This is an awkward time for the health care business.

Once viewed benignly as a collection of kindly doctors and friendly hospitals, the health care industry now is more often perceived as a vaguely threatening giant of an industry driven more by profits than by public service. Big medicine may be here to stay, as one answer to the extravagantly expensive system of the past, but it is floundering. It has not yet convinced the public that giant, cost-cutting corporations can take better care of people than the now extinct family doctor, even if they are armed with dazzling new medical technology.

While trying to keep prices from rising in the face of a skeptical public, the industry also finds itself having to play by new rules. Changes in regulations have made the industry far more competitive. Many companies have responded with "roll-up" strategies, buying up competitors and consolidating pieces of the industry faster than most companies can handle.

Information technology adds to the volatile mix because it is accelerating the rate of change in the health care industry. With so much information now available about treatment options and costs, all relationships in the industry have been put up for grabs-insurance company to doctor, doctor to patient, patient to hospital, and so on. With so many billions of dollars of business at stake, every part of the industry is turning to technology for information that will give them any little edge in these changing relationships. "If you really think about what computers could do," says Dennis Streveler, technical editor for California Medicine, "we are at the very beginning of the Information Age, a little past the Stone Age."

In many cases, information technology is a factor for the first time. As much as doctors and hospitals have pushed the frontier in medical technology, they've been cavemen when it comes to information technology. So information technology is fairly exploding on the scene.

The result is that the health care industry is going through change as fundamental as any business has faced in many years-on a par with airlines and financial services. The system that emerges over the next few years will almost certainly put more control in the hands of the patient. What's less clear is which companies will provide the care, and just how they'll do it. To many, this uncertainty looks like opportunity.

The health care marketplace is "unorganized, unintegrated, and highly idiosyncratic," says David Lawrence, chief executive of Kaiser Permanente, a non-profit HMO. "But for anyone who can begin to organize it, they can make a killing."

The weapon of choice in the health care battle is information technology. It has already changed the balance of power in the industry because insurance companies and HMOs no longer feel the need to defer to doctors and hospitals when it comes to deciding what treatments a patient should receive and what the cost should be. Big HMOs like United HealthCare and Cigna HealthCare use technology to identify patterns of treatment for patients and monitor the costs of the treatments. The HMOs use the information to negotiate lower prices from doctors and hospitals whose costs and use of services-as measured by the severity of their patients' illnesses-are high.

But the use of technology has spread well beyond basic monitoring. United, for instance, is rolling out software that will let its clients find out through the company Web site whether they are covered for certain medical procedures. The software will provide better service while also cutting down on the 40 million calls per day that United receives. "If we can reduce that by 5%," says Paul LeFort, chief information officer, "that will save us significant money."

In addition, rather than just watch for excessive cost and treatment, United is trying to ensure that patients get enough treatment. United's Applied Informatics unit mines its huge database to find cases where patients didn't receive the right medication or treatment, such as beta blockers following a heart attack. United can then encourage doctors to monitor better their use of preventive medicine. (The results of this high-tech analysis is actually delivered on paper because that's all doctors will accept at this point.) The process, known as "physician profiling," keeps costs down by keeping patients healthier.

There has been less resistance from doctors than might have been expected. "It's embarrassing when you find out" about a problem, says Ron Frazier, a cardiologist in Columbus, Ohio, who was profiled by United. But, he says, "this is not controversial."

The electronic patient medical record-which at last is being introduced in some parts of the health care system-will make it easier to profile physicians and ensure that patients are getting proper treatment. Instead of having pieces of a patient's medical records scattered in the offices of all the doctors he's ever visited, records will be gathered in one place on-line.

The idea of electronic records has been kicking around for years, but its development was delayed by the mutual suspicions of a highly competitive industry. "It wasn't in our best interests as an industry," explains Mr. Streveler of California Medicine. "Patient information was viewed as proprietary and very competitive, something that would make it easier for the guy down the street to steal somebody else's patients." Now, however, the race among HMOs for high-tech help from anywhere is growing so intense that it's fostering more cooperation.

Once electronic records become common, they will open the way for lots of approaches to improving care and cutting costs. Foundation Health Systems, for example, uses a sophisticated computer network developed jointly with Health Data Services to operate regional call centers that diagnose and prescribe care by telephone. The centers are staffed by nurses who have access to each patient's electronic medical record. The nurses question callers about their symptoms and-possibly relying on computerized, best-practices guidelines-direct them to appropriate medical care, whether a home remedy or an emergency room visit. Critics deride the use of guidelines as "menu medicine," but it is saving money for Foundation, and the company reports customer satisfaction in the regions where it is being tried.

HBOC, a leader in wireless technology, is taking Foundation's program further by coming out with a hand-held computer that will have access to electronic patient records and clinical guidelines for doctors and nurses.

If the level of sophistication among doctors these days is judged by the rising number of them subscribing to specialized medical information services offered on the Internet, then the industry really has taken a leap forward. Although many doctors still don't do anything beyond scheduling and billing on their computers, more and more are taking advantage of the dozen-plus elaborate services out there in cyberspace waiting to serve health care providers.

Physicians Online, a pioneer in the field, offers access to medical libraries and other references available on-line. For example, if a physician has a question about gastroesophegeal reflux disease, he can be hyperlinked to the Web page of Astra Merck, a sponsor of the site. MD Consult, a new venture, targets physicians with an immediate need for up-to-date, authoritative information from medical literature. It offers, for example, the results of a particular drug's trial.

