of its chief executive,
Jeffrey R. Immelt, who rose to the top job after running
the company's medical systems unit. He is unapologetic
about G.E.'s growing role in providing management skills
and financing as well as hardware to hospitals. G.E. is
responsible for important advances in medical technology,
he said, and can bring a businesslike efficiency to an
industry that is badly in need of it.
"We run the business to make a buck for investors; we run
the business to help our customers," he said recently at
the company's headquarters in Fairfield, Conn. "G.E. knows
a lot in this space that could be helpful in public
policy."
Some critics ask, however, if what is good for G.E. is
always good for the nation's health care system. Medical
technology, the company's specialty, is a leading
contributor to runaway health care costs, and some medical
professionals and consumer groups say the conglomerate's
growing influence among hospitals and doctors raises issues
about the way scarce dollars are being spent.
"Very few people would want G.E. to run the Metropolitan
Opera," said Dr. Robert Michels, a former dean of Cornell
University's medical school, which is now affiliated with
New York-Presbyterian. Providing quality care is much more
complicated than making cathode ray tubes used in X-ray
equipment, Dr. Michels said, and it is unclear whether it
saves money.
General Electric is famous for its sophisticated diagnostic
imaging equipment. Using new CT scanners, doctors can take
an image of the heart in five beats, to check for a
narrowing of the arteries. Or they can perform a "virtual
colonoscopy" without the invasive procedure that patients
find so unpleasant. And G.E.'s sophisticated ultrasound
system, which it calls 4D, lets expectant parents view
extraordinarily detailed, nearly real-time images of a
developing fetus.
DIAGNOSTIC imaging, still a crown jewel in G.E.'s array of
businesses, is regarded as a way to enter other
fast-growing and profitable health care businesses. "It's
important to be big in big markets," said Mr. Immelt, who
has identified health care as one of the richest
opportunities in an aging America. Spending is forecast to
increase by about 8 percent a year, he said, "as far as the
eye can see."
Policy analysts, however, say that this rate of growth is
being driven in large part by the very technology that
companies like G.E. are promoting. Doctors and hospitals
are eager customers of the latest machines as they
increasingly turn to diagnostic tests as a source of
additional revenue. Doctors, in particular, are looking for
new income as insurers have squeezed payments for
traditional office visits.
"In health care, supply creates its own demand," said
Christopher J. Queram, chief executive of the Employer
Health Care Alliance Cooperative, a nonprofit purchasing
group in Madison, Wis., who is concerned about the
proliferation of magnetic resonance imaging machines in
doctors' offices.
Advances in technology - a special M.R.I. machine to take
pictures of a patient's knee, for example, or digital
mammography equipment to screen for breast cancer - do not
always result in better health, these analysts say, and
there is little hard evidence that some of this equipment,
which can cost more than $1 million, is worth the cost.
Technology "has been a major factor that is driving costs
upward," said John C. Rother, policy director for AARP, the
lobby for older Americans. "Maybe it is improving care in
terms of outcomes," he added, but there is often no way to
tell. "In this country, we don't have a systematic way of
evaluating technologies for cost effectiveness."
G.E.'s sales pitch is aimed squarely at a doctor's desire
to make more money from doing more tests. The company even
sells research to physicians that provides five-year
projections of demand for certain tests in their markets -
and helps doctors calculate the potential fees from
different types of diagnostic tests. In selling an exam
table that doubles as a device to measure bone density,
G.E. trumpets the system's potential revenue: $30,000 a
year if a doctor sees five patients a week.
As the hospital market has slowed for equipment like
M.R.I.'s, and as care is increasingly delivered outside
hospital walls, G.E. is turning its attention to doctors in
their offices. This year, it bought a company that
specializes in financing for doctors and dentists.
Other equipment makers, like Siemens, the German
conglomerate that is G.E.'s closest competitor, also offer
financing. But G.E. is particularly successful at using its
full array of businesses to attract customers, said John J.
Donahue, the chief executive of National Imaging
Associates, a consulting group based in Hackensack, N.J.
"G.E., by far, has the largest share and distinguishes
itself by masterfully leveraging the entire G.E. family,"
he said.
Critics say the results can be too much equipment and too
many tests. "M.R.I.'s in every doctor's office - we don't
need that many," said Dr. Thomas J. Handler, a radiologist
who is a research director for the Gartner Group, the
consulting firm based in Stamford, Conn. "It makes my hair
curl."
