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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-24975
WEBMD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3236644
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
669 RIVER DRIVE, CENTER 2 07407-1361
ELMWOOD PARK, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)
(REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE): (201) 703-3400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
(TITLE OF EACH CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference into Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant (based upon the closing sale price of $6.50 on March 14, 2001, as
reported on the Nasdaq Stock Market's National Market and, for purposes of this
computation only, the assumption that Microsoft Corporation, Quintiles
Transnational Corp. and all of the registrant's directors and executive officers
are affiliates) was approximately $1,824,460,131. As of March 14, 2001, the
registrant had outstanding 357,112,937 shares of common stock.
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TABLE OF CONTENTS
PAGE
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS................ 1
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 23
Item 3. Legal Proceedings........................................... 23
Item 4. Submission of Matters to a Vote of Security Holders......... 25
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 26
Item 6. Selected Financial Data..................................... 28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 29
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 47
Item 8. Financial Statements and Supplementary Data................. 48
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 48
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 49
Item 11. Executive Compensation...................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 49
Item 13. Certain Relationships and Related Transactions.............. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 50
Signatures............................................................... 51
Financial Statements..................................................... F-1
Exhibits................................................................. E-1
WebMD(R) and The Medical Manager(R) are registered trademarks of WebMD or its
subsidiaries.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains both historical and
forward-looking statements. All statements other than statements of historical
fact are, or may be deemed to be, forward-looking statements within the meaning
of section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
are not based on historical facts, but rather reflect management's current
expectations concerning future results and events. These forward-looking
statements generally can be identified by use of statements that include phrases
such as "believe," "expect," "anticipate," "intend," "plan," "foresee,"
"likely," "will" or other similar words or phrases. Similarly, statements that
describe our objectives, plans or goals are or may be forward-looking
statements. These forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be different from any future results, performance and
achievements expressed or implied by these statements. In addition to the risk
factors described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors that may affect future results of
operations" beginning on page 37, the following important risks and
uncertainties could affect future results, causing these results to differ
materially from those expressed in our forward-looking statements:
- the expected benefits from our restructuring and integration efforts not
being fully realized or not being realized within the expected time
frames
- the failure to achieve sufficient levels of physician utilization and
market acceptance of new services or newly integrated services
- the inability to successfully deploy new applications or newly integrated
applications
- the inability to attract and retain qualified personnel
- outcome of pending litigation and claims
- general economic, business or regulatory conditions affecting the
Internet and healthcare communications industries being less favorable
than expected.
These factors and the risk factors described in "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Factors that
may affect future results of operations" beginning on page 37 are not
necessarily all of the important factors that could cause actual results to
differ materially from those expressed in any of our forward-looking statements.
Other unknown or unpredictable factors also could have material adverse effects
on our future results. The forward-looking statements included in this annual
report on Form 10-K are made only as of the date of this annual report. We
expressly disclaim any intent or obligation to update any forward-looking
statements to reflect subsequent events or circumstances.
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PART I
ITEM 1. BUSINESS
GENERAL INFORMATION
WebMD Corporation is a Delaware corporation that was incorporated in
December 1995 and commenced operations in January 1996 as Healtheon Corporation.
Our common stock has traded on the Nasdaq National Market under the symbol
"HLTH" since February 11, 1999.
Our principal executive offices are located at 669 River Drive, Center 2,
Elmwood Park, New Jersey 07407-1361 and our telephone number is (201) 703-3400.
OVERVIEW OF OUR BUSINESS
We provide a range of transaction and information services and technology
solutions for participants across the entire continuum of healthcare, including
physicians and other healthcare providers, payers, patients and suppliers. Our
products and services promote administrative efficiency and assist in reducing
the cost of healthcare and creating better patient outcomes.
We have brought together in one company the nation's largest processor of
electronic healthcare transactions, leading provider of physician practice
management systems and most trafficked healthcare Web site. The integration of
these and other businesses acquired by us has been our focus during the past six
months. We are well along in the process of eliminating redundancies,
integrating operations and rationalizing the product lines, projects and
arrangements that were not profitable or strategic to us, as described more
fully under "Restructuring and integration" beginning on page 3. We have turned
our attention to accelerating the growth of our business, making it profitable
and taking advantage of opportunities for cross-selling additional and
integrated products and services to existing customers. For a discussion of
these efforts, see "Current strategic initiatives" beginning on page 6.
Our core business encompasses the following products and services:
- Transaction services. Through our transaction network, we transmit
electronic transactions between physicians, pharmacies, dentists,
hospitals, laboratory companies, other ancillary providers and payers. We
offer value-added solutions designed to increase productivity for both
providers and payers, to speed healthcare reimbursements and to improve
communications among healthcare participants. From simple
point-of-service devices to integrated transaction processing
applications and Internet solutions, we offer a full suite of products
and services to automate key business and clinical functions.
-- The electronic transactions that we facilitate include administrative
transactions, such as claims submission and status inquiry, eligibility
and patient coverage verification, and clinical transactions, such as
lab test ordering and reporting of results.
-- Most of these transactions are conducted by providers using computers,
modems and ordinary phone lines to connect to our clearinghouse.
Information is typically sent from the provider's billing or practice
management system to our clearinghouse, where it is validated for
format and completeness then sent to the payer's computer. An
increasing number of these transactions are being transmitted via the
Internet. In either case, there are important advantages for healthcare
participants utilizing electronic transactions over paper transactions:
electronic claims reduce costs and are processed more quickly and
accurately. We are focused on assisting healthcare participants in
increasing the number of electronic transactions and reducing the
number of costly paper transactions.
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- Physician services. We develop and market integrated physician practice
management systems, including administrative, financial and clinical
applications, under The Medical Manager(R) brand. These proprietary
systems enable physicians and their administrative staffs to efficiently
manage their practices while delivering quality patient care in a dynamic
healthcare environment.
-- We are integrating our practice management systems with the transaction
services and portal services that we offer, in order to provide
integrated transactional capabilities and secure connections between
physician offices and other healthcare participants.
-- We continue to improve our products by working with state-of-the-art
technology, such as graphical user interface, wireless devices, Web
technology and relational database technology. We are also addressing
the current needs of the healthcare industry with our electronic
medical records, real-time electronic data interchange, or EDI, and
imaging products.
- Portal services. We offer a variety of online services for consumers,
physicians and physician office managers through our Web site, WebMD.com.
At this site, consumers can access health and wellness news and
information, support communities, interactive tools and opportunities to
purchase health-related products and services through WebMD Health. Our
communities allow consumers to participate in real-time discussion and
support networks over the Internet. Physicians can access daily medical
news, continuing medical education courses, medical journals and
databases and opportunities to purchase other products and services
through WebMD Practice. Physicians and office managers can use our portal
to access our Internet-based transaction services through WebMD Office.
-- In early March 2001, we migrated members of OnHealth's consumer portal
to WebMD Health and began the integration of OnHealth's content and
interactive tools into WebMD Health.
-- We distribute our WebMD Health content and services to leading general
consumer Internet portals and media distribution partners, including
MSN, Excite@Home, Terra Lycos and News Corporation. We also provide
content and services to payers' and other healthcare partners' Web
sites for use by their affiliated physicians and plan members.
For a more complete description of our transaction, physician and portal
services and the solutions that we offer, see "Our products and services"
beginning on page 8.
We are in the process of integrating our transaction services, physician
services and portal services into comprehensive solutions that can address the
administrative, financial and clinical management needs of physician practices
and the needs of payers to have more effective channels of communication to
physicians. We believe that by incorporating our solutions into the workflow of
the physician office, we will be well-positioned to create significant
improvements in the way that information is used by the healthcare system,
enabling increased efficiency, better decision-making and, ultimately, higher
quality patient care at a lower cost.
RESTRUCTURING AND INTEGRATION
General
In November 1999, Healtheon Corporation completed mergers with WebMD, Inc.,
MedE America Corporation and Greenberg News Networks, Inc., known as Medcast.
Following these mergers, Healtheon changed its name to Healtheon/WebMD
Corporation. Healtheon/WebMD completed acquisitions of Kinetra LLC and Envoy
Corporation in January 2000 and May 2000, respectively. On September 12, 2000,
Healtheon/WebMD completed mergers with Medical Manager Corporation, CareInsite,
Inc. and OnHealth Network Company and changed its name to WebMD Corporation. For
additional information regarding these transactions, see note 2 to the
consolidated financial statements in this annual report.
After the mergers with Medical Manager, CareInsite and OnHealth, our board
of directors approved a restructuring and integration plan, with the objective
of eliminating duplication and redundancies as a
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result of all the acquisitions made by us since November 1999 and consolidating
our operational infrastructure into a common platform to more serve our
customers.
Additionally, as part of our restructuring and integration efforts, we also
undertook a review of our existing strategic relationships in light of several
criteria, including strategic relevance to both us and our partners, potential
conflicts with other agreements as a result of the numerous acquisitions made by
us, profitability and impact on future revenue streams. As a result of this
process, we are in discussions with several of our partners in an effort to
redefine the relationships in a manner that better serves the needs of each
party. These discussions have already resulted in revisions to some of our
strategic relationships, including those discussed below. It is possible that,
as a result of continuing discussions, additional relationships may be revised
or terminated, which may result in additional restructuring and integration
charges.
