What's New in Cybertalk?

by Jean Gora
April 2000

Note: CyberTalk is a column that appears monthly in LOMA's Resource, the magazine for insurance and financial services management. To see more contents of the magazine and to see how to subscribe, click on RESOURCE MAGAZINE.

Reconfiguring Healthcare Management — Online

Anyone who wants to see how the U.S. healthcare management system is likely to be reconfigured yet again should take a look at Healtheon/WebMD. A lot of people were watching when Jim Clark, founder of Silicon Graphics and one of the founders of Netscape, started Healtheon in 1996. Healtheon aspired to provide an Internet-based system that could connect all players in the healthcare world.

By 1999, it was connecting some of them, but it was still very far from reaching its goal of becoming the healthcare industry transaction platform. Then, it announced its merger with WebMD, an Internet health information portal (that merger closed in November 1999), and several dozen alliances with well-known firms. Now the firm is positioned to use the constituencies of its health information services to generate market demand for its Internet-based transaction system.

This month's CyberTalk examines the firm's strategy. It looks first at Healtheon's business and leading customers before the WebMD merger and before many of the alliances had the chance to bear fruit. Then it looks at the direction established by the merger with WebMD, as indicated by the new integrated Web site, www.webmd.com. Finally it examines the wide range of alliance and acquisition partners announced by the firm in recent months. The company's 1999 revenue was $102.1 million, an increase of 109 percent over the previous year. However, in typical Internet fashion, it incurred a net loss for the year of $234.7 million. Courtesy of its investors and partners, it has more than $1 billion in cash still to spend.

Healtheon's Middleware Architecture and Leading Customers

Here is Healtheon as its founder originally envisioned it and as it operated into the third quarter of 1999. Healtheon created middleware open software architecture for developing, deploying and managing Internet-based healthcare-related distributed applications. Its tools and services integrate security, workflow management, a rules engine, and data exchange.

Using this platform, members of the healthcare industry can offer applications that connect payors, providers, employers, and suppliers. The platform supports communications via the Internet, virtual private networks, intranets, extranets, dial-up and dedicated lines. It also can exchange data with EDI-based, ANSI-compliant systems.

In its third-quarter 1999 quarterly report filed with the SEC, Healtheon described itself as earning revenue from three kinds of services:

• Providing access to its network-based services (including fixed-fee and transaction-based services).
• Performing development and providing consulting services, including the management and operation of customers' IT infrastructure.
• Licensing software.

Customers may buy some or all of Healtheon's applications and services, and the relationship may evolve from using development and consulting services to using transaction and subscription-based services. As of the third quarter, the company had four major strategic partners that together generated 70 percent of its total revenue. Each of the partners generated at least 10 percent of it. These partners were:

• UnitedHealth Group. As of September 30, 1999, UnitedHealth Group owned 12 percent of Healtheon's stock.
• Brown & Toland Medical Group.
• Beech Street Corporation.
• Quest Diagnostics, Inc., which recently acquired SmithKline Beecham Clinical Laboratories.

Here is more information about these four organizations:

UnitedHealth Group is a major managed care company that generated $19.6 billion in revenue in 1999. It includes the following units:

• UnitedHealthcare, which coordinates network-based health services in six regional markets. It had 400,000 commercial members enrolled in January 2000.
• Ovations, which provides health services to people over the age of 50. It administers supplemental health insurance coverage on behalf of the AARP.
• Uniprise, which serves 200 large employers.
• Specialized Care Services, which provides dental health, behavioral health, and vision services.
• Ingenix, which provides health care data, analysis and applications to pharmaceutical companies, health insurers and other payers, care providers, large employers, and governments.

UnitedHealth Group uses Healtheon's services to manage the electronic submission and processing of eligibility determination, referrals, authorization, claims submission and status, and reporting. Doctors that have contracts with UnitedHealth Group use the services to verify patients' insurance coverage and make referrals. Healtheon is UnitedHealth Group's preferred electronic gateway for its providers, vendors and clearing houses to process administrative and financial transactions. Healtheon has contracted and implemented connections for UnitedHealth Care Transactions with leading clearinghouses and more than 200 practice management system vendors and billing services.

The Brown & Toland Medical Group (BTMG) is a network of 2,000 independent physicians in San Francisco. BTMG has contracts with 14 HMOs under which its doctors decide when patients need to see specialists without waiting for HMO approvals. It services more than 200,000 enrollees. Its doctors practice at leading university and community medical facilities.