The Medicare Payment Advisory Commission, which advises
Congress on the Medicare program, has also raised concerns
about the spread of medical technology. It questioned
whether some doctors were using the equipment
appropriately.
"The real problem is the demand side," said Uwe E.
Reinhardt, a professor at Princeton who specializes in the
economics of health care. As companies produce more
sophisticated and expensive machines, he said, employers
pay "indiscriminately for every product that comes down the
pike."
G.E. knows a lot about rising health care costs because it
is one of the nation's largest employers. It spends almost
$2 billion a year to cover 400,000 employees and their
families and has contributed to efforts to use technology
that is intended to rein in costs. Dr. Robert Galvin, the
director of global health care at G.E., leads the Leapfrog
Group, an advocacy group representing more than 150 public
and private organizations that provide health care
benefits; it has been pushing hospitals to install
computerized systems to cut down on mistakes in ordering
drugs and tests.
Still, the many roles of General Electric raise concerns
about possible conflicts, especially because it is so
influential in shaping policy. "G.E. is a huge company: on
one hand, a supplier; on the other hand, by being such a
large employer, a purchaser," said Dr. Alan M. Garber, a
Stanford economist and professor of medicine. "It is
important to be aware that a large company may play
multiple roles and conflict may arise," although he added
that he was not aware of actual conflicts.
Illustrating the sometimes complicated currents buffeting a
giant like G.E., many hospitals, including G.E.'s potential
customers, have resisted some of the initiatives pushed by
Leapfrog. When Leapfrog made its debut in 2000, "I took a
lot of heat from hospital C.E.O.'s," Mr. Immelt said. But
he added that no one profits from perpetuating the status
quo.
G.E. has also taken heat for the way many doctors use some
of its products. A few years ago, for example, it and
others successfully lobbied Congress to authorize higher
Medicare payments for digital mammography for routine
breast cancer screening. Digital mammography, which costs
Medicare much more than older technologies that use X-ray
film, is widely approved for women who have already had
suspicious breast tumors detected, but experts say there is
no evidence to justify the extra expenses of digital for
routine screening. The National Academy of Sciences has
repeatedly found "no convincing evidence" that digital
mammography is better than X-ray film in screening for
breast cancer, said Dr. Roger Herdman, director of the
academy's National Cancer Policy Board.
Similarly, G.E.'s prenatal ultrasound technology is praised
as a genuine advance with real value in some cases, but as
not being worth the added cost in many others. Dr. Daniel
V. Landers, the clinical director of the Center of
Excellence in Women's Health at the University of Minnesota
in Minneapolis, said the technology gave doctors a much
more detailed view of a fetus so they could look at a known
or suspected defect. But he added that the advanced
ultrasound "is not something that's necessary for routine
screening."
Patients may demand the more detailed images for
"entertainment value," he said, and doctors may offer the
more advanced tests. "If you don't get it at a doctor's
office, they'll get it at the mall," he said, referring to
the growing number of storefront centers that offer
ultrasound snapshots of fetuses to expectant parents.
MR. IMMELT defends digital mammography as a powerful tool
that pays for the machine's cost if doctors see dozens of
patients a day. Ultimately, doctors must decide how best to
use the technology, he said, acknowledging that it is
considered more appropriate for detailed diagnoses than for
mass screenings. But he said that doctors were responsible
for using it efficiently, and that G.E. would thrive only
by providing technology that helps hospitals, doctors and
patients.
"I never want to see us positioned as a company that
benefits from the inefficiencies of the health care
system," he said.
G.E. had revenue of $134 billion last year and assets worth
$647 billion in businesses from financial services to power
plants to television. Its size and reach are crucial to its
strategy, and it tries to use its variety of expertise to
increase its business with doctors and hospitals.
"They are promoting the notion of soup to nuts, light bulbs
to monitors to radiology systems," said Dr. Handler of
Gartner. "Their footprint is in so many aspects of a
hospital. They are such a large company, such a big
presence, that if they succeed, it may change the whole
health care vendor market."
General Electric is also capitalizing on its reputation as
one of the nation's best-managed companies. "It is the
acknowledged world leader in making jet engines, which have
higher and higher quality at lower costs," said Lawton R.
Burns, director of the Wharton Center for Health Management
and Economics at the University of Pennsylvania. "That has
a lot of appeal for hospitals. Hospitals have uncertain
quality at higher and higher costs."
