Why GE is putting employees to work in hospitals

This article originally was published December 21, 2017.

Lifespan is the latest hospital system to partner with GE Healthcare Partners on a major initiative that puts GE's technologies inside the network's five hospitals and other care facilities in Rhode Island. 

The agreement is more than just a large purchase order for equipment. Instead, the arrangement starts with a goal — like reducing patient wait times — and GE works backward from there. GE is then paid for meeting those metrics. 

It's the fifth such deal for GE and one of many similar partnerships between hospitals and medical technology firms that have cropped up in recent years. Philips, a major competitor to GE, inked its first deal like this in the U.S. in 2013, with Augusta University Health (formerly Georgia Regents Health System), and has since signed on for roughly 40 similar partnerships with hospitals. 

"The pressure is increasing," said Laurent Dubois, CEO of GE Healthcare Partners, which has developed similar partnerships with Mission Health, Hartford HealthCare, Temple Health and Jefferson Health. Hospitals "need to be more effective, more efficient, more sustainable." 

How the deals work

GE Healthcare will provide technologies like its imaging equipment and monitors, as well data and analytics tools and consulting services to help Lifespan improve primarily non-clinical processes, like patient wait times. In some partnerships, like the one with Jefferson, employees are deployed to work in the hospitals. 

As part of this kind of shared-risk model, GE is able to secure long-term contracts with the hospitals, and the hospitals get help reaching certain performance goals. "We take on margin risk to make sure we deliver," Dubois said. 

Why are hospitals doing this?

In short, both not-for-profit and for-profit hospitals need to find new ways to save money. Hospitals are badly in need of transformation, Dubois said. That's why they are actively looking to partners and suppliers to help them improve the way they work. 

For years, hospitals have been dealing with lower reimbursement rates as well as higher costs associated with prescription drugs and medical supplies, plus more stringent rules monitoring the kind of outcomes that they deliver for their patients. 

• According to a report published in May by Moody's Investors Service, Hospital margins are falling. Median operating margins for hospitals fell to 2.7% in fiscal 2016, down from 3.4% in fiscal 2015.
• Hospital expenses are outpacing revenue. Annual operating expenses grew 7.5% in 2016, while annual operating revenue rose 6.6% last year.

The takeaway

Many hospitals incorporate their new medical technology and short wait times into ad campaigns and marketing materials as they seek to compete in a rapidly consolidating healthcare market. Add in ongoing financial worries, and it creates an environment ripe for suppliers, which are eager to turn their traditional roles as vendors into partnerships. 

A spokeswoman for Philips said the average duration for these kinds of partnerships is 10 to 15 years and with promised savings of about $200 million. 

That's likely why a recent Frost & Sullivan report concluded that these kinds of "partnerships will increasingly become the new norm for hospitals and health systems around the world."