In connection with our restructuring and integration efforts, we recorded
restructuring and integration charges of $452.9 million, of which $380.0 million
were non-cash charges, in the year ended December 31, 2000. As we continue our
consolidation and integration efforts, we are likely to incur additional costs
relating to asset impairments and write-offs, severance, employee retention
arrangements related to exit activities, moving and relocations that will be
expensed according to the applicable accounting guidelines. We expect our
restructuring and integration efforts will continue during 2001. For additional
information regarding our restructuring and integration efforts, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Restructuring and integration charges" on page 33 and note 4 to
the consolidated financial statements in this annual report.
News Corporation
We revised our strategic relationship with The News Corporation Limited and
its affiliates in late December 2000. Under the revised relationship, we retain
the right to receive $205 million in domestic media services from News
Corporation over ten years and will continue to provide content for use across
News Corporation's media properties for the next four years. News Corporation
transferred to us its 50% interest in the international joint venture between
WebMD and News Corporation and was relieved of its commitment to provide any
future capital to the international joint venture and its commitment to provide
international media services. We transferred our interest in The Health Network,
a health-focused cable network, to News Corporation. We were relieved of all
future capital commitments to The Health Network. In connection with the
revisions to the relationship, News Corporation surrendered 155,951 shares of
our Series A convertible preferred stock, which would have converted into
21,282,645 shares of our common stock. We granted to News Corporation a warrant
to acquire 3,000,000 shares of our common stock at an exercise price of $15 per
share. Included in our restructuring and integration charge for 2000 is a
non-cash charge of approximately $279.0 million as a result of this transaction.
DuPont
Also in late December 2000, we agreed to terminate our strategic alliance
with E.I. du Pont de Nemours and Company. Under the terminated agreement, it was
contemplated that DuPont would provide healthcare content to our consumer and
physician portals and would lead the creation of a variety of programs and
services for the pharmaceutical industry. In addition, until March 2004 when the
agreement would have expired, DuPont would have been obligated to continue to
sponsor physician subscriptions to our physician portal and to participate in
our portal distribution relationships and would have been entitled to share in
revenue generated by our healthcare portals. We are exploring the possibility of
future collaboration in the food and nutrition area. In connection with the
termination of the existing agreement, DuPont surrendered a portion of its
warrant to purchase 6,946,966 shares of our common stock and retained a right to
purchase 3,000,000 shares of our common stock at an exercise price of $8.00 per
share. Included in our restructuring and integration charge for 2000 is $33.8
million related to the write off of prepaid content and services related to this
contractual relationship.
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Microsoft
On March 22, 2001, we executed a non-binding letter of intent with
Microsoft Corporation to revise our strategic relationship, which was originally
entered into in May 1999. Under the revised relationship, we will work together
with Microsoft to promote WebMD as the primary provider of health programming on
MSN and other Microsoft-affiliated Web sites, as well as to promote Microsoft
technologies as the core platform for ULTIA, our new wireless handheld solution
for physicians. For information about ULTIA, see "Current strategic
initiatives -- Release of handheld solution" on page 6. We will also work with
Microsoft to enable Intergy, our next-generation practice management system, to
run on Windows 2000 and SQL Server 2000. For information about Intergy, see "Our
products and services -- Physician services -- Intergy" on page 12.
As part of the revised relationship:
- Microsoft will provide performance-based funding tied to the roll-out of
ULTIA
- We will adopt the PocketPC and other Microsoft technologies as our portal
and wireless development platform
- We will make Intergy available to run on Windows 2000 and SQL Server 2000
- We will transition our WebMD.com portal to certain Microsoft technologies
- Microsoft has agreed to provide consulting services, support and other
resources in connection with these undertakings
- We will program the majority of the MSN health channel, and will have a
majority share of revenue derived from advertising, sponsorship and
e-commerce on the MSN health channel site and will no longer pay carriage
fees to Microsoft
- Microsoft will no longer be responsible for funding the sponsorship of
subscriptions to our physician portal
- We will not be required to share with Microsoft revenue generated by
physician usage of our healthcare portals.
The revisions to our relationship with Microsoft are subject to execution
of definitive documentation. We cannot provide assurance that definitive
agreements will be executed.
Others
We have recently revised our relationship with IDX Systems Corporation, a
provider of physician practice management systems. IDX has agreed that WebMD
will be IDX's provider of electronic claim transactions with commercial payers
for physician groups that connect to payers via IDX's eCommerce Services
gateway. IDX has also agreed to feature to its customers WebMD's full suite of
real-time transaction processing services for commercial payers.
We are currently well along in the process of negotiating a new arrangement
with AOL Time Warner, Inc. to replace the former arrangement between AOL and
CareInsite. We are also currently in the process of negotiating new arrangements
with Medic Computer Systems, Inc. and others that would replace prior
arrangements and better serve the needs of each party. We cannot provide
assurance that these negotiations will be successful and, if not successful, we
cannot provide assurance that we will be able to have relationships with these
parties.
Disposition of Porex
As we announced on September 28, 2000, our board of directors approved
management's plan to dispose of Porex Corporation and related subsidiaries, our
plastics and filtration technologies business that we refer to collectively as
Porex, which we acquired in our merger with Medical Manager on September 12,
2000. Porex designs, manufactures and distributes porous and solid plastic
components and
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products used in life sciences, healthcare, industrial and consumer
applications. We expect to complete the disposition later this year. We cannot
guarantee that the disposition of this business will be successfully completed
in a timely manner, or at all. Accordingly, the proceeds of such disposition may
not be available when expected, which may limit our ability to execute
strategies important to our company.
Porex is a leading developer, manufacturer and distributor of porous
plastic products, with an operating history exceeding 35 years. Porous plastics
are permeable plastic structures having omni-directional interconnecting
pores -- that is, porous in all directions to the flow of fluids and gases.
These pores allow the plastic to control the flow of liquids and gases by
filtering, wicking, venting, diffusing or dispensing them. Porous plastic
materials can be molded from several thermoplastic raw materials and are
produced by Porex at its own manufacturing facilities as fabricated devices,
custom-molded shapes, sheets, tubes or rods depending on application or customer
specifications. Porex designs porous plastic components to the specifications of
manufacturing customers for incorporation into their products, including water
filters for industrial use, plastic vents used in automobile batteries, porous
tips or nibs for highlighting pens and colored markers and deodorant and
fragrance applicators. Porex also produces finished products in several market
areas including life sciences, pneumatics and clinical laboratory markets. These
finished products include plastic disposable laboratory products for liquid
handling in clinical and diagnostic research, disposable pipette tips and blood
serum filters. Porex also develops and manufactures proprietary injection molded
medical components and finished medical devices, including components and
devices for intravenous drug delivery systems. Porex's surgical products group
manufactures surgical implant materials used in plastic and reconstructive
surgery.
CURRENT STRATEGIC INITIATIVES
We are currently focused on continuing to improve connectivity and
communication among healthcare providers, payers, patients and suppliers and
continuing to increase the percentage of healthcare transactions that are
handled electronically, whether through the Internet or other EDI methods. Our
goal remains achieving bi-directional, real-time information flows between
healthcare providers and payers that are fully integrated into the workflow of
the provider. However, our ability to achieve this goal is limited by the
current state of the communications infrastructure in most physician offices. In
the future, as persistent broadband connections become more widespread, we
believe that our ability to deliver coordinated and integrated products and
services will provide us with a strong foundation for succeeding in our goals.
Our current strategic initiatives are designed to provide a basis for achieving
these goals, while also pursuing the near-term goal of increasing usage of, and
revenue from, our products and services. Our key current initiatives include:
- Release of handheld solution. We are currently preparing for the
release, in selected geographic areas, of ULTIA, our wireless
point-of-care solution. This product combines the power of The Medical
Manager software's proven clinical and administrative systems with the
convenience of mobile handheld connectivity using a Compaq(R) iPaq(R).
From anywhere in the office, healthcare providers will be able to use
this wireless local area network, or LAN, device to access information
stored within, or to enter data into, The Medical Manager system, giving
them instant access at the point of care to:
-- appointment schedules, hospital rounds information and clinical tasks
needing the provider's attention
-- a user-friendly electronic prescription writer, with integrated drug
utilization review and formulary checking, which electronically submits
prescriptions to the patient's chosen pharmacy and, at the same time,
adds prescription information directly to the patient's electronic
medical record in The Medical Manager software, the roll-out of which
will occur in connection with the roll-out of ULTIA
-- electronic lab ordering and reporting of results, available through the
provider's Medical Manager system, which can then be viewed using ULTIA
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-- their patients' electronic medical records, including progress notes,
medications, lab results, procedure histories and other information and
transcribed patient documentation
-- a fully customized, online encounter form for capturing patient
charges, which displays procedure and diagnosis codes in customized
checklists and automatically posts charge information to The Medical
Manager system
-- medical content from our physician portal.
In addition, to the extent wireless Internet access is available, ULTIA
will allow providers to securely access The Medical Manager system and the
functionalities available in the office through the remote access feature
of an integrated portal, as described below.
