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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number: 0-24975

WebMD Corporation

(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

     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 (the “Exchange Act”) 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 þ         No o

     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.    þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes þ         No o

     As of June 30, 2003, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $3,109,441,188 (based on the closing price of the common stock of $10.87 per share on that date, as reported on the Nasdaq Stock Market’s National Market and, for purposes of this computation only, the assumption that all of the registrant’s directors and executive officers are affiliates). As of March 1, 2004, there were 309,464,573 shares of WebMD common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

     Certain information in the registrant’s definitive proxy statement to be filed with the Commission relating to the registrant’s 2004 Annual Meeting of Stockholders is incorporated by reference into Part III.

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      WebMD®, Web-MD®, WebMD Health®, Digital Office Manager®, DIM_DX®, Envoy®, ExpressBill®, Intergy®, Medifax®, Medifax-EDI®, Medscape®, MEDPOR®, Medpulse®, POREX®, Publishers’ Circle®, The Little Blue Book^TM, The Little Yellow Book^TM, The Medical Manager®, ULTIA^TM, WebMD Health Hub^TM and WellMed® are trademarks of WebMD Corporation 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. 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 expressions 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 that 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 Our Future Financial Condition or Results of Operations” beginning on page 66, 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 failure to achieve sufficient levels of customer utilization and market acceptance of new services or newly integrated services,
	•	the inability to successfully deploy new applications or newly integrated applications,
	•	difficulties in forming and maintaining mutually beneficial relationships with customers and strategic partners,
	•	the inability to attract and retain qualified personnel, and
	•	general economic, business or regulatory conditions affecting the healthcare, information technology, Internet and plastic 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 Our Future Financial Condition or Results of Operations” beginning on page 66 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

INTRODUCTION

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.

      We make available free of charge at www.webmd.com (in the “About WebMD” section) copies of materials we file with, or furnish to, the Securities and Exchange Commission, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC.

Overview of Our Businesses

      Our business is comprised of four segments. Three of our business segments, Portal Services, Transaction Services and Physician Services, provide various types of healthcare information services and technology solutions. Our fourth business segment is Plastic Technologies. The following overview describes our key products, services and markets:

	•	Healthcare Information Services and Technology Solutions. We provide a range of information services and technology solutions for participants across the entire continuum of healthcare, including physicians and other healthcare providers, payers, suppliers and consumers. Our products and services promote administrative efficiency and assist in reducing the cost of healthcare and creating better patient outcomes.

	—	WebMD Health. Our Portal Services segment, which is known as WebMD Health, provides online healthcare information, educational services and other resources for consumers and healthcare professionals. Our online offerings for consumers help them become better informed about healthcare choices and assist them in playing an active role in managing their own health. Our offerings for healthcare professionals help them improve their clinical knowledge, as well as their communication with patients regarding treatment options for specific health conditions. We also provide online content for use by media and healthcare partners in their Web sites, in some cases as part of a providing a co-branded site and in some cases on a private label basis under the partner’s branding.

	We reach a large audience of health-involved consumers and clinically active healthcare professionals. We work closely with pharmaceutical, medical device and other healthcare companies to develop innovative online channels of communication to our audience, or targeted portions of our audience, that complement their offline education, marketing and customer service programs. In addition, through our WebMD Health Services business, we provide employers and health plans with access to a suite of online tools and related services, for use by their employees and plan members. These tools and services provide a framework for better decision-making by healthcare consumers and can assist employers and plans in managing demand while improving quality of care.
	We generate the majority of our Portal Services revenue by selling sponsorships of specific pages, sections or events on our portals and related e-mailed newsletters, by selling advertising on our portals and the online and offline properties of our strategic partners and by licensing our content and our online tools and related software and services. The majority of our WebMD

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	Health revenues come from a small number of customers. Our WebMD Health customers include pharmaceutical, biotech and medical device companies, employers and health plans and media distribution companies. WebMD Health also receives a small portion of its revenues from the sale of paid subscription services. In 2003, WebMD Health revenues were $110.7 million.

	—	WebMD Envoy. Our Transaction Services segment, which is known as WebMD Envoy, provides healthcare reimbursement cycle management services, including transmission of electronic transactions between healthcare payers and physicians, pharmacies, dentists, hospitals, laboratory companies and other healthcare providers. The use of electronic transactions significantly reduces processing time and costs, as compared to mail, fax or telephone, and increases productivity for both payers and providers. The transactions that we facilitate include:

	•	administrative transactions, such as claims submission and status inquiry, eligibility and patient coverage verification, referrals and authorizations, and electronic remittance advice, and
	•	clinical transactions, such as lab test ordering and reporting of results.

	We processed more than 2 billion transactions in 2003, for over 200,000 providers and 5,000 hospitals transacting with more than 1,200 commercial and government healthcare payers. We also provide automated patient billing services to providers, including statement printing and mailing services. In addition, through Advanced Business Fulfillment, Inc., which we acquired in July 2003, we provide healthcare paid-claims communications services for third-party administrators and health insurers, including print-and-mail services for the distribution of checks, remittance advice, and explanations of benefits. We are focused on continuing to increase the percentage of healthcare transactions that are handled electronically and on providing electronic reimbursement cycle management solutions that can be used by payers and providers to automate the entire reimbursement process.
	We generate Transaction Services revenue by selling our transaction services to healthcare payers and providers, generally on either a per transaction basis or, in the case of some providers, on a monthly fixed fee basis. We also generate revenue by selling our patient statement and paid-claims communication services, typically on a per statement or per communication basis. A significant portion of WebMD Envoy revenues come from the country’s leading national and regional healthcare payers. In 2003, WebMD Envoy revenues were $505.7 million.

	—	WebMD Practice Services. Our Physician Services segment, which is known as WebMD Practice Services, develops and markets information technology systems for healthcare providers, primarily under The Medical Manager, Intergy, ULTIA and Medical Manager Network Services brands. Our systems include:

	•	administrative and financial applications that enable healthcare providers and their administrative personnel to manage their practices more efficiently, and
	•	electronic medical record and other clinical applications that assist them in delivering quality patient care.

