Healtheon:
Establishing a Beachhead for Care Management
SUMMARY:
Healtheon is a company to put on your radar screen. Its Internet
business model is easily adaptable for future care management
applications (disease management, demand management, case
management, population health). Depending on your
organization's role in care management, Healtheon might soon be your
vendor, competitor or partner.
BACKGROUND: HEALTHEON AND ITS INTERNET
BUSINESS MODEL
The Internet promises two transformational improvements for
healthcare applications:(1) transactions processing (2)
communications (among providers, between providers and patients, and
patient access to medical information)
Healtheon's
initial value proposition focuses on improved transactions
processing. A Wall Street Journal article appearing in October
1998 noted that "the Healtheon project is a showcase example of the
computer industry's plans to shake up healthcare, in which $200
billion a year is spent on record-keeping chores."
As described in the summary of its
January 1999 prospectus, "Healtheon is pioneering
the use of the Internet to simplify workflows, decrease costs and
improve the quality of patient care. Our solution enables the secure
exchange of information among disparate healthcare healthcare
information systems and supports a broad range of healthcare
transactions, including enrollment, eligibility determination,
referrals and authorizations, laboratory and diagnostic test
ordering, clinical data retrieval and claims processing."
Healtheon was started in 1995 by Jim Clark, who previously
founded Netscape and Silicon Graphics. In February 1999
Healtheon conducted an initial public offering (IPO).
So how's the stock doing? Healtheon's stock was issued on
February
11at $8 per share. It's first day close at 31˝ made it the
third largest IPO percentage gain EVER. On April 15 the stock
hit a high of 60˝. Do we have your attention?
The Wall Street Journal article eloquently summarized many of the
difficulties in developing integrated data systems and applications
in local health care delivery systems. "Fragmented nature of
medical data. There isn't any master databank for patients..limited
information is scattered among countless doctors, insurers, labs,
pharmacies and employers. Data quality is erratic..many
parties don't trust the others enough to share information freely..a
hodgepodge of incompatible computer systems..almost every aspect of
medical record-keeping is hard to standardize, and thus hard to
automate..no one orders doctors around..If physicians don't trust a
new computer system, they will attack it with all the vengeance of
white blood cells fighting an infection." The article noted
that Healtheon "has yet to put a working Internet system in a
single doctor's office."
Healtheon's prospectus contained the usual list of risks
pontificated by attorneys earning $450 per hour (e.g., it would not
be good for the company if a 747 crashed on the headquarters).
However, the prospectus also was unusually candid in its 10 page
description of risks the company faced:
"Our revenue and income potential is unproven and our business model
is still emerging..we will continue to lose money through
1999..Manypotential partners may resist working with us until our
applications and services have been successfully introduced and have
achieved market acceptance..We may lose our current customers if any
acquired companies have relationships with competitors of our
customers..Our platform infrastructure and its capability are not
proven..So far, we have processed a limited number and variety of
transactions over our platform. Similarly, a limited number of
healthcare participants use our platform..We depend on the adoption
of the Internet solutions..Our revenues are concentrated in a few
customers..Government regulation could affect our business -- user
privacy, pricing, content, copyrights, distribution..The sales and
implementation cycles for our solutions can be lengthy." The
prospectus also noted that as of September 30, 1998 the company had
an accumulated deficit of $85 million.
IMPLICATIONS FOR CARE MANAGEMENT
Healtheon's primary initial focus is on transactions processing in
health care. Why should organizations focusing on care
management (disease management, demand management, case management,
prevention) pay attention? The answer is straightforward:
The Internet also promises to be the infrastructure to enable care
management applications of the future.
Do you remember the early scenes of the movie Saving Private Ryan?
The scene was D-Day of World War II. The fighting was bitter.
Allied troops fought determinedly to establish their beachhead on
the shores of Western France. Casualties were
particularly high among the first troops to land.
Healtheon is also trying to do something very important and very
difficult. It is working diligently to establish a beachhead
into local health care delivery systems through application of
Internet and web technologies. And there is a LOT of money
riding on their ability to be successful.
What's going on here? How can you explain Healtheon's stock
price?
First, Healtheon's stock has been buoyed by the valuations being
received by virtually all Internet companies.
Second, Healtheon brings an impeccable pedigree. Its venture
capitalists, management, advisors, investment bankers and partners
form an impressive Who's Who list. Wall Street's finest are
working diligently to penetrate Main Street health care delivery.
Finally, Healtheon promises to save billions in health care costs
with its Internet focused business model.
Microsoft and Data General recently announced
results of a survey at the National Managed HealthCare Congress.
Respondents were from managed care organizations, healthcare
providers, and technology vendors. "74% of respondents claim that
Internet and Web technology will be their remote physician access
strategy." Currently, 17% of respondents are using the Internet for
(some) provider transactions. This gap between actual and intended
use of Internet applications in health care is another measure of
the magnitude of the perceived opportunity.
Healtheon is a company to watch carefully. If it is successful
at establishing a beachhead in Internet transaction processing, care
management applications will be sure to follow.
Additional commentary about Healtheon can be found at the following
URLs:
E-CareManagement News is an
e-newsletter that tracks a major change in health care and managed
care—the paradigm shift from “managing cost” to “managing care”.
This e-newsletter is brought to you by Better Health Technologies,
LLC (http://www.bhtinfo.com). BHT provides consulting and
business development services relating to disease management, demand
management, and patient health information technologies.
