GE aims for a healthy profit

    GE's Heathymagination initiative marks a shift in emphasis for a business the company has been in for more than 100 years.

    By Marc Gunther

    GE and its chief executive, Jeff Immelt, announced Thursday a sweeping new healthcare initiative dubbed Healthymagination that the company says will help deliver better care to more people at lower cost.

    With typical hoopla - a well-attended press conference with customers and health-care experts, a live webcast, full-page newspaper ads and even a Twitter feed - GE wrapped a big marketing campaign around a business, health care, that has been part of the company for more than a century, when it began making x-ray machines.

    The health care initiative is modeled on GE's Ecomagination project, which was launched in 2005 to drive the company's energy, environment and clean water businesse.

    Like EcoMagination with its "green-is-green" mantra, Healthymagination has a catch phrase of its own. "Health means wealth," Immelt declared. GE, he said, thinks it can make money by providing health care more broadly and at lower cost, including some of the 2 billion people who do not have access to doctors or clinics.

    As with EcoMagination, GE (GE, Fortune 500) laid out a number of specific goals for Healthymagination. But without knowing what the company would have done under a business-as-usual scenario, it's hard to know how meaningful they are. GE said, for example, that it will invest $3 billion in research and development to launch at least 100 innovations by 2015. That sounds like a lot of money but it is only "slightly more" than the company would have spent otherwise, Immelt said. The company also said it would reduce costs of its products and processes by 15%, increase people's access to its services by 15% and quality by 15%.

    Most important for investors, GE said it would accelerate revenues from its health care business so that they grow by 2 to 3 times in the years ahead. GE Healthcare is a $17-billion division of GE, which had $183 billion in revenues in 2008.

    In an interview with Fortune, Immelt admitted that one of the most interesting metrics that will be applied to Healthymagination results from an accident of scale: Right now, GE Healthcare earns about $500 million more in profits than GE as a whole spends on health care costs, which is about $2.5 billion.

    GE wants to increase that "value gap," both by making GE Healthcare more profitable and by slowing the growth in spending on health care for the 600,000 people covered by its plan. To that end, Immelt said GE will offer healthier food in its cafeterias, expanded company fitness centers and better tracking of employee health-care spending through electronic records.

    Immelt, who ran GE's health care business before becoming CEO in 2001, described today's announcement as a repositioning of the business. Traditionally, he said, GE had focused on high-tech, high-cost products - MRI machines that deliver high-definition pictures, or CT scanners that produce 64-slice images of human organs. These breakthrough products can sell for more than $1 million apiece, and they are typically introduced in prestige hospitals in the U.S., before costs come down and they become more widely available.

    GE will continue to invest in "great new leading edge tools that are going to cure disease." But the company will place greater emphasis in the future on lower cost products that deliver "only what is needed," Immelt said. They will be tailored to places where access to care is limited. As an example, Immelt during his presentation held up a portable ultrasound machine, developed for emerging markets, that sells for less than $100,000. He also pointed to a lower-cost product called the Lullaby Warmer that keeps infants warm after they are born - while generating healthy margins for GE.

    "We'll introduce products at all price points, all at the same time, in different parts of the world," Immelt said. Globalization is already becoming a two-way street, he noted, with some GE products moving from the U.S. to China and India, but others, designed and built in the developing world, coming to the West.

    GE will also address shortfalls in healthcare information technology, with $2 billion in financing from GE Capital. Joining Immelt at the press event were executives from Intel (INTC, Fortune 500), the Cleveland Clinic and Intermountain Healthcare, a nonprofit system of hospitals and clinics based in Salt Lake City, all of whom said better information technology can improve patient care and save money.

    It's no accident that GE chose to announce Healthymagination in Washington, where the debate over health care costs and access is moving towards center stage. GE formed a Healthymagination advisory board whose members include former U.S. Senators Bill Frist and Tom Daschle.

    "We believe in universal, affordable coverage," Immelt said. The time is "way past due" for health care reform in the U.S., he said. "Access is not just an issue in the U.S.," he added. "It's a global issue."