The Patient Knows Best

As consumers begin taking charge of their own health care, opportunities abound for those whose business plans bring power to the people.

By Jennifer Alsever, Sidra Durst, Jeanette Borzo and Saheli S.R. Datta

(Business 2.0 Magazine) -- We all know the health-care system is a $2 trillion dinosaur of the way-old economy. So where's the opportunity in that? Everywhere. But forget about trying to drag doctors, insurers, and hospitals into the Internet age. That was Health 1.0. Instead, if you're looking to start a health-related business, focus on the real customers - you know, the ones formerly known as patients. First they used the Net to educate themselves and shake up the medical establishment's Marcus Welby-era doctor-knows-best mentality. Now they're starting to control their own medical spending. Thanks to health savings accounts, people are moving over to "consumer-directed health plans" - you, the patient, get a health-care budget from your employer and manage your expenses accordingly. That means you'd better shop around before opting for a $2,000 MRI.

Free to buy health care like anything else, tech-savvy consumers are looking at the next generation of medical services, everything from online genetic testing to Wal-Mart medical clinics. But as always, the real opportunity lies with services not yet invented. How about a Priceline for nonemergency surgery? Or an online reservation system for doctors' appointments, à la Open Table? In the pages that follow, we'll show you where smart entrepreneurs are putting their money - and tell you what you need to know to get in on the action too.

The Gene Screen

+ DIAGNOSIS: Advances in the field of genomics are creating new tests for diseases and drug reactions.

+ PRESCRIPTION: Online DNA-testing services.

This summer retired computer consultant Carleton Neville went online, took out his credit card, and ordered a $500 colon cancer test from DNA Direct, a San Francisco genetic-testing service. A few weeks later, he logged back on, read his laboratory report, and scheduled a time to discuss his clean bill of health with a counselor. "I would rather do this than have a colonoscopy," says the 65-year-old resident of Orlando, Fla.

Who wouldn't? DNA Direct is just one of more than two dozen online genetic-testing services springing up to take advantage of advances in genomics - and the growing willingness of consumers to conduct even their most personal business over the Internet. Launched last year, DNA Direct is about to close a second $3 million round of financing. The attraction for investors? Virtually every week a new genetic test pops up for a different disease. Tests for nearly 1,300 ailments have been developed so far, with 1,000 now available. Getting one is easy - it just takes a few mouse clicks before a home test kit arrives in the mail. Many involve simply taking a swab from the inside of a person's cheek and mailing it to a lab for analysis.

That's just the beginning. Analysts estimate that by 2009 the genetic-testing market will be worth a whopping $12.5 billion annually. And with the advent of tests that will help tailor medication to an individual's genetic profile - a field called pharmacogenetics - the market is poised to take off. "One-size-fits-all medicine will soon be passé," says DNA Direct founder and chief executive Ryan Phelan, a serial entrepreneur whose company currently sells genetic tests priced between $200 and $3,300 that tell consumers if they are predisposed to breast cancer or perhaps carry the gene for cystic fibrosis. "We're finally at the point where consumers can get access to personalized medicine."

DNA Direct, capitalizing on the pharmacogenetics trend, has set up a new site, Genesanddrugs.com, and will start selling $500 tests this fall that reveal how people will respond to various prescribed medications, including antidepressants, pain relievers, and tamoxifen, a breast cancer drug with potentially dangerous side effects. More than 30 percent of drugs don't work the way they are intended, and bad drug reactions result in 2 million hospitalizations and as many as 100,000 deaths annually, according to the U.S. Food and Drug Administration.

Mayo Clinic offers a test that helps physicians identify patients who will likely suffer side effects from antidepressants. Roche Diagnostics, too, has developed a pharmacogenetic test for antidepressant side effects, and sales of such tests are expected to reach $1 billion within a few years. Last year Mayo introduced a pharmacogenetic test that indicates whether a patient will have problems with the colon cancer drug Camptosar. Some pharmaceutical companies advise DNA testing for patients before taking such drugs as Herceptin, which attacks malfunctioning genes that cause breast cancer, as its effectiveness depends on an individual's genetic profile. And the FDA recently recommended that people take a genetic test before being prescribed a blood thinner that can cause dangerous clots in some patients. "It's getting to be a real new evolution in health care," says Robert Epstein, chief medical officer at drug benefit manager Medco Health Solutions. "The safety and business implications are huge."

So far, relatively few doctors order genetic tests before prescribing medication. That leaves genetic-testing firms like DNA Direct in the sweet spot for consumers who are eager to take control of their own health care. For instance, Jenifer Mansell of Homer Glen, Ill., ordered a pharmacogenetic test from Seattle's Genelex when a prescribed medication didn't seem to help her 3-year-old son after a series of heart surgeries. A subsequent laboratory report listed all the drugs that her son couldn't efficiently metabolize. She took the report to his doctors, who quickly changed his medication. "It made a world of difference to him," she says.

