General Electric's Healthcare Disappointment

Not too many “great quarter, guys” could be heard in General Electric’s (GE) first quarter conference call last week. The long cycle businesses fared well, appliances felt the housing pain, and financial services caught the Bear Stern’s (BSC) cold. So said Jeffrey Immelt, even though GE’s CEO claimed he did not want to make excuses. The most difficult news for the analysts on the call to swallow was the 17% drop in healthcare. Sales of imaging equipment were down 18% or $100M to community hospitals. Immelt said it was probably due to a tighter credit environment.

Could GE’s drop in healthcare revenue be due to trend beyond the current credit crunch? The UK is asking Millennium Pharmaceuticals (MLNM) and its marketing partner Johnson & Johnson (JNJ) to refund Velcade payments for patients not helped. Cancer treatment Velcade is only effective in a subset of patients. Pay for performance is starting to gain momentum outside to US for very expensive drugs. Germany is severely limiting reimbursement for Pfizer’s (PFE) Lipitor when generic statins are effective. The entire pharmaceutical industry will take a major hit when doctors finally recognize "Your Brain Needs Cholesterol".

It appears that the US might finally be maxed out on its ability to buy healthcare. Healthcare hardware (equipment), software, and drug and medical device manufacturers might actually be facing a long period of slower growth. Immelt said growth outside the US will have to make up for declining US sales in the near future.

The America is growing old bullish argument is losing strength. Medicare continues to squeeze providers and will do more so under a change in administration. The healthcare industry cannot escape the fact that fewer workers have an unlimited healthcare budget. The Wall Street Journal reported the new Goodyear Tire & Rubber (GT) workers are not even entitled to health insurance for the first six months. In "Are GP Doctors Obsolete?" I wrote about the difficulty of the medical establishment adapting to consumer driven, high deductable health insurance. Not one of the industry’s players has taken to heart that there is just no more money.

Disclosure: Author is long BSC and MLNM.

Comments

[motherbird]

Insurance is nothing more than privatized socialism. The patient has no incentive to be efficient because he "paid his premiums," and the medical providers desire to extract as much money as possible from the pools of premium monies is hardly restrained by a bureaucrat far removed from the patient/doctor exchange.

Because of the patients lack of incentive and the medical providers unrestrained incentive, health care costs have escalated to bubble like proportions. So much so that the word doctor has become synonymous with millionaire.

Both privatized insurance and socialized insurance, are doomed to collapse because both circumvent the consumer/producer negotiations.

Are we approaching that point? Is the bubble bursting in the health care industry? Politicians sure have been talking up solutions to rising health care costs over the last number of election cycles. The problem is that their solutions are what created the bubble in the first place (ie socialized medicine in the form of medicare and medicaid.) Now they want to expand the program to cover everyone beyond just seniors. If the politicians get their way, there may be another leg up for the health care providers with the expanded pool of new monies brought on by coercing all to participate in health care socialism.

[hermitinvestor]

Efforts by payers to lower healthcare expenditures point to the need for medical products companies to re-orient towards cost-effectiveness. This is not necessarily bearish for med-tech companies