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GE to Spin Off Healthcare Unit as Separate Company

June 26, 2018
by Rajiv Leventhal
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General Electric (GE) will spin off its healthcare unit and operate it as a separate company, senior executives announced today.

The announcement comes following a lengthy strategic review by John Flannery, chairman and CEO of GE, who said in a statement, ““Today marks an important milestone in GE’s history. We are aggressively driving forward as an aviation, power and renewable energy company—three highly complementary businesses poised for future growth. We will continue to improve our operations and balance sheet as we make GE simpler and stronger.”

Indeed, in addition to separating out its healthcare unit, GE also will be giving up its stake in the oil services company Baker Hughes. Flannery added, “Today’s actions unlock both a pure-play healthcare company and a tier-one oil and gas servicing and equipment player. We are confident that positioning GE Healthcare and BHGE [Baker Hughes] outside of GE’s current structure is best not only for GE and its owners, but also for these businesses, which will strengthen their market-leading positions and enhance their ability to invest for the future, while carrying the spirit of GE forward.”

As it relates to healthcare, separating this unit affects the EHR (electronic health record) market, according to market research firm Kalorama Information. “While the $19 billion unit of the General Electric Co. Worldwide, is much more focused on diagnostic imaging and the manufacture of biopharmaceuticals, the company' EHR products have 5-percent market share, according to Kalorama's latest annual study of the market. The company competes with Cerner, Change Healthcare and Epic in the market for electronic healthcare records,” Kalorama researchers said in a press release today. The firm further estimated that 8 percent of GE Healthcare revenues come from information technology sales.

"GE Healthcare remains a significant competitor in the EHR market," said Bruce Carlson, publisher of Kalorama Information. "Five percent is large when no one in the market has more than twenty [percent]. GE isn't a pure EHR competitor as their software is integrated, but they do compete.” He added, “It's too early to tell what happens in a non-GE setting. In healthcare we've seen companies thrive on their own, when they lose the parent company and non-healthcare management. But we've also seen companies go into revenue purgatory."

Meanwhile, Kieran Murphy, president and CEO of GE Healthcare, will continue to lead GE Healthcare as a standalone company. When the unit is spun off, the company plans to take 20 percent of the proceeds and distribute the rest to shareholders. 

“GE Healthcare’s vision is to drive more individualized, precise and effective patient outcomes,” Murphy said in a statement today. “As an independent global healthcare business, we will have greater flexibility to pursue future growth opportunities, react quickly to changes in the industry and invest in innovation. We will build on strong customer demand for integrated precision health solutions and great technology with digital and analytics capabilities as we enter our next chapter.” Murphy continued, “Our talented healthcare team will continue delivering precision health solutions, building on our heritage of technology innovation that delivers patient outcomes.”

Company officials noted that GE Healthcare recorded over $19 billion in revenues in 2017 and posted 5-percent revenue growth and 9-percent segment profit growth in the same year. On the 2018 Healthcare Informatics 100 list, which ranks the top-100 health IT revenue earners from the previous year, GE Healthcare ranked 16th, with an estimated health IT revenue of $900 million.

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