Beech Street Corporation is a preferred-provider organization (PPO) founded in 1951. It has more than 3,000 acute care hospitals and 320,000 individual physicians under contract. It offers integrated healthcare management services, including utilization review and case management. It has regional account management teams that work with customers to maintain relationships with providers.

Quest Diagnostics provides clinical testing, information, and services to doctors, hospitals, managed care organizations, employers, and government agencies. It acquired SmithKline Beecham Clinical Laboratories (SBCL) in August 1999. SBCL's operations include clinical testing operations, clinical trials testing, corporate health services, and laboratory information products businesses. Its national testing and service network includes regional labs, specialty testing operations, rapid-turnaround labs, and patient service centers. Quest Diagnostics has annual revenue of more than $3 billion.

The objective of the acquisition was to create the first truly national laboratory testing company. It hopes to become the leading medical information company by developing dynamic data and information products based on its database of clinical laboratory test results.

During this period, Healtheon viewed its major competitors as:

• Healthcare information software vendors, including McKesson HBOC and Shared Medical Systems Corporation.
• Healthcare electronic data interchange companies, including National Data Corporation.
• Large information technology consulting service providers including Andersen Consulting, IBM, and EDS.

Healtheon designed its platform and applications to comply with mandates under the Health Insurance Portability and Accountability Act of 1996 for the use of standard transactions and standard identifiers.

Healtheon/WebMD Today

The above describes Healtheon as it was. The www.webmd.com healthcare portal introduced by Healtheon after its merger with WebMD shows what it is trying to become.

The webmd.com site has five sections targeted at different audiences: consumers, physicians, nurses, health teachers, and office managers. It also has a button providing access to BenefitCentral, a service that allows employees of companies that use Healtheon's network to enroll in employee benefits.

Physicians. The section targeted at doctors includes the typical laundry list of services found on most vertical market portals; however, the list also includes some of Healtheon's traditional transaction services. Typical portal services it offers include news, continuing education, online communities, a library of medical literature, a database on drugs, disease updates, access to the National Library of Medicine (MEDLINE) and other databases, want ads, resume posting, a Web site with information customized to the doctor's own medical practice, and a store (selling supplies, equipment, books, and computers).

Some of the transaction and other software services available are from Healtheon's original offerings or closely related to them. These include clinical services allowing the doctor to order and receive clinical reports; Dx, a service that allows the doctor to order lab tests and obtain results; online, real-time claims, eligibility, referrals and claims processing; and a fee schedule analyzer that allows the doctor to create, view, and analyze fee schedules. These services form WebMDPractice.

Consumers. The consumer section of the site includes a "lite" version of the medical information services provided to physicians plus the typical consumer portal services: medical news, a medical library, an online health magazine, sections of information on major diseases, live chats with health experts, online communities, chat rooms, message boards by topic, personalized content, calculators that allow the consumer to count calories or measure health, and a sports and fitness store.

There is no obvious attempt to link consumers directly into Healtheon's back-end network services, although two services show how the site might evolve in that direction. The site includes a list of physicians that consumers are invited to use in order to select a doctor. It also offers MyHealthRecord, which it describes as "a private place to store your health information." If an individual's health record is stored in a single place, medical professionals can update it every time the individual receives healthcare. Physicians' clinical reports, lab reports, and drug prescriptions can accumulate in a single place. Such a feature, adequately supported by back-end services, could have tremendous value.

Nurses. This section of the site is not yet live. This list of features is similar to those in the consumer and physician parts of the site. It includes news; participation in online polls; information on parenting, fitness, and juggling multiple demands; information to help nurses manage their careers; online continuing education courses; a store; a library; and online discussion groups. It also promises to give nurses a host of tools—as yet unidentified—to help them give patient care, teach patients, and share best practices. This section of the site does not appear likely to integrate into Healtheon's back-end network—at least not any time soon.

Health teachers. This section of the site is targeted at grade school and high school health teachers. It includes lesson plans that allow the teacher to meet the National Health Education Standards. The goal is to improve the health literacy of those who teach health. The site currently includes lesson guides on the following topics: tobacco, nutrition, family health and sexuality, mental health, alcohol and other drugs, physical activity, injury prevention, community and environmental health, and personal and consumer health. No attempt appears to have been made to integrate this section of the site into the other sections. The site does not offer a teacher-oriented version of the portal services targeted at the other key audiences.