	In addition, through Medical Manager Network Services, we provide integrated access to our WebMD Envoy transaction services for our WebMD Practice Services customers. These systems and services allow physician offices to automate their scheduling, billing and other administrative tasks, to transmit transactions electronically, to maintain electronic medical records and to automate documentation of patient encounters.
	WebMD Practice Services systems are scalable to meet the needs of a wide variety of healthcare provider settings, from small physician groups to large clinics, and across various medical specialties. Customers can purchase a base system and then add additional modules and services over time to expand their use of information technology as needed.

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We generate Physician Services revenue from one-time fees for licenses to our software modules, for system hardware and for implementation services and from recurring fees for the maintenance and support of our software and system hardware. Pricing depends on the number and type of software modules to be licensed, the number of users, the complexity of the installation and other factors. Our Medical Manager Network Services and some of our other WebMD Practice Services products and services are priced on a monthly fee per provider basis or a per transaction basis. In 2003, WebMD Practice Services revenues were $302.6 million.

	We believe that the combination, in one company, of WebMD Health, WebMD Envoy and WebMD Practice Services makes us well positioned to create significant improvements in the way that information is used by the healthcare industry, enabling increased efficiency, better decision-making and, ultimately, higher quality patient care at a lower cost.

	•	Plastic Technologies. Our Plastic Technologies segment, which is known as Porex, develops, manufactures and distributes proprietary porous plastic products and components used in healthcare, industrial and consumer applications. Our Porex customers include both end-users of our finished products, as well as manufacturers that include our components in their products for the medical device, life science, research and clinical laboratory, surgical and other markets. Porex is an international business with manufacturing operations in North America, Europe and Asia and customers in more than 65 countries. In 2003, Porex revenues from continuing operations were $71.9 million.

      During 2003, our revenues were divided among our segments as follows: 52.5% from WebMD Envoy, 31.4% from WebMD Practice Services, 11.5% from WebMD Health and 7.5% from Porex. The sum of these percentages equals 102.9% of our total revenues of $964.0 million because $27.0 million of our revenues are from inter-segment transactions and are eliminated when we consolidate our results.

      A more complete description of the products and services of each of our segments begins on page 10 below. For additional information regarding the results of operations of each of our segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations by Operating Segment” and Note 8 to the Consolidated Financial Statements included in this Annual Report.

Key Trends Affecting Our Healthcare Information Services and Technology Solutions Business

      Several key trends in the healthcare marketplace are influencing the use of healthcare information services and technology solutions of the types we provide or are developing. Those trends, and the strategies we have developed in response, are described briefly below; the implications for each of our businesses are discussed further in the descriptions of our products and services that follow.

	•	High Rates of Increase in Healthcare Costs. According to the Centers for Medicare & Medicaid Services, or CMS, healthcare spending in the United States rose to $1.6 trillion in 2002, up from $1.4 trillion in 2001 and $1.3 trillion in 2000. The CMS report indicated a growth rate in healthcare spending of 9.3% for 2002, compared to 8.5% in 2001, and that the 9.3% rate of increase in 2002 was 5.7 percentage points higher than the 2002 increase in gross domestic product for the United States and marked the sixth consecutive year in which health spending grew at an accelerated rate. CMS projects the healthcare share of gross domestic product will be 15.3% for 2003 and increase to 18.4% by 2013. CMS expects that out-of-pocket healthcare spending by consumers — including deductibles, copayments, and payments for medical care not covered by insurance — will grow slightly faster in the next few years than during the previous few years, as employers continue to shift healthcare costs to employees. CMS projects that out-of-pocket spending growth will increase to a rate of 7.3% in 2005 from 6.0% in 2002 and will continue to increase as a percentage of consumer disposable personal income, from 2.7% in 2002 to 3.1%

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		in 2013. The difficulties involved in controlling healthcare costs have resulted in the following key trends:

	—	Cost-Shifting by Employers to their Employees and Changes in Plan Design. Employers are seeking to shift a greater portion of healthcare costs onto their employees and to redefine traditional health benefits. People in employer-sponsored health plans have been paying more out of their own pockets each year and are likely to see their share continue to increase significantly in the near future. With the shift in financial burdens, consumers are assuming a more active role in managing their health and need information to make educated benefit, provider and treatment decisions. We are in the process of transforming WebMD Health, our consumer portal, from an online place that consumers go for information to a place they go to actively manage their health. In addition, through our WebMD Health Services business, we help employers and plans provide employees and plan members with answers to healthcare and plan benefit questions and other personalized information and feedback. We intend to make significant investments in WebMD Health’s infrastructure, as well as in new products and services, to position ourselves to provide additional interactive online services.
	—	Increasing Outsourcing by Healthcare Payers. In order to be more efficient, many healthcare payers are focusing upon core activities — building cost-effective provider networks, marketing their services to employers, and adjudicating claims payment — and outsourcing pre- and post-adjudication administrative activities, such as printing and mailing checks and explanation of benefits. By outsourcing these services to us, payers can reduce operating costs and capital expenditures. In addition, our outsourcing services allow our customers to participate in the use of systems and technologies that would be too expensive for them to acquire for their own use. Our acquisitions of Advanced Business Fulfillment and Medifax-EDI in 2003 support our ability to provide more comprehensive outsourcing services. For more information on the services we provide to payers and on these acquisitions, see “Healthcare Information Services and Technology Solutions — WebMD Envoy” below and Note 2 to the Consolidated Financial Statements included in this Annual Report.
	—	Increased Use of Information Technology for Clinical Purposes. Governmental and commercial payers continue to exert considerable pricing pressure on providers. As a result, in order to maintain their incomes, providers need to see more patients and increase productivity and/or reduce their operating costs. Use of information technology can assist providers in these efforts. Healthcare providers are also under pressure to increase quality and reduce medical errors. There are currently numerous federal, state and private initiatives seeking ways to increase the use of information technology in healthcare, including in the physician’s office. In his State of the Union Address this year, President Bush stated: “By computerizing health records, we can avoid dangerous medical mistakes, reduce costs and improve care.” In a radio address the next week, he said “we can control health care costs and improve care by moving American medicine into the information age. My budget for the coming year proposes doubling to $100 million the money we spend on projects that use promising health information technology. This would encourage the replacement of handwritten charts and scattered medical files with a unified system of computerized records. By taking this action, we would improve care, and help prevent dangerous medical errors, saving both lives and money.” There are an increasing number of other governmental and private initiatives in this area.