Pioneers like DNA Direct notwithstanding, the field is so new that the online genetic-testing market is up for grabs. The federal government does not regulate the safety and accuracy of most genetic tests and has only minimum standards in place for genetic-testing laboratories. Nor does it regulate the testing services that act as middleman between consumer and lab. That makes setting up an online DNA-testing company relatively easy, with the Internet a cheap way to reach a national market of consumers. Overhead and staffing depend on the services offered; some companies merely sell test kits and provide lab reports, while others employ counselors and genetic scientists to interpret results and advise clients.

But the free-for-all nature of the genetic-testing business means that just about anyone can hang a shingle online and start offering DNA screening that may or may not be scientifically valid. The downside: A few renegade operators could tarnish the reputation of legitimate services. "There is no way for a consumer to distinguish between the dubious and the decent," says Kathy Hudson, director of the nonprofit Genetics and Public Policy Center in Washington, D.C. In fact, the American Medical Association officially discourages direct-to-consumer genetic tests and even recommends that states ban them, as New Jersey, New York, and Rhode Island already have.

Some services are trying to blunt such opposition by bringing aboard respected genetic scientists as advisers. With $3 million from angel investors, DNA Direct has enlisted certified genetic counselors and created a network of medical specialists who analyze genetic test results from Laboratory Corporation of America, one of the world's largest labs. DNA Direct clients get results explained in the context of their age and health as well as tips on how to discuss the test with their family or doctors.

DNA Direct is also working with breast cancer organizations and managed care companies, which may eventually refer patients who meet the criteria for the tests. As the pace of genomic discovery accelerates, people's desire to discover their genetic future will only grow, according to Harvard University geneticist George Church, who advises DNA Direct.

Or as Phelan puts it, "Soon genetic testing will be as routine as getting your cholesterol checked." - JENNIFER ALSEVER

Retail Therapy

+ DIAGNOSIS: Consumers are balking at spiraling medical bills and long waits for treatment.

+ PRESCRIPTION: In-store medical clinics for low-priced basic care.

Concerned that she might be having an allergic reaction to bedbug bites, Michaela Ryfa wanted immediate medical attention. But instead of calling one of Manhattan's thousands of doctors, she ducked into a Duane Reade drugstore on her lunch break. Within minutes she was ushered into a RediClinic examination room at the back of the store, where a nurse practitioner checked the 21-year-old dance instructor's vital signs and treated the welts on her arm. Total time: 30 minutes. Cost: $45. "It was quick, easy, and took care of the problem. And I wasn't in the emergency room all day," Ryfa said as she bought a tube of Benadryl on her way out of the store.

More people are adding health care to their shopping lists, as walk-in medical clinics pop up in Wal-Marts, drugstores, and other retail outlets. Typically staffed with nurse practitioners or physician's assistants, these so-called convenience clinics - there are about 160 of them nationwide - treat routine ailments, give blood tests, and perform minor procedures like removing stitches. The appeal to consumers: low prices, fast service, night and weekend hours, and no insurance hassles. The appeal to entrepreneurs: Analysts think there's room for at least 2,000 basic-care outlets in a market expected to be worth $900 million by 2011.

The spread of in-store medical centers with mix-and-match names like MinuteClinic and QuickClinic represents a growing opportunity to cater to consumers fed up with skyrocketing insurance premiums and overcrowded doctor's offices. The numbers tell the story: Spending on health care jumped 8 percent in 2004, while the number of Americans without insurance hit a record 46.6 million last year. No surprise that Fortune 500 companies like Best Buy and Black & Decker encourage employees to use MinuteClinics, or that insurers are increasingly willing to cover the lower costs of convenience clinic visits. Employers, meanwhile, are allowing workers to trade conventional medical plans for 401(k)-style health savings accounts that let them decide where to spend their health-care dollars. In other words, we're all heading out of network.

It's a sign of the changing health-care market that convenience clinic executives are more likely to have spent their careers pushing product than toiling in corporate medicine. For instance, former Arby's CEO Michael Howe runs Minneapolis-based MinuteClinic. (Its slogan: "You're sick. We're quick.")

Paul Mango, who heads McKinsey's health-care practice, says drop-in clinics are "truly becoming a retail-oriented business." That's apparent when you walk into a WellnessExpress Clinic in the back of a Longs Drugs in Davis, Calif. There's no receptionist - you sign in at a computer in the waiting room. Prices for procedures are neatly displayed on the wall like menu options at, well, an Arby's: hepatitis B shot ($67), physical ($59), suture removal ($38). For the retailer, a clinic brings in rent money and extra revenue from shopping patients. Even health insurers are going retail. AtlantiCare, the largest health-care system in southeastern New Jersey, has begun opening clinics in grocery stores.