Office managers. This section of the site includes only an online questionnaire at this time. It appears targeted at physicians' office managers. The questionnaire asks for information on the number of physicians in the practice, their specialty, the number of claims processed a month, and whether the claims are submitted electronically. Physicians' office managers are the logical target markets for many of Healtheon's back end network services.

BenefitCentral. BenefitCentral is Healtheon's transaction service that automates enrollment, benefit administration, and distribution of eligibility data to insurance carriers. It includes a section called MyBenefits that allows employees to do their own enrollment. Employees who access these services through the WebMD site clearly have access to all the consumer services provided by the site.

In its announcement of its 1999 year-end results, Healtheon released information on usage of its various services.

• Over 100,000 individuals, including 80,000 physicians, are registered users of WebMD Practice.
• Healtheon/WebMD serves more than 100 health systems and is actively deploying services to 280,000 physicians.
• Page views on the company's site increased from 47 million in the third quarter of 1999 to 79 million in the fourth quarter. Unique visitors increased from .7 million in September 1999 to 1.7 million in December 1999.
• Online community members increased from 450,000 in September 1999 to 700,000 in December.
• As of January 2000, more than 850,000 consumers were enrolled in one of its 57 support communities.

These results are impressive, but they also show that Healtheon/WebMD is very far from its goal of becoming the universal end-to-end Internet healthcare company connecting doctors and consumers to the entire healthcare industry.

New Alliances and Acquisitions

The company's announced acquisitions and alliances should add significantly to the above totals. The remainder of this article examines these arrangements.

Transaction network. Healtheon/WebMD has made three major acquisitions that raise the number of industry participants connected to its network significantly.

• ENVOY Corporation, a provider of healthcare electronic data interchange products, one of Healtheon's previous competitors.
• Medical Manager Corporation and its publicly traded subsidiary, CareInsite. Medical Manager Corporation is a provider of physician's practice management systems.
• CareInsite is an Internet-based healthcare network designed to enable physicians to conduct clinical and administrative transactions at the point of care.

As a result of these acquisitions, Healtheon/WebMD says it will serve 400,000 physicians, 46,000 pharmacies, 47,000 dentists, 4,500 hospitals, and 900 payers including approximately 45 Blue Cross/Blue Shield plans, 60 Medicare plans, and 40 Medicaid plans.

Physician’s practice management software. In addition to its acquisition of Medical Manager Corporation, Healtheon also entered strategic alliances with several other providers of physician's practice management software that will allow the integration of that software with the WebMD Internet site. These alliance partners are Medic Computer Systems, which has 11,000 practice sites with more than 65,000 physicians; and InfoCure, which currently serves 75,000 physicians. Healtheon believes these alliances will drive up usage of WebMD Practice, the physician-oriented part of its portal.

Healtheon has established another alliance with Medtronics that will allow WebMD to serve as the portal through which Metronics' patient management system can be accessed. Medtronics is a supplier of a variety of diagnostic and therapeutic devices. It will become WebMD's sponsor and advertising partner in disease categories for which Medtronics supplies these devices. These diseases include cardiovascular, peripheral vascular, and neurological diseases plus a number of others.

Clinical information diffusion. In January 2000, Healtheon/WebMD announced an alliance with IDX Systems and its ChannelHealth subsidiary. The goal of the alliance is to enable physicians to automate clinical workflow and deliver personalized care via the Internet. As part of the alliance, Healtheon will make ChannelHealth's outreach service, which provides Internet access to clinical information stored in IDX systems, available to customers of WebMD Practice.

In February 2000, Healtheon closed the acquisition of Kinetra, a provider of clinical document distribution services to hospitals and payors. It conducts 50 million electronic clinical transactions for 200 healthcare organizations and 50,000 physicians a year. Healtheon will be able to feed Kinetra's clinical reports through WebMD Practice.

Technology integration. In December 1999, the company entered a strategic relationship with EDS, which will use the WebMD portal as its Internet front-end and will provide Healtheon access to its technology integration resources to assist it in consolidating its transaction processing centers.

Pharmacies. In January 2000, the company established an alliance with CVS Pharmacy under which that pharmacy will be the only one offered to consumers through the WebMD consumer health site. In return, Healtheon/WebMD will furnish distribution, content, community, and connectivity to CVS and its affiliates.

