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WebMD: Getting Those Doctors to Pay

A new start-up from Atlanta aims to be the brand physicians recommend most.

If you give a doctor a computer, will she go online?

WebMD, an Atlanta start-up that Monday officially enters the race to capture the desktops and dollars of the nation's physicians, hopes so. The company will give away as many as 60,000 PCs to entice doctors to sign on with its Web-based service that connects offices to hospitals, insurance companies and medical information.

As the fragmented health care industry embraces the Internet, Web entrepreneurs and old-line companies alike are deploying an array of business models to capture a trillion-dollar market. A free computer with every subscription may be an expensive gimmick, but WebMD Chairman and CEO Jeff Arnold thinks it's key "to get in the doctor's office and get market share."

Unlike Healtheon – Netscape chief Jim Clark's latest start-up – WebMD is not developing the technology to connect doctors to the health care system. Instead, the company will bundle the services of technology and information providers under the WebMD banner in a one-stop shopping site. Those partners in turn will sell WebMD through their sales forces. WebMD also has deals with hospitals to buy memberships for their physicians.

"We think branding is everything on the Internet," says Arnold, a baby-faced 28-year-old. "When you think of books you think of Amazon; when you think of entertainment you think of Disney; when you think of medicine, we want you to think WebMD."

Says Meta Group analyst Doug O'Boyle, "There's a lot of great technology out there, but what causes these companies to stumble is the business model. Who pays and is that enough to sustain the company?"

"Physicians are notoriously cheap," he adds. "What [WebMD] will have to do is go out there and establish clearly what these benefits are."

To that end, Arnold and vice chairman Billy Payne – head of the 1996 Atlanta Olympics – traveled to New York on a road show to promote WebMD. Arnold says WebMD has raised $40 million over the past two months; he values the company at $250 million. Stakeholders include medical software company HBO & Co., which invested $10 million. About $25 million came from the sale of a telemedicine company founded by Arnold.

HBO & Co. software will enable doctors to obtain patient medical records and test results over the Internet. HBO & Co. senior VP Michael Kappel says it made more sense "to get behind a single brand and push WebMD as a standard" than compete with the start-up.

Still, WebMD faces no lack of competitors vying for doctors' online allegiance. Tarrytown, N.Y.-based Physicians' Online is a community site that offers doctors discussion groups, medical information, shopping and help in building Web sites. This month another Atlanta company, Greenberg News Networks, launched Medcast. The medical news and information service will be delivered through dedicated terminals. On the West Coast, Healtheon lets doctors use the Net to file claims, make referrals and confirm patients' eligibility for medical coverage. Arnold argues that WebMD will win the race by packaging many services and by marketing the site through its partners.

Monthly fees start at $25. Doctors receive a computer, as well as a "virtual receptionist" integrating voice-mail, e-mail and fax services. WebMD's partnership with Nashville's Envoy will enable physicians to verify a patient's health insurance on the Web site. Like its competitors, WebMD offers doctors a host of medical news and information, including continuing education courses. Doctors can build their own Web sites through a partnership with Atlanta's iXL. The $175 package includes an answering service. "It's your typical Internet land-grab strategy," Arnold says.

Beginning next year, doctors will be able to receive hospital medical records and test results over the Internet. And Arnold says WebMD's e-commerce plans include a store to sell everything from "Band-Aids to pacemakers online." On the consumer side, WebMD is wading into crowded territory, offering health and nutrition information on the public portion of its site.

Arnold and Payne say they have signed up 1,500 doctors since WebMD's soft launch on Aug. 31 and they hope to have 30,000 on board by year-end.

Whether WebMD will make money is another matter. Arnold says the profit margins on its subscriptions are 50 percent. The company will also take a small cut of e-commerce and insurance verification transactions. But WebMD is relying on advertising and sponsorships from medical and nonmedical companies eager to market their wares to an upscale audience.

Arnold acknowledges that expectations will be high, given the panoply of services WebMD is promising. The trick will be to deliver.

Notes Meta Group's O'Boyle: "Physicians will pay only if there's a significant benefit back to them."

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