Why Internet-based software has not been as big a hit with doctors as was hoped.

Tracking the swarm of dot-com companies that has emerged in recent years is nearly a cottage industry. One niche among these enterprises is occupied by companies aimed at the health care market. Like the dot-com market in general, these health-oriented companies are having their ups and downs.

The health care companies are a varied lot. Some are aimed at the health consumer, some at physicians, some at health care providers other than physicians, and some at both consumers and providers. The health care dot-coms have as many financial models as they have audiences. And as with the rest of the dot-coms, profitability is proving elusive.

Entrepreneurs have looked at the health care system and noted several areas in which a profit might be made. Elimination of paper was one area of opportunity. Use of computers and the Internet to transmit and translate data between all the participants in the health care system has also been a targeted area. And using the Internet to provide medical information to health care providers and consumers has also been a fruitful area for Internet pioneers.

Forward and back
Early entrants into the Internet health care market have sorted out two types of tasks for which the Internet could be used. So-called front-end tasks are all of those up to and including the encounter between the physician and patient, while back-end tasks are those performed after the physician–patient encounter.

Some front-end companies provide information to patients and health care providers before or during a patient–physician encounter. This function is roughly parallel to the medical library and pharmaceutical formulary. By adding a search function to this virtual library, the patient or physician can browse the range of treatments available for a given condition or find the side effects or cross-reactions of a prescribed medication. Real-time cost comparisons of diagnostics and treatments also become possible. The front end includes the creation, maintenance, and storage of a digital medical record. It also includes e-mail between doctor, patient, and other participants in the system.

Back-end companies deal with data flow after the provider–patient encounter, when information moves from doctors and other providers to private insurers or government payers. This is the money end. It is perhaps the most technologically complex part of the new system. Data from many sources and types of systems must be forwarded to the correct destination and translated into a usable form.

Front end
Front-end companies have two basic financial models, subscriptions and advertising (sponsorship). The front-end market has had failures and mergers, but it continues to have several players.

MDConsult.com uses a subscription model. The company was formed in October 1997 and is intended to function as a medical library for its subscribers. According to company president Jerry Freeland, it has just short of 200,000 subscribers. More than half are primary care providers, and the rest are specialists or hospital-based physicians. Nearly 600 hospitals and 103 of 125 U.S. medical schools provide MDConsult as a resource for their staffs. Users can search a good selection of up-to-date medical texts and a wide range of journals and download the desired information. A significant minority of MDConsult’s subscribers are overseas physicians who do not have access to the capacious medical libraries common in North America. Individual subscriptions to the service cost $20 a month or $200 a year. According to Freeland, the company has been profitable for the past six months.

Medscape.com provides some of the same services as MDConsult but uses advertising to pay the bills. George Lundberg is the chief medical officer. Lundberg says that the company provides access to accurate and up-to-date medical information to help clinicians practice evidence-based medicine. And the company provides drug formulary and prescribing services for clinicians using Palm digital devices. Another division of Medscape provides Internet-based medical records for outpatient visits. According to Lundberg, the system uses passwords to protect patient data. In January 2001, the site had its first million-hit day. Of the 600,000 doctors who have used Medscape, half are overseas. Lundberg expects the company to be profitable later this year.

Back end
Back-end companies take claims data from physicians, pharmacies, laboratories, and medical equipment suppliers and forward it to insurers, health maintenance organizations (HMOs), and government payors. This segment is dominated by WebMD, formed in 1996. In the past two years, it has acquired half a dozen of its smaller competitors.

WebMD generates some revenue from physician subscriptions to its newly acquired front end; however, the bread and butter continues to be fees charged for each back-end transaction. More than 1000 of WebMD’s 5000 employees work on the technology for handling data flow across the wildly varied computer systems used by their customers. The company intends to be profitable this year, but it now is in competition with a group composed of six of the largest health insurance providers who do not wish to pay fees.

To understand why doctors are not moving whole hog onto the Internet, consider the challenges physicians face. Health care is said to account for one of every seven dollars spent in the United States and now is the largest sector of our economy. A significant portion of this market is funded by the federal government, a smaller portion by state and local governments, and the rest by insurers and individuals. Nearly all of the insurers are funded by business on behalf of their employees.

Given that most Americans have their health care paid for by someone else, we tend not to be cost-sensitive and we don’t see the inefficiencies. Because our employer pays for it, we have no qualms about taking the more expensive choice offered to us. This is one of the factors driving up costs in our ruinously expensive health care system.

Another factor raising costs is the fragmentation of the sector; the sheer number of entities in health care imposes a cost burden. Each entity adds its own cost. Consider the range of federal health care-related agencies, bureaus, and authorities, each with its own rules, regulations, and costs. Now add a second layer of state rules and regulations. Then add county and city requirements. All these rules and regulations are promulgated, usually as printed matter, to hundreds of insurers, HMOs, independent practice associations, and individuals.

Subject to this blizzard of paperwork are 5000 hospitals. The system also includes thousands of pharmacies and hundreds of pharmaceutical companies. Also in the mix are nursing homes and assisted living facilities. Medical equipment and supply companies vie for their share of the health care dollar, as do laboratories. Insurance companies and HMOs add their paperwork requirements. Back-end companies such as WebMD propose using computers and the Internet to do away with most of the paper flying around the system and to ensure that computers understand each other.

Docs in the middle
In the middle of this disjointed nonsystem is the physician. More than 600,000 physicians serve the United States. Nearly half are in one- or two-person practices, about a quarter are in group practices, perhaps 15% are in nongovernmental hospitals, and close to 10% work for some form of government (5% are unclassified).

These physicians see patients and make the whole system function. They must strive to satisfy not only the patient, but also the hospital, the pharmacy, the insurer, and who knows how many government agencies. Of all the parties in the health care system, it is the physician who potentially has the least to gain and the most to lose by moving to a computerized, Internet-based medical system. Physicians see little financial gain for themselves, for any money saved is unlikely to go to them. They see little reason to invest time and money in hardware or software that will cut expenses for insurance companies or the government. And many physicians fear that more regulations and bureaucracy will interfere with doctor–patient negotiation, which is at the heart of medicine. Physicians have only their time to sell to patients, and they are cautious of even so simple a thing as e-mail. How will they be paid for an e-mail exchange with a patient? What will be their liability for that e-mail interchange or for the privacy of electronic medical records?

According to James C. Robinson (1), more than $1 billion was invested in Internet health care companies in 1999 and 2000. Some of those companies are gone, many have merged, and most of the rest have lost considerable value in the market. Early Internet entrants, such as the front-end company DrKoop.com and the back-end company MedicaLogic, have lost up to 90% of their initial valuation, according to Robinson.

Given these early setbacks, Robinson says that we are only at the end of the beginning of the health care Internet. He envisions that the present shakeout of Internet-based health care companies will continue, perhaps at a slower rate. The need for savings and cost-cutting in this huge, fragmented, paper-bound system still exists. Even though the health care system does not function as a classical economic market, economies of scale are possible, as are improvements in efficiency. Rather than transmit sheets of paper from player to player, why not communicate electronically? Make up-to-date information available to the care provider electronically as the care is being provided. Monitor medications and treatments as they are prescribed. Collect and collate data automatically on every case for comparison with other, similar cases.

All of these goals are worthy, yet none is near accomplishment. Unprecedented collaboration by all of the parties involved will be required before health care and the Internet are merged.

Reference

1. Robinson, J. C. Health Affairs 2000, 19 (6), 72–88.