The Atlanta-based company said the move is occurring largely because of the overlap created from the combination of several companies acquired by WebMD including Envoy, Medical Manager, CareInsite and OnHealth Network. WebMD, which was formerly known as Healtheon/WebMD, said it is aiming to save about $250 million annually by the fourth quarter of 2001 through the plan.
Like many Internet companies in the health industry this year, WebMD has endured a rocky ride with its stock chart resembling a diamond level ski slope--a steep drop. But unlike the dismal outlook facing DrKoop.com and PlanetRx, which target consumers with medical information and pharmacy services respectively, WebMD has positioned itself in a stronger position by catering to consumers, doctors and to insurance companies. Most of WebMD's revenue comes from working with hospitals, doctors and insurers to streamline medical administration processes.
The company's stock began its downward spiral earlier this year when a consortium of large insurance companies, threatened by the prospects of losing their direct relationship to doctors and hospitals, said they would create their own Internet service to streamline the time consuming medical insurance process.
Under the first phase of the plan, WebMD will consolidate offices and data centers, reduce marketing and promotional expenses and eliminate redundant positions. WebMD employs approximately 6,000 people.
The company, which also said it will divest its plastics and filtration technologies units, expects to take a pre-tax restructuring charge of between $35 million and $45 million in the quarter ended Sept. 30, 2000 as a result of the measure.
Additionally, WebMD said it is evaluating many of its current business relationships and may possibly revise or terminate them, which could result in additional restructuring charges in future quarters.
Claudine Singer, research director at Jupiter Communications, said WebMD's move was necessary and makes good business sense.
"This is absolutely top of their priority list," Singer said. The company has an empire of an organization that they built quickly and inevitably they have overlapping positions to prune, she added.
"The integration task is ahead of them and remains to be a significant one, but it's the first big step," Singer said.
The company also announced several management changes. Anthony Vuolo has been named executive vice president, chief financial officer and treasurer, replacing John Westermann, who recently retired from the company. Prior to his new roles, Vuolo had been senior vice president of business development at Medical Manager.
The company appointed Charles Mele, former general counsel of Medical Manager, to the position of co-general counsel of WebMD. Mele will join Jack Dennison as co-general counsel who, most recently, held the position of executive vice president and general counsel of WebMD.
More details of the integration plan will be provided during a meeting with analysts and investors slated for Oct. 12 in New York, the company said. Employees affected by the job reductions will be given severance packages and outplacement counseling to help with the transition.
While this is a logical move and bodes well for the company, Singer said, it remains unclear whether the integration plan will be successful.
"They're taking aggressive first steps?but, there's no reason for a death note and no reason for a champagne cork either," she said.
News.com's Sandeep Junnarkar contributed to this report.