To The Rescue!

By Daniel Eisenberg

At Kokomo Family Care, a clinic in Kokomo, Ind., many doctors no longer reach for a pen to write prescriptions or notes. Instead, they use a computer and software from McKesson HBOC, which have started to siphon away the sea of paperwork the small practice has been drowning in. Not only is there less chance of medication foulups or misplaced records, but the clinic has dropped nine employees whose sole job was taking care of paper--instead of patients.

On the West Coast, at San Diego-based Scripps Health, a new IDX system helps give doctors remote access to comprehensive digital records, CT scans, X rays and lab tests. "Over the next five years, we'll be the rule, not the exception," says Chris Van Gorder, Scripps CEO. "Patients, doctors, employers and the government are going to demand it."

They're already starting to. Despite heated opposition from the nation's cash-strapped health-care providers, President Bush made the surprising decision last week to put controversial new medical-privacy rules into effect immediately. The guidelines, which will, among other things, give patients access to their charts and a record of who has seen them, are part of the Health Insurance Portability and Accountability Act--which is set to usher the medical system, kicking and screaming, into the electronic age. Consider: a report out last week from the federal Agency for Healthcare Research and Quality said electronic prescriptions and monitoring could help eliminate many of the medication errors and other adverse drug events that kill or injure 770,000 people in hospitals each year.

The government is trying to accomplish what some of America's best entrepreneurs have failed to do so far--successfully apply the Internet treatment to the bureaucratic hernia that is health care. No other major business relies so heavily--and so inefficiently--on old-fashioned pen and paper. But health care doesn't have much spare change to spend on information technology, and the outdated systems that have been installed over the years have only made doctors more skeptical of tech's miracle cures. Billions have been lost trying to use the Net to cut the estimated $250 billion in administrative waste. Investors have been hammered, notably by WebMD, the start-up launched by Netscape co-founder Jim Clark and Internet boy wonder Jeff Arnold. WebMD's stock, which soared to $126 in 1999, is currently on life support at $7.59.

Now the next wave of e-health firms is making the rounds, and this group might actually get the patient back on its feet. IBM, Microsoft and Pfizer have formed a new company that, armed with deep pockets and a strong sales force, will probably try to sell a Web-enabled clinical system to doctors' offices. The new venture will go head to head with MedicaLogic/Medscape and a streamlined, refocused WebMD. At the same time, Allscripts and a ton of software start-ups with colorful names like Epocrates, Iscribe, Ephysician and PatientKeeper are all struggling to get small practices to use handhelds for writing prescriptions, checking drug interactions or insurance coverage, and storing patient data. Fighting to bring large medical groups and hospitals into the info age are traditional health-IT vendors such as IDX, Cerner, Epic, Eclipsys and Siemens Medical. Last month rehabilitative-care specialist HealthSouth announced plans to build a $100 million, model digital hospital.

Consumers may also get a taste of the new medicine. The same companies are helping providers launch their own so-called physician portals, which allow patients to make appointments, send secure e-mail to doctors and view their own charts and lab results. As part of a pilot project in Silicon Valley, insurers for a group of companies, including Oracle and Cisco, will soon reimburse doctors for certain e-mail consultations. At the end of the trail, WebMD's goal of online, real-time insurance-eligibility checks and claims adjudication is very slowly starting to become a reality.

It's not just about the bottom line. More than a year ago, the Institute of Medicine issued a now famous report that documented up to 98,000 annual avoidable deaths caused by medical errors. Last month the I.O.M. followed that up with a more sweeping indictment of the sorry state of IT in hospitals and doctors' offices. California has passed a bill requiring many hospitals to install technology by 2005 that will help reduce medication errors. "The pen," says Neal Patterson, chairman of health-IT veteran Cerner, "is the most dangerous, wasteful medical device."

Though doctors seem proud of their illegible handwriting, it has a huge cost. Each year pharmacies make 150 million calls to doctors to clarify confusing prescriptions. Today's tech-savvy medical students will probably never use an R pad, but doctors currently write only 1% of prescriptions electronically. "We can take the headache out of their most common practices," says Allscripts CEO Glen Tullman.

Only a few thousand M.D.s have moved to complete electronic prescribing, but almost 100,000 rely on a basic drug database from Epocrates to check out side effects, recommended dosages and interactions. Allscripts' E-prescription product also lets doctors do their dictation and automatically enter the appropriate billing codes for each procedure--thus eliminating a common error that usually results in drawn-out disputes with insurers. The business got a boost in February when the nation's three largest pharmacy benefit managers (PBMs) announced that they were building a standardized network, dubbed RXHub, to let doctors instantly beam e-prescriptions to client pharmacies.

