Business Week e.biz -- Upstarts
Man in a Hurry
Jeff Arnold wasted no time building WebMD. But has he alienated potential partners?
Jeffrey T. Arnold's office at Healtheon/WebMD Corp. seems better suited to the president of a small bank rnold has been a young man in a hurry: In the three-and-a-half years since the former medical-equipment salesman doodled his vision for a health-care portal on a cocktail napkin, Arnold has completed a dozen mergers and inked scores of joint ventures--all part of a land grab to make his company, which will soon be known simply as WebMD, the top player in online health care. Arnold's goal: Use the Internet to seamlessly link virtually everyone in the business--patients, doctors, pharmacists, hospitals, labs, suppliers, and insurers.
Many industry experts, though, wonder whether Arnold has moved too fast for his own good. His push to acquire the best assets is starting to backfire as players wary of WebMD's potential muscle get together to control their own destinies. In March, medical suppliers formed their own online marketplace, offering hospitals everything from bandages to CAT scanners. And insurance companies, uncomfortable with giving a third party such as WebMD their precious clinical and claims data, are circling the wagons as well: A coalition of insurers led by Cigna Corp. will soon launch a Web-based service called MedUnite. It aims to process claims and prescriptions and link doctors, patients, and hospitals with HMOs. "We're not giving anyone any data that belongs to our customers," says Will S. Bashan, Cigna's senior vice-president for e-commerce.
As Arnold's original endeavor of building a simple portal has grown to resemble a Manhattan Project for the health-care industry, experts question whether WebMD has become too unwieldy. Indeed, moving the hidebound sector into cyberspace is no small feat: He's confronted with scores of scrappy competitors, each focusing on a far smaller slice of the health-care pie. And he faces resistance from doctors, hospitals, and insurers who are wary of the emergence of a new intermediary like WebMD. "The real obstacles are cultural, economic, and legal--and the Internet can't solve those problems," says J.D. Kleinke, a Denver-based health economist. "WebMD is a completely unexecutable fantasy that is going to collapse of its own weight."
Investors are having their doubts, too. After spiking above $125 last year, WebMD's shares began tumbling this January--before the broader meltdown in Net stocks--and now languish around $15. That's hurting Arnold's ability to make deals. Last year, he used his high-flying stock to gobble up a slew of established medical data companies. But on June 19, Arnold suffered the ignominy of forking over an extra 35 million shares--nearly 50% more than he'd originally agreed--to salvage a deal he cut in February to acquire Medical Manager Corp. He had little choice: With doctors shunning WebMD's desktop service, Arnold needs Medical Manager, whose practice-management software is used by 185,000 doctors.
Worse than surrendering the shares, Arnold gave up half of his job. Medical Manager's respected chairman, Martin J. Wygod will become co-CEO. Outsiders believe the shift reflects the urgency of enlisting industry veteran Wygod, 60, to mend relations with insurers. He has a strong record: Wygod built MedCo Containment Services, a pharmacy-benefit management company, into a $2.6 billion business. He then sold it to Merck & Co. in 1993 for $6.6 billion. "Wygod has the connections that WebMD badly needs," says Michael Davis, a research director with Gartner Group Inc. Arnold says the idea of splitting the CEO's post was his. It lets him concentrate on marketing, dealmaking, and content--his strengths--while Wygod focuses on relations with insurers and investors. Still, many question how long the arrangement will last. "Wygod doesn't share power," says Gerard Nussbaum, a manager at health-care consultant Hamilton HMC.
Whoever ends up at the helm will need to move quickly if WebMD is to live up to its promise. While the company reported $102 million in revenues last year, it lost a whopping $287 million, with much of that coming from merger-related charges. WR Hambrecht & Co. analyst Josh Fisher estimates that WebMD will generate more than $460 million in revenues this year. But thanks to its acquisition of data-processing businesses such as Envoy and MEDE America, it stands to lose another $2.1 billion, including merger-related charges.
