Second Opinion

Over the past two years, health-care innovators have seen big promises about the Web give way to big disappointments. Now they’re giving the Web another look. Have they stopped thinking big? Not at all.

Sue Bostrom knows which industries are mastering the Internet and which are missing their mark. As senior vice president of Cisco Systems Inc.’s Internet business solutions group, she briefs companies on how to Webify their businesses — and on where they stand in the Web pecking order. The best Web innovators, she contends, include media companies, financial-services firms, and high-tech outfits. In the middle are retailers, consumer-products companies, and traditional manufacturers. Farther back are insurers and utilities. And near the end are health-care companies.


Ah, health care! Wasn’t that industry supposed to hold one of the great opportunities for Internet transformation? Weren’t all of our medical records supposed to be swept together into one easy-to-access Web file? Weren’t hospitals and doctors’ offices supposed to be revolutionized by online billing and by desktop browsers that would be able to access all patient information instantly?

That vision remains as appealing as ever. But it’s still a long way from becoming a reality, and the reasons why are highly instructive. View the health-care industry from 30,000 feet above the ground, and rearranging all of its parts into a more efficient whole seems oh-so-easy. Get up close, where care is delivered one patient at a time, and you soon realize that each major change could take years to implement successfully.

Even something as ostensibly simple as accessing patients’ medical records via the Web has proven to be anything but simple. Those records are scattered among a host of doctors’ offices, hospitals, labs, pharmacies, and health plans. In many cases, the records aren’t even computerized — and even when they are, the computer systems used by those institutions seldom talk together well. In other industries, Web advocates can claim victory if they get 60% to 90% of a user’s data online. But in health care, partial success isn’t a victory; it’s a potential menace. If doctors don’t know what’s missing from a patient’s record, they risk prescribing a treatment that’s downright dangerous.

Because of such obstacles, publicly traded Internet health-care pioneers have taken a pounding. Two years ago, they had hugely ambitious plans to put everything from drug prescriptions to doctors’ bills to medical-supply orders on the Web. Then reality set in. Usage rates were lower than expected, while regulatory hurdles were much higher than anticipated. Financial losses were huge. Before long, shareholders in such companies as, WebMD Corp., and Neoforma Inc. lost patience, and stock prices plummeted.

Yet Internet-based innovation in health care hasn’t died. Instead, second-wave Web enthusiasts (as well as bruised-but-wiser survivors of the first Internet wave) are coming at medicine with a more focused approach. Rather than trying to change everything about health-care delivery, they are directing their efforts toward small, easily defined areas of the industry — areas where the Internet needn’t alter existing habits very much to bring efficiencies.

Consider what’s happening at PacifiCare Health Systems Inc., one of the largest health-care-services companies in the United States. “We’ve spent more than $20 million specifically on the Net,” says Bary Bailey, 42, executive vice president and chief strategic officer at the Santa Ana, California-based company. While Bailey remains bullish on the Internet, he is keeping a close eye on which online services are generating extensive use, and which are not.


By that measure, PacifiCare’s biggest success so far is a Web-based directory of the doctors in its network. Each month, about 250,000 consumers visit the PacifiCare Web site, looking to see if the network includes a favorite physician. That figure represents more than 10% of the company’s user base, and it’s appreciably higher than the corresponding number from the previous year.

PacifiCare has made more modest headway with a service that lets doctors find out if the company actually covers a specific patient. Today, only 3% to 5% of doctors in the PacifiCare network use that service, according to Jeff Dailey, 37, director of Web solutions. He and other PacifiCare executives would like that rate to be higher, for reasons of both reliability and cost. The cost per Web inquiry is less than 3 cents, compared with 25 cents for a phone call to a voice-response system, or $5 for a chat with a PacifiCare representative.

Dailey points out that doctors’ offices have their own, time-honored work flows, with physicians, nurses, and receptionists each accustomed to doing things in a particular way. “It’s very difficult to change that,” he says. So PacifiCare has moved cautiously in trying to use the Web for processing bills and claims. This year, it’s conducting a pilot project that deals with doctors’ bills via the Web, but it won’t roll out a Web-based system to the entire PacifiCare network until it has learned more about doctors’ response to the pilot.

Similarly, WebMD is taking a more gradual approach to Webifying doctors’ offices. In 1998 and 1999, the Elmwood Park, New Jersey-based company hoped to sweep aside the standard ways that doctors handle claims, referrals, and other paperwork, in favor of a radically new, Web-based system. It was a bold idea, but many doctors were skeptical about switching to such a new, unproven system. Since then, WebMD has acquired three of the leading companies that process medical transactions using electronic data interchange, a more conventional system that relies on non-Web computer links. That lets WebMD introduce Web alternatives in a low-key way — and by building on existing business relationships.

“People can handle only one substantial change at a time,” says Alan Gellman, 38, vice president of e-business at Blue Shield of California. “If you want to change how someone functions as a doctor, that’s going to take a generation. That isn’t a one-year project.”

Gellman is speaking from experience. During the past year, he has spearheaded an ambitious project to overhaul mylifepath, Blue Shield of California’s main Web site. A new version of the site, which the insurer is launching this spring, provides not just an array of handy nuggets on asthma, pregnancy, and other conditions, but also a comprehensive set of specialist directories, information on the fine points of covered benefits, and links to pharmacies and other relevant health-care providers.


“It was a huge undertaking,” Gellman says. “Members may come to the site with what they think is just one simple question. But what they really want is the ability to get answers from many different parts of the health-care system. To make that possible, we had to integrate information from 18 or 19 different vendors.”

A year or two ago, plenty of small startups might have tried something just as ambitious. Most would have failed — not because they couldn’t write good software or because their mission was foolish, but because they lacked the clout needed to make disparate teams work together. Only an organization as big as Blue Shield of California, with its 2.3 million members, can compel such cooperation, and even then, the task is far from easy.

For that reason, many Internet health startups are tackling smaller, more clearly defined projects. One example is eHealthEngines, which at one time aspired to put all kinds of clinical data on secure Web sites. That’s still a long-term goal, says Mark Gillett, 26, president of the Cambridge, Massachusetts-based company. But for now, his startup’s top priority is to help outpatient radiology centers and surgical facilities transmit digital images (along with associated billing data) via the Web, rather than via courier services.

By confining its activities to such a small arena, eHealthEngines is able to focus on an area where computer use is already extremely high and where the opportunity for instant savings is readily apparent. As a result, it’s much easier for Gillett to line up customers — and to fulfill the promises that he makes to them — than it would be if he were trying to Webify everything from pharmacies to surgical suites.

There’s a lesson here that stretches well beyond health care. In many complex industries, you’re asking for trouble if you stage a flat-out assault on an enterprise’s fundamental way of doing business. The best points of entry for Web-based innovation are likely to lie at the edges of an industry, in tasks that involve relatively simple handoffs among small sets of people. Only after those initiatives pay off — that is, only after lots of people on the front lines see the Internet as a boon to their work — does it make sense to pursue bigger dreams.

These days, of course, necessity is often the mother of prudent strategy. In its venture-capital round last year, for example, eHealthEngines raised just $5.5 million. That’s enough to bankroll the radiology-center project and a few other initiatives, but not much else. “If we had raised $50 million,” says Gillett, “we’d probably have stars in our eyes too.”


George Anders (, a Fast Company senior editor, is based in Silicon Valley.