A bitter pill: Technology: A beast untamed

The grand ambitions of online health companies have been stymied by offline competition, the New Economy bust, opposition by physicians and daunting technological obstacles.

9 min read

Technology: A beast untamed

During a routine examination over the summer, Dr. Prem Misra spent as much time on the phone with an insurance company as he did with his patient.

The harried gastroenterologist had to punch in a series of ID numbers, codes and passwords on Cigna HealthCare's automated telephone system before getting the necessary eight-digit referral number--a cumbersome procedure he endures dozens of times a day. Still, Misra feels more comfortable with the phone than he does with a computer.

"I wouldn't want to get referrals through a computer. Every company has a different system over the Internet," he said, surrounded by stacks of medical journals and other papers littering his office. "Why bother? Dialing in is simple enough."

Such inertia is but one of a panoply of obstacles that have kept the health industry's technologies frozen in Silicon Valley's version of the Stone Age. Several years after Internet pioneer Jim Clark left Netscape Communications to shake up the way health care providers and insurance companies do business, little has changed.

As originally envisioned, Internet companies would revolutionize everything from insurance payments to prescription drug refills, automating every stage of the paperwork process and clearing away generations of stagnant bureaucracy. Instead, start-ups such as WebMD have been overwhelmed by the sheer size and depth of the technological challenge, encountering unforeseen problems in trying to integrate and update massively outdated systems for billing, insurance and even simple bookkeeping.

"What people always forget is that health care is a one-to-many business. You aren't connecting (General Motors) to 15 of its plants," said Roger Holstein, an executive at WebMD. "It is like connecting 500,000 doctors to their insurance payers, with each doctor probably having relationships with up to 75 insurers. The challenge is difficult."

These technological obstacles, compounded by the New Economy bust and cultural obstinacy within the medical profession, have slowed progress in the nascent industry and left it vulnerable to competition from the insurance companies whose operations were the primary target of the medical dot-coms. In one of the sharpest challenges to Internet-based health, a consortium of seven major insurers, including Aetna, Anthem, Cigna and Oxford, formed MedUnite, a company that plans to provide a Web-based transaction system.

Whichever side wins will face yet another daunting obstacle in this multibillion-dollar business: a government-imposed deadline that increasingly seems impossible to meet. The 1996 Health Information Portability and Accounting Act mandates that a greater percentage of medical transactions be conducted electronically by October 2002.

A problematic legacy
Modernizing the way health insurance carriers assess patients and process claims is a mind-boggling endeavor. Endless categories of benefits and payments for different medical situations vary from patient to patient depending on such factors as how they are insured, the size of their employers, and the type of health plan negotiated by their companies.

Perhaps underestimating the enormity of that task, online medical companies confidently promised new technologies that would allow doctors to review the full benefit plan of a specific patient immediately and at any given time, regardless of carrier. The information would be constantly updated to show how each patient's medical and prescription history relates to the current examination, the number of visits allowed under the designated health plan, and the latest pricing and payment procedures.

"To get to that point of service for transactions on the Internet will require that the full-fledged complexity of the payer back-end systems be open to the provider," said Jeff Margolis, chief executive at TriZetto Group, an Internet company that provides transaction services for the medical industry. "Not only do (the insurers) have to open up the back-end systems, but the front-end Internet interface has to be kept in constant sync."

"Opening up" back-end systems means sharing company and patient information--something that hospitals and insurance companies historically have been reluctant to do for privacy and competitive reasons. And even when such cooperation can be negotiated, getting these systems to work together is a daunting proposition.

The procedure appears so intricate that most have opted to continue using older Electronic Data Interchanges (EDIs)--closed networks that connect different insurance companies to physicians through clearinghouses--rather than to overhaul them through the Web. But the 1996 health law mandates that patients have the right to obtain their medical records in a timely fashion, and the Internet is the only network that can make that possible.

For an example of the technical challenge, consider the translation of code sets used in EDI to XML, the ubiquitous programming language that serves to transmit formatted data on the Internet. If a physician's office transmits to the Net all of its claims at the end of the day in a single batch--the most common practice today--the data explodes exponentially because of tagging issues, bringing systems to a crawl.

The problem is considered so unmanageable that Humana, a regional insurance company, avoids using XML-based products for transmission of large batches. The company prefers to support XML transactions when they are processed a single claim at a time. But the flexibility of using XML--the ability to add information quickly and in real time--is lost in large data files.

"On real-time transactions, the amount of information transferred tends to be relatively small. Therefore, the overhead of added tags is inconsequential compared to the greater flexibility that their use offers," said Bruce Goodman, chief information officer at Humana in Louisville, Kentucky.

Getting ahead of themselves
Both MedUnite and its online rivals initially thought they could create an entirely new system based on the Web that would house, update and disseminate medical records in real time. But that goal has proven overly ambitious, at least within the schedule set by the health law.

Given the technological challenges, MedUnite and its online rivals have acknowledged that they need to learn to live with EDI for a while longer. The consortium, for one, is now trying to link its members in EDI clearinghouses. And WebMD and other online start-ups are offering various services running on the Web or proprietary EDI networks.

