Novel trends in Internet health care industry revealed in E*OFFERING's research report

Newport Beach 27 July 1999 The E*OFFERING company has released its first report in a series of research documents on the E-Health care industry. In "The E*Volution of Health care", the Internet health care and chartered financial analyst Caren Taylor identifies and analyses some of the current issues and trends facing the health care industry as a result of the Internet. In the report, it is estimated that the potential size of the Internet health care market will be approximately $205 billion in 2003, and at present is growing at rates in excess of 100% annually. Under this kind of circumstances, the opportunity to streamline information and improve business processes in health care is tremendous, and is bound to create a win-win situation for all participants involved.

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The E*OFFERING company has released its first report in a series of research documents on the E-Health care industry. In "The E*Volution of Health care", the Internet health care and chartered financial analyst Caren Taylor identifies and analyses some of the current issues and trends facing the health care industry as a result of the Internet. In the report, it is estimated that the potential size of the Internet health care market will be approximately $205 billion in 2003, and at present is growing at rates in excess of 100% annually. Under this kind of circumstances, the opportunity to streamline information and improve business processes in health care is tremendous, and is bound to create a win-win situation for all participants involved.

Since various Internet health care business models are emerging but yet remain unproved, investors are somewhat reluctant and sceptic with regard to the question of how this fairly new medium can create and sustain value. In fact, we are dealing with a market space instead of a market place, as Caren Taylor points out. To conquer the e-health care space, a variety of marketing strategies are being deployed, allowing the analyst to segment the space into four primary subsectors, defined as health information content; connectivity; business-to-business e-commerce; and business-to-consumer e-commerce. Companies adhering to the first category offer patients useful information on disease management. Connectivity involves software supplied by infrastructure providers to optimize existing procedures and processes in the health care system, whereas e-commerce generates an interactive traffic between health care industry participants.

The Internet health care sector is still in its infancy and it is anticipated that the first industry life cycle will continue to last for the next 18 to 24 months. The democratizing power of the Internet, the shift of health consumers to an attitude of anti-managed care in which the patient claims the responsibility for his own health, and the evolution towards clinical management to reduce the patient care costs will help the nascent Internet health care business to grow and mature, according to the E*OFFERING analyst. The Internet solution providers in turn are no longer focused on expensive client/server technology for health care information systems but are adopting thin/client applications which users can access remotely through a simple PC, Internet connection and browser. In addition, the increasing pressure from insurers, pharmaceutical companies, and consumers will force physicians to connect to the Internet while hospitals wait to survive the millennium bug before they are willing to invest in new clinical systems.

Caren Taylor distinguishes among four major business models to dominate the future E-Health care industry. The consumer and professional content aggregators provide health information in an easy-to-use format, thereby relying on advertisers, sponsors, e-commerce transaction percentages, and viewer charges for tailored content to create revenue. The infomediaries act as trusted third parties assisting the customer in lowering costs for search and transaction to acquire goods or services. Next to earning e-commerce revenue, they are in a position to sell customer data to specific marketers. The third category refers to the market creators who bring together buyers and sellers and is influenced by the transaction-based on-line auction revenue model. The e-tailers lastly form an extension of the conventional retailing business, serving as a primary distribution channel or as a complementary one to the existing physical channel. Inevitably, they will have to concentrate on marketing, advertising, and customer service.

The E*OFFERING report also marks a number of critical success factors for health care commerce to succeed on the Internet. Brand image building forms a key issue, which might be enhanced by introducing innovative and value-added experiences on the Web site. Personalized interactive tools make consumers "stick" to the health site. Customer service creates a difference, next to easy search and retrieval software tools. Capital, a strong management, and the ability to partner with competitors to generate fruitful collaborations constitute equally solid steps to a remunerative Internet trade. Some novel trends are lurking on the horizon. With U.S. Senate legislation to improve the chances for reimbursement, telemedicine will most likely re-emerge whereas the use of Internet possibly can revive the concept of disease management. In addition, Caren Taylor observes a growing tendency of on-line health care content companies to ally with renowned traditional media broadcasters to benefit from cross-promotion opportunities.

Start-up Internet infrastructure companies in turn lack an installed base of customers. In order to compensate this disadvantage, they should seek to partner with established health care information systems vendors. Medical information privacy legislation constitutes another challenge to be reckoned with by the E-Health care industry with the Health Insurance Portability and Accountability Act (HIPAA) regulations coming up. Nevertheless, it seems these issues are no insurmountable barriers to the flight that E-Health care business can take in the future. E*OFFERING, the on-line investment banking firm funded in part by E*TRADE Group and Sandy Robertson, founder and former CEO of Robertson Stephens & Co., provides full-service investment research and capital markets capabilities to institutional and individual investors. The E*OFFERING company is also a member of the United States National Association of Securities Dealers.


Leslie Versweyveld

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