The Conglomerate Will See You Now

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http://www.nytimes.com/2004/07/18/business/yourmoney/18ge.html?th

 

July 18, 2004

The Conglomerate Will See You Now

By REED ABELSON and MILT FREUDENHEIM

 

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. "

 

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