While information technology systems and electronic transaction services are used by many physician offices for administrative and financial applications, their use in clinical workflow is much more limited, especially in smaller practices. We believe that is changing and we are targeting the market for clinical applications as one of our priorities for the next several years. While it will be a long time before most physicians go to a “paperless office,” more and more physicians are beginning to incorporate information technology into their clinical workflow and our products allow them to make this shift in a gradual way. See “Healthcare Information Services and Technology Solutions — WebMD Practice Services — EMR and Imaging Sys-

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	tems” below. During 2004, we plan to improve the capacity and productivity of the WebMD Practice Services support, service and training infrastructure in order to be able to provide the additional assistance needed by customers as they increase their usage of our clinical solutions.

	•	Increased Automation of the Healthcare Reimbursement Cycle. Government regulations concerning electronic transactions in healthcare are accelerating the shift from telephone and paper claims transactions to electronic ones and have the potential to have a similar effect on other phases of the reimbursement cycle. See “— Government Regulation — Health Insurance Portability and Accountability Act of 1996 — HIPAA Transaction Standards.”

	—	Submission of claims electronically assists payers in reducing the cost of processing and servicing claims and can expedite the reimbursement process for providers. However, this is just a starting point for how electronic transactions can increase administrative efficiency. Our strategy is to be more than just a clearinghouse connection between payers and providers: we have been positioning our company to provide electronic reimbursement cycle management solutions that can be used by payers and providers to automate the entire reimbursement process. For example, our “all payer” transaction services include the capture, validation and routing of claims transactions on behalf of not just commercial payers, but also Blue Cross Blue Shield payers, Medicare and Medicaid, and the return electronic remittance from the payers back to the originating provider. We plan to continue to expand, through internal development and acquisitions, the transaction services we provide. See “Healthcare Information Services and Technology Solutions — WebMD Envoy” below and “— Increased Outsourcing by Healthcare Payers” above.
	—	The HIPAA Transaction Standards establish format and data content standards for the most common healthcare transactions. In order to implement the Transaction Standards, WebMD Envoy has made significant changes to its systems and the software it uses internally. Similarly, the implementation has required payers and providers to simultaneously implement changes to their systems and/or internal procedures. As a result, this implementation process and related testing has been an immense challenge for the healthcare industry, including WebMD. However, it also represents a great opportunity for the industry and for us, because it encourages payer/provider connectivity to evolve from its current focus on the sending and receiving of claims to automating ancillary transactions, such as eligibility, status or remittance. As a leading clearinghouse for healthcare transactions and a leading vendor of physician office management information systems, WebMD has been the focus of a great deal of scrutiny in the implementation process and has received some criticism for difficulties encountered by our customers and for delays in our correcting some of those problems. Given the nature and scope of the changes being implemented, the large number of healthcare industry participants involved and our position in the industry, we expected that there would be some processing problems and delays. We continue to work diligently to identify and resolve these problems as they occur, while at the same time committing significant resources to keeping the implementation process moving forward. We are also working to foster communication among healthcare industry participants regarding how to achieve the intended benefits of the Transaction Standards with as little disruption to healthcare payment systems as possible. We have been incurring, and expect to continue to incur, significant expenses relating to the Transaction Standards implementation, including for testing, quality assurance and customer service activities. For more information regarding the challenges involved in such implementation and a description of the HIPAA regulations, see “Business — Government Regulation — Health Insurance Portability and Accountability Act of 1996 — Transaction Standards” below.

	•	Increased Use of the Internet by Physicians and as a Source of Health Information for Consumers. According to a Pew Internet & American Life Project Survey published in December 2003, approximately seven million American consumers look for health information on the Internet each day. WebMD Health is a leading destination on the Internet for these consumers. See “Healthcare Information Services and Technology Solutions — WebMD Health” below. The Internet allows us

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		to offer consumers the resources they are looking for, with immediate access to searchable information and dynamic interactive content. As a result, WebMD Health enables its sponsors, including pharmaceutical and medical device companies, to reach targeted consumers when they are looking for answers to healthcare questions and to reach physicians when they are exploring new treatment options. As recently noted by a Commissioner of the United States Food and Drug Administration: “The evidence shows that promotions directed to consumers can play an especially important role in helping patients start a discussion with their health care practitioner about conditions that are often unrecognized and therefore undertreated, such as diabetes, high blood pressure, high cholesterol, and depression.” Physicians are also increasingly turning to the Internet for professional activities. In 2003, physicians and healthcare professionals earned 629,000 continuing medical education credits at Medscape, an increase of 93% over 2002. Pharmaceutical companies and medical device manufacturers currently spend only a very small portion of their marketing and educational budgets on online media. Our strategy is to seek a greater portion of these budgets.

      As discussed above and in the “Business” section below, we intend to continue to invest in new products and services and in improving our existing products and services, both through internal development activities and, in certain cases, through acquisitions. We make these investments based on our assessments of the needs of our customers and potential customers, including the trends described above. However, the market for healthcare in the United States is highly complicated, and there can be no assurance that the trends identified above will continue or that the intended benefits to WebMD from our responses to those trends will be achieved. In addition, the markets for healthcare information services and technology solutions are highly competitive and not only are our existing competitors seeking to benefit from these same trends, but the trends may also attract additional competitors. See “Healthcare Information Services and Technology Solutions — Competition for Our Healthcare Information Services and Technology Solutions” below.

Recent Developments

      On March 4, 2004, WebMD sold $100 million of Convertible Redeemable Exchangeable Preferred Stock in a private transaction to CalPERS/PCG Corporate Partners, LLC. CalPERS/PCG is a private equity fund managed by the Pacific Corporate Group and principally backed by California Public Employees’ Retirement System, or CalPERS. Transfer of the Preferred Stock is subject to restrictions and holders may not engage in hedging transactions with respect to WebMD common stock.

