By KIM BELLARD
Last week General Electric announced it was breaking itself up. GE is an American icon, part of America’s industrial landscape for the last 129 years, but the 21st century has not been kind to it. The breakup didn’t come as a complete surprise. Then later in the week Johnson and Johnson, another longtime American icon, also announced it would split itself up, and I thought, well, that’s interesting. When on the same day Toshiba said it was splitting itself up, I thought, hmm, I may have to write about this.
Healthcare is still in the consolidation phase, but there may be some lessons here for it.
For most of its existence, GE was an acquirer, gobbling up companies with the belief that its vaunted management structure could provide value no matter what the industry. This was most famously true in the Jack Welch days, but since those days it has been gradually shrinking itself, spinning off some of its more problematic divisions, like appliances, locomotives, and much of its once-huge financial services business. It will spin off its healthcare business in early 2023 and its renewable energy and power business in early 2024; its aviation business will keep the GE name.
“A healthcare investor wants to invest in healthcare,” CEO Larry Culp explained. “We know we are under-owned in each of those three sectors, in part because of our structure.”
One of the perks of giving keynotes all over the country is being able to hear what other health care leaders are saying without having to pay the conference fees. One of my major keynote themes is that everyone (patients, doctors, hospitals, employers, and health plans) will have to change in order to thrive during the current health care delivery system transformation.
Recently in Delray Beach, I stayed after my keynote to hear Florida Blue CEO Patrick Geraghty describe his first year of trying to change the Blue Cross/Blue Shield franchise to respond to health care reform. I have written elsewhere about the health plan response to the changing environment, but Geraghty’s speech highlighted how urgent and how difficult change can be when an industry business model is disrupted by federal legislation and market forces.
Geraghty has led the Blues effort in Florida to update their name, mission, vision, and values. Focus groups revealed that the new name Florida Blue was easier to say and communicated a less corporate, more friendly image than the old name Blue Cross Blue Shield which brought to mind adjectives such as corporate, distant, and expensive.
A four paragraph mission statement was replaced by a single sentence: “To help people and communities achieve better health.” The vision statement was rewritten to now describe the company as “a leading innovator enabling healthy communities.” The five corporate values now include the familiar “respect,” “integrity,” and “excellence,” and the more unusual “courage” and “imagination.”
What I found most intriguing and revealing was how these new efforts are being translated into concrete tactics such as opening retail centers and partnering with Disney on a new innovation institute.
It will take more than a Band-aid to fix the medical device market. This was the message delivered by Alex Gorsky, future Johnson & Johnson CEO, to an auditorium full of students and entrepreneurs at the Stanford Biodesign From the Innovator’s Workbench event last week.
Gorsky, who in a few weeks will take the helm of the world’s largest health-care corporation, discussed challenges and opportunities in medical device market, as his company navigates through a turbulent world economy and a string of product recalls.
“It’s a difficult market,” he said. “The days of incremental innovation are over.”
And, while Gorsky thinks population growth will drive up worldwide demand for health care, it’s unclear who will pay for it.
Gorsky sees a fundamental shift in the way medical devices are purchased, which may change the innovator’s design approach. In the United States, buying decisions will shift from surgeons to cost-conscious hospital buyers. And that may create demand for keep-it-simple medical devices – designs that provide 50 percent of the bells-and-whistles of current devices for 15 percent of the cost. In addition, he cited the need for more clinical information on efficacy and safety, to help hospital administrators justify medical device purchases.
As the U.S. struggles to stem rising health care costs, his company will look to emerging markets – especially China – for growth. He predicts that these health care markets will grow at 4 to 5 times the rate of the domestic market.