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E-CareManagement News

April 23, 1999



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:

"Healtheon's Healthy Debut"

"Healtheon:  Read it and Weep"

"An Interview with Jim Clark"



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.

You may copy, reprint or forward this newsletter to friends, colleagues or customers, as long as the use is not for resale or profit and the following copyright notice is included intact. Copyright © 1999, Better Health Technologies, LLC. All rights reserved.



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