      The Preferred Stock ranks senior to WebMD common stock with respect to rights upon liquidation, winding-up or dissolution. The Preferred Stock has a liquidation preference of $100 million in the aggregate and $10,000 per share. The Preferred Stock is convertible into 10,638,297 shares of WebMD common stock in the aggregate, representing a conversion price of $9.40 per share of common stock. We may not redeem the Preferred Stock prior to March 2007. Thereafter, we may redeem any portion of the Preferred Stock at 105% of its liquidation preference; provided that any redemption by us prior to March 2008 shall be subject to the condition that the average closing sale prices of WebMD common stock is at least $13.16 per share, subject to adjustment. We are required to redeem all shares of the Preferred Stock then outstanding in March 2012, at a redemption price equal to the liquidation preference, payable in cash or, at our option, in shares of WebMD common stock. Upon the occurrence of certain events constituting a change in control of WebMD or certain significant acquisitions by WebMD of businesses that are not related or complementary to its businesses, holders of the Preferred Stock will have the right to put their shares to WebMD at a purchase price equal to the liquidation preference of the Preferred Stock.

      If the average closing sales price of WebMD common stock during the three-month period ended on the fourth anniversary of the issuance date is less than $7.50 per share, holders of the Preferred Stock will have a right to exchange the Preferred Stock into WebMD’s 10% Subordinated Notes due March 2010. The Notes may be redeemed, in whole or in part, at any time thereafter at WebMD’s option at a price equal to 105% of the principal amount of Notes being redeemed.

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      Holders of Preferred Stock will not receive any dividends unless the holders of common stock do, in which case holders of Preferred Stock will be entitled to receive ordinary dividends in an amount equal to the ordinary dividends the holders of Preferred Stock would have received had they converted such Preferred Stock into common stock immediately prior to the record date for such dividend distribution. So long as the Preferred Stock remains outstanding, WebMD is required to pay a quarterly fee to CalPERS/PCG of 0.35% of the face amount of the then outstanding Preferred Stock.

      We have agreed that we will not, without the prior written consent of holders of 75% of the shares of Preferred Stock then outstanding, issue any additional shares of Preferred Stock or create any other class or series of capital stock that ranks equal or senior to the Preferred Stock. We also have agreed to use our reasonable best efforts to amend our charter at our next Annual Meeting of Stockholders to provide that the holders of the shares of Preferred Stock will have the right to vote, together with the holders of WebMD common stock, on matters that are put to a vote of holders of WebMD common stock, with holders of Preferred Stock having the right to cast the number of votes that could be cast by a holder of the WebMD common stock into which the Preferred Stock would be convertible immediately prior to the record date for the vote.

      Holders of the shares of WebMD common stock issued upon conversion of the Preferred Stock and any shares of the WebMD common stock issued upon satisfaction of our right to redeem Preferred Stock will have certain registration rights in respect of their shares of common stock, beginning in March 2006.

      WebMD intends to use the net proceeds from the private placement for general corporate purposes, which may include acquisitions.

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HEALTHCARE INFORMATION SERVICES AND TECHNOLOGY SOLUTIONS

      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 health insurance companies, pharmacy benefit management companies, 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.

WebMD Health

Overview

      WebMD Health, our Portal Services segment, offers a variety of online resources and services for consumers and healthcare professionals, including:

	•	WebMD Health, our consumer portal, which is located at www.webmd.com. WebMD Health provides access to health and wellness content. We also distribute our content, and reach additional consumers, through AOL Health with WebMD and MSN Health with WebMD. In addition, WebMD Health offers paid subscription services that provide consumers with access to interactive tools, personalized in-depth content and expertise from leaders in their fields.
	•	Medscape from WebMD, our portal for physicians and allied healthcare professionals, which is located at www.medscape.com. At Medscape, physicians and other healthcare professionals have access to resources that include timely medical news and professional conference coverage, continuing medical education activities, full-text medical journal articles and drug and medical literature databases.

We also license our content to health plans and other healthcare partners for use on their Web sites, in some cases as part of providing a co-branded site and in some cases on a private label basis under the partner’s branding.

      We reach a large audience of health-involved consumers and clinically active healthcare professionals. We work closely with pharmaceutical, medical device and other healthcare companies to develop innovative online channels of communication to our audience, or specific portions of our audience, that complement their offline education, marketing and customer service programs. These companies can sponsor specific pages or sections of our portals or specific events, programs and newsletters, all of which are clearly labeled as sourced from or sponsored by the specific sponsor. In addition, sponsors can reach specific demographic groups, condition-specific groups or specialty-specific groups through our portals and through newsletters that members have requested based on their interests. Performance of our sponsored programs, including the aggregate number of impressions, visitors and actions taken, is tracked and reported to the sponsor on a regular basis.

      Through our WebMD Health Services business, we provide web-based tools and applications to employers and health plans for use by their employees and plan members. These tools and services provide a framework for better decision-making by healthcare consumers and can assist employers and plans in managing demand while improving quality of care.

      We generate the majority of our Portal Services revenue by selling sponsorships of specific pages, sections or events on our portals and related e-mailed newsletters, by selling advertising on our portals and the online and offline properties of our strategic partners, and by licensing our content and our online tools and related software and services. Historically, the majority of our Portal Services revenues have come from a small number of companies. Our WebMD Health customers include pharmaceutical, biotech and

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WebMD Health Consumer Portal

      General. Consumer interest in convenient and reliable sources of general information on health and wellness topics continues to grow. In addition, consumers increasingly seek to educate themselves about available treatment options for specific health conditions or injuries. We believe that these trends are likely to continue, as consumers are asked to bear an increasingly large share of their healthcare expenditures due to changes in the design of the medical plans and prescription drug plans being offered by payers and employers. Traditional media have sought to meet this demand by introducing magazines focused on health and wellness and by increasing news coverage of healthcare-related issues. The Internet allows us to offer consumers the resources they are looking for, with immediate access to searchable information and dynamic interactive content.

      WebMD Health provides access to health and wellness news and information, support communities, interactive tools and opportunities to purchase health-related products and services. There are no membership fees and no general usage charges for the site; however, we do charge usage or subscription fees for some premium content and services. See “— WebMD Health Subscription Services” below.

