General Electric’s Virtual Healthcare Economics

The Wall Street Journal’s “How Washington Rations” opinion piece, subtitled “ObamaCare omen: a case study in 'cost-control’”, opens a worm’s nest into rationing vs. choice. As usual, the Journal is only choosing the juiciest worms to reel in the healthcare reform whale. The Journal would like its readers to believe they are entitled to unlimited choices in healthcare without any economic consequences. And in the payer choice vs. the patient choice argument, the government should not be the chooser even when they are the payer.

The Journal extrapolates Medicare’s decision not to reimburse for virtual colonoscopies to the inevitable rationing of care when or if the public “Medicare for All” health insurance option becomes available. Medicare noted in its ruling, "if there is a relatively high referral rate [for traditional colonoscopy], the utility of an intermediate test such as CT colonography is limited." The Journal interprets this as “duplication would be too pricy.”

Given that Cigna (CI), UnitedHealth Group (UNH) and other private insurers reimburse for the added comfort of virtual colonoscopies, the Journal implies that rationing does not exist in the private sector. When you consider deductibles, co-pays, limits and other traps in private insurance, the rationing argument can go both ways. But one thing is as clear today as in the future; very few real healthcare choices exist within insurance plans. Healthcare has always been and will always be rationed. What will change is just the allocation formula.

The almost hidden revelation at the end of editorial is that General Electric (GE) and Siemens (SI), makers of the big iron CT technology, are exerting pressure on both Medicare and Congress to stop curtailing use of their equipment for virtual colonoscopies. As healthcare reform evolves, more of the purely comfort choices will have to be funded completely out of pocket by patients. This will force not only medical equipment manufacturers, but also the pharmaceutical and medical device industry to prove their value directly to consumers. Political pressure will become less effective.

GE Healthcare appears to be evolving and should not be wasting its resources and good will defending its big iron. It has already admitted that funding has dried up for purchases of high cost imaging equipment. GE is in essence following IBM’s (IBM) decades’ old transition from mainframes to servers to desktops to laptop to netbooks to smart phones. The computer big iron still exists, but it got much cheaper. While IBM subsequently gave up the commodity devices and never ventured to the lowest tiers, this is where GE could shine. All GE has to do is convince consumers (patients) that the comfort and convenience their imaging equipment provides is valuable enough to pay for.

The new form of rationing as the Journal likes to call it will provide great opportunities for private insurers and providers in the truly free market for equipment and medical services not covered by the universal healthcare initiative. I agree with the Journal that the government will decide on the standard of care for basic insurance, and there will be exclusions based on cost. But that will leave an entirely new market for supplemental equipment and services that can be priced with only free market restraint.

Each manufacturer and service provider can choose whether to accept the price restraints of standardized health insurance or take their chances in the unreimbursed free for all. Going back to virtual colonoscopies, the Journal neglected to say that GE, together with the hospitals and the radiologists, could choose to price their equipment and services low enough to mitigate the cost of duplication. Cost controls and restrictions are not all bad; they simply give companies the choice of lowering prices or increasing value.

Disclosure: Author is long GE.

Comments

[bostonobser...:]

The comfort argument is somewhat spurious as virtual colonoscopy requires the same prep (probably the most unpleasant part of the experience) and insufflation of the colon. So not much difference and if anything is found a regular colonoscopy (and second prep) will be required to confirm/manage. Finally the radiation exposure should not be ignored

May 20 12:44 PM

[Crocodilian:]

You've identified a big but poorly appreciated difference between a "virtual colonoscopy" and a traditional one: one requires millions of dollars of capital investment, and the other doesn't. I might add that while a traditional colonoscopy "belongs" to gastroenterology, a "virtual colonoscopy" (generally)belongs to radiology.

The GE/Siemens virtual colonoscopy "end run" (groan) is part of the political economy of healthcare capital equipment. This is a very high stakes game, but generally invisible-- large amounts of money are spent, to buy things that citizens generally approve of, but through essentially bureacractic and political processes.

So the big vendors have established channels built out, institutional and financing structures to enable radiology buy multi-million dollar equipment. And GE, Siemens and a few other big players have the political heft to get the departments the financing they need, and the political cover that they need for these massive spends.

That's not to say that virtual colonoscopy -- or virtual angiography-- might not be better than the traditional kind, but there are more than medical issues involved. There's cost, there's vendor, and there's departmental/specialty politics as well.

There's more to it than just "convincing the patients" though. Most states require hospitals to jump through hoops before buying expensive equipment like this . . . they must get a "Certificate of Need". It is on this battleground that Siemens and GE fight, getting approvals for their clients from reluctant state bureaucracies (which are all too aware that each new expensive facility is going to add cost). An overview of Certificate of Need laws can be found at:
www.ncsl.org/programs/...

May 20 03:42 PM

[Mlynn:]

As the article implied, CT is old technology that the healthcare system still charges an arm and a leg !! Why doesn't healthcare costs come down with the use of old tech CT and MRI? The entire healthcare industry needs to be reformed.

May 21 09:09 AM