Healtheon/WebMD Pops a Big Question

By Brian Graney (TMF Panic)
February 14, 2000

In an instance of hospital love harking back to the glory days of General Hospital, Internet healthcare company Healtheon/WebMD (Nasdaq: HLTH) waited until Valentine's Day to pop "the big M" question (in this case, M is for merger) to physician practice management systems developer Medical Manager Corp. (Nasdaq: MMGR) and its majority owned healthcare network provider CareInsite (Nasdaq: CARI). All told, the double takeout is valued at about $4.9 billion in Healtheon/WebMD stock. And just like in Hollywood, everybody was happy in the end with all three lovebirds benefiting from rising share prices this morning.

While it may not be the financial equivalent of love at first sight, the planned merger works on a couple of different levels. Gaining the most attention from the media this morning is the fact that CareInsite represented one of Healtheon/WebMD's most recognizable rivals in the online healthcare content/connectivity space. Connecting patients, payors, and physicians with open lines of communications is the name of the game here, with the emphasis focused squarely on improving the efficiency of the healthcare delivery process. Anyway you look at it, taking out a rival and combining their resources with your own is certainly one of the easiest ways to create some efficiency in the system.

Medical Manager's installed base of 185,000 physicians at 33,000 sites using its practice management systems also adds a stable recurring revenue stream to the Healtheon/WebMD mix. Additionally, Medical Manager's focus on automating transactions in the doctor's office potentially fits in with Healtheon/WebMD's vision of a world where all healthcare transactions will be automated on the Web someday.

Transaction automation also happens to be a big part of CareInsite's prescription, laboratory, and managed care communications initiatives. Further, automating transactions is also a major theme running through Healtheon/WebMD's recent purchase of the Envoy healthcare electronic data interchange (EDI) unit of Quintiles Transnational (Nasdaq: QTRN), which was announced last month.

The interconnected relationships between the various operational elements of the growing Healtheon/WebMD will no doubt lead to a great deal of confusion on the part of investors, but a general air of disarray is not an altogether unfamiliar element of the healthcare business. Rather than focusing on how all of the individual pieces add up, investors looking at a company like Healtheon/WebMD and trying to figure out where it is going from here need to first form a solid expectation of what tomorrow's healthcare delivery system is going to look like.

Without a doubt, recent experiences in the sector have shown that the business of healthcare is reorienting itself from a focus on cost-containment above all else to an emphasis on patient quality of care. Well-publicized examples such as the Patient Bill of Rights debate and UnitedHealth Group's (NYSE: UNH) November decision to go to a hands-off approach to physician treatment decisions are (deservedly, this author might add) putting caring for the patient back on the front burner of the often-maligned U.S. healthcare industry.

The trick is how to make money in such in environment. Companies in all stages of healthcare delivery need to make sure that a portion of the value creation of tomorrow's envisioned efficient, high-quality care system is going to go to their shareholders and prevent all of it from going directly to the newly Web information-empowered patient. Investors should probably keep a close eye on Healtheon/WebMD, where the first signs indicating in which direction this value creation stream might ultimately flow down the healthcare mountain are very likely to show up.

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