Sunday, July 18, 2004

General Electric's conflicting roles We've written before about how General Electric with its holdings in energy, aerospace, medical technology, finance, and broadcasting is one of a dying breed: the 60's style conglomerate. Only expert management has allowed the company to keep a focus on so many diverse industries, an approach most other companies have abandoned. A story in this Sunday's New York Times ("The Conglomerate Will See You Now," 7/18/2004) shows how GE is using several of its areas of expertise in combination to build a strong position in the healthcare industry. GE's aim is to offer a full range of services to hospitals, for one-stop shopping. As the article puts it: Imagine a small town where one person not only owns the hardware store, but is also the banker and the doctor's most trusted advisor. In a sense, General Electric is trying to play such a role in the nation's $2 trillion health care industry. Indeed, technology in the healthcare industry is growing at an astonishing speed. Procedures like ultrasound and digital; x-rays are moving from medical labs and hospitals to doctors' offices. . New technologies like molecular imaging (used for diagnostics) and patient data management (most hospitals are still paper-bound) are taking off. And GE keeps making acquisitions to build its stake in the industry. The Times article centers on a seven year, $500 million deal GE made with New York's Presbyterian Hospital. The company will offer advice and discounts on technology, general operational advice (using GE's renowned Six Sigma process improvement experts, and will help finance everything through its credit wing. And, as the article says, "if New York Presbyterian needs light bulbs, G. E, will supply those, too." GE makes claims that its quality expertise and its management acumen will translate into financial discipline in an industry whose costs are spiraling out of control as quality of care get worse. But as the article points out, a good deal of that spiraling is due to the use of increasing expensive equipment, just the kind that GE would like to sell. The problem that better technology does not necessarily improve health outcomes. Contrarily, new testing equipment often justifies itself by creating high insurance payouts. As the article says, "GE's sales pitch is aimed squarely at a doctor's desire to make more money from doing more tests." It prinst out a  calculation of the added revenue from the new machine as a main selling point for the new equipment. The result, certainly, is  a lot of unnecessary diagnostic workups that pad healthcare bills. What happens when the Six Sigma expert decides that buying yet another CT machine (from GE, of course) is a waste of money or advises that the hospital hang on to its old X-ray machines rather than upgrading to cool new digital mammography equipment? Or when GE Financial is asked to finance the purchase of a PET scanner sold by one of GE's rivals? It's a lot like having ABC review a Disney movie or having drug companies finance "independent" tests that verify the efficacy of their drugs. 10:29:56 AM

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