Internet health care business on verge of boom

Health care is predicted to hit $370 billion in e-commerce by 2004. Physician offices, using the Internet to cut costs, may represent 12% of business.

By Tyler Chin, amednews staff. Jan. 31, 2000.

The efforts of physicians, hospitals, insurance companies and other players in health care to cut costs are predicted to lead to explosive growth in the use of electronic commerce.

Health care e-commerce is set to rocket from $6.4 billion in 1999 to $370 billion in 2004, according to a study by Forrester Research Inc., a Cambridge, Mass.-based market research firm. That equates to nearly 5,800% growth over five years.

The $370 billion -- 16% of the expected total health care trade in 2004 -- is expected to be composed of $348 billion in the business-to-business health care sector and $22 billion in the business-to-consumer sector, said Elizabeth W. Boehm, the associate analyst who wrote the study.

Doctors would be represented mostly in the business-to-business sector, which covers transactions such as purchasing supplies and filing insurance claims.

They also would be key in driving the growth of Internet commerce in health care. By 2004, 12% of physician offices' total purchasing will be happening on the Internet, up from 0.2% in 1999, Boehm said.

The study was based on a survey of 71 health care firms, including 20 online health care retailers and 51 physicians and other providers, insurance companies and manufacturers. The nonretailers said 3% of their revenues moved over the Internet today, but they expected that to jump to 32% by 2002, Boehm said.

From trickle to torrent

"Respondents expect an Internet business trade trickle to become a torrent, despite laggard partners and hesitant management," Boehm wrote.

Physicians and others will increasingly use the Internet to improve the flow of information, gain transaction efficiencies, and buy and sell medical supplies online, Boehm said.

"Most of the drivers are cost pressures," she said. "You can't pick up a paper today without reading about some insurance company or provider going belly up."

The trend toward Internet commerce is occurring in every industry, not just health care.

The large scope of the business opportunity, competition, fear of falling behind and increasing efficiencies are forcing companies of every stripe to devise an e-commerce strategy. These include corporate giants like Wal-Mart, General Electric Co., Ford Motor Co. and General Motors Corp. The auto companies, for example, recently committed to move their purchasing systems online.

The same forces are at work in health care.

Entrepreneurs have targeted the trillion dollar health care sector, a paper-based industry long known for waste and inefficiency. Within the last few years, entrepreneurs have established numerous companies marketing Internet-based services, including claims processing, to physicians.

By 2004, physicians and other providers will process about $224 billion worth of claims and buy $124 billion of medications, supplies and equipment online, Boehm predicted.

"A lot of doctors are railing against insurance companies who don't turn around their claims quickly enough and all the paperwork they have to do" to receive payment for services rendered, Boehm said. "Emerging Internet services give doctors the ability to send claims electronically without having to do too much to upgrade their systems."

All doctors need to submit claims is a computer, Internet access and a Web browser, she said. And companies that sell practice management software are upgrading their systems, enabling physician offices to transmit claims over the Internet, she added.

Quicker response

By submitting claims electronically, doctors can get paid quicker instead of having to wait weeks or months as they do now, Boehm said.

Insurance companies, which are struggling to make money, will give doctors an extra incentive to submit claims electronically by charging doctors a fee if they submit paper-based claims, she said. Insurers also will work with Internet health care companies that focus on delivering Internet-based services to doctors.

Some of this is already happening. In January, Louisville, Ky.-based insurer Humana Inc. signed a deal with Healtheon/WebMD Corp., a Santa Clara, Calif.-based Internet health care company, under which Humana will encourage 330,000 doctors in its network to transmit claims to the insurer over the Internet.

Humana would pay transaction fees for every claim physicians transmit to the company via Healtheon's network.

Some physicians already are planning to hop on the Internet bandwagon. Taconic Independent Practice Assn., an IPA representing about 3,000 physicians in New York, plans to ask suppliers to give members a group purchasing discount if they buy supplies over the Internet.

The IPA hopes that lower prices will encourage its doctors to go online not only to buy supplies, but also to move claims and other health care transactions, said Lawrence Zolnik, MD, a member of the IPA's board of directors.

"We're trying to make it easier for our physicians to work with HMOs we contract with," Dr. Zolnik said. "Filing claims electronically would increase the speed with which they are reimbursed, and it's less expensive for the physician in the long run."

E=MD squared

Business-to-business spending, which includes physician transactions, is expected to drive the growth of Internet health care spending over the next four years.

         Total Internet   Business-to-business 
         spending         spending
         --------------   --------------------
1999     $6.4 billion     $6 billion
2000     $16 billion      $15 billion
2001     $37 billion      $35 billion
2002     $87 billion      $81 billion
2003     $190 billion     $178 billion
2004     $370 billion     $348 billion

Source: Forrester Research Inc., "Sizing Healthcare E-Commerce," December 1999