To The Rescue!

ILLUSTRATION FOR TIME BY STEVEN GUARNACCIA

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Intelligent digital health records have long been the industry's holy grail, though today just 10% to 15% of all charts are electronic. Their appeal is obvious. It costs about $9 every time a doctor pulls a chart, which is often incomplete. When a patient arrives at an emergency room or calls a doctor, there is seldom time to consult his documented medical history. In the event of a drug recall, wading through stacks of files to find patients at risk isn't an option.

"We're really running small businesses but haven't been given any of the tools to do it," says Orly Avitzur, a Tarrytown, N.Y., neurologist who pays $99 a month for a digital charting program from Medscape. Working at her Dell laptop, Avitzur is automatically prompted to ask her patients about certain symptoms, from dizziness to headaches. She no longer has to shell out $15,000 annually to have her scribbled notes and dictations transcribed, and she can send info to insurers or other consulting doctors in a matter of hours, not days.

This all sounds great, but there's still one major problem. "Who's going to pay?" asks Ron Gue, president of IT consultant Phoenix Health Systems. Two months ago, McKesson shut down its bleeding Net division. Still, application service providers, which let doctors subscribe to online software services instead of investing $50,000 to $100,000 to install server computers on the premises, may well be "small practices' salvation," says Carl Dvorak, vice president at Epic Systems.

Ultimately, insurers and employers, who stand to benefit most from these cost-saving tools, may foot much of the doctors' bill. Already, pbms are helping to subsidize some of the $100-to-$200 monthly cost for the handheld systems. General Motors has struck a deal with Medscape to get its medical-record software into the hands of its employees' doctors. Pharmaceutical giants like Aventis, Eli Lilly and Johnson & Johnson are investing in the technology, which they view as a valuable new marketing tool.

This summer a new outfit called MedUnite will try to close the loop. Formed by large insurers, including Aetna, Cigna and Oxford, that didn't like the idea of WebMD coming between them and their core customers, MedUnite will try to offer intelligent connectivity to doctors and HMOs in order to speed claims, referrals and eligibility checks--and to cut costs. "Who better to work out the relationship with HMOs than the HMOs themselves?" asks Dave Cox, MedUnite's CEO.

Most physicians have a quick answer: almost anybody else. Given managed care's sorry record, it's easy to see how doctors might be just a bit skeptical. While the administrative savings could be big for HMOs, they still earn 10% to 30% of their profits from the float--the interest on holding onto their premiums for an extra 30 to 90 days. At the same time, industry coalitions like MedUnite often collapse.

That's what WebMD is counting on. Over the past year, the poster boy of e-Health's promise and initial failure has finally found a way to get an appointment with the doctor. As part of its massive buying binge--some 20 companies in 14 months--WebMD purchased two of the old-line health-care technology players it was out to destroy: Medical Manager, a leading practice-management system that does basic billing and scheduling for 185,000 physicians, and Envoy, an old electronic-claims clearinghouse.

WebMD CEO and chairman Martin Wygod, a grizzled, respected veteran of the health-care industry who founded Medco, the first PBM, might be the company's most important asset. With Jeff Arnold and Jim Clark gone, Wygod has brought in some much needed adult supervision, dumped non-core assets, cut back costly marketing agreements and glitzy content deals, and stitched up a bleeding balance sheet.

"It's theirs to mess up," says Larry Feinberg, health-care hedge-fund manager at Oracle Partners. WebMD lost $246 million last year, despite more than doubling revenues, to $517 million. But the loss was smaller than anticipated, and it expects to turn a profit later this year. To compete with Allscripts and other e-scription players, Wygod is racing to roll out his own portable platform. He just inked a deal to be the primary content provider for Microsoft's MSN service.

On the administrative side, some 30% of doctors' claims leave the office with errors, and nearly 15% get lost, costing physicians $35,000 to $100,000 in unpaid claims each year. Only about 40% of doctors' claims are transmitted electronically today, and most of those move through a clumsy, relatively archaic electronic data interchange that doesn't have much built-in intelligence. Still, automating claims processing isn't exactly a gold mine. It yields WebMD just pennies a pop.