__ Netscapee Jim Clark's latest dream scheme is called Healtheon. The prescription: HMO + TCP = IP0. __
When Jim Clark let it be known in late 1995 that he was starting a new technology venture, the cicadas in Silicon Valley set up a racket. Another Clark IPO was coming, the tech world buzzed. It seemed to matter little just what the new project was. Clark carried laurels (and satchels of cash) from start-up triumphs at Silicon Graphics and Netscape. Whatever it was he was doing next would be worth getting a piece of. Midas 2.0 was on the job.
Clark's new venture, as it happened, was about health care - the quagmire that drew young Bill Clinton's best and brightest into a battle that concluded in a debacle that was half Vietnam, half Spruce Goose. In the aftermath, the Health Care War of '93-'94 stood as a monument to political miscalculation, bureaucratic overreaching, and the power of an industry both too big and too complex to be outflanked. The bloodshed aside, though, the business of medicine remained a great entrepreneurial opportunity.
To wit: The health care industry accounts for one in every seven dollars spent in the US economy - in 1997, US$1 trillion. And, by some guesses, $276 billion of that total is cash wasted in unneeded or duplicated treatments or through the industry's administrative incompetence or clumsiness. Conventional wisdom: Big money awaits those who find a way of making the system more efficient.
And that's the way Clark saw it, too.
"I thought it was an inefficient market," Clark says. "I thought it was a big market. And I didn't think in recent years there were many talented people focused on it."
Thus Clark's new company, Healtheon Corporation. Its mission: to raze the tower of Babel built from thousands of incompatible software and hardware systems now used by the nation's insurers, employers, hospitals, drug companies, laboratories, pharmacies, and doctors and replace it with a single Internet-based platform that would let all of the above - and patients - communicate instantly about every transaction in every medical case.
In 1996, when Clark founded Healtheon with backing from Kleiner Perkins Caufield & Byers, he reportedly predicted he would sign up most of the nation's health plans by the end of 1997. The reality was a little different. Long after that deadline, Healtheon had signed deals with just five insurers: United HealthCare, Sun Life of Canada, Blue Shield of California, the Rocky Mountain Health Care Corp., and Blue Cross and Blue Shield of Massachusetts. And in the nearly three years since it started operations, the company has brought in revenues of just $47 million, with net losses of $73 million.
Time to cue to roiling black clouds and peals of thunder? Nope. In the first half of this year, Healtheon busied itself by buying out ActaMed and Metis, companies focused on medical data networks. It got ready for a fall rollout of its Net-based data-sharing application suite, Racer, in San Francisco. It entertained troupes of sharp dressers from Morgan Stanley, Goldman Sachs, Hambrecht & Quist, and Volpe Brown. And in a market infatuated with Net-related issues, the company did what had been anticipated from Day One - with a cautionary S-1 nod that "the health care industry ... has been extremely resistant to adopting new information technology solutions," Healtheon filed for its IPO.
An issue unraised amid the buzz about a Healtheon offering: How will the company's promise of a universal health data platform make life better for consumers? For a populace fed up with the best the system appears able to offer - some form of more or less strictly managed care - it's a question that's again drawing attention in Washington.
In an odd way, without the tightly run style of managed care that has become de rigeur in the United States, there would be no need for Healtheon. The company's platform smooths transactions between medical providers (doctors, hospitals, labs) and the payers (insurers, HMOs). The lifeblood of these transactions are the byzantine rules that HMOs use to determine which patients get what treatment under what circumstances. What's brilliant about Healtheon is that it uses the Net to give payers and providers quick decisions on how to proceed with treatment. But to the extent that patients have problems with the rules themselves, Healtheon doesn't do a thing.
Which is not to say Healtheon is entirely worthless to the consumer. If the company realizes its original vision, the platform will allow patients to consult their doctors online in complete, encryption-guarded privacy. It will also give them access to more information about treatment, medications, and billing. The platform thus could be a factor in improving medical care - or at least in improving consumers' perception of the experience.
Medicine is already rushing headlong in that direction.
"You're going to see the Internet being used to facilitate communication between physicians and patients," says Doug O'Boyle, program director of health care IT strategies for META Group, a Stamford, Connecticut, research firm. "And it can be used to monitor patients in their homes. There's software out there for diabetics to keep a personal health diary, then upload it back to the physician's office, or HMO, where it's monitored to see if there are any adverse reactions. Is the blood-sugar level rising? That would set off an alert to a nurse case manager, who could step in."
Early on, Healtheon ran into a brick wall with insurers who didn't, or didn't want to, get what the company was doing. "It was like pushing a rock uphill," says O'Boyle. "Even Clark acknowledged the insurance companies didn't understand the technology and didn't have the motivation to employ it." In July 1997, Clark brought in Mike Long from the El Segundo, California-based IT services company CSC as Healtheon's new CEO. Long quickly shifted Healtheon's strategy: Go for the doctors. After all, though doctors are notoriously slow to adopt information technology (only 1 to 3 percent of the nation's physicians keep patients' medical records on software), they are also the ones most frustrated by the jam of paperwork and ceaseless rounds of phone calls necessitated by managed care.