We believe that our handheld solution has the potential to improve the way
providers deliver care. In addition, we expect that it will help us
promote adoption of the transaction and portal services to which it
provides access. For example, in connection with the roll-out of our
handheld solution, we plan to roll out our online prescription writer and
related connectivity services and our integrated portal with remote access
capabilities, as described below. It is our intention to pursue similar
handheld initiatives with respect to other practice management systems in
the future.
Our March 22, 2001 letter of intent with Microsoft contemplates that
Microsoft will provide performance-based funding tied to the roll-out of
ULTIA and our new integrated portal services for physicians and will
provide consulting services, support and other resources in connection
with these undertakings. For additional information regarding our
Microsoft relationship, see "Restructuring and integration -- Microsoft"
on page 5.
- Roll-out of integrated physician portal with remote access
capabilities. We are preparing to roll out integrated portal services
that will allow physicians whose offices use The Medical Manager practice
management system and other systems to remotely access, via the Internet,
information contained in their office's practice management system. This
remote access feature will enable physicians to view in a secure manner
information residing on their office-based computer system from any
personal computer or other device with a connection to the Internet. We
also intend to enable this capability for other practice management
systems.
- Strengthen relationships with pharmaceutical companies. We intend to
continue to try to develop stronger relationships with the pharmaceutical
industry, both by expanding existing relationships and increasing the
base of pharmaceutical companies to which we provide services. Our
strategy is to develop the ability to generate fees from communicating
clinical messages at the point of care in accordance with patient- and
plan-specific guidelines, including messaging regarding formulary
compliance and disease management programs. We also intend to partner
with pharmaceutical companies who can benefit from sponsoring healthcare
content on WebMD.com and our ability to deliver educational materials and
other sponsored programs, as well as advertisements, to an online
audience with attractive demographic characteristics.
- Market a single solution for claims processing to providers. We are
actively extending the functionality of our clearinghouse and expanding
the distribution of these services through direct and indirect channels.
The goal of this initiative is to provide a single solution for providers
and practice management system vendors for sending claims electronically
to government, Blue Cross and Blue Shield and commercial payers. As part
of this initiative, we are expanding our connectivity to support a
broader set of transaction services to non-commercial payers in key
markets as well as improving the functional capability of our claims and
accounts receivable management solutions in order to improve the quality
and value of our services to both payers and providers. We intend to
actively market these expanded services directly to healthcare providers
and through our practice management system partners.
- Utilize our portal services to expand our healthcare partner
relationships. We believe that our consumer user base represents an
attractive audience to a variety of partners and potential partners
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who are interested in influencing consumer healthcare decisions. We
intend to enable our healthcare partners to take advantage of our portal
services and broad online distribution platform to bring patients,
members and customers to their brands. We believe our healthcare partners
can reduce their costs of acquiring, retaining and servicing their
customers by integrating our portal content and services into their
existing marketing and customer service efforts.
We believe that these initiatives will provide additional revenue streams
to us and accelerate our achievement of profitability. However, there can be no
assurance as to the timing or amount of the financial or other benefits from
particular strategies or initiatives, all of which are subject to the risks and
uncertainties described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Factors that may affect future results of
operations" beginning on page 37.
OUR PRODUCTS AND SERVICES
There are many types of transactions, information exchanges and other
communications that occur between the various participants in the healthcare
industry, including physicians, patients, pharmacies, dentists, hospitals,
billing services, commercial insurance companies, pharmacy benefit managers,
managed care organizations, state and federal government agencies and others. We
offer a comprehensive suite of transaction and information services and
technology solutions to healthcare industry participants. These integrated and
stand-alone products and services are designed to facilitate transactions,
information exchange and communication among healthcare industry participants
and to operate on various platforms, including the Internet, private intranets
and other networks.
Transaction services
Our transaction services include the combined connectivity and transaction
services formerly provided by Healtheon, Envoy, Kinetra, MedE America and
CareInsite. The customers for our transaction services consist of healthcare
providers, such as physicians, pharmacies, dentists and hospitals, and
healthcare payers, including Medicare and Medicaid agencies, Blue Cross and Blue
Shield organizations, pharmaceutical benefit managers, commercial health
insurance companies and managed care organizations. We provide those customers
the administrative and clinical connectivity and transaction services described
below through an integrated electronic transaction processing system, which
includes proprietary software, host computer hardware, network management,
switching services and interfaces.
Most of these transactions are conducted by providers using computers,
modems and ordinary phone lines to connect to our clearinghouse. Information is
typically sent from the provider's billing or practice management system to the
clearinghouse, where it is validated for format and completeness then sent to
the payer's computer. An increasing number of these transactions are being
transmitted via the Internet.
We believe that we are an industry leader in our own regulatory compliance
practices and that we are well-positioned to assist payers, providers and other
healthcare participants with the implementation of their own regulatory
compliance practices, including their need to meet the requirements of
regulations issued under the Healthcare Insurance Portability and Accountability
Act of 1996, or HIPAA. We will market compliant provider transaction methods and
applications, as well as offering our payer customers and other healthcare
participants integration tools for transaction translation and data support that
can be used to foster their own compliance.
Medical, pharmacy and dental administrative services. Our administrative
services provide connectivity and transaction processing services needed for
providers and payers in the healthcare industry to automate key business
functions and communicate with each other. Through our clearinghouse, we provide
an electronic link, directly and indirectly through other clearinghouses or
healthcare information system vendors, using traditional EDI services and
Internet-based services, to healthcare providers in the medical, pharmacy and
dental markets and to multiple third party payers. Our administrative services
include claims submission and status inquiry, eligibility and patient benefit
coverage verification, referrals and authorizations, claims data capture and
editing, electronic remittance advice, patient billing services, credit and
debit card processing and formulary management.
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Our administrative services reduce paperwork and the need for communication
by telephone and fax, resulting in costs savings for payers and providers. These
services also expedite the reimbursement process, which can result in a lower
average number of outstanding accounts receivable days for providers. A further
benefit to payers is that they are able to more easily detect fraud and screen
for unusual utilization trends. In addition, the availability of online
encounter and referral information provides more efficient medical cost
management for managed care organizations and networked providers.
Providers, including physicians, dentists, pharmacies and hospitals, access
our transaction services both directly and through their affiliations with
integrated delivery networks, clinics and physician practice management
companies. Providers initiate transactions using our applications, their
practice management systems and other computer systems or networks. Providers
submit transactions to us by modem connections using regular telephone lines,
using dedicated phone lines and over the Internet. We work with numerous
practice management system vendors, clearinghouses and other physician service
providers to provide integrated transaction processing between their systems and
our clearinghouse. These clearinghouse services are provided through a dedicated
network that we maintain consisting of dial-up connections, lines leased from
common carriers and computer networks.
We maintain direct connections with many healthcare payers, including
Medicare and Medicaid agencies, Blue Cross and Blue Shield organizations,
commercial insurance companies and managed care organizations. These direct
connections typically consist of dedicated networks between the payer and our
clearinghouse. Most transactions are currently transmitted to the payers using
our proprietary software and dedicated telephone lines, with an increasing
number of transactions transmitted via the Internet.
Providers can use our services to verify patient enrollment and eligibility
and to obtain authorization for services from payers and for approval of
referrals to other providers at the point of care. Providers can submit
real-time or batch claims to us for processing and reimbursement by payers and
inquire as to the status of claims previously submitted. Batch claims are
collected throughout the day and submitted to us in bulk, which we then sort,
format and edit to meet a particular payer's requirements before transmission to
the payer. Providers can receive electronic remittance advice which provides
payer payment information and an explanation of the settlement of a related
claim. We also offer automated patient billing services to providers that
include electronic data transmission and formatting, statement printing and
mailing services.
A standard administrative pharmacy transaction consists of the inquiry, by
the pharmacy, through a point-of-service terminal or personal computer terminal,
to determine whether the patient is covered by a benefit program. After
eligibility is confirmed, the claim is settled and the payer transmits to the
pharmacy the amount and timing of the pending payment.
Lab ordering and reporting services. We provide clinical lab ordering and
reporting services through dedicated terminals and teleprinters and through
Internet-based products. These products support the ordering of clinical tests
and the reporting of test results between providers and labs.
Prescription writing services. We plan to provide services to support this
functionality for our handheld point-of-care solution. We have completed a pilot
roll-out of our prescription writing services, which include prescription
writing and routing, drug utilization review, including drug interaction
screening, and access to formularies.
Launch of WebMD Office. Through our recently launched WebMD Office
Internet-based service, accessible through WebMD.com, office staff in all
provider settings can access our Internet-based transaction services. In
February 2001, we began to migrate our office staff users to WebMD Office. WebMD
Office is intended to replace all other Internet-based transaction services
previously offered by us.
Physician services
We provide comprehensive physician practice management information systems
to physician organizations and other providers of healthcare services in the
United States. We develop, market and support The Medical Manager(R) practice
management system, which addresses the financial, administrative, clinical and
practice management needs of physician practices. The system has been
implemented in
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a wide variety of practice settings from small physician groups to large
clinics. These proprietary systems enable physicians and their administrative
staffs to efficiently manage their practices while delivering quality patient
care in a constantly changing healthcare environment. We are currently preparing
for the release, in selected geographic areas, of ULTIA, our wireless handheld
solution. We expect that providers will be able to use ULTIA to access their
Medical Manager systems, as described more fully under "Current strategic
initiatives -- Release of handheld solution" on page 6.