Howe compares the clinics to the advent of the ATM, which made banking transactions quick and easy. Of course, he says, "just like you don't go to an ATM for a business loan, you don't go to a MinuteClinic for an appendectomy." For the most part, the clinics are targeting the same bargain-minded working-class customers who frequent Wal-Mart, as well as middle-class convenience shoppers. About 40 percent of clinics nationwide accept insurance.

The challenges of starting a clinic vary. For instance, some states require physician oversight of nurse practitioners, which means clinics need to hook up with local doctors. Clinics that accept insurance face higher back-office costs. Securing space in a high-traffic store is crucial, of course. And then there's the attitude of the medical establishment - the clinics raise alarm among some physicians. "[These new clinics] have to be very cautious about taking care of people who are older, on lots of medications, or have chronic diseases that may complicate procedures," says Larry Fields, president of the American Academy of Family Physicians.

But the upside is alluring, and health-care consultant Mary Kate Scott says a profitable clinic - staffed by one to three people - generates $500,000 to $1 million in revenue. The opportunity grows if clinics start treating chronic conditions, a potential $9 billion market, according to Scott. "There's a lot of room for entrepreneurs in this area," she says. "Every one of these clinics is in test mode - no one has figured out a winning business model yet." - SIDRA DURST

Second Opinion on Medical Bills

+ DIAGNOSIS: As insurers shift responsibility for medical spending to patients, consumers are being overwhelmed by bills and choices.

+ PRESCRIPTION: New software and services to help patients track and manage their medical costs.

When tech entrepreneur Todd Lash's son, Simon, was born seven years ago with developmental problems, he and his wife, Tracy Joe, faced a barrage of never-ending medical bills. The California couple couldn't find any software to help manage the mess, so last year Lash launched SimoHealth - named for Simon, now a happy first-grader - a PC application that organizes health-care expenses and uncovers discrepancies among medical bills, health-care payments, and insurance reimbursements.

His timing was perfect: AOL co-founder Steve Case's Revolution Health Group scooped up Simo Software a few months later for an undisclosed amount, adding Lash's startup to its portfolio of consumer-oriented medical services companies. The market for medical-expense software is not expected to exceed a modest $15 million to $30 million annually, but the real attraction for Revolution was the chance to incorporate SimoHealth into a forthcoming health portal. "As consumers become more responsible for their health-care management and more fiscally responsible for their treatment," Lash predicts, "these tools will become ubiquitous."

That's certainly the trend: In just the past year, the number of people switching to high-deductible insurance plans and paying for medical care through health savings accounts tripled to 3 million. By 2010 these so-called consumer-directed health plans are expected to account for a quarter of the market. That's creating a huge opportunity to help consumers track, invest, and spend the $75 billion they'll sock away in health savings accounts. Meanwhile, insurers' byzantine ways are spurring demand for software from new makers like SimoHealth and established ones like Intuit. As many as nine out of 10 medical bills contain errors, according to Medical Billing Advocates of America.

SimoHealth monitors how much money remains in your health savings account and will issue an alert when you've met your deductible for the year, green-lighting elective surgery. Best of all, it's always on duty, never plays golf, and works on Wednesdays. - JEANETTE BORZO

Home Is Where the Health Care Is

+ DIAGNOSIS: Chronic medical conditions cost the health-care system billions of dollars.

+ PRESCRIPTION: Keep patients out of the hospital by monitoring their condition at home.

Bill Halcomb's three-times-a week sessions at a local dialysis center used to consume a total of 15 hours, depriving him of time to run his kidney patient website, Ihatedialysis.com. Now the 34-year-old Southern California man says he's reclaimed his life by controlling his treatment with a new portable home dialysis machine. "Here at home I have my laptop and my Wi-Fi, and while the machine is running, I'm working," he says.

Thanks to the advent of technology for treating and monitoring chronic diseases, Halcomb's new routine is becoming far less unusual. And it's not just patients but also insurers that are driving the trend, looking for a way to slow the spiraling health-care costs of common conditions. Diabetes and heart and kidney disorders alone account for a staggering 75 percent of the nation's medical bill. Health-care giant Kaiser Permanente, for instance, pays for Halcomb to use the suitcase-size dialysis machine rented from Lawrence, Mass., company NxStage for $1,500 a month. Kaiser figures it can save as much as $20,000 a year by allowing a patient like Halcomb to treat himself. The market for home dialysis is potentially huge: Nearly all of the nation's 325,000 dialysis patients are currently treated at medical centers, at a cost of about $300 million annually. NxStage just began selling its System One machine for home use a year ago, and revenue jumped 348 percent to $2.7 million in the company's latest fiscal quarter. "It was an unmet market," says NxStage founder and CEO Jeff Burbank, "and the patient response has been overwhelming." Analysts estimate that the market for home medical monitoring for chronic conditions could be worth as much as $500 million a year by 2009. And demand will only increase: The graying of the baby boom generation will double the elderly population between 2011 and 2030.

