Healtheon/WebMD Deal Under a Microscope

SAN FRANCISCO (03/30/2000) - In a sign that the U.S. government might be starting to pay attention to the rapid consolidation of the online health care industry, the Department of Justice (DOJ) has asked Healtheon/WebMD Corp. provide more information about its alliance with rival IDX.

Healtheon/WebMD disclosed the request in its annual report, filed today. The company signed the deal with IDX, a medical software maker, and its Internet subsidiary ChannelHealth, in January. IDX competes with Healtheon/WebMD to sign up doctors for its services that connect physicians' office to health plans, patients, pharmacies and laboratories. The alliance, which effectively neutralizes IDX, calls for Healtheon/WebMD to integrate some of its services for doctors with ChannelHealth. The companies also would develop a joint online prescription-writing service for doctors.

The IDX alliance and Healtheon/WebMD's subsequent acquisition of other companies, including its main competitor, CareInsite, gives Healtheon/WebMD potential access to about 90 percent of the practicing physicians in the U.S.

Healtheon/WebMD and DOJ officials couldn't be reached for comment today.

The IDX alliance, the acquisition of CareInsite and its parent company, medical software maker Medical Manager, is subject to regulatory approval. The government also must give the green light to the company's January agreement to acquire Envoy, the world's largest electronic processor of medical claims.

Healtheon/WebMD's acquisition of Medical Manager/CareInsite also must clear some hurdles erected by Microsoft Corp., which is one of Healtheon/WebMD's major shareholders and which holds a seat on its board of directors.

Microsoft's strategic alliance with Healtheon/WebMD calls for the company to use Microsoft technology.

"We have agreed with Microsoft that for a 60-day period following our acquisitions of Medical Manager and CareInsite, we will work with Microsoft to identify and resolve any conflicts that we may have as a result of these acquisitions," according to the annual report.

Healtheon/WebMD did not identify the nature of other potential conflicts. But CareInsite signed a US$30 million deal last fall with Microsoft competitor America Online to connect AOL members to their doctors and health plans.

Healtheon/WebMD is the main provider of health information on Microsoft's MSN (Microsoft Network) portal. That partnership requires Healtheon/WebMD to obtain Microsoft's approval to provide services to certain unidentified Internet and health care companies.

Microsoft has agreed to vote for the acquisition of Medical Manager/CareInsite but if any conflicts are not resolved, the company can terminate its alliance with Healtheon/WebMD, the report says.

As Healtheon/WebMD moves to complete its acquisitions, it faces new competition. The New York Times reported today that six of the nation's major health plans are in discussions to create a joint online venture to connect their doctors, patients and hospitals over the Internet.

That news came on another bad day for Internet stocks, and it contributed to a nearly 16 percent drop in Healtheon/WebMD's share price, down $4.86, to $25.83.

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More about America OnlineAOLCareInsiteDepartment of JusticeDOJHealtheonMicrosoftMSNWebMD

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