The Medical Manager software is an integrated practice management system
encompassing patient care, clinical, financial and management applications. Due
to its scalable design, The Medical Manager software is a cost-effective
solution in a stand-alone or enterprise-wide environment. The Medical Manager
system is designed to operate on a wide range of the hardware platforms used by
small, medium and large sized practices. Its modular, fully integrated product
portfolio allows clients to add incremental capabilities to existing information
systems while minimizing the need for capital investments.
The Medical Manager system provides physician practices with a broad range
of patient care and practice management features, including:
Core Application. The Medical Manager Core Application includes base
financial, clinical and practice management functions.
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PRODUCT DESCRIPTION
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The Medical Manager Software - Provides accounts receivable, insurance billing,
basic appointment scheduling and recalls,
clinical history, financial history, referral of
physician information, encounter form tracking,
e-mail, office notes, hospital rounds and over
150 standard reports
MMClient - A Graphical User Interface/Windows(R)-based
Ultra-Thin Client user interface to The Medical
Manager software connecting to either a Windows
2000/NT(R) or a UNIX server
Office Management. The Medical Manager Office Management application
automates the essential administrative tasks of a physician practice.
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PRODUCT DESCRIPTION
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Automated Collections - Maintains notes, promise to pay dates, budget
payments, next action to be taken indicators and
prints collection letters
- Automates "tickler" system to alert the user
when an account needs attention
Chart and X-Ray Locator - Tracks the location of a patient's medical and
X-ray charts
Advanced Billing - Handles sophisticated billing needs
Custom Report Writer - Provides access to all data elements of The
Medical Manager software
- Allows for the creation of user defined custom
reports
Multiple Resource Scheduling - Includes multi-resource display, search and
posting of scheduled appointments; coordinates
the utilization of exam rooms and equipment and
schedules of teams of physicians, nurses,
therapists and others whose services are needed
within a specific time sequence
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PRODUCT DESCRIPTION
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Patient Flow Tracking - Allows patient encounters to be tracked from the
time the patient makes the appointment, through
encounters in the waiting room, examination
rooms, labs and other areas
Case Management System - Tracks all clinical events related to a specific
case
Laser Form Generator - Encounter forms, prescriptions, insurance forms,
patient bills and statements, referrals,
letterheads and other forms can be printed
Patient Advisory System - Allows the practice to locate and print patient
education sheets on a variety of topics spanning
many different medical specialties
Managed Care Applications. Managed Care Applications allow physicians to
contain costs and deliver a higher quality of care in capitated environments.
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PRODUCT DESCRIPTION
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Managed Care - In addition to the managed care features offered
in the base system, supports the full functions
required to track incoming as well as outgoing
referrals to facilities and specialists
Claims Adjudication - Fully integrated with the Managed Care module,
provides full risk management capabilities,
including the processing of received claims,
comparing the claim against authorized services
to determine amounts due, generating checks for
payments and producing an Explanation of
Benefits
Clinical Applications. The Medical Manager Clinical Applications provide
fully integrated components of a patient's medical record that contain the
functionality and knowledge bases required in today's practices.
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PRODUCT DESCRIPTION
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OmniChart - Enables the practice to create and maintain a
patient's medical record using the laboratory
interface module, prescription writer, view
patient chart, clinical task manager and the
transcription management system
OmniDoc - Automates the documentation of a patient
encounter at the point of care by allowing a
provider to easily generate progress notes using
the Medcin(R) knowledge base, eliminating the
need for dictation and transcription
Quality Care Guidelines - Automates the process of tracking both the
curative and preventive services the practice
has specified that it wishes to perform
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PRODUCT DESCRIPTION
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Document and Image Management System - Allows a practice to organize and store forms
and documents as images, and to instantly
retrieve these images and associated image
information to the screen as part of the
patient's medical record
DIM(DX) - The diagnostic version of the Document and Image
Management System, allows a practice to organize
and store X-rays and other diagnostic images, as
well as forms and documents, as images and to
instantly retrieve these images to the screen as
part of the patient's medical record
Electronic Connectivity. The Medical Manager supports, and can be
integrated with, our transaction services as well as similar services from other
connectivity providers. Using The Medical Manager system, providers can generate
reports regarding electronically submitted claims that have been accepted or
rejected.
Other Medical Manager products. We offer several other Medical Manager
products, the functionality of which has been customized to the following
specialty markets: radiology vertical market, public health and community health
vertical market and the family planning vertical market.
Other practice management systems. Through our acquisitions of various
businesses, we have also obtained ownership of other practice management systems
with smaller user bases. We currently maintain these other systems and provide
periodic updates to the users of these systems.
Intergy. We are currently in the last stages of developing Intergy, our
new physician practice management system. Designed from the ground up, Intergy
combines a graphical user interface, or GUI, and a relational database
environment with advanced Web-enabled technology to address the current needs of
healthcare providers for administrative and clinical solutions. Intergy has been
designed to provide a user-friendly environment with data storage capacity that
will easily accommodate the largest of our installations. We intend to continue
to develop and support The Medical Manager system following the release of
Intergy.
Portal services
Our Web site, WebMD.com, offers a single destination for the exchange of
healthcare information and supports a broad range of healthcare transactions
delivered over our secure, Internet-based platform. WebMD.com provides access to
a free healthcare portal for consumers through WebMD Health and fee-based
services for healthcare professionals through WebMD Practice.
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WebMD Health. Our consumer portal, WebMD Health, provides consumers with
health and wellness news and information, support communities, interactive tools
and opportunities to purchase health-related products and services. Our
communities allow consumers to participate in real-time discussion and support
networks over the Internet. Consumers have free online access to multiple areas
on WebMD Health, including:
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CONTENT OR SERVICE FEATURES
- -------------------------------------------------------------------------------------------------------------------
WebMD today - Offers proprietary, medically reviewed health and wellness
news articles written daily by our staff of journalists
WebMD live events - Offers daily scheduled live chat events, including audio
and video Webcasts, with healthcare experts and celebrity
guests discussing relevant health issues, with archives
from each event added to our searchable database
Medical information - Allows consumers to research current information relating
to diseases and common health conditions
- Provides searchable access to easy-to-read content, in our
medical library, including:
-- articles in our self-care advisor
-- drug and herb references from leading publications,
including Physician's Desk Reference(R)
-- clinical trials and research study information
-- an overview of health topics currently in the news
-- our ask our experts service, where consumers can post
their health questions for experts
-- a medical encyclopedia
-- a patient's guide to medical tests
-- health topics A-Z, an alphabetical listing of articles
on specific health conditions and concerns
-- interactive, illustrated presentations that explain
common health conditions and diseases
Member services - Provides access to over 50 support communities allowing
consumers to share experiences and exchange information
with other members who share their health condition or
concern
- Provides access to chat rooms, message boards and posted
member columns focused on chronic health conditions and
relevant health topics
Health and wellness - Offers access to content covering various wellness topics,
including diet and nutrition, alternative medicine and
emotional wellness
- Provides parenting and pregnancy news and information
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CONTENT OR SERVICE FEATURES
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- Offers access to various programs developed by Dr. Dean
Ornish related to nutrition, exercise, stress management
and relationship information
- Offers access to information relating to recreational
fitness activities and sports medicine topics
Find a physician and health plan - Allows consumers to search for a physician, dentist or
mammography or maternity center in their area
- Allows consumers to research features of their health plan
Health-E-Tools - Provides access to over 80 interactive calculators,
quizzes and slide shows to assess or demonstrate health
topics, including an immunization planner, health risk
appraisal, diet and fitness journal, body mass index,
calorie counter and target heart rate calculator
Shopping - Allows consumers access through our online e-commerce
strategic partners to:
-- fill pharmacy prescriptions and purchase a wide
range of health, beauty and wellness products
-- purchase sports and fitness equipment
MyHealthRecord - Allows members to establish and maintain a private record
of their family's health in a single, secure place
- Allows members to print out health reports and medical
emergency identification cards for their family
E-Newsletters - Allows consumers to receive personalized e-mail
newsletters on general health-related subjects and topics
targeted to their health concerns
WebMD Practice. Our healthcare provider portal, WebMD Practice, offers
physicians, clinicians and physician office staff online access to daily medical
news, medical reference information, continuing medical education, tools for
creating customized practice Web sites and opportunities to purchase other
products and services. In addition, physicians and their office managers can,
for additional transaction or monthly fees, access our Internet-based
administrative transaction services through WebMD Office, as well as clinical
lab and information services and dictation and transcription services.
We are preparing to roll out remote access capabilities that will allow
physicians whose offices use The Medical Manager practice management system to
remotely access, via the Internet, information contained in their office's
practice management system through our physician portal. This feature will
enable physicians to view in a secure manner information residing on their
office-based computer system from any personal computer or other device with a
connection to the Internet. We intend to enable this capability for other
practice management systems in the future.