      Content Offerings. The content and service offerings on WebMD Health include:

	•	Original and Licensed Content. We offer proprietary, medically reviewed health and wellness news articles written daily by our staff of journalists. We also offer searchable access to a library of health and wellness articles, reference information and interactive presentations, some of which we own and some of which we have licensed from others. Our articles and other content cover various health-related topics, including: specific diseases and chronic health conditions, medical tests, pregnancy and parenting, diet and nutrition, fitness and sports medicine, and sexuality and relationships.
	•	Membership. Consumers can choose to become members of WebMD Health, which allows them to make use of certain WebMD interactive content and services. Members can also select from more than 32 different e-mail newsletters on health-related topics or specific conditions and have access to our communities and events, as described below. We have built a large consumer membership, most of whom have chosen to receive our clinical alerts, newsletters and reports on specific diseases, conditions and other health and wellness topics.
	•	Communities. Our communities allow our members to participate in real-time discussions in our chat rooms and on our message boards. Members can share experiences and exchange information with other members who share their health condition or concern. Members can also use our “Ask the Experts” service to post their health questions for experts.
	•	Events. Our events include one-time programs and series in which experts make presentations and answer questions on specific health-related topics. Our events also include WebMD University programs, which are four week courses, live moderated by experts, on specific subjects. WebMD University programs have included: Take Charge of Your Diabetes; Feeding Your Self, Feeding Your Baby; Alive and Well, Taking Charge of Your Breast Cancer Treatments; and Stories of Survivors, Your Breast Cancer Guide.
	•	Interactive Personal Health Management Tools and Other Features. We provide access to interactive tools, calculators, quizzes and illustrated guides and slide shows on health topics. Our interactive tools include a pregnancy calendar, body mass index tool and a calorie counter. Our slide shows cover topics such as mammograms, fetal positions and common visual problems.
	•	Physician Directory and Related Services. WebMD Health also has features that allow consumers to search for a physician or clinic in their area. The WebMD Physician Directory contains information on practicing physicians throughout the U.S. Users can search for a doctor by location

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		or specialty and based on HMO or hospital affiliations. The WebMD Physician Directory is provided by The Little Blue Book, which was acquired by WebMD in 2003. See “— Physician Directory Services” below.

      WebMD Health Subscription Services. WebMD Health also offers the following paid subscription services, which provide access to exclusive interactive tools, personalized in-depth content and expertise from leaders in their fields:

	•	WebMD Health Manager. We offer, on a subscription basis to individual consumers, a suite of healthcare decision-making tools and related services, which includes some of those we license to health plans and employers for use by their members and employees. See “— WebMD Health Services Group” below.
	•	WebMD Weight Loss Clinic. The WebMD Weight Loss Clinic is a subscription service that provides members with a customized eating plan based on individual food preferences and other information and resources relating to weight loss.
	•	WebMD Fertility Center. The WebMD Fertility Center provides information, tools and personalized e-mail reminders relating to fertility, conception and pregnancy.

      Medscape from WebMD is designed to meet the information needs of medical professionals. Medscape from WebMD is organized by medical specialty area, such as hematology-oncology and cardiology, to make it easier for members to access the information most relevant to them. We also have areas organized by profession or interest area, including sites for nurses, pharmacists, medical students, users interested in medical policy and practice management issues, and members with a particular interest in technology and medicine. Our extensive and up-to-date medical content and easy-to-use search capabilities assist medical professionals in keeping abreast of medical advances and obtaining fast, accurate answers to medical questions online. There are no membership fees and no general usage charges for the site; however, we do charge usage or subscription fees for some premium content and services.

      Our content and service offerings, a combination of original material and content licensed from major professional publishers, are generally presented by specialty and include:

	•	Continuing Medical Education (CME). More than 30 states and many medical specialty societies require physicians and selected other medical professionals to certify annually that they have accumulated a minimum number of CME hours to maintain licensure or membership. We offer a selection of free, regularly updated CME activities for physicians, registered nurses, pharmacists and other healthcare professionals, including original programs and online multimedia adaptations of live events. In addition, our CME Live offerings provide real time webcasts of CME programs on key topics and conditions, designed to educate healthcare professionals about timely clinical issues. These webcasts combine streaming audio and slide presentations and allow participants to interact with faculty. We also provide services that track CME credits accumulated through our site for our users. Many of our CME-certified programs also carry Continuing Education (CE) credit for nurses and/or pharmacists.

	All of our CME activities have been planned and implemented in accordance with the Essential Areas and Policies of the Accreditation Council for Continuing Medical Education, or ACCME, which oversees providers of CME credit, and have been produced in collaboration with ACCME-accredited CME providers. In August 2002, ACCME awarded Medscape a two-year, provisional accreditation as a CME provider, allowing Medscape to certify online CME activities, which Medscape now does for most of its CME programs. We are currently in the process of seeking full accreditation.
	In July 2002, Pharmaceutical Research and Manufacturers of America (PhRMA), a trade association of pharmaceutical manufacturers, instituted a new voluntary Code on Interactions with

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Healthcare Professionals, which outlined guidelines for how sales representatives and others involved in marketing pharmaceuticals should interact with healthcare professionals. The PhRMA Code is intended to help ensure that these interactions benefit patients and enhance the practice of medicine and to avoid concerns about inappropriate influence on the prescribing practices of physicians. The PhRMA Code provides that these interactions should not consist of entertainment, dining or recreation, but should focus on informing the healthcare professional about scientific and clinical information and supporting research and education. While providing subsidies directly to healthcare professionals for travel, lodging and other expenses of attending CME or scientific conferences is no longer permitted, sponsorship or underwriting of CME programs or conferences continues to be. We believe that the guidelines contained in this Code are likely to benefit providers of online CME and other online informational materials for healthcare professionals, such as Medscape, as pharmaceutical manufacturers seek efficient, effective and appropriate sponsorships and channels of communication.

