GE's healthcare woes seen deepening

By Kim Dixon

WASHINGTON (Reuters) - U.S. regulatory issues marred General Electric Co's healthcare results this quarter, and the unit could face further reimbursement cuts that would hit it and rival makers of imaging equipment.

Weakness in its line of sophisticated and expensive X-ray machines, and other diagnostic and imaging equipment, contributed to GE's overall disappointing first-quarter results that shocked the stock market on Friday.

U.S. prospects for imaging and other diagnostic equipment have been hurt by cuts in government payments required under the Deficit Reduction Act. With health care costs in the United States rising at double the level of inflation in recent years, deeper reimbursement cuts are seen as likely.

"We continue to see a very tough equipment market," Chief Financial Officer Keith Sherin told analysts on a conference call.

GE's healthcare profit was down 17 percent to $528 million on flat revenue of $3.9 billion. One cent of its 7 cents per share quarterly earnings miss was due to health care woes.

GE was also hobbled by an inability to ship X-Ray equipment from a Utah plant that was shut down by the U.S. Food and Drug Administration over quality control issues.

"Healthcare was definitely short and light," said Nicholas Heymann, an analyst at Sterne Agee.

Among its major healthcare products, quarterly sales of CAT scans were down 15 percent, MRIs were down 8 percent and X-ray machines were down 5 percent.

The other two big medical imaging companies are Philips and Siemens AG

PAYER PRESSURE

Payers including the U.S. Centers for Medicare and Medicaid Services, the country's largest spender on healthcare, have been reining in spending on big-ticket items.

Spending on imaging services has risen more rapidly than any other component of Medicare, according to Robert Reischauer a healthcare economist and former director of the Congressional Budget office.

"Some of that is because we have new and better technology," he said. "But for some of it, there is the feeling that there is overuse."

In response, "there is an effort underway of a number of payers to lower the fees that are charged, so this won't be as lucrative going forward," said Reischauer.

The U.S. Congress is mulling major reimbursement cuts to diagnostic equipment makers including imaging in a legislative package expected to be passed by June 30. That is in addition to the cuts passed under the 2005 deficit reduction act.