Intelligent digital health records have long been the industry's holy grail, though today just 10% to 15% of all charts are electronic. Their appeal is obvious. It costs about $9 every time a doctor pulls a chart, which is often incomplete. When a patient arrives at an emergency room or calls a doctor, there is seldom time to consult his documented medical history. In the event of a drug recall, wading through stacks of files to find patients at risk isn't an option.

"We're really running small businesses but haven't been given any of the tools to do it," says Orly Avitzur, a Tarrytown, N.Y., neurologist who pays $99 a month for a digital charting program from Medscape. Working at her Dell laptop, Avitzur is automatically prompted to ask her patients about certain symptoms, from dizziness to headaches. She no longer has to shell out $15,000 annually to have her scribbled notes and dictations transcribed, and she can send info to insurers or other consulting doctors in a matter of hours, not days.

This all sounds great, but there's still one major problem. "Who's going to pay?" asks Ron Gue, president of IT consultant Phoenix Health Systems. Two months ago, McKesson shut down its bleeding Net division. Still, application service providers, which let doctors subscribe to online software services instead of investing $50,000 to $100,000 to install server computers on the premises, may well be "small practices' salvation," says Carl Dvorak, vice president at Epic Systems.

Ultimately, insurers and employers, who stand to benefit most from these cost-saving tools, may foot much of the doctors' bill. Already, PBMs are helping to subsidize some of the $100-to-$200 monthly cost for the handheld systems. General Motors has struck a deal with Medscape to get its medical-record software into the hands of its employees' doctors. Pharmaceutical giants like Aventis, Eli Lilly and Johnson & Johnson are investing in the technology, which they view as a valuable new marketing tool.

This summer a new outfit called MedUnite will try to close the loop. Formed by large insurers, including Aetna, Cigna and Oxford, that didn't like the idea of WebMD coming between them and their core customers, MedUnite will try to offer intelligent connectivity to doctors and HMOs in order to speed claims, referrals and eligibility checks--and to cut costs. "Who better to work out the relationship with HMOs than the HMOs themselves?" asks Dave Cox, MedUnite's CEO.

Most physicians have a quick answer: almost anybody else. Given managed care's sorry record, it's easy to see how doctors might be just a bit skeptical. While the administrative savings could be big for HMOs, they still earn 10% to 30% of their profits from the float--the interest on holding onto their premiums for an extra 30 to 90 days. At the same time, industry coalitions like MedUnite often collapse.

That's what WebMD is counting on. Over the past year, the poster boy of e-Health's promise and initial failure has finally found a way to get an appointment with the doctor. As part of its massive buying binge--some 20 companies in 14 months--WebMD purchased two of the old-line health-care technology players it was out to destroy: Medical Manager, a leading practice-management system that does basic billing and scheduling for 185,000 physicians, and Envoy, an old electronic-claims clearinghouse.

WebMD CEO and chairman Martin Wygod, a grizzled, respected veteran of the health-care industry who founded Medco, the first PBM, might be the company's most important asset. With Jeff Arnold and Jim Clark gone, Wygod has brought in some much needed adult supervision, dumped non-core assets, cut back costly marketing agreements and glitzy content deals, and stitched up a bleeding balance sheet.

"It's theirs to mess up," says Larry Feinberg, health-care hedge-fund manager at Oracle Partners. WebMD lost $246 million last year, despite more than doubling revenues, to $517 million. But the loss was smaller than anticipated, and it expects to turn a profit later this year. To compete with Allscripts and other e-scription players, Wygod is racing to roll out his own portable platform. He just inked a deal to be the primary content provider for Microsoft's MSN service.

On the administrative side, some 30% of doctors' claims leave the office with errors, and nearly 15% get lost, costing physicians $35,000 to $100,000 in unpaid claims each year. Only about 40% of doctors' claims are transmitted electronically today, and most of those move through a clumsy, relatively archaic electronic data interchange that doesn't have much built-in intelligence. Still, automating claims processing isn't exactly a gold mine. It yields WebMD just pennies a pop.

WebMD's strategy might ultimately force a consolidation within the industry. Most e-scription start-ups, once flush with venture capital, are on the block, looking to be acquired or to align with bigger fish that can offer womb-to-tomb IT solutions. IBM's new venture will probably be a buyer, and Allscripts already has a deal with IDX, whose own back-office, practice-management system is used by more than 100,00 doctors. "This whole industry is so fragmented," says Wygod. "In order to make it more efficient, you can't have so many different players." Wygod just has to hope that when the paper chase is all over, it's WebMD that has a clean bill of health.