Philips moves into IT arena to propel growth

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Over the last three-plus years, Philips Medical Systems has taken major steps to expand its product lines across all modalities and fill in the gaps where there were technology voids.

 Through acquisitions and partnerships, Philips has forged a new structure and a product portfolio that continues to expand.

 Randy E. Dobbs came on board at Philips in April as executive vice president and CEO for Philips Medical Systems' Sales and Service Organization in North America. Among his tasks has been to give Philips a broader market image and finalize the integrations of the company's major acquisitions in 2000 and 2001.

 "That has been my priority for the first three months - continuing to drive and finalize this integration into one Philips' look in the market place," added Dobbs. "Prior to my arrival, we began to take to the marketplace all of the things that we acquired. There was still a tendency for people - both within Philips and outside of Philips - to still see it as an interface with ATL or Marconi."

 At RSNA 2003, Dobbs said attendees saw a "stronger, one Philips face than they have seen since we started all these acquisitions."

 In Chicago, Philips introduced a total of 12 new products, including a new Brilliance 40-channel CT scanner, as the company sheds the branding of acquired products from the former Marconi Medical Systems, Agilent Healthcare Solutions Group, ADAC Healthcare Systems and ATL Ultrasound.

 On the healthcare information technology (IT) side, Philips' new alliance with Epic Systems Corp. gives the company an entrance into the IT market that it lacked to compete with GE Medical Systems Information Technologies and Siemens Medical Solutions.

 C. M. (Stan) Smits, senior vice president and CEO of medical IT for Philips, is heading development of the Philips-Epic strategy and organizing the Philips team that will work in Madison, Wis., with Epic at the beginning of 2004.

 "We have a very clear agreement between Epic and ourselves about which portion of the market we will operate as alliance partners," said Smits. "The initial idea was to have an alliance across the board, but then Epic said 'we have no expertise in going in the community hospital market segment and it would distract us a lot if we were going into that market segment.'"

 So, Epic will continue to target the high end of the IT market - the larger institutions and healthcare networks - and work with Philips to develop IT products for the mid-tier and smaller facilities. Smits described Epic's technology as "flexible" and "scalable" for the mid-size and small healthcare providers, with the ability to adapt "from a laptop to a large multi-site system."

 Philips "will focus on the community setting to get a better understanding of the budgets those hospitals have - not only for acquiring products, but running their operation - and how we have to make tools and adaptations to the products to fit that market space," he added.

 Philips also has to make the Epic technology work with its Vequion open IT architecture across all modalities.

 "The products that come out of the partnership with Epic will all be 'Vequion-ized,' so systems that we sell in the community hospital market and stand-alone systems that we develop from the Epic portfolio will be part of the Vequion look and feel," Smits said. "Eight-five percent of the market is still using other systems. We want to make sure our systems are capable of having good interfaces."

 Philips also broadening its strategy in the refurbished equipment market with its Diamond Select program.

 "It's a pretty sizeable market," Dobbs said. "Our competitor - GE Medical Systems - has been pretty dominant in that market, but I believe there is a lot of space in that market."

 Philips' targets will include smaller hospitals in the range of 125 beds or less. Dobbs said the company felt that market segment "would be a great opportunity for us to be stronger in refurbishing equipment, because there is such a demand for it" at that market level.

 Philips also is keeping an eye on how pending changes in Medicare will alter the U.S. healthcare landscape.

 "We don't have all the answers yet, but I think just believing there will be some small increase in reimbursements relative to Medicare activity, as opposed to a small decrease, certainly should be helpful," Dobbs said.

 As for Philips growth engine, the company appears more inclined to opt for alliances and partnerships, instead of acquisitions, especially in the wake of major purchases in 2000 and 2001.

 "Buying [another company] somewhat limits you in the future and in opportunities," Dobbs added. "Certainly, building [a new product] isn't [an option]. The market is moving too fast for you to build your own. You have to partner with respected people."

 Dobbs sees the health imaging and IT market advancing 4 to 6 percent annually. While there is the potential for 6 percent growth in 2004, Dobbs believes the rate will be closer to 3 to 4 percent over the next 12 months.