Still, Arnold believes WebMD can deliver on his vision. He's backed by the likes of Microsoft, DuPont, Janus Funds, and Netscape co-founder James H. Clark--who a year ago agreed to merge his struggling e-health venture, Healtheon Corp., into WebMD. That firepower has given Arnold a war chest of more than $1 billion. And he has built a deep bench of talent from American Express, Disney, and Silicon Graphics in addition to the 45 doctors on staff. The lure to recruits: Help revolutionize the industry. "He told me, `If we can save some of this money that's being wasted, maybe every kid in the country can have health care.' That was enough to sign me up," says Patricia Fili-Krushel, who resigned as president of Disney's ABC network in March to develop WebMD's consumer content.
Arnold acknowledges that mobilizing so quickly may have raised undue fears among other health-care players. Now he's mending his ways. These days, he spends much of his time on the road "convincing the industry that we're just trying to be the enabler," says Arnold, whose earnest, youthful demeanor makes him seem like the Internet's version of Doogie Howser.
Until WebMD's recent travails, Arnold's possibilities seemed unlimited. He dropped out of the University of Georgia to get a jump on the business world, and started a heart-monitoring service at age 24 from a spare bedroom. Two years later, he sold the business for $25 million to focus on developing WebMD. Since then, Arnold has made a splash in Atlanta. Even after his stock's plunge, Arnold is sitting on shares and options worth more than $100 million--a fact not lost on the city's business elite. Last year, Arnold bought a $4 million house in the tony Buckhead neighborhood that was used in publicity shots for the 1939 premiere of Gone With the Wind.
Thinking grand is Arnold's trademark. He has, after all, put together an astounding number of deals. Colleagues say he is a great negotiator because he not only articulates how a deal will help him, but also what benefits will flow to those on the other side of the table. And he's got an eye for detail even in the most far-flung corners of WebMD's empire. Pavan Nigam, an Intel Corp. alumnus who is now Arnold's chief technology officer, recalls when his boss was given a demo of a new physician service. Within minutes, Arnold spotted a potential flaw: The system would have required doctors to wait up to two days for access after signing up. Arnold argued that they would be annoyed by such a delay, so the service was overhauled to provide on-the-spot authorization. "Jeff is always ready to get his fingernails dirty," says Nigam.
He's also an optimist. Over the last decade, companies such as HBO & Co. have tried to automate and integrate the hidebound health-care industry and failed. Arnold says WebMD is different for one simple reason: The Internet. Arnold is betting that, as aging baby boomers take more control over their health, WebMD can use this mass of patients as a lure into services that doctors, hospitals, and other health providers won't be able to resist.
In the consumer arena, WebMD already is attracting a crowd. When Arnold completes his pending acquisition of the popular OnHealth.com site, WebMD will have roughly 10 million eyeballs--far more than the next largest site. At the moment, visitors to WebMD can peruse health-related content or take interactive quizzes. Over time, WebMD hopes to allow individuals to connect to their doctor's home page, schedule an appointment online, and even check lab results.
For doctors, Arnold has a similar vision. He wants them to use WebMD to check a patient's insurance, send prescriptions to a pharmacist, submit claims, and communicate with patients. The incentive: By submitting claims electronically, the doctors could get paid much sooner than they do now. That's been a tough sell, given doctors' concerns about everything from whether insurers will pay them for e-mails zapped to patients to the sensitive nature of dispensing medical care over the Net. "I am not a typist," sniffs Dr. Paul Kleeberg, a family practitioner in Minneapolis who has sampled WebMD.
Just as challenging will be winning acceptance among hospitals. Many of them, already feeling a financial squeeze from HMOs and insurance companies, are scrambling to promote their own Web brands. In Florida, Sarasota Memorial Hospital has developed a site where its doctors can access patients' medical records. "If I'm going to bear the costs of writing the interfaces for the Internet, I'd rather own it than outsource it to WebMD," says Dennis Baker, the hospital's chief information officer.
Given such resistance, the task of building a health-care portal is proving far more daunting than Arnold envisioned. Then again, medicine always has been a different animal. In virtually every other corner of the Internet, "first mover" advantage can be the ticket to success for startups. Given the internecine battles raging within the health-care industry--where doctors, insurers, and hospitals are wary of anyone amassing too much power--Arnold's mistake may have been moving too fast.By Dean FoustReturn to top