The Case for Healthcare
AOL founder Steve Case says he wants a revolution--in healthcare
Admire or revile him, you've got to admit that former AOL Chairman Steve Case has RBI, LOM, and FWC: Really Big Ideas, Lots of Money, and Friends With Clout. So when he says he's going to "revolutionize" American healthcare, it's smart to RWI: Regard With Interest. But given the strategic and accounting troubles that plagued his last years at America Online, the scattershot nature of his new company, and the sheer difficulty of his new goal, maybe that should be Remain Wary Indefinitely.
In a move reminiscent of financier Michael Milken's financial and entrepreneurial assault on prostate cancer, Case says he is pouring his cash and energy into making the nation's health system as easy to navigate and consumer friendly as AOL. Case announced last week that since forming his Revolution Health Group in July, he has spent about $100 million, mostly of his own money, buying all or part of seven private companies that provide healthcare and health information and manage health benefits for employers. And he's planning to spend hundreds of millions more scooping up other health-related ventures and building a new health information website, Revolutionhealth.com. Twenty percent of the money will come from private investors who, Case says, understand it may take more than 10 years to realize a return. But the profit, for now, is secondary. The real goal of all this money and energy, he says, is to "put consumers at the center by improving their choice, control, convenience, and care."
There is no doubting his sincerity. Case's drive comes from having watched his brother deal with doctors and insurers while dying of brain cancer. "It was a confusing maze," Case says.
There's also no doubt that America's health system needs reforming. Healthcare spending now totals $6,000 per person annually, almost double that spent a decade ago. Medical costs, which are expected to keep rising two or three times as fast as inflation, are helping push companies that provide generous insurance, such as General Motors, to the brink of insolvency. And more than 45 million Americans can afford no health insurance at all.
There's no doubt that Case's emphasis on consumers is smart. Twenty-six percent of large employers are expected to offer workers a version of the new "consumer directed" health plans next year. These usually set a high deductible and often include an employer-funded savings account to pay for routine and preventive care. Employers like these new plans not only because they control their share of costs but also because they are billed as a way to rein in rampant health inflation. The theory is that consumers who pay out of their own pockets or health savings accounts for doctors' appointments and MRI s make only the appointments they really need and shop around, forcing prices down. But patients often can't tell the difference between symptoms that demand a doctor's attention and those that don't. Physicians don't typically give patients the kind of price lists and quality-of-care statistics they need to comparison shop.
Unfortunately, many have tried what Case is aiming to do--and failed. From managed care to DrKoop.com to former President Clinton's health plan, the landscape is littered with the remnants of previous attempts to reform healthcare.
And the folks in charge of Revolution may not have the skills needed for such a tough challenge. Case, it is true, built one of the world's biggest Internet companies. But he resigned from the AOL chairmanship in 2003 (though he remains on the board) under pressure caused by the controversial merger with Time Warner, a subsequent 75 percent drop in stock value, and allegations that the company had exaggerated revenues. The company, now called Time Warner, settled the accounting charges last year.
A roll call of Revolution Health's board sounds like a list of who was who. Franklin Raines retired early from the chairmanship of Fannie Mae in December 2004, after Securities and Exchange Commission staffers said the mortgage insurer inflated its revenues. Carly Fiorina was pushed out of Hewlett-Packard in February because of a perceived inability to execute her strategy following the purchase of rival Compaq. Oxford Health Plans founder Steve Wiggins was forced out in 1998 after the insurer reported big losses and glitches in a new computer system left doctors unpaid for months.
Case has tapped as Revolution Health's CEO John Pleasants, who lacks healthcare industry experience. He made his name at TicketMaster and other divisions of IAC/InterActiveCorp., Barry Diller's conglomerate of Home Shopping Network, Match.com, LendingTree, and other businesses. While TicketMaster has generally pleased its owners with strong profits, it has long drawn consumer ire for using its control of most concert and event ticket sales to charge high handling and shipping fees. "If his new job is to be a consumer advocate, his background is not the most encouraging," says Bert Foer of the pro-competition American Antitrust Institute.
Portfolio. Revolution's strategy is far from clear. Many of the company's purchases are "peripheral" in the health industry, says Suzanne Delbanco, CEO of the Leapfrog Group, an influential cooperative of corporations that is encouraging hospitals to improve quality by publishing safety and treatment data. Case recently bought a small health cable channel called Wisdom that features many New Age health programs. His new acquisitions include four other little-known providers of health information: MyDNA Media, 1-800-Schedule, Wondir Inc., and Simo Software. While MyDNA does offer disease information, it is not as exhaustive as WebMD or MayoClinic.com. Nor is any of Case's sites considered to be at the forefront of developing price and quality data for consumers. Wondir is simply an online forum in which members can swap questions and answers about everything, not just their health.
More central to Case's strategy may well be his purchase of controlling interests in two small benefit-management companies that specialize in helping firms set up consumer-directed plans. And most noticeable of all will be an investment to help RediClinic open more quick-care facilities in Wal-Marts and drugstores around the country. For example, patients will soon be able to walk into the Duane Read drugstore in Manhattan's Times Square on any day of the week and be given a pager that allows them to shop in the store until a nurse practitioner is free. The nurses can perform standard physical exams and treat dozens of minor ailments such as strep throat, ear infections, and allergies in as little as 15 minutes. Price: typically $45. "RediClinic is intriguing" because it could help reduce expensive emergency room and doctor visits, Delbanco says.
Case brushes off concerns about his strategy, board, and timing. His portfolio, he says, is still in its formative stages. He plans to buy and build more banks of health information to fill in the gaps. "Clearly, there is more work to do," he says. "But over time, there will be more and more synergies." The board members are "the right team," he adds. "They are all smarter than me" and have plenty of healthcare experience. Colin Powell, for example, ran one of the nation's largest healthcare systems as chairman of the military's Joint Chiefs of Staff. Former executives such as Fiorina, Raines, and Netscape's Jim Barksdale all had to wrestle with health insurance problems.
Case remains steadfast in his belief that healthcare is an industry ripe for reform and that empowering consumers will be the best way to do it. He may be premature, but Case points out it took nine years to build up AOL into a million-member organization. Today, AOL has nearly 27 million members. "I am not naive about the complexity and challenges," Case says. "I want to build something to last, not to flip for money."
This story appears in the October 17, 2005 print edition of U.S. News & World Report.