"You have to do two things at once: both integrate services into existing systems and migrate (physicians) toward the new Web-based technologies," WebMD's Holstein said. "The level of complexity is incredible. It is difficult for the health plans to write software to respond to a real-time query."

Online companies have had some success with smaller insurance carriers, using off-the-shelf systems that can adequately handle their needs. Web start-up TriZetto sold one such system to Humana.

"We built an operational data store which was taking all the critical information out of the legacy systems overnight and putting it in a database that serves as our Web front access," said Humana's Goodman. "We basically implemented a plug-and-play system so it is easy for us to plug in another Web site whose back end connects to our Web site."

But larger insurers have massive systems that require custom software to work with the Web. That is one reason cited by the insurance companies behind MedUnite, which maintains that only the insurers themselves are capable of integrating such large-scale systems and connecting them to the Internet.

Despite an initial fear of creating a system that may allow them to steal each other's customers or otherwise compromise private data, the competing health insurance companies that formed MedUnite insist they came together largely because they saw no other choice.

"We came to the conclusion that a physician is only going to adopt a different way of doing business and electronic solutions if the system works with different payers," said Marjorie O'Malley, a senior vice president at Cigna who is overseeing the company's integration with MedUnite. "Otherwise, working electronically over various systems would be far too complicated."

MedUnite's online rivals disagree, arguing that they would eventually be able to manage larger-scale systems as well. They contend that the real reason for the creation of MedUnite was to allow the insurance companies to maintain absolute control over their industry.

Both sides are looking for profits.

"HIPAA is promoting electronic claims so it is a huge boon to whoever gets in the middle," said Stacey Rich, health care analyst at research firm Jupiter Media Metrix. The insurance companies "are getting in there because there is a threat of payers and other providers connecting and shutting them out from getting a cut of those transaction fees."

Like its online counterparts, however, MedUnite faces its own share of problems. The coalition has gotten a late start, having been formed years after companies such as WebMD, and seemed virtually dormant in its first year of existence.

Many industry analysts and executives referred to MedUnite as a mere "press release" put together by the leading insurance companies to undermine the efforts of the Internet start-ups. Chief Executive David Cox defended MedUnite's silence, saying it had been working with focus groups trying to design a system that would operate across the entire medical sector.

The coalition has come to the realization that it cannot tackle the modernization effort alone, and in June it acquired an EDI company named NDCHealth. WebMD had made a similar move more than a year earlier, acquiring an EDI medical clearinghouse called Envoy.

Regardless of the technologies they use, it is clear that neither MedUnite nor the online start-ups will be able to forge anything close to the versatile and powerful Internet systems touted in business plans that lured investors at the height of dot-com mania--not, at least, by next fall.

"You can actually transfer more types of claims and transactions over the Internet than you can through EDI," said Jupiter's Rich. The Internet "is a faster, more fluid system. You can have real-time transactions, which you can't in EDI."

Rich added, "WebMD had this vision of a beautifully integrated health system, and it will get there, but it just won't get there as quickly as Jim Clark initially had envisioned."


A 1996 federal law has inadvertently laid the foundation for use of the Internet to keep medical records and process claims.

The Health Insurance Portability and Accountability Act has no specific provisions involving the Internet, but it does order the use of standard formats and codes for medical and administrative electronic transactions--making the Web a natural place to do this business for patients, doctors, insurers and employer health plans.

Under the law, by Oct. 16, 2002, all parties must adhere to a specific format for such electronic transactions as eligibility confirmation, enrollment checks, treatment authorization, referrals and certification. HIPAA will also establish a new minimum standard to replace the competing formats and codes that now inundate the industry.

The timeline has given a de facto deadline to Internet companies such as WebMD, TriZetto Group and the members of the MedUnite consortium to meet its requirements.

The legislation does not require or even recommend electronic maintenance of medical records, but it does make those who want to use the medium beholden to a minimum federal standard for privacy and security. That portion of the law will be implemented in spring 2003.

"Many people think HIPAA lets the federal government barge into a medical practice and dictate how to provide health care, but the law is much less slick in real life," said Elisa Chase, principal at Consulting Solutions, a firm that helps medical facilities meet HIPAA-mandated requirements. "What the feds are saying is that if you bill electronically, let's all do it in the same format."

There is already resistance to HIPAA's first deadline, with bills before Congress asking that all requirements be implemented in one big bang rather than phased in. The delay could push the timeline back three to five years.

"That will essentially kill HIPAA. Technologies now being used will mostly be outdated, XML will be more accessible and powerful, and no one is going to get plans rolling for such a far-off deadline," Chase said. "The industry will fragment even more during that time, making it difficult to change."

Experts helping the medical and insurance industries meet the letter of the law stress that the requirement applies only to those who are already doing business electronically--not to those who continue to work with paper. So what is the incentive to switch to an electronic platform and attract the government's watchful eye and regulations?

As the largest insurer with its Medicare program, the federal government sets different rates for paper claims and electronic claims to give physicians an incentive to move toward electronic processing.