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Net companies battle for doctors

Net start-ups struggle to devise strategies for exploiting the $1 trillion U.S. health care market. One big challenge: They must deal with doctors.

Few doubt that there is money to be made by taking the transactions of the $1 trillion U.S. health care industry to the Internet, but entrepreneurs are still trying to figure out the best way to get a toehold in this fragmented market.

Most agree on one thing: Physicians are at the center of any technology solution. But there is less agreement on how to go about it.

One newly launched start-up, ePhysician, believes the Palm Pilot--with a 72 percent command of the PDA market, according to International Data Corporation--is the most direct route. Today, ePhysician said it is giving away 10,000 Palm Pilots to qualified doctors to jump-start demand for its prescription and lab test ordering service.

"To be credible, a company has to develop a user base," said ePhysician chief executive Stuart Weisman, M.D. "We're giving doctors easy access to technology at a low cost without changing their behavior."

Weisman estimates that 10 percent of doctors use Palm Pilots, mostly for note-taking and managing their personal information. Using the devices to send prescriptions and test orders to a fax server that in turn notifies the pharmacy or lab isn't asking doctors to change they way they perform their job, he noted.

Doctors are also at the core of Healtheon's business model, according to chairman Jim Clark, although the company has taken a somewhat different route to that conclusion. When Healtheon was founded by Clark (the co-founder of Netscape) just over three years ago, its intent was to provide health benefits enrollment and eligibility information on the Internet, through employers and health maintenance organizations (HMOs).

But Healtheon soon found that employers and health plans weren't willing to share enrollment information, said Clark. Two years ago, the company changed course, working closely with San Francisco-based medical group Brown & Toland to enable Web-based transactions between doctors and insurers, such as claims submission.

According to Clark, just 10 percent of all claims are submitted electronically, mostly through proprietary electronic data interchange (EDI) systems, leaving a huge opportunity for Internet technology. But "there has been a lot of resistance" from physicians, he said.

To gain access to doctors quickly, Healtheon has embarked on a shopping spree. Last year, it scooped up EDI transaction provider ActaMed, whose customers include United Healthcare and SmithKline Beecham Clinical Labs. Last month, it expanded its doctor network with the acquisition of another EDI company, Mede America, in a stock swap valued at $450 million.

Rather than attempting to boost revenues with the EDI business, as some have suggested, Healtheon's acquisitions give it a critical mass of doctors, according to Clark. "Tactically, we needed to get that connectivity," he said. "You're not going to instantly displace EDI."

According to an ongoing survey of 10,000 doctors by Healtheon, 85 percent regularly use the Internet, an increase of 875 percent over 1997. About half of them are using it daily, but few are integrating it into their practices.

"Health care is not driving physicians to use the Internet," said Ed Fotsch, president of Healtheon's Metis division.

Healtheon has also touted the Internet as a way to improve communication between doctors and patients, an issue doctors are ambivalent about. "Patients have an inexhaustible desire to speak with physicians," one doctor complained to Clark at a recent conference Healtheon held in San Francisco.

But not all doctors agree. Instead of wasting time, using email to answer patient queries can greatly improve the doctor-patient relationship, some physicians have found.

Dr. Debra R. Judelson, who practices internal medicine and cardiology at the Cardiovascular Medical Group of Southern California in Beverly Hills, encourages her patients to send her email, which she answers after she gets home at night. "I can improve patient satisfaction immensely without it interrupting my dinner," Judelson said.

Judelson, who studied at MIT and admits to a passion for technology, believes the Internet will provide better ways to manage her practice--someday.

"I'm looking forward to having the medical office of the future, not having to spend hundreds of thousands of dollars for software for electronic medical records, client management, and claim submission," she said.

That kind of talk is worrisome to Jacob Kuriyan, president of Physmark, a maker of client-server software for managed care organizations. He says Healtheon and other Internet technologies are threatening to drive the value of transactions so low that current health care software providers will be unable to compete.

"There is a paradigm of the Internet that we have to respect, and that is that everyone wants everything to be free," Kuriyan said. "If you tell me to sell advertising [to generate revenues], I don't know how to do it."

To avoid becoming a loser in this lucrative game, technology companies need to appeal to doctors. But more importantly, they must get HMOs on their side, according to Mark Mulcahy, who follows health care technology stocks for Volpe Brown Whelan in San Francisco.

"Doctors are at the center of everything, but the guys who pay doctors and control the dollars are likely to be the ones that have the most impact on the market," Mulcahy said.