	•	Newsletters. Members receive MedPulse, our weekly e-mail newsletter, which is published in more than 25 specialty-specific editions and highlights new information and CME activities on the Medscape site of interest to each particular specialty. We also provide commercially supported “Special Reports” newsletters, which contain information on specific conditions and treatments.
	•	Medical Conference Coverage. We provide overviews and analysis of key data and presentations from about 150 professional meetings each year, including major conferences in a variety of specialties. This benefits our members who were unable to attend and those who did attend but might not have been able to see all of the presentations of interest to them, as well as the sponsors of the conferences, by increasing the size of the audience exposed to this material. We cover a number of these conferences in collaboration with the societies and organizations that present them.
	•	Medical News and Clinical Alerts. We provide original, daily medical news stories written by our staff of journalists and reviewed by our staff of physicians, in addition to news provided by professional wire services. Our news group also regularly produces analytical reports based on interviews with experts and newsmakers. In addition, we provide real-time alerts on such critical clinical issues as pharmaceutical recalls and product advisories.
	•	Resource Centers. Resource Centers are regularly updated collections of clinical content, selected by Medscape’s editors, focused on a specific topic, condition or theme. Content includes news, journal articles, conference coverage, expert columns and CME programs. Medscape currently has more than 60 Resource Centers across multiple specialties.
	•	Electronic Journals. Medscape publishes an original electronic-only journal, Medscape General Medicine (MedGenMed), indexed in the National Library of Medicine’s MEDLINE reference database. MedGenMed, the world’s first online-only, primary source, peer-reviewed general medical journal, was established in April 1999. As of March 2004, it had published more than 1,100 papers. Since December 2002, MedGenMed at www.medgenmed.com has included specialty sections for HIV-AIDS, Gastroenterology, Hematology-Oncology, Pulmonary Medicine, OB-Gyn and Women’s Health, Orthopedics and Sports Medicine and Psychiatry/ Mental Health, Neurology, and Technology and Medicine. Medscape also publishes Topics in Advanced Practice Nursing, which is indexed in CINAHL, the Cumulative Index of Nursing and Allied Health Literature.
	•	Medscape Publishers’ Circle. Medscape Publishers’ Circle is a collection of high-quality clinical information from prominent medical publishers, available free to registered Medscape members.
	•	Medical Reference Applications. Our medical reference applications include access to various medically related databases and abstracts.
	•	Medical Reference Services. These services include the professional medical reference texts ACP Medicine (formerly WebMD Scientific American® Medicine) and ACS Surgery: Principles and Practice (formerly Scientific American Surgery), each available for sale by subscription to individual physicians and to institutions in multiple formats (print, CD-ROM and Online). ACP Medicine has

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		been a comprehensive and continually updated internal medicine reference for 25 years. ACP Medicine and ACS Surgery are official publications of the American College of Physicians and the American College of Surgeons, respectively, although wholly owned by WebMD.

      Users must register as members to utilize the features of Medscape from WebMD. This enables us to deliver targeted medical content based on our members’ registration profiles. The registration process enables professional members to choose a home page tailored to their medical specialty or interest. For example, a member registered as a cardiologist is automatically directed to Medscape Cardiology, rather than a more generic home page.

WebMD Health Services Group

      Through the WebMD Health Services Group, formerly known as WellMed, we provide employers and healthcare plans with a suite of online tools and related services called the WebMD Health Hub. The WebMD Health Hub integrates health and wellness content, a personal medical record, health assessment tools, decision support tools, health improvement programs and targeted messaging. The WebMD Health Hub provides a framework for better decision-making by healthcare consumers and allows employers and health plans to manage demand, while improving the quality of care and reducing administrative and communication costs. We receive fees from employers for use of our applications and services by their employees, and from health plans for use by their members. The WebMD Health Hub is also distributed through relationships with providers of benefits-related services as a part of their own offerings to employers.

      WebMD Health Hub applications are integrated into the client’s Intranet or Web site and work with the client’s specific health and benefit programs, disease management vendors and other health-related systems and content and can be co-branded or customized to match client branding and “look and feel.” The core products and applications that make up the WebMD Health Hub are Personal Health Manager, Personal Health Insight, Personal Health Decisions and HubX:

	•	Personal Health Manager is a suite of consumer applications that provides a personalized framework to manage health, wellness and benefit information and facilitate healthy behavior, including health risk and condition assessment tools, an online personal health record and health and lifestyle improvement programs.
	•	Personal Health Insight is an online service center that provides specialized decision-support for clients, including aggregated information regarding utilization of the WebMD Health Services platform and results of messaging campaigns. With Personal Health Insight, employers and plans can analyze aggregate health data in real time, address population health risks and proactively implement preventive programs.
	•	Personal Health Decisions is a set of benefit decision-support applications that explain benefit plan choices and facilitate informed selection and use of those benefits.
	•	HubX is a platform that integrates employer or plan applications and data into the WebMD Health Hub. In addition, the HubX Data Interchange option provides functionality to import data, such as healthcare claims and medication claims, for greater personalization and targeted messaging and to export self-reported information from the WebMD Health Hub to care providers.

      By educating and encouraging their employees and plan members to take a more active role in their healthcare, employers and plans can realize cost savings from more informed decision-making, while also improving healthcare outcomes. Other potential benefits to an employer or plan include efficiently identifying and enrolling candidates in disease management or other health management programs.

Physician Directory Services

      In 2003, we acquired the company that publishes The Little Blue Book, a leading source of practice contact information for physicians since 1988. The pocket-sized reference book is published annually in 146 distinct metropolitan editions. Physicians utilize it for local and up-to-date physician information. All physicians are listed free of charge in their local metropolitan-area edition, along with their specialties,

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Sales and Marketing

      A team of sales, marketing and account management personnel represents WebMD Health and Medscape from WebMD to pharmaceutical companies, medical device companies, health plans and other healthcare and consumer companies. These individuals work closely with clients and potential clients to develop innovative means of using our portals to bring their companies, and their products and services, to the attention of target groups of consumers and healthcare professionals and to create channels of communication with these audiences.

      A separate team of sales, marketing and account management personnel represents WebMD Health Services Group to employers and health plans. These individuals customize our services for each client according to the client’s specific plan design and business objectives. We also promote and distribute WebMD Health Services Group through relationships with employee benefits consultants and other companies that assist employers in purchasing or managing employee benefits.

      We seek to attract traffic and new members to WebMD Health through a variety of methods, including online and offline media campaigns. The primary focus of our media campaigns has been member registration. We promote WebMD Health’s subscription services through our consumer portal and our e-mailed newsletters.