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WebMD Practice provides online access to multiple areas, including:
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CONTENT OR SERVICE FEATURES
- -------------------------------------------------------------------------------------------------------------------
Medical news - Provides original, daily medical news stories written by
our staff of journalists and reviewed by our staff of
physicians, as well as reports on business aspects of
practice management and summaries of current consumer
health issues of interest to patients
- Allows physicians to access news and information relevant
to their specialty area
Continuing medical education, or CME - Provides access to accredited CME courses, free of charge
and fee-based, in a variety of specialty areas and allows
physicians to track their CME credits against state and
association requirements
Medical community - Provides access to information from over 50 medical,
educational and government associations and organizations
and links to other useful Web sites
- Provides information on the latest medical meetings
Medical library - Provides searchable access to comprehensive medical
journals and newsletters from well-recognized sources,
including:
-- over 9 million abstracts from medical journals
available in the National Library of Medicine's
MEDLINE database
-- Clinical Pharmacology drug database
-- a medical dictionary
- Provides access to current disease-specific information
about diagnoses and treatment
- Offers access to articles from medical experts in question
and answer format
For your patients - Provides access to patient education databases and
interactive, illustrated patient presentations that
explain common health conditions and diseases
Office tools - Allows practices to create their own customized Web site,
including practice information such as office hours and
location, telephone number, medical specialty, types of
health plans accepted, hospital affiliations and a link to
WebMD Health patient education information
Purchasing - Provides online access to ordering of medical and surgical
supplies
- Provides convenient access to technology services and
other e-commerce options
Secure mail - Allows physicians to send and receive e-mail, including
sending encrypted messages to other WebMD Practice
subscribers
- Supports other optional WebMD Practice services, including
clinical information services
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Based on the revisions to our relationship with Microsoft contemplated in
the March 22, 2001 non-binding letter of intent, which will not include funding
for sponsorship of subscriptions to WebMD Practice, as well as the earlier
termination of DuPont's funding for physician subscriptions, we expect that we
will no longer seek to charge a subscription fee for use of our physician
portal. Instead, we plan to allow physicians access, through our portal, without
charge to our content and to a group of basic services, while charging for usage
of optional or premium services.
Other features of WebMD.com. WebMD.com allows physicians and consumers to
personalize their home page to deliver content and services relevant to them. It
also provides physicians and consumers with access to content provided by some
of our strategic partners and sponsors. This content is identified as sponsored
content so our users will not confuse it with our other content.
Our editorial, design and production team, currently consisting of
approximately 50 individuals, includes board-certified physicians, Masters and
Ph.D. level medical editors, award-winning journalists, medical illustrators and
community moderators who produce our original, daily medical news. Our national
news center in Atlanta, Georgia, with a bureau located in the National Press
Building in Washington, D.C., is a press-credentialed news organization. We have
assembled a health advisory board, which consists of expert representatives from
different specialties, who advise us on current news and content topics.
Revenue opportunities. Our Web site provides opportunities to generate
revenue from multiple sources, including:
- Advertising fees. We generally sell advertising based on the number of
impressions received by the advertisement and its position on our Web
site. We may also exchange advertising space on our Web site for
advertising space or other products and services from business partners.
- Sponsorship fees. Companies can sponsor specific pages or sections of
our Web site, all of which are clearly labeled as sourced from or
sponsored by the specific sponsor. Sponsorship arrangements are designed
to support broad marketing objectives, such as brand awareness and
product introductions. Sponsorships are generally sold for a longer term
than online advertising placements and are sold based on duration,
portion of the Web site sponsored and number of impressions delivered.
- Content syndication and distribution. We develop, host and provide a
majority of the content for health channels of our general consumer
portal partners, including MSN, Excite@Home and Terra Lycos. We generally
share advertising, sponsorship and e-commerce fees generated on these co-
branded sites with our strategic partners. In addition, our portal
partners generally agree to provide a joint credit promoting our content
on the health channels. We also license our proprietary content and
interactive tools to a variety of third party Web sites.
- E-commerce transactions. We facilitate e-commerce transactions through
our Web site and, for doing so, typically receive a portion of the
revenues that are generated. Visitors to our Web site can access products
and services provided by our strategic partners and other vendors in
numerous locations throughout the site.
- Carriage fees. We distribute content and services of our strategic
partners within our Web site and within the consumer portal Web sites
that we have the right to program. In some cases, we receive carriage
fees for doing so, generally as advances against our share of the
advertising and/or e-commerce revenues generated by the specific content
or services.
We believe that our advertising, sponsorship and syndication relationships
with participants in the healthcare industry also foster our ability to develop
broader relationships that can assist us in our efforts to develop, deploy and
increase utilization levels of our other products and services.
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SALES AND MARKETING
We market our products and services through direct sales contacts,
participation in trade shows, articles in industry publications and
advertisement, both online and offline. Our national sales force targets
potential customers in each market segment by region. We support our sales force
with technical and sales support personnel. As of December 31, 2000, excluding
Porex employees, we employed approximately 2,900 people in sales and marketing,
including technical and sales support personnel. Our Medical Manager products
and services are sold nationally both by our direct sales force and by a network
of approximately 110 independent dealers of The Medical Manager system.
DEVELOPMENT AND ENGINEERING
We have developed internally and acquired through acquisitions our
applications and services. As of December 31, 2000, we employed approximately
700 people in development and engineering. Our development and engineering
expense totaled $58.8 million in 2000, $29.7 million in 1999 and $19.0 million
in 1998.
The markets for our products and services are characterized by rapid change
and technological advances. Our future success will depend, in part, upon our
ability to enhance our existing products and services, to respond effectively to
technological changes, and to introduce new and newly integrated applications
and technologies that address the changing needs of our customers. Accordingly,
we intend to continue to make investments in development and engineering and to
recruit and hire experienced development personnel. However, we cannot provide
assurance that we will be able to successfully complete the development of new
products or services, enhancements to existing products or services or the
migration of products and services to new platforms. Further, there can be no
assurance that products or technologies developed by others will not adversely
affect our competitive position or render our products, services or technologies
noncompetitive or obsolete.
COMPETITION
The markets in which we operate are intensely competitive, continually
evolving and subject to rapid technological change. We have many competitors,
including:
- healthcare information system vendors, including physician practice
management system vendors
- transaction processing companies, including those providing EDI and/or
Internet-based services and those providing services through other means,
such as paper and fax
- large information technology consulting service providers
- online services, portals or Web sites targeted to the healthcare
industry, healthcare consumers and/or physicians generally
- consortiums of health insurance companies and of pharmacy benefit
managers that have announced that they are developing Web-based
transaction services for use by their members and other potential
customers
- publishers and distributors of traditional offline media, including those
targeted to healthcare professionals, many of which have established or
may establish Web sites
- general purpose consumer online services and portals and other
high-traffic Web sites which provide access to healthcare-related content
and services
- public sector and non-profit Web sites that provide healthcare
information without advertising or commercial sponsorships
- vendors of healthcare information, products and services distributed
through other means, including direct sales, mail and fax messaging.
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We also compete, in some cases, with alliances formed by the above
competitors, including alliances that are intended to allow the participants to
pursue a strategy similar to our strategy of integrating transaction processing
capabilities and portal services with physician practice management systems.
Major software and information systems companies, both with and without
healthcare companies as their partners, offer or have announced their intention
to offer products or services that are competitive with some of our solutions,
including wireless handheld solutions that will compete with ULTIA. In addition,
some of our existing payer and provider customers and some of our strategic
partners may also compete with us or plan to do so or belong to alliances that
compete with us or plan to do so. For example, some payers currently offer
electronic data transmission services to healthcare providers that establish a
direct link between the provider and payer, bypassing third party EDI service
providers. Any significant increase in the utilization of direct links between
healthcare providers and payers could have a material adverse effect on our
business and results of operations.
Many of our competitors have greater financial, technical, product
development, marketing and other resources than we do. These organizations may
be better known than we are and have more customers than we do. We cannot
provide assurance that we will be able to compete successfully against these
organizations or any alliances they have formed or may form.
GOVERNMENT REGULATION
The healthcare industry is highly regulated and is subject to changing
political, regulatory and other influences. These factors affect the purchasing
practices and operation of healthcare organizations. Federal and state
legislatures and agencies periodically consider programs to reform or revise the
U.S. healthcare system. These programs may contain proposals to increase
governmental involvement in healthcare, lower reimbursement rates or otherwise
change the environment in which healthcare industry participants operate.
Healthcare industry participants may respond by reducing their investments or
postponing investment decisions, including investments in our applications and
services. We are unable to predict future proposals with any certainty or to
predict the effect they would have on our business.
HIPAA administrative simplification
Under the Health Insurance Portability and Accountability Act of 1996, or
HIPAA, Congress mandated a package of interlocking administrative simplification
rules to establish standards and requirements for the electronic transmission of
certain health information. Five of these rules were published in proposed form
in 1998, with two of the five recently published in final form. The two rules
published in final form are Standards for Electronic Transactions, published
August 17, 2000, and Standards for Privacy of Individually Identifiable Health
Information, published December 28, 2000. The HIPAA rules provide that each is
effective 60 days following publication in final form, with compliance required
for healthcare providers, healthcare clearinghouses and large health plans two
years following the effective date. Small health plans are given an additional
year to comply. These rules apply to certain of our operations as well as the
operations of many of our customers. Compliance with these final rules will be
costly and could require complex changes in our systems. The Bush administration
has established an additional period for public comment on the privacy
regulation, and may revise the requirements and/or delay their effective date.
