GE CEO Jeffrey Immelt Misdirected

Published by clickbroker.blogspot.com.

The New York Times’ “G.E. Chief Sees India Helping Cut Costs of U.S. Health Care” reports that Jeffrey Immelt predicted that India’s role in reducing US healthcare costs will be significant. The comments were made by General Electric’s (GE) CEO during a news conference related to GE’s healthcare business restructuring in India. He predicted that India’s healthcare industry will grow to $75B by 2012.

Given that GE’s healthcare business is still way too dependent on the medical imaging “big-iron”, it is not surprising that Immelt’s comments focused on outsourcing the interpretation of these images. Creating a cheaper operating infrastructure to support the big-iron is favorable to selling more machines. Obviously, GE wants to do whatever possible to sell more machines and lowering someone else’s revenue will not affect GE’s profits.

GE continues to be shortsighted and selfish in its view of healthcare. I am disappointed as a shareholder that GE is not exiting or substantially shrinking their imaging business. GE’s imaging business is as over reliant on government subsidizes for senior care as Humana (HUM). It is just that Humana’s subsidy is direct Medicare Advantage revenue and GE’s subsidy is revenue to their doctor and hospital customers. These companies should heed what happed to the banks, for they might get feathered without even being TARPed.

Trouble with healthcare is not that the US is undersupplied with medical technology, doctors, hospitals and drugs; we are too far oversupplied. And seniors are no different than street drug addicts, they can never get enough doctoring – whether it’s beneficial or not. What Americans need more of is unbiased advice. Is a cancer patient better off suffering for 2 to 5 years under chemotherapy or living his remaining life peacefully with just pain therapy?

America’s addiction to healthcare is often justified in rhetoric about rationing, waiting lines and technology. As long as the arguments continue; companies, doctors and hospitals will continue to avoid preparing for a reduction in demand. Pfizer (PFE), Merck (MRK) and others will seek mergers, GE will do nothing and demand will start shrinking. The bill for healthcare reform will force us to break our addiction and rational use of healthcare will emerge.

Breaking any addiction is difficult and going cold turkey can be devastating. The Genentech-Roche model is going to be just as obsolete as GE’s. In addition to a newfound emergence of cost-benefit will be patient centric suffering-benefit. Are multiple years of suffering under the breast cancer drug Herceptin worth a short life extension?

Government’s role is to fill in the gaps left by the absence of profit motive. The suffering-benefit equation has not been well balanced by either the private sector or the FDA, and doctors are biased toward extending life at any dollar or suffering cost. Doctors’ role as scientists often conflicts with the patient’s desire for wellbeing. Government needs to fill this void. While choice would definitely encourage substantial cost savings, unbiased advice by government should not be interpreted as “death panels.”

GE must understand the shrinking healthcare demand will not be based on the economic cycles alone. The next generation of seniors might not take every treatment just because it’s free and the government will encourage this new refreshing attitude.

Disclosures: Author is long GE and PFE.

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