      We seek to attract traffic and new members to Medscape through a variety of methods, including advertising on other Internet sites and in medical journals, pharmaceutical and other healthcare publications and other targeted publications. We also promote Medscape at industry conferences, trade shows and medical meetings and by using direct mail.

WebMD Envoy

Overview

      To ensure timely reimbursement and comply with managed care requirements, healthcare providers must interact effectively with healthcare payers from the first point of patient contact until final payment has been received. Unfortunately, in these interactions, providers and payers often juggle a confusing combination of electronic and manual processes, phone calls and faxes, and disparate software systems. WebMD Envoy, our Transaction Services segment, provides an electronic link between payers and providers that allows them to conduct medical, pharmacy and dental transactions electronically. However, WebMD Envoy provides much more than just a clearinghouse connection — we provide electronic reimbursement cycle management solutions that can be used by payers and providers to automate the entire reimbursement process. In addition, as a complement to our electronic transmission services, our WebMD ExpressBill operations provide print-and-mail services to providers, including patient statement processing, and, through Advanced Business Fulfillment, Inc., which we acquired in July 2003, we provide healthcare paid-claims communications services for third-party administrators and health insurers, including print-and-mail services for the distribution of checks, remittance advice, and explanations of benefits. We also provide connectivity and tools for automating clinical functions.

      The customers for WebMD Envoy’s services consist of healthcare providers, such as physician offices, dental offices, billing services, national laboratories, pharmacies, hospitals, and healthcare payers, including Medicare and Medicaid agencies, Blue Cross and Blue Shield organizations, pharmacy benefit management companies, commercial health insurance companies and managed care organizations.

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      We work with numerous medical and dental practice management system vendors, hospital information system vendors and other service providers to provide integrated transaction processing between their systems and our clearinghouse. Most practice management and hospital information systems support, and can be integrated with, WebMD Envoy transaction services. Many practice management system vendors, including WebMD Practice Services, market a private label brand of our transaction services that they have integrated with their systems. We pay a sales commission, based on volume, to some of these vendors as an inducement to use WebMD Envoy. We have long-standing relationships with many vendors of practice management systems. Medifax-EDI, which we acquired at the end of 2003, has similar relationships with vendors of hospital information systems. We work together with these vendors to increase the percentage of healthcare transactions that are handled electronically.

EDI Transaction Services

      General. We provide our payer and provider customers connectivity and transaction services through an integrated electronic transaction processing system, which includes proprietary software, host computer hardware, network management, switching services and interfaces. We refer to these services as electronic data interchange, or EDI. Our EDI transaction services reduce paperwork and the need for communication by mail, telephone and fax, resulting in cost 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.

      Providers access our transaction services both directly and through their relationships with integrated delivery networks, clinics, physician and dental practice management system vendors, hospital information management system vendors, and retail pharmacy chains. Providers initiate transactions using our proprietary applications, their practice management systems or other computer systems or networks. Providers submit transactions to our clearinghouse by modem connections using regular telephone lines, using dedicated high speed telecommunications services and over the Internet. At our clearinghouse, the transaction is edited for accuracy, validated for format and completeness, then translated in accordance with the payer’s specifications and sent to the payer’s claims adjudication and/or real-time database systems.

      We maintain direct connections with many healthcare payers, including Medicare contractors and Medicaid agencies, Blue Cross and Blue Shield organizations, commercial health insurance companies, pharmacy benefit management companies and managed care organizations. Our direct payer connectivity facilitates high levels of service by minimizing the number of intermediaries between the provider and the payer. Our direct connections with payers 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 some transmitted securely over the Internet. Other clearinghouses also use our services to transmit transactions that they have received from providers to payers. We make payments, based on volume, to some of these clearinghouses as an inducement to use WebMD Envoy to complete the transactions submitted through their systems.

      Medical and Dental Administrative Services. Our medical and dental administrative services provide the connectivity and transaction processing services needed for providers and payers in the healthcare

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	•	beginning with insurance eligibility verification,
	•	continuing through the claim submission process,
	•	followed by tracking the reimbursement through claim status inquiries, and
	•	concluding with electronic remittance information and payment posting.

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. Most claims are submitted to us as batch claims, which are collected by providers throughout the day and submitted to us in bulk. We then sort, format and edit the claims to meet each particular payer’s requirements before transmission to the payer. Providers can receive an electronic remittance advice which provides payer payment information and an explanation of the settlement of a related claim. Providers can also use our services to verify patient enrollment and eligibility and to obtain authorization from payers, at the point of care, for services and referrals to other providers. Our acquisition of Medifax-EDI at the end of 2003 has strengthened our service offerings for these types of transactions.

      Our “all-payer” suite of services includes the capture, validation and routing of claims transactions on behalf of not just commercial payers, but also Blue Cross Blue Shield payers, Medicare and Medicaid. Additionally, our all-payer services include the return of an electronic remittance transaction, which is the equivalent of a paper explanation of benefits, or EOB, from all the payers back to the originating provider. The goal is to provide a single source EDI reimbursement cycle management solution for providers and practice management system vendors. A single EDI solution reduces administrative burdens on the provider office in sending claims transactions and receiving electronic remittance advice transactions and, more importantly, allows us to provide a single report back to the provider office regarding those transactions. That, in turn, allows the provider office to determine more easily whether it has been paid on a particular claim and how much. Provider offices without such a solution typically receive five or more different reports that they then have to reconcile in order to manage their accounts receivable. Implementation of our “all-payer” services has presented technical, operational and customer service challenges and has resulted in a large increase in the amount of transactions we transmit to Blue Cross Blue Shield payers, Medicare and Medicaid which, in certain cases, has caused service delays. In addition, this implementation, happening together with the implementation of the HIPAA Transaction Standards, has required, and continues to require, system upgrades, additional programming and changes in our processes and procedures. We have been incurring, and expect to continue to incur, significant expenses relating to the “all-payer” implementation, including system upgrades and testing and related quality assurance activities.