The service will allow the transmission of prescriptions electronically from the doctor's office, to the CVS pharmacies, to the patient; and from CVS' benefits managers to third-party payors and pharmacy benefit managers. Approximately 50 million pharmacy transactions will move to Healtheon/WebMD. In July 1999, Healtheon announced a pilot test of a similar service for Merck-Medco Managed Care, a provider of prescription drugs.

Pharmaceuticals. Healtheon also has a marketing alliance with Eli Lilly and Company. Lilly will use WebMD's content and services in return for a multi-million dollar fee.

Managed care. Healtheon/WebMD continues to pick up additional business from managed care organizations. In January 2000, it announced a strategic relationship with Humana under which it will provide Internet content and connectivity services in at least three Humana Healthcare Community markets. Humana will leverage the complete assets of Healtheon/WebMD, including portal services, transactions and content for physicians and their members, and other promotional and branding activities.

Humana has underwritten subscriptions to WedMDPractice for more than 330,000 Humana network doctors. Together the two firms will offer such member services as claim status inquiries, explanation of benefits, electronic ordering of new ID cards, and primary care physician changes. They will offer Humana's provider community eligibility and claim status inquiries, referrals, and authorizations. They hope to facilitate auto-adjudication of claims with automatic electronic funds transfer payment at the point of care. The goal is to cut claim payment processing from days or months to hours or minutes.

News. Healtheon/WebMD has also established an assortment of alliances with providers of medical news and other similar information. Its most noteworthy alliance is with News Corp., the $14 billion in annual revenue global media company headed by Rupert Murdoch. The alliance calls for integrated programming and cross-promotion on a global scale. Healtheon/WebMD now provides content feeds to FOX cable television and integrated content and branding to its online properties. FOX news has been integrated into WebMD, and a traditional medical branding campaign has been launched across the News Corporation's television, print, radio, and store properties.

The others. Space does not permit coverage of all of Healtheon/WebMD's alliances. There are many more, including several involving the creation of special sports-medicine-oriented portals. The intent here has been to suggest their broad scope.

The money. These alliances, combined with investments by other interested parties, have given Healtheon/WebMD 5,000 employees and more than $1.5 billion in cash. Here are some sources of this cash. Under the deal it has negotiated with the Murdoch organization, Murdoch has received 23 million shares of Healtheon/WebMD stock. In return for that, it is providing WebMD with $700 million worth of branding services, $100 million in cash, a $100 investment for an international joint venture, and a $60 million 5-year licensing agreement.

During 1999, Microsoft announced an investment of $250 million in WebMD. In January 2000, the mutual funds managed by Janus Capital Corporation invested $930 million for 15 million common shares in Healtheon/WebMD. Tens of millions of dollars have filtered in from other alliance partners.

The net result is that Healtheon/WebMD has the resources and relationships to become a major player in the delivery and management of healthcare. If it is reasonably successful in attracting a large consumer audience, it could have a powerful influence on how and to whom money flows in the healthcare system. At the very least, it is likely to give a powerful boost to Healtheon's traditional back-end transaction business.

One cannot help wondering whether it will also transfer a lot of medical decisions from the physician to the consumer. Consider the following scenario:

An individual enters his symptoms into some kind of an Internet calculator and sees the results. He scans through a section of the site directed at people with such symptoms. He enters an online community frequented by such people. He asks questions and receives answers. A physician, who monitors the community, also provides information. This section of the site includes promotions from pharmaceutical companies and other firms offering products and services designed to relieve the individual's symptoms. Assume all of these services are personalized for the individual on the basis of his confidential health records stored on the site. The individual only sees options that are appropriate for someone with his health condition. If his symptoms diverge dramatically from those already stored in his health file, he receives an immediate instruction to consult a physician. If the symptoms are consistent with his health file, the site suggests one or more possible diagnoses. Using all of the above information, the individual then diagnoses himself and decides on a treatment plan.

Of course, as things now stand, the individual will have to visit a physician to have his diagnosis confirmed or denied and treatment prescribed. Will he really need to? Clearly Healtheon/WebMD wants him to do so because executing transactions involving doctors is an important part of its business model.

The opportunity for commercial interests to dictate what medical alternatives are visible to consumers has troubling aspects. Rupert Murdoch presumably cares little about whether the medical information made available through FOX cable channels provides any real medical benefit. He cares only whether people like it enough to buy the products he advertises. However, Healtheon/WebMD proclaims that its medical writers will have complete editorial independence from its commercial interests.

The next decade in healthcare delivery is shaping up to be even more interesting than the past one.