Health Hero Network, a privately held Redwood City, Calif., company founded in 1998, is one of more than half a dozen firms making interactive devices to remotely track patients at home. The goal: head off medical crises by reviewing patients' vital signs daily and reminding them to take their medications. A bit bigger than a PlayStation Portable, its Health Buddy features four buttons, a screen, and ports for scales, glucose meters, and blood pressure monitors. "How do you feel today?" the Health Buddy asks in the morning, prompting a congestive heart patient to weigh herself and check her blood pressure. The Health Buddy then transmits the data to the patient's health-care provider. If the device detects elevated blood sugar levels, for instance, it tells the patient to call her physician. Some 10,000 Veterans Affairs patients use the monitoring system.

Health Hero won't give specific financial information but says its revenue doubled in 2005. The Health Buddy is now sold in drugstores, and Health Hero has also teamed up with iCare Health Monitoring, a Golden, Colo., disease management company. People pay $99 for the device and $50 a month to iCare, which monitors their vital signs and alerts their doctors and relatives when potential problems arise. Health Hero VP Gary Paladin calls it the "guilty daughter market." Adult children who live far from their parents can log on to iCare's website to make sure Dad is taking his meds and isn't indulging in too many Krispy Kremes. "There's a huge opportunity here, and the market is just being developed," says health-care industry consultant Greg Malkary of Spyglass Consulting.

The next generation of home monitoring technology is already being developed to serve that emerging market. Chicago's Carematix is building wireless transmitters into glucose meters and other devices. When a patient steps out of the shower and onto a Carematix scale, his data is beamed to a wireless router. Veterans Affairs patients now use the system, while other VA home-care patients check in with a video-equipped gadget made by ViTel Net of McLean, Va. Meanwhile, Mike Sloma, owner of dialysis centers in upstate New York, is working with NxStage to modify its dialysis machine so he can remotely check on his clients. "It will give patients and caregivers peace of mind knowing that, in some sense, someone is always there," Sloma says, "and they'll take more responsibility for their own care." Maybe it'll even help them stick around long enough to see the dawn of Health 3.0. - SAHELI S.R. DATTA

DNA DOLLARS

The market for genetic tests is growing fast, thanks in part to increased direct sales to consumers.

Diseases for which tests exist 1,294

Tests available to consumers 1,000

GENETIC TESTING MARKET (in billions)

$12.5 [*]

[*]Projected. Sources: BCC Research; Centers for Disease Control and Prevention

7 STEPS TO A HEALTHY MEDICAL STARTUP

1 Diagnose the Challenge

If you don't already have a "real, visceral understanding" of the health-care market, partner with someone who does, advises Forrester Research executive Eric Brown. For his Revolution Health Group, AOL founder Steve Case recruited seasoned executives from big insurers like UnitedHealthcare.

2 Avoid the Regulators

Stay clear of services that require you to spend a lot of quality time with the FDA. So consider dropping that plan for a high-tech hospital and think instead about a service that delivers hospital-quality health information to consumers, such as WebMD's.

3 Follow the Money

Anything that helps patients, employers, and insurance firms pare down the price of medical care should appeal. "Lowering health-care costs is the name of the game," says Ed Fotsch, CEO of Internet health-services company Medem. A company like Benefit-focus saves consumers money by providing information about plans and providers and helping them to pick the right coverage.

4 Target the Early Adopters

Focus on motivated consumers - say, people with heart disease or diabetes. That's the strategy of Patient Command, a McLean, Va., electronic medical-records startup. "We will start with that market," says co-founder Richard Marks. "Even a fraction of it will allow us to be profitable."

5 Be Specific

Create a focused solution for a specific market. Intuit's Quicken Medical Expense Manager, for example, concentrates on the management of medical bills and flexible spending accounts.

6 Use a Spoonful of Sugar

Many industries have found cash to be a key enticement for reluctant customers. So don't hesitate to aggressively coax consumers into using new health-care programs. Blue Shield has paid its customers as much as $200 to fill in a weekly online health assessment and record their healthy lifestyle activities.

7 Start Making Sense

Consumers need help with information overload. Technology that gives them a leg up on evaluating health-care options - from decisions about cancer therapies to health savings accounts - is in high demand. "We need quality ratings and price ratings," says Lewis Redd, head of Accenture's provider health and life sciences practice. Subimo, for instance, offers advice on everything from selecting a health savings account provider to choosing among hospitals for shoulder surgery. Top of page

To send a letter to the editor about this story, click here.

YOUR E-MAIL ALERTS
Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.