HIPAA transaction standards
The HIPAA Standards for Electronic Transactions rule is commonly referred
to as the transaction standards rule. This rule establishes format standards for
eight of the most common healthcare transactions, using technical standards
promulgated by recognized standards publishing organizations. These transactions
include health claims, enrollment, payment and eligibility. Under the new
standards, any party transmitting or receiving any of these eight health
transactions electronically will send and receive data in a single format,
rather than the large number of different data formats currently used.
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The transaction standards are applicable to that portion of our business
involving the processing of healthcare transactions among physicians, payers,
patients and other healthcare industry participants. The transaction standards
also are applicable to many of our customers and to our relationships with those
customers. We intend to comply with the transaction standards by their
compliance date. This compliance may require costly modifications to some of our
systems, products and services. We believe that we are well-positioned to
effectuate these changes and to facilitate compliance efforts of our customers
and strategic partners. However, there can be no assurance that we or our
customers or strategic partners will be able to do so or that we will be able to
take advantage of any business opportunities that implementation of the
transaction standards may provide to us.
Other regulation of transaction services
Other state and federal statutes and regulations governing transmission of
healthcare information may affect our operations. For example, Medicaid rules
require some processing services and eligibility verification to be maintained
as separate and distinct operations. We carefully review our practices with
regulatory experts in an effort to ensure that we are in compliance with all
applicable state and federal laws. These laws, though, are complex and changing,
and the courts and other governmental authorities may take positions that are
inconsistent with our practices.
HIPAA privacy standards
The HIPAA Standards for Privacy of Individually Identifiable Health
Information rule is commonly referred to as the privacy standards rule. This
rule establishes a set of basic national privacy standards and fair information
practices for the protection by health plans, healthcare clearinghouses,
healthcare providers and their business associates of individually identifiable
health information. Due to a technical error in the delivery of the privacy
standards rule to Congress, the effective date has been delayed until April 14,
2001, which also extends the compliance date for most entities to April 14,
2003. Also, on February 28, 2001, the final privacy standards rule was converted
to a final rule with request for comments to permit public comment for a limited
period before the rule becomes effective. This comment period could result in
changes to the final rule, including further changes to its effective date or
compliance date. The privacy standards rule applies to the portions of our
business that process healthcare transactions and provide technical services to
other participants in the healthcare industry. This rule provides for civil and
criminal liability for its breach and requires us, our customers and our
partners to use health information in a highly restricted manner, to establish
policies and procedures to safeguard the information, to obtain individual
consents in some cases, and to provide certain access rights to individuals.
This rule may require us to incur significant costs to change our platform and
services, may restrict the manner in which we transmit and use the information,
and may adversely affect our ability to generate revenues from the provision of
de-identified information to third parties.
Other regulation regarding confidentiality and privacy of patient information
Numerous state and federal laws other than HIPAA govern the collection,
dissemination, use, access to and confidentiality of patient health information.
Many states are considering new laws and regulations that further protect the
confidentiality of medical records or medical information. These state laws are
not in all cases preempted by the HIPAA privacy standard and may be subject to
interpretation by various courts and other governmental authorities, thus
creating potentially complex compliance issues for us and our customers and
strategic partners. The definitions in the various state and federal laws
concerning what constitutes individually identifiable data sometimes differs and
sometimes is not provided, creating further complexity. In addition, determining
whether data has been sufficiently de-identified may require complex factual and
statistical analyses. The HIPAA privacy standards rule contains a restrictive
definition of de-identified information, which is information that is not
individually identifiable, that could create a new standard of care for the
industry. These other privacy laws at a state or federal level, or new
interpretations of these laws, could create liability for us, could impose
additional operational requirements on our
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business, could affect the manner in which we use and transmit patient
information and could increase our cost of doing business.
International data regulation
Other countries also have, or are developing, their own laws governing the
collection, use, storage and dissemination of personal information or patient
data. These laws could create liability for our international operations, impose
additional operations requirements or restrictions on our business, affect the
manner in which we use or transmit data and increase our cost of doing business.
Consumer protection regulation
The Federal Trade Commission, or FTC, and many state attorneys general are
applying federal and state consumer protection laws to require that the online
collection, use and dissemination of data, and the presentation of Web site
content, comply with certain standards for notice, choice, security and access.
Courts may also adopt these developing standards. In many cases, the specific
limitations regarding these standards are subject to interpretation by courts
and other governmental authorities. We believe that we are in compliance with
these consumer protection standards, but a determination by a state or federal
agency or court that any of our practices do not meet these standards could
result in liability and adversely affect our business. New interpretations of
these standards could also require us to incur additional costs and restrict our
business operations.
Regulation of healthcare relationships
There are federal and state laws that govern patient referrals, physician
financial relationships and inducements to beneficiaries of federal healthcare
programs. The federal anti-kickback law prohibits any person or entity from
offering, paying, soliciting or receiving anything of value, directly or
indirectly, for the referral of patients covered by Medicare, Medicaid and other
federal healthcare programs or the leasing, purchasing, ordering or arranging
for or recommending the lease, purchase or order of any item, good, facility or
service covered by these programs. The anti-kickback law is broad and may apply
to some of our activities or our relationships with our customers, advertisers
or strategic partners. Penalties for violating the anti-kickback law include
imprisonment, fines and exclusion from participating, directly or indirectly, in
Medicare, Medicaid and other federal healthcare programs. Many states also have
similar anti-kickback laws that are not necessarily limited to items or services
for which payment is made by a federal healthcare program. We carefully review
our practices with regulatory experts in an effort to ensure that we comply with
all applicable laws. However, the laws in this area are both broad and vague and
it is often difficult or impossible to determine precisely how the laws will be
applied, particularly to new services similar to ours. Any determination by a
state or federal regulatory agency that any of our practices violate any of
these laws could subject us to civil or criminal penalties and require us to
change or terminate some portions of our business.
We currently provide billing services and intend to provide repricing
services to providers and, therefore, may be subject to state and federal laws
that govern the submission of claims for medical expense reimbursement. These
laws generally prohibit an individual or entity from knowingly presenting or
causing to be presented a claim for payment from Medicare, Medicaid or other
third party payers that is false or fraudulent, or is for an item or service
that was not provided as claimed. These laws also provide civil and criminal
penalties for noncompliance. We have designed our current transaction services
and will design any future services to place the responsibility for compliance
with these laws on provider customers. However, we cannot guarantee that state
and federal agencies will regard billing errors processed by us as inadvertent
and not in violation of these laws. In addition, changes in current healthcare
financing and reimbursement systems could cause us to make unplanned
modifications of applications or services, or result in delays or cancellations
of orders or in the revocation of endorsement of our applications and services
by healthcare participants.
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Regulation by the U.S. Food and Drug Administration
The Food and Drug Administration, or the FDA, has jurisdiction under the
1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act, or
the FDA Act, to regulate computer products and software as medical devices if
they are intended for use in the diagnosis, cure, mitigation, treatment or
prevention of disease in humans. The FDA has issued a final rule under which
manufacturers of medical image storage devices and related software are required
to submit to the FDA premarket notification applications, which are each
referred to in this document as a 510(k) application, and otherwise comply with
the requirements of the FDA Act applicable to medical devices. We have attempted
to design our services so that our computer applications and software are not
considered to be medical devices. However, the FDA may take the position that
our services are subject to FDA regulation. In addition, we may expand our
services in the future to areas that subject us to FDA regulation. For example,
Medical Manager Health Systems is distributing in the U.S. a medical image
management device, referred to herein as the "image device," which was granted
clearance by the FDA on August 25, 2000, and is manufactured by Medical Manager
Health Systems in accordance with specifications set forth in the cleared 510(k)
application. Medical Manager Health Systems has created an interface between The
Medical Manager practice management system and the image device and is marketing
the interface and the image device as the DIMDX System. We believe that the
addition of our practice management system to the image device does not change
the image device's intended use or significantly change the safety or efficacy
of the product to the extent that a new 510(k) application is required. The FDA
is currently reviewing its policy for the regulation of computer software, and
there is a risk that The Medical Manager software or other of our software or
hardware components could in the future become subject to some or all of the
above requirements. Except with respect to Medical Manager Health Systems and
Porex, we have no experience in complying with FDA regulations. We believe that
complying with FDA regulations may be time consuming, burdensome and expensive
and could delay our introduction of new applications or services.
The FDA also regulates pharmaceuticals, including the regulation of
pharmaceutical advertisements or descriptions posted on a Web site or delivered
electronically to physicians or consumers. Many of our advertisers are
pharmaceutical companies and the content of their ads is subject to FDA scrutiny
and regulation. We have attempted to disclaim responsibility for the content of
these ads and to keep the FDA compliance burden squarely on our advertisers. We
cannot guarantee that the FDA will not hold us also responsible in some way for
this compliance, which could adversely affect or restrict our relationships with
our advertisers.
