New report identifies Internet at confluence’ of health.net
By DON LONG
Healthcare InfoTech Managing Editor
SAN FRANCISCO While Hambrecht & Quist’s (H&Q; New York) analysts find strong upside potential in all three of the companies described in the story at left, a new report issued this week at the beginning of its annual healthcare conference suggests that IDX’s (Burlington, VT) Internet approach will ultimately be the most promising.
Co-authored by H&Q analysts Stephen Fitzgibbons and Richard Lee, the report is titled "The health.net Industry," and it states the authors’ shared belief that "the Internet will dramatically change how information flows and how people and organizations interact in healthcare. As an inexpensive, ubiquitous, and flexible technology, the Internet will be used to streamline current processes, enhance the quality of care, and create entirely new ways of conducting business."
Additionally, "Companies that successfully deploy Internet-based strategies will grow revenues and decrease costs at the expense of their less-advanced competitors."
The report defines what it calls the "health.net industry" and observes that this industry "stands at the confluence of healthcare and the Internet; health.net companies are leveraging the growth of the Internet and capitalizing on huge opportunities in the changing world of healthcare."
Besides offering an overview of Internet development, the report classifies a variety of web-based opportunities for healthcare and describes what it calls "Hot Ramp" companies that should draw special investor attention.
Hot Ramp companies, the report says, "have web-based business models that leverage the extraordinary growth of the Internet." These companies are characterized by fast growth and explosive revenues, and they have shown the ability to build large numbers of users for the production of "significant returns over the long term."
Amazon.com and Yahoo! are the two models for the Hot Ramp paradigm, according to the report, and it predicts that "healthcare has many attributes that make it an excellent Hot Ramp opportunity."
Drivers that suggest the potential leveraging of the Internet are the impact of managed care forcing reduction of costs. A backlash from consumers who are rebelling against managed care’s cost-containment push and in the process becoming more sophisticated consumers and the increased complexity of the healthcare system, a condition inviting the development of integrated information systems.
"The Internet is facilitating, and in some cases accelerating," these trends, according to the report. "While healthcare historically has been slow to adopt and invest in technology, we believe the Internet’s low-cost, ubiquitous and flexible platform will be more readily accepted. Healthcare participants will continue to leverage the Internet’s strength as an information, communication, and commerce vehicle to more effectively operate within the complex managed care environment."
The three most prominent opportunities defined by the report are e-commerce, connectivity/communications, and advertising/sponsorship.
The e-commerce opportunities for buying and selling medical products is estimated to become a multibillion-dollar industry. Connectivity/communications offers a $10 billion-plus opportunity. And the revenue opportunity for advertising/sponsorship is put in the hundreds of millions of dollars. And the report lists key players in these markets.
The key to the health.net industry, the report says, is the portal, defined as a web site that has reached a critical mass of frequent users. "Given the limited number of established portals broadly across the Internet, these companies hold valuable positions in the market (re flected in their astronomical valuations)."
Yahoo!, AOL and Excite are called horizontal portals, with broad use but shallow content.
By contrast, healthcare "is ripe for several vertical portals" which focus on a particular category of interest and provide "a much deeper level of content and services."
The report’s final assessment of these trends is that HIT companies "will pursue two web strategies that generally focus on two goals: Web-enabling existing product lines, and creating web-based offerings with entirely new functionality, such as disease management applications and connectivity solutions. We look for many HIT companies to partner with the emerging health.net players."
And finally, "Health.net investors, for the time being, should focus on top-line growth, increasing traffic, and strong brand awareness."
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