Has Avado Acquisition Awakened the WebMD Giant

WebMD, the once-darling of consumer health who seemingly lost its way following pharma dollars, may at last be coming back to its roots. Last week, WebMD made headlines by announcing it had purchased the young patient engagement start-up, Avado, for an undisclosed sum.

Backdrop:
Avado, based in Seattle is a product of a healthcare accelerator, Start-up Health. Their core focus is Patient Relationship Management (PRM), which honestly, is just another term for patient engagement via a patient portal or traditional Personal Health Record (PHR). Like its top competitors MEDSEEK, RelayHealth, Medfusion, who was recently spun-out from Intuit and NoMoreClipboard, these solutions are EHR agnostic and typically deployed at enterprise sites where there are numerous legacy systems in place across the enterprise (e.g., EHRs, radiology, labs, etc.). Providing a patient with a single longitudinal view of their record along with an the ability to conduct some transactional processes. PRM solutions seek to accomplish two objectives – meet regulatory requirements and drive loyalty.

Within the healthcare sector patient engagement is becoming an increasingly hot topic. While we at Chilmark Research have been following this sector since our founding, only in the last 6-12 months have we seen interest significantly accelerate. Healthcare organizations (HCOs) of all sizes are now looking to deploy a patient engagement/PRM strategy, partly in response to stage two meaningful use requirements and increasingly, an understanding among HCOs that value-based reimbursement will necessitate a more engaged and loyal patient – can PRM facilitate.

But this acquisition is less about Avado than it is about WebMD, who has signaled their intent to diversify the business by adding some teeth to their own consumer portal offering in the near term. In the longer term, WebMD’s strategy will hinge on execution of their B2B platforms and their ability to turn informed consumers into engaged patients.

Short Term: An Investment in Diversification
WebMD has led the online consumer health information market since 1999, growing steadily into a publicly traded company (market cap: just under $1.6B) and a household name. Unsurprisingly, advertising and site sponsorship comprise 84 percent of their revenue; they enjoy over 138M unique monthly Web visitors and 22M mobile views. Remaining revenue comes from a provider-geared information network (Medscape being the best-known brand), and a private portal service, through which they create and manage customized health portals for self-insured employers and health plans.

WebMD has been milking these revenue streams for years, bringing little innovation to market. Frankly, they didn’t have to as the pharmaceutical industry with their fat marketing coffers kept WebMD fat and happy, for awhile.

That all changed when the pharmaceutical industry started hitting the wall with fewer new blockbuster drugs in the pipeline, while their breadwinners start coming off patents and succumbing to inevitable, low-cost generic competition. Marketing budgets crashed and with them, WebMD’s once highly profitable model. Of course it didn’t help that WebMD began seeing increasing competition from the likes of Everyday Health, Patient Conversation Media, and Demand Media (who runs livestrong.com).

After six quarters of being unprofitable from 2011-2013, WebMD is beginning to come out of its drug-induced stupor finally posted profits in Q2 and Q3 of this year. Consequently, it appears that WebMD has also come to realize that it will need to diversify. Hence, the Avado deal.

Avado has no strong brand, and fewer than a dozen customers, but it does have a vision that WebMD sees strong potential in. Coupling WebMD’s massive scale with a compelling PRM vision and platform could open new, untapped markets for WebMD, particularly among smaller ambulatory provider networks where Avado has gained traction and WebMD has strong presence. There is a huge opportunity here.

This is not to take anything away from Avado, who had not-so-quietly emerged over the last couple of years as a flag bearer for patient engagement through health IT. Dave Chase, Avado’s co-founder and CEO, has been one of the most vocal proponents of a business case for patient engagement, rooted in the growing realization that getting serious about between-visit care will be pivotal in bending the cost curve by managing the health care needs of an aging, and increasingly chronically ill population.

WebMD’s extant portal was/is somewhat rudimentary, with an HRA tool, access to some claims data, education/information features, and some health coaching functionality. They will likely fold these capabilities in with the Avado platform, which consists of the usual spate of tech features bundled into a PRM platform: secure messaging with Direct, a dashboard and visualization tools, administrative support (scheduling and billing), integration with existing practice management/EHR systems, and Blue Button+ compatibility.

Rather than going after a more established vendor, such as a MEDSEEK, this move allows, for relatively little money, an opportunity for WebMD to augment their portal offering with more sophisticated functionality without breaking the bank (some reports put deal value at $20-30M range, though our guess is closer to $8-10M). By choosing Avado, WebMD has opted to get a batter on base rather than swing for the fences.

More Than a Website…Or Are They?
It is unlikely that this deal vaults WebMD to the top of the patient engagement market – they will continue to be an information website above all else. However, they have steadily matured their platform over the last few years with improved, diversified content, a flagship mobile app (over 20M downloads), and a more personal, customized user experience.

More recently, they have incorporated a provider search function and begun integrating with their MedScape network so clinicians can push specific information (e.g. discharge instructions or care plans) directly to patients. At HIMSS they announced a partnership with Qualcomm Life’s device ecosystem so consumers could manage device-generated data directly through their WebMD accounts.

Yet with all these developments, some of which have been little more than announcements, the proof is in the pudding, which in this case isn’t out of the kitchen yet. Many questions remain: There hasn’t been a peep about the Qualcomm deal since March. How well do/will the provider tools work, and how many patients will use them? How is this going to integrate into clinicians’ workflow, and/or broader population health management solutions? And with any such offering, how will it be packaged and delivered to market?

Looking Ahead: Has the Giant Awakend
This is likely just the start for WebMD, which has a tradition of being a highly acquisitive company. Providing PRM solutions to ambulatory providers through their existing network is an easy first step, though success will be defined by execution and rationalization across the multitude of WebMD B2B offerings. Design, usability, and functionality will be crucial.

Next will be layering in additional functionality that is of high interest to consumers and physicians alike. Expect to see such features as pricing transparency, quality scores, and enabling additional transactional processes that simplify a consumer/patient’s interaction with the healthcare system. For the physician practice, WebMD may develop or acquire solutions that facilitate referrals, care coordination and possibly even administrative functions such as eligibility checking. Look for future acquisitions here as WebMD still has many gaps to fill.

The biggest implication of this acquisition is, however, that a sleeping giant may have awoken and has decided that too many mice have been eating from its plate. The market is awash in small companies who are all looking to tackle some aspect of consumer/patient engagement. Some of these, like Avado, may ultimately be acquired, but many, many others may be squashed underfoot. The next 6-12 months will show whether or not the giant has truly awakened, or simply was walking in its sleep.