      We provide various products designed to assist healthcare providers and payers in utilizing our administrative services, including:

	•	WebMD Office. Through our WebMD Office Internet-based service, providers can securely access our transaction services through either a standard dial-up or high speed DSL or cable modem. WebMD Office can be used as a stand-alone system or as a complement to a practice management system through an import and data management function that allows transactions to be generated from the practice management system and submitted through WebMD Office. In addition, our practice management system vendor partners may elect to market a private-label brand version of WebMD Office.
	•	AccuClaim Plus. Our AccuClaim Plus solution is designed for the claims submission processes of hospitals and large physician practices. AccuClaim Plus interfaces with their existing management systems, importing claim files and subjecting them to payer-specific edits, prompting users to correct claim errors prior to submission to payers in order to minimize the claim rejection rate while increasing the first pass and auto-adjudication rate at the payer’s adjudication system.

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	•	WebMD Empower. WebMD Empower is an EDI-enabling software and data hosting solution that gives healthcare payers the ability to automate communication with their providers through our network, using our infrastructure. WebMD Empower takes claims data submitted to the WebMD Envoy clearinghouse, applies value-added editing, including checks against payer-specific business rules and data, and sends it directly to the payer’s information system. For real-time transactions, WebMD Empower works by downloading appropriate eligibility, provider, benefit, referral/authorization and claims data from the payer’s system onto our server. Downloads are performed periodically or in real time as information in the payer’s database is updated.
	•	Medifax Assistant. Medifax Assistant integrates with hospital information systems (HIS) to automate various registration activities such as insurance eligibility verification, credit checking and address verification. Medifax Assistant can be configured to automatically perform real-time tasks during patient registration. This saves the registration staff time by eliminating the need to use separate systems for registration and for eligibility verification. The eligibility response can be automatically stored within the patient record as a permanent reference.
	•	Medifax Receivable Analysis. Medifax Receivable Analysis is an electronic screening service designed to verify Medicaid and other forms of insurance eligibility in an electronic batch format. The healthcare provider submits a file electronically and the file is processed against the Medifax-EDI payer databases to determine eligibility. Medifax customers use this service to identify Medicaid and other forms of eligibility that may apply to patients who have been classified as not having coverage. The resulting reclassification often results in significant reimbursements.

      Pharmacy Administrative Services. A typical pharmacy benefit transaction takes place in a real-time setting using a pharmacy management system or other claim submission product. The claim is submitted to WebMD Envoy in a standard format and includes all required information about the prescription. The claim is then routed to the appropriate adjudicating processor where the claim is processed within seconds. Response information includes patient coverage, formulary compliance (specific drug coverage), potential drug interactions, patient’s co-payment due and anticipated reimbursement amount due to the pharmacy from the payer. Final dollar amounts due to the pharmacy are typically paid by the payer 15-30 days after claim submission.

      Lab Ordering and Reporting Services. We provide clinical lab ordering and reporting services through WebMD Clinician, our Internet-based product. This product supports the ordering of clinical tests and the reporting of test results between healthcare providers and labs. WebMD Clinician reduces costs and improves the quality of patient care by improving order entry accuracy and expediting the delivery of lab results, while enhancing the ability to share those results with multiple physicians. In addition, we provide similar services to practice management system vendors, hospital information system vendors and electronic medical record vendors through an application programming interface known as Clinician eXT.

Other Communications Services

      ABF. In July 2003, WebMD Envoy acquired Advanced Business Fulfillment, Inc., which we refer to as ABF, a provider of healthcare paid-claims communication services for healthcare payers. ABF’s operations are supported by proprietary software and systems that allow healthcare payers to outsource print-and-mail activities by sending an electronic feed to ABF. By outsourcing these services to ABF, its clients can reduce operating costs and capital expenditures. ABF’s systems include a Web-based suite of management tools to facilitate the printing and mailing of checks and remittance advice to providers and EOBs to plan members. These management tools allow clients to control the processes they have outsourced to ABF and to access archived data from their desktops. ABF has worked closely with leading claims processing system vendors to allow its software to interface with their systems. In return for marketing ABF’s post-adjudication services and for the creation and maintenance of an ABF-specific data extract, ABF makes periodic payments to vendor partners based on transaction volumes.

      Healthpayers USA is ABF’s proprietary program to cross-consolidate provider mail in order to create savings in postal costs for its clients. Healthpayers USA screens, sorts and consolidates mail from any

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      WebMD ExpressBill. Through WebMD ExpressBill, we provide print-and-mail services to healthcare practitioners, hospitals and high volume commercial customers throughout the United States. WebMD ExpressBill accepts client data via modem or the Internet, generates printed materials and prepares them for mailing. Our WebMD ExpressBill services include:

	•	Patient Mailings. On behalf of healthcare provider customers, we print invoices, account statements, collection letters, recall notices and other communications and mail them to patients.
	•	Paper Claims. Claims that cannot be sent electronically to payers can be sent by healthcare providers electronically to WebMD ExpressBill, where we print and mail them on their behalf.
	•	Payment Processing. We process payments on behalf of providers and other customers, receiving and depositing checks, posting payments and transmitting funds in accordance with customer instructions.
	•	Electronic Payment Services. Our electronic payment services offer healthcare providers the ability to receive payment via the Internet.

HIPAA

      Under the Healthcare Insurance Portability and Accountability Act of 1996, or HIPAA, Congress mandated a package of interlocking administrative simplification rules, including rules to establish standards and requirements for the electronic transmission of certain health information, which we refer to as the Transaction Standards. As a supplier of EDI-enabling products and connectivity services to patients, payers, providers and third party vendors, WebMD Envoy is affected by many of the HIPAA provisions, including the Transaction Standards.

      In order to implement the Transaction Standards, WebMD Envoy has made and continues to make significant changes to its systems and the software it uses internally. Similarly, the implementation has required payers and providers to simultaneously implement changes to their systems and/or internal procedures. As a result, this implementation process and related testing has been an immense challenge for the healthcare industry, including WebMD. However, it also represents a great opportunity for the industry and for us, because it encourages payer/provider connectivity to evolve from its current focus on the sending and receiving of claims to automating ancillary transactions, such as eligibility, status or remittance.

      We believe that, even though the intent of HIPAA was to make electronic transactions more standardized, the use of clearinghouses will continue to be the most efficient way for most providers to send their electronic claims and related transactions to multiple payers. The standardization resulting from implementation of Transaction Standards is only partial: payer systems and requirements continue to vary in certain respects even after HIPAA implement