Centricity EHR Users, General Electric and the Financial Crisis
Recently, I argued that volatility in the EHR market affects all vendors in the sector, and that large size does not shield companies from market-disruptive trends like technological innovation (Web-based EHRs), new business models, and the remarkable new vision for HIT that has been articulated by ONC and CMS in the form of EHR Certification and Meaningful Use criteria, respectively.
Large companies like Bear Stearns, Lehman Brothers, AIG and GM either disappeared or required massive government bailouts to survive last year’s financial crisis, for example. And General Electric—which markets the Centricity EHR—nearly died during the crisis as well, due to severe under performance in its financial services division.
No one knows what would have happened to Centricity had GE tanked, but service levels and product update schedules may have been affected, perhaps severely.
What is worse, it appears that Centricity users and GE shareholders may have been mislead by company executives during the crisis, according to assertions made recently by former Treasury Secretary Henry Paulson.
In his new book, “On the Brink: Inside the Race to Stop the Collapse of the Global Financial System,” Paulson claims that GE’s CEO Jeffrey Immelt repeatedly reassured shareholders that it could access credit markets and refinance its enormous debt, even as he expressed serious concerns about these matters to Paulson in private meetings.
Paulson claims that during at least 4 such encounters, Immelt expressed doubts about GE’s short-term debt—known as commercial paper—and implored Paulson to extend government programs to cover GE’s guarantees against the debt.
For example, on September 15, the day Lehman Brothers tanked, Paulson wrote that he was “startled” when Immelt told him directly that GE was essentially unable to sell short-term debt “for any term longer than overnight.”
The day before, GE sent investors a letter saying its ability to sell commercial paper was “robust.”
Paulson’s assertions could complicate GE’s defense in several civil court cases brought by shareholders, who claim Immelt and others mislead investors about the company’s finances during the crisis, a direct violation of SEC laws.
GE denied the allegations in a statement obtained by the Washington Post.
“During the period in question, GE confirmed through its public statements the widely known fact that the CP (commercial paper) markets were under great stress. The company also disclosed that, despite this stress, it was able to meet its funding needs throughout the crisis,” GE’s statement said. “In these circumstances,” GE told the government “market intervention was important.”
Paulson’s book is based on call logs and his own recollections. There are no recordings or documents that support or refute his assertions.
In his book, Paulson claims he took Immelt’s pleas to heart and subsequently helped convince FDIC Chairman Sheila Bair to extend traditional commercial bank protections to financial institutions like GE Capital. Not long thereafter, the FDIC guaranteed more than $70 billion in GE debt, including the short-term commercial paper it needed to cover operating costs.
The shareholder lawsuits focus on the circumstances surrounding GE’s sale of $15 billion in stock shortly Lehman tanked. In support of that public offering, GE filed documents with SEC in which Immelt said, “We continue to successfully meet our commercial paper needs.”
The sale was successful, but GE’s stock price continued to nosedive and billions of investor dollars evaporated as a consequence.
By the way, Immelt and Paulson are no strangers to each other. Paulson headed Goldman Sachs before taking over at Treasury. Goldman had long served as GE’s investment banker. “I’ve known Jeff for years,” Paulson writes, “and admired the cool, unflappable demeanor he had displayed as CEO of the biggest, most prestigious company in America.”
Let’s Be Clear: Large EHR companies–prestigious or otherwise–should not expect government bailouts as the EHR market shakes out over the next few years. In fact, ONC’s and CMS’ visionary rule-making, and their subsequent efforts to maintain vendor neutrality strongly suggest that the Feds will let the market decide which EHR vendors will live and which will not.
Glenn Laffel, MD, PhD
Sr. VP Clinical Affairs, Practice Fusion