26 Jun 2000  Research & Ideas

What’s an Internet Business Model? Ask a Health Care Professional

Health care and the Internet are well-matched for each other, quipped one panelist at the IS2K conference, "because no one wants to pay for either." Quips aside, the health care field is emerging as one of the busiest laboratories for exciting new business models—and the stakes are high indeed. In a discussion moderated by HBS Professor Lynda Applegate, experts in this burgeoning realm of Internet activity talked about what their businesses are doing to change the rules, all while trying to fulfill their primary goal of earning patients' trust.

 

Though the Internet has woven itself into most aspects of life, few fields have adopted it more actively, and at times controversially, than health care.

What new business models in health care, based on the Internet, are rising to the fore? What do they do that's different? And how do they address some eternal issues of patient care: not only good health, but also quality, choice and trust?

To consider these questions, the IS2K conference assembled a panel of experts, with HBS Professor Lynda Applegate as moderator, to talk about "Emerging Internet Business Models: Reshaping Markets and Industries."

One key aspect of the Internet revolution to keep in mind, began Applegate, is that new business models continue to draw on essential information and values that have always driven business. "This is an evolutionary process," she reminded the audience. "This is not a big bang. There's a lot to learn from what's gone on before."

In class, for example, Applegate said that she forbids students from replying to a question like "What is your business model?" with a statement as simplistic as "A B2B portal." Instead, students must supply answers about what was, and remains, vital in business: customers, products, value propositions, the capabilities and advantages any player brings that will allow the plans to meet success.

And while businesses have always used a "platform" of technology of one kind or another to deliver products and services, the great leap forward sparked by the Internet, Applegate explained, is the fundamental merging between platform providers and the businesses being built on these platforms.

"More and more, we're seeing that businesses doing business on top of the 'Net are also providing the infrastructure, and delivering the platform upon which business will be done," Applegate said. "That ability to play above and below the line is fundamental to success because it provides revenue streams. There is nothing stickier than getting everyone in your industry to do business on your platform."

While the business models that the IS2K discussion's four panelists went on to describe could not claim that ideal framework, the projects they described did identify niches and illuminate business issues that are already reshaping the health care field.

Daniel D. Moriarty, Assistant Provost and Chief Information Officer of Harvard University (and former Dean of Information Technology at Harvard Medical School), noted that most health care marketing in the past was centered around physicians. The basis of competition in the near future, he predicted, would shift to one driven by consumer satisfaction and quality.

Noted Moriarty, "It's really incredible when you compare [health care] to other industries, and ask what information is available to consumers that influences choice: choice of physician, choice of where to have procedures done, ability to access meaningful and useful information … It's incredible that this industry has so little information of this type that's actively used.

"There are a lot of components on the Web today, but no one has really put this together in a compelling way."

Moriarty also reckoned that another emerging frontier is online continuing medical education. While he assessed the current quality of such offerings as "pretty limp," quality can only improve thanks to dramatic interest within the medical community in what the Internet can do.

Panelist John D. Halamka, MD, of CareGroup Healthcare System, quipped that health care and the Internet are ideally suited for each other "because no one wants to pay for either." CareGroup, as an "integrated delivery group," gives patients and physicians within the network an ability to conduct a myriad of activities online. These tasks can range from refilling prescriptions to accessing personal MRI (magnetic resonance imaging) records.

The business model described by panelist Andy Slavitt (HBS MBA '93), Founder, President and CEO of Healthallies.com, is an exchange that links patients with local health care providers who offer preferred rates. Services include everything from traditional medical procedures to alternative treatments that are not usually covered by health insurance, such as laser eye surgery and infertility counseling.

"For the exchange to work, there has to be a value proposition for both sides," Slavitt explained. "Providers today live in a world where people they have commercial relationships with—at insurance companies—are different from the people they set out to serve.

"The way a traditional relationship works makes you jump through hoops to fill out the paperwork. We go to providers and say, 'Set your own rate, set a fair rate, set it based on what kind of available capacity you have in your office and on what you think your value proposition is to consumers.'"

Robert Adelman, MD, said his company, Veritas Medicine, also provides an exchange because it matches patients to suitable clinical trials. Prior to the founding of Veritas in the fall of 1999, according to Adelman, there was no efficient way for patients to find out how to get into a clinical trial to try an experimental drug. For their part, physicians are often befuddled by difficult cases that don't respond to traditional therapies. And pharmaceutical companies, at the same time, are anxious to find subjects for clinical trials in order to hasten the process of testing drugs and bringing them to market.

No matter how ingenious a business model may appear, however, all panelists agreed that the trust of patients remains paramount. Patient trust, then, could well emerge as the ultimate arbiter of business success or failure.

Adelman likened the situation to the traditional separation of church and state in newspapers. In the best newspapers, he said, there is a virtual "wall" between the editorial and advertising staff. The same rules apply to Internet health care. "If we don't offer quality, people won't come back," Adelman declared. "The moment we feel pressure from a large [pharmaceutical company] to make one particular clinical trial sound more appealing, we're out of business. If that [news] gets out, either through The New York Times or locally or through a competitor, then we are no longer viewed as a third-party exchange.

"That's the key to our central business plan."

Added Slavitt of HealthAllies.com, "We must understand how a [health care] Web site makes money." He mentioned a much-heralded, now defunct site that allegedly solicited $75,000 to recommend certain hospitals.

"Our own company is paid by consumers," Slavitt stated. "When the consumer knows that, it makes all the difference in the world."