At New York-Presbyterian, hospital officials say they are
eager to take advantage of what G.E. has to offer; the
arrangement with the company runs for seven years. The
hospital has listed 120 areas where it thinks it can do
things better with G.E.'s expertise, like discharging
patients earlier in the day or reducing the time a stroke
patient stays in the hospital. Doctors recommend short
stays to cut down on the risk of catching illnesses from
other patients. "It's not safe for a patient to stay around
a hospital for another day or two," said Dr. Michael
Berman, the executive vice president at the hospital. "G.E.
can help."
The hospital is already looking to G.E. for more of its
needs. "We've looked at financing with G.E.; we're looking
at light bulbs," Dr. Berman said. He said he was impressed
when, during last year's blackout, Joseph M. Hogan, a
senior executive at G.E., offered to supply generators. New
York-Presbyterian also gets a preview of technology that
G.E. is developing, allowing the hospital to make better
purchasing decisions, Dr. Berman said.
Often, those decisions benefit G.E. as much as the
hospitals. G.E. provided nearly all of the technology,
including some that was still being tested, when the
Indiana Heart Hospital opened its doors last year in
Indianapolis, and it helped the hospital borrow the money
to pay for some of that technology, said the hospital's
chief executive, David Veillette. "They were able to get us
very good rates," he said.
Last October, G.E. arranged about $70 million in financing,
including tax-free loans, for Kaleida Health, a hospital
system in Buffalo that was short on cash. The financing let
the system overhaul one of its suburban hospitals and to
buy a computerized system - made by G.E. - to store X-rays
and other types of images.
The company's complicated motivations came up last May, at
a meeting with about 150 health care executives invited to
discuss the financial condition of their industry. "It's
our intent not to do any overt selling," Mr. Hogan, who
represents the medical equipment side of the business, said
in his opening remarks. When one speaker mentioned the
proliferation of M.R.I. machines, Mr. Hogan joked that he
took exception to that part of the presentation.
THE company has identified another need among hospitals:
sophisticated computer systems that can keep track of a
patient's medical records and give doctors ready access to
valuable information about how to treat certain diseases.
Most of the nation's 5,000 hospitals do not have these
so-called integrated clinical information technology
systems for patient care, though many experts say such
systems could save thousands of lives.
In this market, however, G.E. trails numerous competitors,
including Siemens, McKesson HBOC and the Cerner
Corporation, analysts have said, estimating that the field
could generate tens of billions of dollars in sales. Rather
than match the large hospitalwide systems offered by its
competitors, G.E. focuses on building its business by
computerizing specific departments, like radiology or
cardiology.
In other areas, G.E. is being more aggressive. Mr. Immelt,
for example, agreed to buy a British biosciences company
called Amersham last October for about $10 billion, giving
G.E. expertise in biology to bolster its traditional
prowess in physics and engineering. G.E. hopes to use
Amersham's knowledge to help it develop technology that
lets doctors diagnose diseases on the molecular level.
Doctors already use positron emission tomography, or PET
scans, to distinguish cancer cells from normal cells; G.E.
hopes to be a major player as more diagnosis and treatment
is done at the molecular level.
The Amersham acquisition gives G.E. greater entrée into the
field of personalized medicine, where drugs are tailored to
the genetic makeup of individuals. "Jeff Immelt had a
vision I could certainly relate to - to see how diagnostic
medicine would change the face of health care," said Sir
William Castell, the former chief executive of Amersham who
is now a vice chairman of G.E. and the chief executive of
GE Healthcare.
Though he is enthusiastic about such businesses, Mr. Immelt
is careful to make clear that he has no interest in
expanding G.E.'s reach into actually treating disease.
"When you run G.E., you can do almost anything," he said,
adding that he recognizes that there are already powerful
leaders in that industry, like Pfizer and Merck. "I just
never thought there was enough fertile turf there to make
us anything other than a me-too," he said. G.E. would do
better to stick with diagnostics, he said.
He also says G.E. can marshal its technology and expertise
to raise the quality of health care. "There's a lot of
waste, do-overs," he said. "Things can improve."
But, critics add, the unfettered use of technology can also
be problematic. "Medical technology is creating a greater
set of quality management challenges every day than the day
before," said Dr. Arnold Milstein, a senior health care
expert at Mercer Human Resource Consulting. "It is both a
blessing and a curse." |
