Healtheon/WebMD has closed one of its deals, but a key transaction continues to slog through regulatory channels. Now, with new competition on the horizon, the company's ambitious goal of linking providers, payers and patients online seems more daunting than ever.
Atlanta-based Healtheon/WebMD announced May 30 the completed acquisition of Research Triangle Park, N.C.-based Quintiles Corp. and its subsidiary ENVOY Corp., the nation's largest processor of electronic healthcare transactions.
With the acquisition, Healtheon/WebMD will process more than 2 billion transactions a year.
Just one day later, however, the company announced that federal regulators had requested additional information about its previously announced acquisition of Elmwood Park, N.J.-based Medical Manager and its subsidiary CareInsite.
CareInsite is one of Healtheon/WebMD's main competitors, and Medical Manager, a practice management systems company, offers the company access to 185,000 physicians' desktops.
The request, and the antitrust doubts it raised, seemed to throw a wrench in Healtheon/WebMD's plans to have 200,000 physicians conducting online transactions by summer's end. But last month the companies announced restructured terms for the acquisition. In the original terms, Healtheon/WebMD offered 1.65 shares of Healtheon/WebMD for each share of Medical Manager. Since the deal was first announced, Healtheon/WebMD's stock has plummeted from about $70 a share to about $14, causing the value of the deal to drop from about $5.4 billion to about $1.68 billion.
Under the revised terms, Healtheon/WebMD will offer 2.5 shares for each Medical Manager share. The exchange ratio for CareInsite remains at the originally announced 1.3 shares. The new deal has a value of about $2.26 billion.
Once approved, the new company will be known simply as WebMD. Jeffrey Arnold, CEO of Healtheon/WebMD, and Martin Wygod, chairman of Medical Manager and CareInsite, will share the title of co-CEO.
Analysts expect the revised terms to push the deal through federal regulatory approval. Jeffrey Peters, an analyst with Minneapolis-based Dain Rauscher Wessels, says the installation of Wygod, a healthcare industry veteran, will reassure some wary investors.
"I think it was very important to investors to know that he would be actively involved in the day-to-day operations," he says.
Wygod's title change also underscores the importance of Medical Manager and its existing customer base to Healtheon/WebMD. Healtheon/WebMD hopes to eventually connect the majority of the nation's physicians, payers and patients through its Internet portal. But the vast majority of claims processing and practice management still takes place off line. Beginning last fall, Healtheon/WebMD embarked on an ambitious plan to partner with or acquire the existing players in the claims processing, practice management and content world. Now, rather than starting from scratch, Healtheon/WebMD needs simply to migrate the existing business onto the Web.
That may be easier said than done, however, says Daren Marhula, an analyst with U.S. Bancorp Piper Jaffray in Minneapolis, because not all providers are ready to make the move.
"We've seen a lot more business development than we've seen actual contracts. A lot of hospitals and doctors' offices are still trying to figure out what they can use the Internet for," he says. "Healtheon/WebMD has done a lot in terms of making acquisitions, but they still have to get out there and prove their strategy can work."
Peters says some providers may wait for more payers to come on board before they embrace the Healtheon/WebMD portal. Although payers are an integral component of online transactions, few payers have a substantial Internet strategy. That may be changing, however. In June, the Washington-based American Association of Health Plans announced a strategic partnership with Newport Beach, Calif.-based TriZetto, which provides healthcare organizations access to business applications through its Internet portal for a monthly fee. The company will begin offering its services to AAHP's 1,000 members over the next few months.
There are also reports of six of the nation's largest payers, including Aetna and Cigna, coming together to form an online partnership.
Also crowding the online space is iMcKesson, the new venture by San Francisco-based McKessonHBOC, a supply management and information technology company. The new, wholly owned company will focus exclusively on online physician practice management. McKesson currently does business with 5,000 hospitals and 200,000 physicians.