As John Flannery, the new CEO of GE takes on the task of sweeping cost-cutting at the industrial behemoth, recent market speculation has suggested he may be looking to offload GE’s Healthcare IT business. Here’s why we think this won’t happen.
Crumbling, but not to the core
GE’s health IT portfolio has been compiled from many acquisitions, creating a complex and sometimes disjointed product set. At its center is a core set of software and services focused on clinical IT. GE’s products that support medical imaging and care delivery management (particularly in perinatal and perioperative applications) are well established, often sold in combination with GE’s leading position in medical imaging hardware and clinical care devices. Despite the odd hiccup, such as ongoing problems with its viewing software integration, this core clinical IT product set has been relatively successful.
It is outside of the core clinical IT business that GE has had significant issues. The grand vision to offer an “all you can eat” integrated solution for enterprise healthcare IT was a bold, but risky play. To achieve this, GE acquired a multitude of brands, expanding into markets such as workforce management, financial management, population health management and digital pathology, while also competing in one of the most cut-throat markets of all, acute EMR in North America.
The result? An unceremonious exit from the acute EMR market, limited integration between legacy business units and products and mothballing of the digital pathology unit at significant loss. Not to mention a weakened focus on its core clinical IT products, brininging with it the risk of falling behind major competitors Philips Healthcare and Siemens Healthineers. So why isn’t the new CEO looking to cut his losses?
GE’s installed base of health IT customers is large and complex
Extracting the whole GE Healthcare IT business unit, under the brand Centricity, would be no easy feat. Many of GE’s IT deals are woven into equipment and professional service deals, often spanning multi-year engagements in diverse international markets. In more mature markets, such as North America and Western Europe, this approach has allowed GE to be aggressive on pricing and maintain its installed base, especially in the mid and large-scale provider market.
Such complexity could also scare off potential acquirers, of which there are few with the scale, deep-pockets and boldness required to make such a complex deal work. Moreover, in many areas outside of core clinical IT, GE is only a minor player. Sectors such as financial and operational administration are becoming more entrenched and consolidated, with a few large vendors dominating. Therefore, any acquirer would most likely want to offload these product lines, though the return on investment would be limited in an increasingly commodotised market.
Even if a buyer could be found, we think there is little momentum in the GE executive boardroom to sell. Why? Because offloading the health IT business would remove a critical aspect of GE’s wider healthcare business strategy.
Leave the paper pushing to the “experts”
While not immediately apparent on the surface, GE has grand ambitions for its healthcare business. It wants to become the central clinical partner to health providers, around which all clinical data and clinical hardware operates.
Most health providers now understand that no single vendor can offer all the capability and complexity that a large enterprise healthcare provider requires. Large electronic health record (EHR) vendors have continued to push the “one vendor” message. Yet, most specialise in handling administration, operational and financial systems and only really cater for a small proportion of all the software and services that providers require. Backing this up, recent estimates suggest on average as much as 70 percent of the data generated by a hospital remains outside of the EHR system.
This leaves room at most providers for a central clinical IT partner that can act as the lynchpin in creating, managing and analyzing clinical and diagnostic data. GE has already made this clear, at least in principle, with its GE Health Cloud product strategy. In becoming the central part of an open-source “ecosystem” of clinical tools and specialist partners, GE believes it can cement itself as a long-term partner for its customer.
GE will bring expertise in device hardware, clinical IT and professional services, with additional third-parties offering specialist tools, analytics and capabilities in areas where GE does not have capability in-house. GE is not alone in this strategy; Philips Healthcare has also undergone a drastic shedding of fringe products to focus solely on health and care, with a similar central partner strategy; Siemens is also looking to achieve and fund the same transformation by unshackling its Healthineers business unit with a forthcoming IPO, allowing greater flexibility for partnerships.
All the pieces of the clinical IT puzzle
Perhaps most surprising about the recent rumors is that GE has almost all the critical pieces required to make such a strategy successful, in-house already. If GE looks to refocus towards its core clinical IT business lines, it has the capabilities required for success. The four big trends driving market innovation and demand are:
– Personalized medicine (including use of genetics and advanced testing)
– Integrated clinical care (connecting care systems and clinical disciplines)
– Operational efficiency (use of analytics to save time and to reduce the overall cost of care)
– Machine learning and big data (learning from health data to make all the above faster and smarter to allow greater predictability and prevention)
GE has capabilities and a position that well aligns to this market direction:
– A strong life sciences division including capability in genetics, drug discovery and cell therapy (personalized medicine)
– Portfolio of core clinical IT software and services for acute and ambulatory diagnostics and clinical review, including population health management (integrated clinical care)
– Lengthy experience in capital equipment management and service, plus new initiatives focused on clinical command control centres and analytics to drive care management operational efficiency)
– Predictive analytics platform to drive progression of machine learning capabilities to support GE healthcare products and partners (machine learning and big data)
Perhaps then, the question of whether to sell the healthcare IT business is not really the right one for GE. Sure, spinning off some parts of the business will save operational cost and appease investors in the short-term, but it will do little to help GE with its wider healthcare strategy. Instead the problem could be a far greater and graver one. It is also a problem with which the new CEO should be well-versed following his tenure as head of the GE healthcare business:
Why, when GE has all the requisite parts, is GE struggling to create a coherent and integrated IT business that can capitalize on the new demands of 21st century healthcare?
Over to you Mr Flannery.
4/2/18 Update: Private equity firm Veritas Capital (“Veritas”) acquired GE Healthcare’s Value-Based Care division assets which includes Enterprise Financial Management (Revenue-Cycle, Centricity Business), Ambulatory Care Management (Centricity Practice Solution) and Workforce Management (formerly API Healthcare) for $1.05 billion in cash.
Signify Research is an independent supplier of market intelligence and consultancy to the global healthcare technology industry whose coverage areas include Healthcare IT, Medical Imaging and management consultants and investors.