E-health sites move to the small time 

The big for-profit e-health sites have fallen on hard times.  This fact was recently brought home when DrKoop.com Inc., a site whose market value peaked in 1999 at 1.5 billion (that's with a B) dollars, was sold for a mere $186,000.  Other large health websites, such as WebMD, are still muddling along, but at a tiny fraction of their peak valuses.

This state of affairs has made DrRich (whose site is worth today every penny of its worth in early 2000) nostalgic for the old days.  So here's a reprint of an article he wrote in 2000, just as the Internet bubble was beginning to pop, on the misguided business model adopted by Jim Clark, founder of Healtheon/WebMD:

At the Internet Healthcare 2000 conference in New York City this week (faithfully attended by DrRich), Charlie Rose interviewed  Jim Clark, founder of Healtheon/WebMD.  Clark is the only man who has ever started three separate billion dollar internet companies (Silicon Graphics, Netscape, and Healtheon).  According to Charlie Rose, some have called Clark the one individual with the best vision of the future of health care, at least with regard to internet technology.

While Clark remains bullish on Healtheon/WebMD (and backed up his bullishness by recently announcing, along with an associate, the purchase of an additional $200 million in stock), he is not at all bullish on health care enterprises in general.

The business model of Healtheon/WebMD is to create an on-line platform that joins payers, providers and consumers of health care, in order to squeeze out much of the inefficiency within the health care system.  Through strategic acquisitions and alliances, that platform has now been assembled. 

Despite his success in engineering Healtheon's infrastructure and establishing it as the clear leader in an enormously promising industry, Clark expressed significant frustration.  Healtheon has encountered unexpected resistance, from virtually all parties, to its efforts to recruit participants within the health care system.  Some of this resistance comes from doctors, Clark notes, who say they "are just too busy to learn about new things." (This prospect ought to frighten any of us who suspect we might end up as patients some day.) Some doctors, Clark says, even admit that they really don't want better communication with their patients. 

But even more frustrating to Clark is the reaction of HMOs and other health plans to the services Healtheon offers - namely, seamless transaction processing.  Clark notes that it costs the typical health plan $7.00 to process a claim process.  By using Healtheon's on-line service, health plans could conduct the same transactions for a mere $.70 - a savings of $6.30 (or 90%) per transaction.  But health plans have, in general, turned their back on these savings. They'll stick with business as usual, thank you.

When asked how health plans can simply walk away from easy savings like that, Clark seemed visibly disturbed. "I've given it a lot of thought," he replied, "and I have to say I really have no idea."  Clark admitted that he had been naive in assuming that health plans would respond favorably to a simple, no-risk opportunity to save dollars, and that the only conclusion he can draw from their negative response is that he really doesn't understand the health care system after all. (Clark, it should be noted, had modestly demurred when accused of being the world's greatest health care visionary.)

When Rose eventually asked him what his next health care venture was likely to be, Clark responded that, while Healtheon/WebMD is a great company with a great future, and while the potential for generating huge profits by making health care more efficient remains high, he personally has no intention of investing in any health care enterprises ever again.

DrRich comments: 

Jim Clark ought to spend an hour with our Grand Unification Theory, which fully explains why health plans would turn up their noses at a 90% savings in transaction processing.

Whenever you see a large organization (or a small organization, or an individual) behaving in a seemingly incomprehensible and counterproductive way, and whenever you see them fighting to the death any attempt to get them to change their apparently self-destructive behaviors, then you can be sure you don't understand the paradigm under which they're operating. In general, such bizarre behavior is explained by one of three things: a) psychosis (common in individuals, rare in organizations); b) religious fervor (common in individuals and in some organizations such as the Branch Davidians); or C) hidden sources of cash flow (common in large organizations.)

Health care plans are neither psychotic nor religious. To them, chaotic transaction processes simply make good fiscal sense. Chaos makes it far easier for them to obfuscate their rules for reimbursement (such as the arcane methodologies they use for determining "medical necessity"); to frustrate doctors and other providers to the point that dropping certain billing attempts becomes a reasonable economic decision; to frustrate patients into dropping their appeals efforts; and to delay as long as possible reimbursement for the bills that finally do get paid (an average lag of 8 months is not uncommon). When you consider that each transaction places the insurers at risk of having to pay out up to thousands of dollars, the idea of allowing Jim Clark to remove the chaos from the system in exchange for a mere $6.30 per transaction is absurd.

Shareholders are already angry enough at managed care companies, and would not tolerate a business decision as counterproductive as that.

Despite the fact that there is over $300 billion in "waste" every year in the health care system, and despite the fact that much of this waste looks, at first glance, like low-hanging fruit to entrepreneurs like Clark, most of those $300 billion is jealously guarded by one or another of the parties within the system.  It may look like waste to Jim Clark and to you and me, but to someone else it's bread on the table. 

04/28/2000

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