Healtheon/WebMD Buys Envoy, a Claims Processor, for $2.5 Billion


In a move that solidifies its position as the preeminent Internet health conglomerate, Healtheon/WebMD Corp. announced Monday that it paid $2.5 billion to acquire a major electronic health insurance claims processor owned by Quintiles Transnational Corp.

Healtheon/WebMD paid $400 million in cash plus 35 million shares of stock, valued at some $2.1 billion, for Envoy. The deal gives Quintiles about 16% of Healtheon/WebMD, making it the largest shareholder.

“It puts Healtheon/WebMD in the leading position in the electronic claims processing world, which will be very important when they put [claims] on the Internet” to drive down costs and speed payments, said William McKeever, an analyst with investment bank PaineWebber in New York.


Shares in Healtheon/WebMD gained $5.56 to close at $65.13 on Nasdaq.

The Envoy acquisition is the latest in a flurry of deals for Healtheon/WebMD, which was founded by Internet entrepreneur Jim Clark, founder of Netscape Communications Corp.

Healtheon/WebMD, which has technology headquarters in Santa Clara, Calif., and corporate headquarters in Atlanta, is now the largest Internet site linking doctors, patients and health insurers. It provides online consumer health guidance, manages records for physicians, hospitals and pharmacies and labs, and processes insurance claims--collecting fees averaging 30 cents each time a medical record is created or used.

After the Envoy deal, Healtheon/WebMD will control about 2 billion electronic transactions between providers and insurance companies--or two-thirds of the annual U.S. total.

“The end game here is the 30 billion [total] transactions, to get them [all] online,” in effect becoming the America Online of medical records services, said Jeff Arnold, Healtheon/WebMD’s chief executive.

Arnold said that his company serves 78,000 physicians and is rapidly expanding.

The company was formed last November with the merger of Healtheon Corp., WebMD Inc., Mede America Corp. and Medcast Networks. The combined company has yet to release its first quarter of financial results.

Quintiles will also provide $100 million to Healtheon to develop online methods to speed up drug development research and testing and market the service to pharmaceutical firms. Quintiles is based in Durham, N.C.


Last week Healtheon/WebMD and Inc., a top online health-care supply house for medical equipment, agreed to build a combined e-commerce venture. Earlier this month, Healtheon/WebMD announced a partnership with health maintenance organization Humana Inc.

Healtheon/WedMD says that such consolidation of services will increase health-care efficiency.

“Connecting payers, providers and consumers in an intelligent way has, potentially, enormous value for consumers” in driving down costs, said Claudine Singer, an analyst with Jupiter Communications in New York.

But Healtheon/WebMD has a long way to go, she added: “Doctors aren’t online yet. They are not using the Internet to facilitate the business of health care. They have to do that for Healtheon’s proposition to work.”

Also on Monday, Healtheon/WebMD announced an exclusive agreement with IDX Systems Corp., a records management company. But it could take two years before those doctors are fully integrated online, Arnold said.

Last year Microsoft Corp. invested more than $450 million in WebMD--before its merger with Healtheon--including funds to underwrite subscriptions for doctors to use the service.


And last December, media giant News Corp. took a 10.8% stake in Healtheon/WebMD, investing more than $1 billion in cash, branding services and licensing fees.

And lavish financing has helped to crowd out any broadly based Internet competitors, though each of Healtheon/WebMD’s key sectors--health records, consumer education and transaction management--faces competition, said PaineWebber’s McKeever.

Healtheon/WebMD could enjoy a huge competitive advantage if it can manage what has become an unwieldy and complex empire.

“They have been making deals at a breakneck pace. At some point they are going to have to stop,” McKeever said, “and develop the products that they said they were going to do.”



Shares of the Web medical company quadrupled in its first trading day. C4