Fallen Oxford Health Plans founder returns with Web health insurance firm

Stephen Wiggins' new company tries to link consumers and physicians through an Internet site.

By Tyler Chin, amednews staff. Aug. 14, 2000.

Thanks to his status as founder of Oxford Health Plans Inc., Stephen F. Wiggins was able to get solid financial backing for his Internet health care start-up.

But thanks to that status, Wiggins also faces some physician skepticism regarding his new company.

Wiggins' start-up, which is called HealthMarket Inc. (http://www.healthmarket.com/), is designed to let consumers buy medical services and health insurance over the Internet while giving physicians control over the prices they charge for services.

In September, the company plans to begin selling "self-directed" health plans setting specific dollar allowances for individual procedures as well as episodes of care for about 80 acute and chronic conditions. The latter allowances will cover a bundle of services within an episode of care, kicking in from the beginning of treatment through the immediate postoperative recovery phase.

For those 80 conditions, HealthMarket is focusing on getting physicians and other providers to form teams to bundle medical services and set a fixed fee for the package, Wiggins said.

Name recognition "helped a lot"

Venture capitalists grown wary of Internet health care's tanking stocks are reacting enthusiastically to Wiggins' company. They've put $57 million into HealthMarket.

Wiggins acknowledged that his name recognition from Oxford "helped a lot."

But he said "another big part is that our business model is not an Internet business model built on advertising and eyeballs. It's built on old-fashioned sale of new forms of an insurance product to employers and individuals as an alternative to managed care."

Health plan members would choose their own providers and bypass administrative hassles of managed care such as referral authorization and utilization management when they seek treatment, he said.

"HealthMarket is introducing a new way to buy and a new way to insure health services," Wiggins said. "Ultimately, we're creating an alternative to the managed care model."

Lost in the losses

The idea behind the self-directed health plans, however, isn't entirely new. It is based on a venture Wiggins implemented in 1997 at Oxford under which teams of specialist physicians received payment for bundled medical services delivered as part of an episode of care. Of course, Wiggins in 1997 gained more fame, or infamy, for becoming a casualty of Oxford's near-meltdown.

That year, Oxford fell months behind paying doctors and hospitals, owing them tens of millions of dollars because of computer, billing and management problems that resulted in hundreds of millions of dollars in losses for Oxford.

"That was a huge issue, and I'd be less than candid if I didn't say we did not have issues with Wiggins and his administration of Oxford," said Charles N. Aswad, MD, executive vice president of the Medical Society of the State of New York.

"Clearly those would be issues of concern that would have to be addressed," Dr. Aswad said, adding that he was reserving further comment on HealthMarket because he didn't know enough about it and wanted to be fair to the company.

Oxford Specialty Management Co., the episodic care venture, died in 1998 when the company, post-Wiggins, decided to focus on fixing its other problems. The venture was not profitable, but Wiggins deemed it successful enough -- it grew to $70 million in revenue and had thousands of provider teams submitting proposals -- to use the idea in HealthMarket.

How it works

HealthMarket is targeting the uninsured; those seeking services not covered by their insurance; consumers and physicians seeking an alternative to managed care and greater control over health care decisions; and employer groups seeking to lower their costs through an emerging financing approach known as defined contribution.

Using this approach, employers give money to employees, and employees make their own health care spending decisions and assume more risk.

These plans will be the main source of revenue for HealthMarket, which is not an insurance company but will partner with insurers that will underwrite the insurance and bear the risk, Wiggins said.

HealthMarket will make money by administering the plans, which it hopes employers will offer alongside other health benefit options to their employees.

Another source of revenue will be an online exchange enabling physicians to post their fees for specific procedures on HealthMarket's Web site. In turn, the company makes these data, physicians' credentials and quality data available to consumers so they can evaluate and select doctors.

The service, which was launched in July, is free to physicians. But consumers must pay annual membership fees to lock in the prices listed on the site.

HealthMarket is recruiting doctors through PPOs, IPAs and individually for its exchange.

Although HealthMarket is heavily touting the message that doctors will set their own rates, some doctors who belong to a PPO may not be able to do so, acknowledged John Danaher, MD, HealthMarket's president.