Pacificare, IBM, Keane, MedicaLogic/MedScape, WebMD, DrKoop.com

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PACIFICARE BEGINS SERIOUS RESTRUCTURING TO SHIFT EMPHASIS

NOT SO MANY YEARS AGO, PacifiCare Health Systems Inc. was considered the quintessential embodiment of all that was expected to be good with managed healthcare.

The company’s business model was studied and copied in cities throughout the country. It shifted 100% of the risk on providers, used capitation almost exclusively, and concentrated on sales, marketing, and administrative responsibilities.

As noted earlier in THE DARK REPORT, this business model collapsed in recent years as hospitals and other providers refused to accept capitated contracts. To stay alive, PacifiCare has begun to develop PPO and POS products. This transition process makes PacifiCare a good bellwether for the larger changes occurring to the managed care industry.

Last week, PacifiCare announced it would lay off 1,300 employees, or about 15% of its staff. For the most part, these people work in the HMO programs, which are being de-emphasized at PacifiCare. The company will take a $60 million pre-tax charge in fourth quarter to cover severance and related costs.

As part of the company’s restructuring, it has announced contracts with IBM and Keane Inc. to outsource its information technology operating and software maintenance systems. Over 10 years, the two contracts are worth $1.2 billion.

THE DARK REPORT observes that healthcare is an area where IBM wants to establish a big presence. IBM believes that information management capabilities will be a source of added value. Moreover, it is expected that molecular and genetic testing will begin generating so much data that providers, including laboratories, will be challenged to both archive the data and then mine it for useful information. For that reason, IBM’s contract with Pacificare should be seen as part of its larger business strategy to become a major player in the healthcare informatics marketplace.

MEDSCAPE SELLS ITS INTERNET PORTAL BUSINESS TO WEBMD

EVEN AS DRKOOP.COM WAS FILING Chapter 7 bankruptcy in December,
MedicaLogic/MedScape Inc. was selling its two healthcare Internet portal businesses to WebMD.

In a deal valued at $10 million, WebMD acquired medscape.com and medscapehealth.com. These were Internet portals for healthcare professionals and consumers, respectively. MedicaLogic/MedScape will concentrate on its digital health records business. (See TDR, November 26, 2001.) It will conduct business under the name of MedicaLogic.

The failure of MedScape and DrKoop.com to make money as healthcare information portals is probably due to the huge volume of free health information available from many credible sources on the Internet.

Laboratory administrators and pathologists should track the progress of MedicaLogic in selling its software solutions for clinical decision support and digital health record management. Both products touch upon laboratory test ordering, results reporting, and archiving lab test data.

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