Reimbursement cuts eat away at GE's earnings

By Wai Lang Chu

- Last updated on GMT

Related tags: X-ray, Ge

GE Healthcare saw its first quarter earnings hit as stronger
competition to its imaging equipment arm as US government-mandated
reimbursement cuts had an impact.

The performance reflect a changing operating environment for life science equipment manufacturers, which are facing a tougher time maintaining profitability as their larger customers, particularly in healthcare, put the emphasis on cost-cutting. The company pointed the finger at its range of sophisticated and expensive X-ray machines, as well as other diagnostic and imaging equipment. The dip in sales resulted in a profit shrinkage of 17 per cent for the segment. GE Healthcare had revenues of $3.9bn for the three months ended March 31 - almost identical for this time last year. The firm said that the US equipment market remained volatile, with orders for diagnostic imaging down by 13 per cent in the first quarter. However, GE remained optimistic for the international market posting diagnostic imaging revenues that had increased 8 per cent. Life sciences sales in Europe were also up by 24 per cent. Imaging and other diagnostic equipment makers have been hit hard by the U.S Government's Deficit Reduction Act, which has seen cuts in government payments required under the Act. These cuts had been expected as healthcare costs in the U.S have been rising at double the level of inflation in recent years. Overall, GE reported a profit of $528m in the quarter, down from $637m in Q1 2007 - a decrease of 17 per cent. "Healthcare earnings were impacted by a difficult US environment and continued regulatory shipping restrictions on the surgical supplies business​," said GE Chairman and CEO Jeff Immelt. GE was also affected by Government intervention after a Utah plant was shut down by the US Food and Drug Administration (FDA) over quality control issues. The decision severely restricted its shipment capabilities of X-ray equipment to its customers. First-quarter revenues were $42.2bn, up 8 per cent over revenues in the first quarter of 2007. Net earnings dropped to $4.3bn from $4.6bn - a decrease of 6 per cent. "Our focus on globalisation has helped sustain the company during the US slowdown​," said Immelt. "Nevertheless, we failed to meet our expectations. Our primary shortfall was a decline in financial services earnings​," he added. The US Congress is currently considering reimbursement cuts to diagnostic equipment makers that include imaging. These cuts form part of a legislative package expected to be passed by the end of June. The package reflects cuts already carried out under the 2005 deficit reduction act. Many city analysts agree that cutting such imaging payments will be done in order to avoid slashing reimbursement for doctors who see Medicare patients. GE also lowered its forecast for full-year earnings per share to $2.20 to $2.30 per share from its previous guidance of at least $2.42 per share.

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