In retaliation, doctors have banded together in large networks that take on some aspects of the HMO role. The groups, called independent physician associations, agree to care for an HMO's patients for, say, $200 each per month, no matter what medical care is needed. In so doing, the network takes on all the financial risk, as well as the chores of approving referrals to specialists and labs.
The most important thing about the physician networks is that they're new: They don't have millions already invested in legacy computer systems or software. They don't have decades-old relationships with different information services companies (one for handling claims, one for enrollment, one for referrals, et cetera).
"We've been a decentralized cottage industry, and the traditional information systems based on huge mainframes in hospitals just don't work well for doctors," says Joe O'Hehir, CEO of Brown & Toland Physician Services Organization, a subsidiary of San Francisco's 1,200-doctor, 200,000-patient Brown & Toland Medical Group.
This fall Brown & Toland is rolling out Racer, which Healtheon designed after long days spent with San Francisco doctors in their offices. It's expensive: O'Hehir says the alliance with Healtheon will cost about $25 million over three years, slightly more than what Brown & Toland paid previously for information technology. But he anticipates Racer will so streamline transactions that the network will be able to add 25 percent more enrollees by the end of 1999 without hiring extra office staff.
The key? Racer will quickly tell Brown & Toland analysts which doctors often refer patients with routine medical problems to specialists, which treat with costly surgery when a drug might have sufficed, and whose bills for treatment are most often turned down by insurers. "We analyze that data now," says O'Hehir. "But it's very tedious and we're always working on a three- to four-month lag. With Racer we can get down to real time and, I think, greatly improve our practice management."
It's not much of a mystery why there's no cheering in the health care bleachers as Healtheon trots onto the field.
First, the industry is not a new one populated by aggressive young technologists. Although there's definitely a cutting edge - the giants who dominate pharmaceutical manufacturing, for instance, are in an endless race to get competing drugs patented, tested, and to market - the industry is older, slower, and more traditional than the high tech world. The very idea of marketing an open system, potentially available on the Web to any doctor, technician, employer, or patient, goes against the grain.
Not only is the health industry tangled in tradition, it's badly balkanized, too. Major hospitals and insurers in Massachusetts, say, are unknowns in California. One prominent feature of this fractured landscape is the profusion of hardware and software systems meant to help the hundreds of thousands of US medical providers with referrals, billings, and collections. By one estimate there are about 5,000 firms currently selling infotech services to the industry. Healtheon's Net-based platform would allow the mismatched pieces to work together more efficiently, potentially putting a lot of companies out of business and prompting new competition.
"It's fair to say that most companies in health care somehow have their sights set on the Healtheon concept," says Janice Young, an analyst with the Gartner Group in Stamford, Connecticut. "Everyone is slowly marching toward the Healtheon vision."
All the big medical IT companies - including HBO & Company, Shared Medical Systems, Cerner, and IDX Systems - are looking at the Internet, says Dennis Byron, a manager of vertical industry applications for IDC, a market research company in Framingham, Massachusetts. Byron expects most of these big firms to adopt the new technology and survive. But it seems there's room for the likes of Healtheon to become a major player. "Some star is going to come from nowhere," he says, and join the top rank of health care IT companies.
As entrenched and traditional as the industry is, it's unlikely that any company will come to dominate the health care space à la Microsoft and the PC desktop. "Eventually you'll see maybe 500 companies providing health care IT services around an Internet platform," predicts Matthew Holt, a vice president with Louis Harris and Associates, a research firm in New York.
Whether Healtheon becomes the new star Byron foresees or simply one of the 500 IT providers, there is money to be made.
In a report last year, "Health Care on the Line," Bedrock Capital Partners managing director Jay Rosenbluth gave an idea of just how much money is at stake. Rosenbluth figured an investment of $50 billion in smart information technology could save the nation's bloated health care business $276 billion. Even if that estimate is overblown, the industry spent only about $15 billion last year on IT. "You're looking at an industry that historically has been very underautomated. It's not going to catch up overnight," says Rosenbluth. "But the potential for a huge, growing market is there."
Jim Clark isn't inclined to argue numbers. A billion dollars is a billion dollars, after all. If $276 billion is lying loose, there should be plenty to go around.
"Out of the effort Healtheon has under way should come a set of standards that should allow data exchange, claims information, scheduling and administrative efficiency," he says. "Whether or not we create a central standard and cause everyone else to conform to that standard - whether or not we do that - Healtheon becomes a very big company."
Clark chuckles. Some things he can't resist saying, especially if he knows it'll irk the giants of the health care industry.
"The Internet is ushering in a set of changes that are unstoppable," he drawls. "And no big company can replace the passion and energy of a bunch of young, talented people who know more about the Net than anyone. It's very common for large companies to say, 'Oh, as soon as we want we can come in and stop these upstarts.'
But it's very rare that they can."
