Editor’s Note: Steve Holloway is a Director at Signify Research, an independent supplier of market intelligence and consultancy to the global healthcare technology industry. Steve has 8 years of experience in healthcare technology market intelligence, having served as Senior Analyst at InMedica (part of IMS Research) and Associate Director for IHS Inc.’s Healthcare Technology practice. Steve’s areas of expertise include Healthcare IT and Medical Imaging.
As news broke of the first GE Healthcare business unit to be sold, some may have been underwhelmed both by the scale and symbolism of this deal. However, this first announcement does provide some useful indicators for what to expect from the future of GE Healthcare with John Flannery at the helm.
“I Think I See the Light”
Firstly, and most positively, the fact that GE has made a move to trim its healthcare portfolio should be applauded. We wrote about this in our review of GE and its major peers in early January, suggesting:
“Too often over the last decade it has over-reached into new markets with speculative acquisitions, only to make minimal impact on market share or profitability – some have even been multi-million-dollar write-offs……………Therefore, it should re-focus on its core markets and maximize the potential of its strongest assets; imaging, clinical care and life sciences.”
The deal with Veritas Capital is one of the more obvious directions for GE as it clearly does not view the increasingly commoditized financial and administrative software sectors as areas it can succeed in. Moreover, these have little strategic value or cross-over with its biggest product lines, so the impact and separation for the already struggling business should be limited.
More concerning though is the time it has taken to bring about change. GE had a torrid time in the acute EMR market, ultimately shutting down in early 2015 after a protracted decline. To most observers, it was obvious GE was going to struggle to compete in the remaining ambulatory and practice management sectors after the acute EMR business was wound down. Especially given the impact of healthcare provider consolidation in the US and the expansion of the largest acute EMR vendors into the ambulatory sector. So why did it take four years to pull out?
“I Can’t Keep It In”
Perhaps part of the issue for GE, apart from the change of CEO, is that a significant part of its “Digital” strategy was still directed at the rapidly expanding Population Health Management (PHM) market.
However, this deal still leaves some level of confusion over its long-term PHM strategy. GE Healthcare had been developing an ambulatory PHM solution within the scope of “Project Northstar” – its value-based care, ambulatory IT development program. Simultaneously, it had built up a sizeable, but separate, enterprise/acute PHM business via its subsidiary Caradigm.
Originally a joint venture with Microsoft, Caradigm became fully-owned by GE Healthcare in April 2016, and since then had increasingly been brought closer into the GE fold. Medium-term it would not have been too much of a stretch of imagination to see the Caradigm brand disappear, with GE bringing its ambulatory and enterprise PHM solutions together under a single brand.
However, Project Northstar has been included in the Veritas deal meaning that GE Healthcare will no longer have an ambulatory PHM offering. Caradigm, on the other hand, is not part of the deal and will remain with GE. This does leave Caradigm in limbo to some extent. If GE continues this process of re-focusing on its core markets (e.g. imaging, clinical care and lifesciences), it is difficult to see the long-term strategic fit for Caradigm.
“The View from The Top”
GE is undoubtedly going through a painful phase in its history. Today it is paying the price for a scatter gun acquisition strategy in healthcare IT, writing off hundreds of millions of dollars of investment because of over-reaching and underachieving.
However, too often among industry commentary, context is lost. It is easy to forget that GE is one of the most successful healthcare technology firms globally, with market leadership positions across medical imaging, clinical care devices and clinical IT software, not to mention an impressively growing life sciences business. A quick comparison of the GE Healthcare performance last year relative to some of its peers is also enlightening:
2017 Annual Revenues (% Growth Year on Year) – in reported currency
– GE Healthcare: $19.1B (4.5%)
– Philips Healthcare: €17.8B (2.1%)
– Siemens Healthineers: €13.7B (1.0%)
Of course, as we outlined in January, many of the leading vendors are undergoing significant change. Yet for GE to still return almost $1B of new revenue at a time it is meant to be in crisis, suggests its healthcare business is more robust than many thought. Looking ahead, it would also be foolhardy to write-off what appears to be a reasonable strategy, focusing more on “smart digital diagnostics, connected devices, AI and enterprise imaging”, areas much more closely aligned to its strengths in clinical IT and hardware.
Moreover, with a large installed base of devices globally, it could also capitalise on emerging areas such as smart fleet service management, workflow analytics and operational intelligence.
As we concluded earlier in the year:
“…..there is little reason why GE Healthcare should not be looking to profit from its position, if it sticks to what it knows best.”
We would also argue that GE should hold off from any hasty extraction of the healthcare business into a separate entity. Why? Because much of the revenue growth from healthcare has come from leveraging its industrial reach in emerging markets over the last decade to win large public and private device and software deals; few competitors can offer the same breadth of offering or access to top decision makers. It is also these emerging markets that are going to deliver the greatest opportunity for new business growth over the next decade.
“Maybe You’re Right”
The sell off to Veritas Capital to some might appear to as a small deal that will fail to address much bigger issues lurking under the surface at GE. However, we think it more likely that this will be the most significant change to its healthcare business for the next few years, apart from some tinkering with internal structure. Of the remaining portfolio for health IT (enterprise PHM/Caradigm, enterprise imaging, clinical IT) most are more difficult to extract and closely tied to the device business, though a sell-off of the Caradigm business could be a tempting option if a more radical approach is demanded from investors.
So, while some competitors and investment funds might be circling in the hope of a bargain, most will be disappointed. For GE’s healthcare IT business, this first cut might be the deepest.