Medical professional regulation
The practice of most healthcare professions requires licensing under
applicable state law. In addition, the laws in some states prohibit business
entities from practicing medicine, which is referred to as the prohibition
against the corporate practice of medicine. We do not believe we engage in the
practice of medicine and we have attempted to structure our Web site, strategic
relationships and other operations to avoid violating these state licensing and
professional practice laws. A state, however, may determine that some portion of
our business violates these laws and may seek to have us discontinue those
portions or subject us to penalties or licensure requirements. We provide Web
site capabilities for our physician customers. Many states regulate the ability
of medical professionals to advertise or maintain referral services. We do not
represent that a physician's use of our Web site will comply with these or other
state laws regulating professional practice and we do not monitor or control the
content that physicians post on their individual practice Web sites using our
Web site application. It is possible a state or a court may determine we are
responsible for any non-compliance with these laws, which could affect our
ability to offer this service to our customers. We employ and contract with
physicians who provide only medical information to consumers, and we have no
intention to provide medical care or advice. We do not maintain professional
liability insurance because we believe we are not a healthcare provider. Any
determination that we are a healthcare provider and acted improperly as a
healthcare provider may result in liability for which we are not insured.
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INTELLECTUAL PROPERTY
We rely upon a combination of patent, trade secret, copyright and trademark
laws, license agreements, confidentiality procedures, employee and client
nondisclosure agreements and technical measures to protect our intellectual
property.
We use several trademarks in the U.S. and internationally, including
"WebMD," "Web-MD," "The Medical Manager," "Digital Office Manager," "MMClient"
and "MMWin." We use numerous other registered and unregistered trademarks and
service marks for our various products and services in the U.S. and
internationally. We have applied for federal registration of several of our
service marks, including "Health has a Home Page," "WebMD Practice," "WebMD
Health," "Healtheon," "WebMD OnCall," "OmniDoc," "OmniChart," "OmniPresence,"
"ULTIA" and "Intergy," among others, and logos for our Intergy product. We have
also applied for registration of several of our trademarks and service marks,
including "WebMD" and "Health has a Home Page," among others, in numerous
foreign jurisdictions. We cannot guarantee that any of those applications will
mature into registrations. In jurisdictions where trademark rights are acquired
by the first to register the mark with the relevant governmental authority or
where common law rights are acquired by being the first entity to adopt, use and
continue to use a particular mark in connection with particular goods or
services, we may be unable to obtain superior trademark rights. In addition to
our trademark registrations and applications, we have registered the domain name
"webmd.com" and numerous other domain names that either are or may be relevant
to conducting our business. Our inability to protect our marks and domain names
adequately would hurt us in establishing and maintaining our brand.
We also rely on a variety of intellectual property rights that we license
from third parties, including our Internet server software and healthcare
content used on our WebMD.com Web site, as well as various products incorporated
into our physician practice management systems. These third party licenses may
not continue to be available to us on commercially reasonable terms. Our loss of
or inability to maintain or obtain upgrades to any of these licenses could
significantly harm us. In addition, because we license a majority of our content
from third parties, we may be exposed to copyright infringement actions if these
parties are subject to claims regarding the origin and ownership of licensed
content.
The steps we have taken to protect our proprietary rights may not be
adequate, and we may not be able to secure trademark or service mark
registrations for marks in the U.S. or in foreign countries. Third parties may
infringe upon or misappropriate our copyrights, trademarks, service marks and
similar proprietary rights. In addition, effective copyright and trademark
protection may be unavailable or limited in many foreign countries, and the
global nature of the Internet makes it impossible to control the ultimate
destination of our services. It is possible that competitors or others will
adopt product or service names similar to our names, which could impede our
efforts to build brand identity and possibly lead to customer confusion.
Moreover, because domain names derive value from the individual's ability to
remember such names, our domain name will lose its value if, for example, users
begin to rely on mechanisms other than domain names to access online resources.
Our inability to protect our marks and domain names adequately would hurt our
ability to establish our brand. In the future, litigation may be necessary to
enforce and protect our trade secrets, copyrights and other intellectual
property rights. Litigation would divert management resources and be expensive
and may not effectively protect our intellectual property.
Substantial litigation regarding intellectual property rights exists in the
software industry, and we expect that software products may be increasingly
subject to third party infringement claims as the number of competitors in our
industry grows and the functionality of products overlaps. Although we believe
that our products do not infringe on the intellectual property rights of others,
we cannot provide assurance that such a claim will not be asserted against us in
the future, or that a license or similar agreement will be available on
reasonable terms in the event of an unfavorable ruling on any such claim.
We have several patents covering our software technology. Due to the nature
of our application software, we believe that patent protection is less
significant than our ability to further develop, enhance and modify our current
services and products. However, any infringement or misappropriation of our
proprietary software and databases could disadvantage us in our efforts to
attract and retain customers in a
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highly competitive market and could cause us to lose revenue or incur
substantial litigation expense. Moreover, in recent years, there have been a
large number of patents issued in general and numerous patents issued related to
Internet business methods. While we are unaware of any that would impact our
ability to conduct our business, defense of a patent infringement claim against
us could divert management and monetary resources, and an adverse judgment in
any such matter may negatively impact our ability to conduct our business in the
manner we desire.
EMPLOYEES
As of December 31, 2000, we had approximately 4,700 employees, excluding
Porex employees. We also employed, as of December 31, 2000, approximately 180
independent contractors. In connection with our restructuring and integration
efforts, approximately 1,100 employees were identified and notified of
termination during 2000, principally as a result of eliminating duplicate
functions resulting from acquisitions.
ITEM 2. PROPERTIES
Our corporate headquarters relocated from Atlanta, Georgia to Elmwood Park,
New Jersey in January 2001. We lease our Elmwood Park offices, which consist of
approximately 40,000 square feet of space, under a lease that expires in March
2006.
We own or lease additional facilities in Nashville, Tennessee for our
primary data and call centers, in Santa Clara, California and Alachua, Florida
for our development and engineering operations and in New York, New York,
Atlanta, Georgia and Mountain View, California for sales, marketing and customer
support. We currently lease 159 additional locations throughout the U.S. and own
14 facilities.
In connection with our restructuring and integration efforts, we intend to
further consolidate facilities, including consolidating 13 data centers into
two, nine call centers into one and various sales offices nationwide. For
additional information on costs associated with our facilities integration, see
note 4 to the consolidated financial statements contained in this annual report.
We believe that our existing facilities and offices are adequate for our
current operations.
ITEM 3. LEGAL PROCEEDINGS
Porex Mammary Implant Litigation
Since March 1991, Porex has been named as one of many co-defendants in a
number of actions brought by recipients of silicone gel mammary implants. Porex
distributed implants manufactured by Koken, a Japanese company. These actions
were brought in various federal and state courts around the country. One action,
Donna L. Turner v. Porex Technologies Corporation, et al., was originally filed
as a class action, but the class claims were dismissed in 1999 and the remainder
of the case was settled. The typical case or claim alleges that the individual's
implants caused one or more of a wide range of ailments. These implant cases and
claims generally raise difficult and complex factual and legal issues and are
subject to many uncertainties and complexities, including, but not limited to,
the facts and circumstances of each particular case or claim, the jurisdiction
in which each suit is brought, and differences in applicable law. We do not have
sufficient information to evaluate each case and claim.
Some of the actions against Porex have been dismissed where it was
determined that the implant in question was not distributed by Porex. In
addition, a number of claims have been settled by the manufacturer of the
implants or by the insurance carriers of Porex without material cost to Porex.
As of March 21, 2001, 20 actions and 37 out-of-court claims were pending against
Porex. During calendar year 2000, there were two implant-related claims made
against Porex by individuals as compared with 39 claims during calendar year
1999 and nine claims during calendar year 1998.
We believe that Porex's existing insurance coverage should provide adequate
coverage against the amount of liabilities that could reasonably be expected to
result from actions or claims arising out of
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Porex's distribution of implants. However, we cannot provide assurance that
particular cases and claims will not lead to liability that is greater than
expected based on Porex's prior experience. If so, Porex's liability could
exceed the amount of its insurance coverage. Furthermore, Porex's insurance
coverage may not provide coverage, in whole or in part, to the extent that
certain of such actions and claims seek punitive or compensatory damages arising
out of alleged intentional torts.
Envoy Securities Litigation
Envoy and some of its officers were named as defendants in three identical
lawsuits filed in the United States District Court for the Middle District of
Tennessee, Nashville Division. The plaintiff in each of these lawsuits purported
to represent a class of persons who purchased the securities of Envoy during the
class period from February 12, 1997 through August 18, 1998. In these three
original complaints, the plaintiffs sued the defendants for violations of the
federal securities laws. The District Court ordered the three cases consolidated
under the caption In re Envoy Corporation Securities Litigation, and on December
28, 1998, the plaintiffs, pursuant to the district court's consolidation orders,
filed a consolidated class action complaint. The consolidated complaint
reasserted the federal securities law claims and also asserted additional claims
under Tennessee common law for fraud and negligent misrepresentation.