Some companies are trying to tighten relations with customers by making sim-ilar information available on-line directly to patients, or by answering queries over the Internet. Blue Cross/Blue Shield of New Hampshire, for instance, offered its 190,000 members a program last September that gives them a medical self-help handbook that is tied into an easy-to-read, illustrated medical encyclopedia on-line. The program also offered access to a 24-hour hotline staffed by a nurse. The handbook describes home treatments to cure common problems like a sprained ankle. It also describes symptoms that clearly mean that the member should call the nurse or a doctor. When someone wants more information, he is directed to the Internet encyclopedia.

The program promises to save the Blues plan a great deal of money, because it is aimed at reducing visits to emergency rooms and doctors offices, many of which, according to studies, prove to be unnecessary. Unlike some other innovations by managed care, the local press has given this program rave reviews, and members and doctors say they like the approach.

Technology is also being used to facilitate new alliances. Hospital and doctor groups calling themselves "integrated delivery networks" are aiming to cut out HMO middlemen by starting their own health plans and assuming the financial risks-and rewards-of caring for patients, especially Medicare recipients. These integrated networks are scrambling to develop a single computerized system to manage patient care both in the hospital and in the doctor's office. Payers, seeking simplicity, will beat a path to the doors of health care providers who reach that goal first.

As the basis for another sort of alliance, Humana, the second-largest Medicare HMO, launched a subsidiary in early Jan-uary to provide computerized services to provider networks that want to start their own health plans for seniors.

Despite the long-term promise of technology, though, the need to invest in it is placing enormous strains on everyone in the health care industry. For one thing, it's expensive. Limping Columbia/HCA expects to spend around $330 million this year on improving its information technology. "I/T is the key to our competitiveness," says Rich Chapman, the chief information officer.

Skeptics wonder if HMOs can devote the resources necessary to fix vast computer networks at a time when profits in the industry are being squeezed by rapidly rising medical costs. Although health care inflation is down, it continues to grow 8% annually, or three times the general inflation rate.

All the acquisitions by the big players compound the problems, because the acquired companies' information systems have to be integrated with the new parents'-and some companies are making hundreds of acquisitions a year. Some HMOs are conceding that their information systems just cannot keep up with membership growth and the complex requirements of managing care. Market leaders like Oxford Health Plans, PacifiCare Health Systems, and Aetna U.S. Healthcare suffered when their systems scrambled billing and claims and failed to track rising medical costs in time to allow the companies to price their products accurately. The biggest of them all, Columbia/HCA, was rocked by a federal investigation into alleged overbilling that brought on a vast reorganization. Kaiser Permanente, which recently joined in the acquisition race, said it would post a $58 million loss for 1997-its first in 50 years-as it struggled to replace a patchwork of computer systems in eight regions across the country with a nationwide information technology structure. Kaiser's new CIO, Timothy Sullivan, compares this to rebuilding an airplane while flying it.

Doctors are feeling squeezed, too, by the spread of technology. The man in the white coat is losing his aura of authority as his once-respectful clientele, now armed with both good and junk information from dozens of Web sites, dares to challenge his expertise. Practicing physicians also have to wrestle with the fact that, for all the promise of the information revolution, the computer-generated data being used to guide them in their medical decisions are not yet sufficient enough or standardized. A lack of uniformity in the way information is reported and processed also tends to undercut its ultimate trustworthiness. In practice, doctors consulting the electronic patient history or trying to get computer authorization for a treatment may find the lines clogged, and quick answers unavailable.

Doctors have to ensure confidentiality for patients, even as more information becomes digital and, thus, easier to move around. There's even the troubling, stray oddity: Physicians have found that patients in medical studies may go on-line to chat with people with similar maladies and, by stumbling across others in the study, figure out who is getting a placebo and who is getting real medicine.

However health care providers deal with the turmoil in their industry, they can be sure they'll do so in the full glare of public scrutiny, given that health care hits everyone so personally. It's also becoming clear that, with fast-changing information technology creating much of the uncertainty in health care, the industry's unsettled patch is only beginning.

Louise Kertesz is the L.A. bureau chief of Modern Healthcare magazine. She is reachable at lkertesz@crain.com.

SPEND, SPEND, SPEND

Health care executives plan aggressive increases in spending on information technology in 1998, according to a Context survey conducted late last year. Almost half of the 37 high-level managers who responded said they're expanding their I/T budgets by more than 11%. Nearly 20% planned spending increases of more than 50%.

The executives also seemed to be viewing technology more strategically. Almost 80% said that over the next five years they will increase investments that explore what information technologies might disrupt their markets or create significant new business opportunities. Roughly 20% expected the investments to stay the same. No one said such investments would decline. Meanwhile, nearly 70% said investments in I/T infrastructure will decline, while 30% said they will remain the same, and only one person said that they will increase.

More than 70% of the respondents to the Context survey said they are currently spending most of their money on infrastructure projects. They said that projects to fix the Year 2000 bug were a major reason, which partially explains why infrastructure projects may drop, on average, over the next five years.

Surprisingly, plans for Internet spending were weak. More than 80% of respondents are allocating 5% or less of their I/T budgets to Web-related projects; 13% are allocating 6% to 10%; and only 3% are devoting 11% to 25%.

In addition, even though health care executives indicate that they view technology strategically, the vast majority use methods for allocating expenditures that treat I/T purely as costs, rather than as investments.

The Context surveys were sent primarily to senior executives at large and medium-sized health insurers, and at large hospitals and physician organizations. Twenty-six of the respondents were from health insurers or HMOs. Six represented hospital/physician organizations. Five were from other types of health management firms.

- Barry Uphoff