Health Plans Unite Against WebMD - MedUnite - Internet/Web/Online Service Information

Industry Standard, The, Nov 27, 2000 by Lisa Shuchman

The old-line medical industry is determined to compete with Internet interlopers.

AS ONLINE MEDICAL COMPANY WebMD struggles to make money and remake its image, here comes a potentially formidable rival: MedUnite, a company formed by some of the nation's biggest health care plans.

The official unveiling of MedUnite last week is the clearest signal yet that old-line health companies intend to compete head-on with Internet startups -- startups that have been promising to radically revamp the way the trillion-dollar medical industry does business.

San Diego-based MedUnite will process medical claims, verify patient's insurance and perform other online transactions for doctors and health plans.

Processing such transactions is a core part of WebMD's business model. WebMD currently handles a relatively small percentage of its medical claims online. While the company owns the world's largest electronic claims processor, Envoy, moving Envoy's electronic transactions to the Internet to allow for real-time processing of medical claims has been a laborious task. The emergence of MedUnite means the race is on to capture the business of health plans and doctors by providing real-time payment of medical claims.

The new competitor could be a real pain in WebMD's side. Seven big health plans -- Aetna, Anthem, Cigna, Health Net, Oxford, PacifiCare and WellPoint Health Networks -- own MedUnite. Together, the health plans serve 61 million patients. WebMD, which already is coming under pressure from investors to prove its business model is sound, last week reported a net loss of $786.9 million, or $3.17 a share, on revenue of $151.2 million.

The turmoil hits as WebMD is undergoing a major transition. It is adjusting to the departure of co-founder Jeff Arnold and the takeover of the CEO spot by health industry veteran Marty Wygod. The company is moving from Arnold's hometown of Atlanta to Wygod's base in the New York area. And WebMD is in the midst of restructuring and integrating $8.2 billion worth of acquisitions it made over the past year.

When WebMD acquired Envoy, it lodged a threat taken seriously by health maintenance organizations and insurers faced with declining profits and a public image that ranks just somewhere above the tobacco industry's.

"They wanted to keep control of their brand and maintain contact with their plan members," says Caren Taylor, a health care analyst at Wit SoundView. "And they feared WebMD was inserting itself between them."

The health plans also wanted to maintain control over their proprietary information, according to MedUnite CEO Dave Cox. There was nothing to prevent WebMD from selling data it collected from processing the health plans' medical claims, he notes.

But in a conference call with analysts last week, Wygod said WebMD had been meeting with insurers to explain the company's restructuring and future plans. "There's a very high comfort level that we are no longer a threat," Wygod said.

The goal of the MedUnite service is to enable doctors to file claims easily and get paid quickly. Cox says health care providers will be able to get responses directly from insurers in real time, letting them determine immediately whether a patient is eligible for treatment and whether a claim has been filed correctly.

"Handling health care business transactions will be as easy as using an automated teller machine," says Cox, a former Reagan administration official and top executive at software maker Science Applications International.

Cox, who says MedUnite will answer doctors' queries "in seconds," is counting on the quick payment of medical claims to give his company an edge over competitors.

Another advantage is that MedUnite is privately held, operating as a joint venture among the founding health plans.

"It's important to be able to invest in the technology you need and concentrate on service rather than worry about what Wall Street has to say," Cox says.

MedUnite is not releasing any financial information. But Cox says the health plans have invested "a substantial amount of money," and notes that additional insurers that are not founding investors are also interested in signing on.

A healthy future for MedUnite is by no means assured, however. The Internet-based health care industry has proven to be extraordinarily tough, and moving medical transactions to the Internet is exceedingly complex. And MedUnite faces an added risk because it does not plan to roll out nationally until June or July - an indication that its online services are still under development.

MedUnite plans to launch with a pilot program in February, using between 400 and 500 doctors. "But it has yet to prove it can get off the ground, much less make health care providers use it," says Taylor, the health care analyst.

It's also questionable whether such fierce competitors as the health-plan companies can keep their ambitions and conflicts in check to allow MedUnite to succeed.

Already, some MedUnite investor members operate Internet services of their own. And since many doctors use Envoy or other systems to submit claims, it will take a big marketing push to get them to switch to or add a separate service.