Plaintiffs allege that the defendants made material misrepresentations and
omissions in Envoy's public filings and public statements concerning Envoy's
financial statements and Envoy's accounting for some charges taken in connection
with acquisitions. Plaintiffs allege that, as a result of defendants' alleged
actions, Envoy's reported earnings during the class period were overstated and
the price for Envoy's common stock was artificially inflated. Plaintiffs seek
recovery of an unspecified sum in damages on behalf of persons who allegedly
purchased Envoy's stock at allegedly inflated prices.
On March 1, 1999, the defendants filed a motion to dismiss all of
plaintiffs' claims. Plaintiffs then voluntarily dismissed their state law
claims. On September 17, 1999, the court dismissed the consolidated complaint
without prejudice. On November 23, 1999, the plaintiffs filed an amended
consolidated complaint. On May 31, 2000, defendants filed a motion to dismiss
the amended consolidated complaint. The court on February 2, 2001 entered an
order denying in part and granting in part defendants' motion to dismiss the
amended consolidated complaint. Specifically, the court denied the motion to
dismiss as to defendants Envoy and one of the individual defendants and granted
the motion to dismiss as to two of the individual defendants. The Agreement and
Plan of Merger among Healtheon/WebMD, Pine Merger Corp., Envoy, Quintiles, and
QFinance, Inc. dated as of January 22, 2000 provides that Quintiles will
indemnify us with respect to this litigation.
Ehlert v. Singer, et al.
This lawsuit was filed against Medical Manager Health Systems, which became
our subsidiary upon Medical Manager's merger with us in September 2000, and some
of its officers and directors, among other parties, on October 23, 1998 in the
United States District Court for the Middle District of Florida. The lawsuit
purports to bring an action on behalf of the plaintiffs and others similarly
situated to recover damages for alleged violations of the federal securities
laws and Florida laws arising out of Medical Manager Health Systems' issuance of
allegedly materially false and misleading statements concerning its business
operations, including the development and sale of its principal product, during
the class period. An amended complaint was served on March 2, 1999. Medical
Manager Health Systems moved to dismiss the amended complaint and the court
ruled in favor of that motion. Plaintiffs have appealed this dismissal to the
Court of Appeals for the 11th Circuit. The oral argument for the appeal was held
in November 2000, but no decision has been issued by the court of appeals. The
lawsuit seeks, among other things, compensatory damages in favor of the
plaintiffs and the other purported class members and reasonable costs and
expenses.
Quintiles v. WebMD
Quintiles and WebMD entered into a Data Rights Agreement in connection with
the acquisition of Envoy by WebMD from Quintiles in May 2000. Under the Data
Rights Agreement, WebMD provided
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certain data to Quintiles through Envoy, which Quintiles used to provide market
research and related products and services to third parties. On February 23,
2001, WebMD provided notice to Quintiles that WebMD's subsidiary Envoy, which
provides electronic transaction services for the healthcare industry, would be
temporarily suspending the provision of data under the Data Rights Agreement
between the parties. The suspension was in accordance with provisions of the
Data Rights Agreement that permit such suspension if WebMD reasonably believes
that providing the data would violate applicable law. In accordance with
procedures set forth in the Data Rights Agreement between the parties, WebMD
intended to suspend sending such data to Quintiles until such time as Quintiles
performed its obligations under the Data Rights Agreement.
On Sunday, February 25, 2001, Quintiles filed an action for breach of
contract seeking temporary and permanent injunctive relief and unspecified
damages, and obtained an ex parte Temporary Restraining Order from the Superior
Court of Wake County, North Carolina, requiring WebMD to continue to provide
data to Quintiles. WebMD removed the action to the United States District Court
for the Eastern District of North Carolina. On March 13, 2001, the District
Court entered an order continuing the state court temporary restraining order.
In the course of this litigation, WebMD presented opinions of counsel that the
transmission of data pursuant to the Data Rights Agreement violated certain
state privacy laws. Quintiles disputed these legal interpretations. Thereafter,
the access specifications pursuant to which data is transmitted to Quintiles
were modified to further de-identify patient information. In addition, Quintiles
provided to WebMD opinions of counsel that applicable state privacy laws would
not be violated by transmission of data pursuant to the modified access
specifications, together with a proposed undertaking of indemnification by
Quintiles in favor of WebMD, and certifications that the patient information
contained in its existing databases had been de-identified consistent with the
recently modified access specifications. Because determinations whether data has
been sufficiently de-identified depend on complex factual and statistical
analyses, the opinions presented by Quintiles relied on fact-intensive analyses
prepared by statisticians and others.
A further hearing was conducted by the District Court on March 15, 2001,
and on March 16, 2001, the District Court ordered WebMD to continue to provide
data to Quintiles in the form represented to the court during the March 15, 2001
hearing. That form reflected the recently modified access specifications. On
March 21, 2001, the District Court entered an order continuing in effect the
injunction. Currently, WebMD is providing data to Quintiles pursuant to this
order. We are currently engaged in settlement discussions with Quintiles.
However, we cannot provide assurances that a settlement will be reached. If a
settlement is not reached, we expect to seek appellate review, by the Fourth
Circuit Court of Appeals, of the District Court's order.
InfoCure Corporation v. WebMD and Envoy
On March 8, 2001, InfoCure Corporation filed a complaint against WebMD and
Envoy in the Superior Court of the County of Fulton in the State of Georgia. The
complaint asserts, among other things, that WebMD has breached its marketing
agreement with InfoCure by withholding certain rebates owed to InfoCure, by
failing to perform certain services and by soliciting InfoCure's customers. The
complaint seeks damages in excess of $46.5 million. WebMD believes that
InfoCure's positions are without merit and intends to vigorously defend against
the complaint.
Other legal proceedings
In the normal course of business, we are involved in various other claims
and legal proceedings. While the ultimate resolution of these matters, and those
discussed above, has yet to be determined, we do not believe that their outcome
will have a material adverse effect on our financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
We completed the initial public offering of our common stock on February
10, 1999. Our common stock has been traded on the Nasdaq National Market under
the symbol "HLTH" since February 11, 1999.
The high and low closing prices for each quarterly period during the last
two fiscal years are as follows:
HIGH LOW
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1999
First quarter (beginning February 11, 1999) $ 49.38 $21.75
Second quarter............................................ 105.00 39.94
Third quarter............................................. 77.63 30.06
Fourth quarter............................................ 51.50 31.50
2000
First quarter............................................. $ 71.06 $23.00
Second quarter............................................ 29.19 12.56
Third quarter............................................. 18.25 11.25
Fourth quarter............................................ 14.94 5.50
On March 14, 2001, there were 5,344 holders of record of our common stock.
Because many of these shares are held by brokers and other institutions on
behalf of stockholders, we are unable to estimate the total number of
stockholders represented by these record holders.
The market price of our common stock has fluctuated since the date of our
initial public offering and is likely to fluctuate in the future. Changes in the
market price of our common stock may result from, among other things:
- quarter-to-quarter variations in operating results
- operating results being less than analysts' estimates
- changes in analysts' earnings estimates
- announcements of new technologies, products and services or pricing
policies by us or our competitors
- announcements of acquisitions or strategic partnerships by us or our
competitors
- developments in existing customer or strategic relationships
- actual or perceived changes in our business strategy
- developments in pending litigation and claims
- sales of large amounts of our common stock
- changes in market conditions in the Internet and healthcare industries
- changes in prospects for healthcare reform
- changes in general economic conditions
- fluctuations in the securities markets in general.
In addition, the market prices of Internet and healthcare information
technology stocks in general, and of our common stock in particular, have
experienced large fluctuations, sometimes quite rapidly. These fluctuations
often may be unrelated or disproportionate to the operating performance of these
companies.
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Any negative change in the public's perception of the prospects of these
companies, as well as other broad market and industry factors, may result in
decreases in the price of our common stock.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If this were to happen to us, litigation would be expensive and
would divert management's attention.
We have never declared or paid any cash dividends on our common stock, and
we do not anticipate paying cash dividends in the foreseeable future. We intend
to retain earnings to finance the expansion of our operations. Our Series B
convertible redeemable preferred stock pays no annual dividend and shares in any
dividends paid on the common stock on an as if converted into common stock
basis.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the consolidated financial statements and
notes thereto, which are included elsewhere in this annual report. Our financial
information presented reflects our combined financial position and results of
operations with ActaMed Corporation for all dates and periods presented,
reflects the results of operations for WebMD, Inc., MedE America and Medcast
from the closing date of these mergers, November 12, 1999 forward, for Kinetra
from the closing date of January 31, 2000 forward, for Envoy from the closing
date of May 26, 2000 forward, and for Medical Manager, CareInsite and OnHeath
from the closing date of September 12, 2000 forward. All of these acquisitions
were accounted for as purchases, except for ActaMed, which was accounted for as
a pooling of interests. The consolidated statements of operations data for the
three-year period ended December 31, 2000 and the consolidated balance sheet
data at December 31, 2000 and 1999 are derived from, and are qualified by
reference to, the audited consolidated financial statements included elsewhere
in this annual report. The consolidated statements of operations data for the
two-year period ended December 31, 1997 and the consolidated balance sheet data
at December 31, 1998, 1997 and 1996 are derived from, and are qualified by
reference to, audited consolidated financial statements that are not included in
this report.