Diagnosis for GE Healthcare: Newly appointed CEO says he knows what ails imaging industry

Milwaukee Journal Sentinel (MCT) - The X-ray tube manufacturing company General Electric launched in Milwaukee in 1947 has expanded almost without interruption into a $17 billion-a-year medical equipment and biosciences company that spans the globe.

The momentum, however, petered out last year. Earnings at GE Healthcare Ltd. has fallen for four of the past five quarters. Earlier this year in Waukesha, home to the core business that makes dazzlingly sophisticated imaging equipment, GE announced several hundred layoffs.

"This is a business that needs to work on growing again, growing at a rate that it's demonstrated in the past, and growing at a rate that I think it's capable of growing at," says the division's newly appointed chief executive, John Dineen.

Dineen, 45, took over the division six weeks ago. But he's a veteran GE executive who just finished a three-year stint running GE Transportation _ best known for making locomotives _ where he doubled the size of the business. And he said he didn't need long to diagnose the problems at GE Healthcare, which he said lie as much in Washington as they do in any of GE's labs and factories.

Demand in the United States has been sluggish since the Deficit Reduction Act took effect two years ago and lowered Medicare reimbursements for imaging services at physician offices and imaging centers. Of the seven divisions within GE Healthcare, federal spending caps have hit hardest at the Diagnostic Imaging group in Waukesha, Dineen said. "And that's one of the largest parts of our business," he added.

And so Dineen, whether he likes it or not, expects to spend a lot of time in the nation's capital reshaping health care legislation. It's a heated and divisive issue, but one that Dineen predicts will preoccupy lawmakers in the next four years regardless of who wins in November.

"I don't know how it's going to take shape," Dineen said, "but we're going to have a voice in it.

"I don't think that cutting or limiting the use of technologies like ours is the right answer," Dineen said. "I think there's a better answer. And it's clear that we have got to be involved in coming up with that answer."

Caucusing with policy wonks and politicians ranks as high on Dineen's priorities as the other two prongs of his growth strategy: a relentless drive to develop new technologies and a renewed push into economies such as in China, India and the Middle East that have huge sums to invest on medical technology.

Dineen spoke in Waukesha on Tuesday, one day after he huddled in Washington with Newt Gingrich, the former Republican speaker of the House who has become an activist on health care policy.

U.S. orders for diagnostic imaging equipment fell 13 percent in the first three months of the year. The Advanced Medical Technology Association estimates that Medicare reimbursement for imaging services has fallen nearly 20 percent since the cap took effect in 2006.

Separately, the company clashed with Washington in early 2007 when the U.S. Food and Drug Administration shut down production at a subsidiary in Utah that manufactures radiological equipment used during surgery. The FDA, which found violations of FDA-mandated manufacturing procedures, allowed the plant to reopen in May.

"John Dineen is a pretty good pressure performer," said Nicholas Heymann, an analyst in New York at the Sterne Agee investment house.

Few companies have been as crucial as GE in keeping southeastern Wisconsin in the global technology race.

For many years, GE Healthcare has been a reliable growth engine for its $173-billion-a-year parent company, which Forbes ranked this year as the world's second-biggest company (behind Britain's HSBC banking group) based on sales, earnings, assets and market value.

GE's medical division employs 5,400 people around Milwaukee, making it one of the region's single biggest manufacturing employers, and employs another 860 in Madison. Thanks largely to GE, Wisconsin hosts the nation's third-largest cluster of medical-equipment manufacturers as measured by employment, behind California and Minnesota .

GE Healthcare also stands out as one of the earliest and boldest GE divisions to globalize everything from its research to its manufacturing, starting with an early push into Bangalore, India, about 10 years ago.

Jeffrey Immelt, who oversaw that effort in the mid-1990s as the CEO of what was then called GE Medical Systems, left Waukesha in 2001 to become chief executive officer of the parent company _ the ninth GE chief executive in a line of succession that began with Thomas Edison. GE Healthcare moved its global headquarters from Waukesha to London in 2004.

In a factory adjacent to the office where Dineen spoke, workers assemble $1.2 million machines that can deliver images unimaginable only years ago. In the span of five heartbeats, the LightSpeed CT scanner can deliver three-dimensional color images of the human heart that can rotate and zoom on a monitor.

Dineen argues that such high-cost technology is essential if the U.S. wants to find new efficiencies that lower medical costs.

"How much exploratory surgery has diagnostic imaging removed over the last 10 or 20 years?" he said.

An embrace of technology is a hallmark of GE, which spends $1 billion each year on research and development for its health care division alone. So Dineen is puzzled that government regulators would reduce reimbursements for technology that has the potential to improve efficiency.

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"Everywhere else I've been, technology has been the key to productivity. And I come here and see that the technology has been singled out as a problem," Dineen said.

There's no doubt that GE is under pressure. After it missed its quarterly earnings targets in April, former CEO Jack Welch said he would "get a gun out and shoot" Immelt if GE missed again.

"The pressure is always there," Dineen said.

More recently, the crisis at Wall Street's investment banks, and particularly its impact on the economy, has been on Immelt's mind. Immelt phoned Dineen on Tuesday to discuss the overall economy.

"We were talking about what's going on ... the economy, the health care business, what am I seeing, how do I like it," Dineen said afterward.

But when Dineen was asked if GE Healthcare requires restructuring, he quickly said no.

"The inherent capabilities in this business are very strong," he said.

Like his predecessors, Dineen is evangelical about globalization and new technologies.

In his three years at GE Transportation in Erie, Pa., Dineen said his crew developed the prototype of the world's first hybrid-diesel railroad locomotive. The division opened international markets, hired hundreds of workers and plowed $15 million into Erie schools so the company can continue to hire local engineering talent.

"Every once in a while," Dineen said, "things go really, terribly right."

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GE HEALTHCARE LTD.

Headquarters: Chalfont St. Giles, near London, England

2007 Revenue: $16.9 billion

Employment globally: 46,000

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© 2008, Milwaukee Journal Sentinel.