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November 1, 1999
The Man Who Unravelled Medical Red Tape
Kamla Bhatt in Santa Clara
Five years ago, Pavan Nigam was miserable.
After having worked for nearly two years to create the world's first working interactive television and used up over $ 300 million, Nigam was frustrated with the lack of results. Simply put, interactive television was not taking off.
It was during his dark days, recounted by Michael Lewis in his book, The New New Thing, about the trail-blazers in Silicon Valley, Nigam got a phone call from Jim Clark, his former boss, and the man behind the spectacularly successful ventures, Silcon Graphics and Netscape.
The legendary Clark, who during an illness in 1995 had experienced first hand the medical maze and come to realize that millions of dollars were wasted because of red tape and duplication of records in the health care system, had set his sight on making the $ 1.2 trillion health care business in America more efficient.
He wanted the smartest engineers to write a software program to link patients, physicians, hospitals and insurance companies. And he wanted 35-year-old Nigam.
"It is the largest industry on the planet and probably one of the most backward from a technical perspective," says Nigam of the health care system.
He would, of course, jump at Clark's invitation.
Clark and Nigam set out to use advanced Internet technology to connect participants in healthcare, helping them communicate, exchange information and perform transactions that cut across the healthcare maze. They knew that the Internet, due to its ubiquity and openness, could be an ideal way to exchange information and supporting complex transactions between people across geographic and business boundaries, thus freeing the user from dependence on expensive proprietary systems and technology.
Healtheon, the company founded by Clark and Nigam, is today one of the most discussed of Silicon Valley start-ups. It provides administrative and clinical connectivity services to over 65,000 physicians and 450 payors and processes over 5 million transactions per month. Its services are being used by some of America's top hospitals and insurance firms.
For Nigam, the executive vice-president and chief technology officer at Healtheon, its success story means more than redemption of his self-faith.
Kanpur-born Nigam, the youngest of five children, offers his success as a tribute to his father.
"My father came from a poor family and went on to build one of the most successful electronics stores in Kanpur," he says.
While growing up, Nigam spent countless hours in the store. He attributes his own tenacity and leadership qualities to the influence of his father who died in 1992. "My role model has been my father," says Nigam, who visits his family in Kanpur every 18 months.
Nigam, who graduated from IIT, Kanpur and had spent many years in the hot, dusty plains of Uttar Pradesh, landed in the lakeside university town of Madison, Wisconsin. He got his MSCS from the University of Wisconsin in 1982 and soon went to Silicon Valley to join Intel Corporation.
The PC revolution had just begun. "Big Blue" (IBM) had introduced the personal computer into the market the previous year and the famous 'Intel Inside' line was still many years away in the future.
Marco Cupidi, currently VP and general manager, transformation services and technology, Healtheon, has known Nigam since his Intel days.
"Pavan was extremely decisive and crystal clear in his thinking," he says. "At 24-25 he was already a project leader in 1984 and had a great deal of self-confidence."
In 1988, Nigam joined SGI and worked closely with Clark on the ill-fated Interactive Television project that was supported by Time Warner and AT&T.
"ITV was a very difficult thing technically. We had to integrate different state of the art technologies, like MPEG compression/decompression, ATM networking etc., from scratch," says Cupidi, who worked with Nigam on the project.
"These technologies were being used for the first time for end-consumer application and we were ahead of our time."
"Pavan is great at building things from scratch. He is a total start-up guy," says Cupidi.
In 1994, Clark left SGI.
But "(Clark) and I were still talking about Interactive Television, which was broadband," says Nigam.
One day, Clark called Nigam and said, " Pavan, I think ITV is going to take too long. I am going to narrow-band."
Puzzled, Nigam inquired, what he meant. Clark replied he was going the Internet route to which Nigam responded, "Well that is academic and I hope this thing works out for you."
The 'academic thing' worked out for Clark in a big way and changed the entire digital landscape. Clark, along with 22-year-old University of Illinois, Urbana-Champaign student Marc Anderssen, founded Netscape.
Netscape's success left a deep impact on Nigam.
"Netscape was important for me. I decided then that I had to be part of the Internet and form my own company," Nigam says.
When Clark called Nigam to talk about a new project five year ago, Nigam is reported to have met Clark in 30 minutes.
"This was a Jim Clark Project," Nigam says. "Healtheon seemed like a perfect idea to leverage the Internet and simplify the largest industry on this planet -- the US healthcare sector."
Even then when Nigam left Silicon Graphics on a Friday in February 1996, he wondered if any other engineer would join him. Michael Lewis notes that Nigam felt he would become the laughingstock of Silicon Valley.
His phones and fax machine began buzzing within hours. Within three days, he had received the resumes of more than 300 engineers, Lewis notes.
"The original core member consisted of about 10, 11 people -- 50 per cent of them were Indians," says Cupidi.
For the next three years, Nigam controlled all product development in the company. He was totally consumed by his work at Healtheon.
"It was all about prioritization. I took a 'sabbatical' from home for three years when Healtheon started. During the early days, Healtheon was an 18-hour-a-day, seven-day-a-week commitment. You were either at work or sleeping," Nigam recalls.
"However, this year, I've done a better job of balancing work and family. I try to make it a point of attending key family events like my son's Saturday soccer games and my daughter's ballet competitions," he says. Nigam and his wife Ruma have two children, Akash, 7, and Sonia, 4.
Creating a technical solution for the fragmented healthcare sector with its legacy IT infrastructure was a challenge for Nigam and his team at Healtheon. The first three years were punctuated by alternating states of euphoria and despair.
"Our first despair came after a year when our business plan did not take off. We also lost a couple of our core members," Cupidi says.
According to him, the task of holding the group together fell on Nigam. "We stuck together because Pavan was a major component of the project," Cupidi says.
Healtheon then decided to pare down their business plan and make the pitch simple. "We will take care of your healthcare needs," was their new plan.
"Our business model, as would be expected of such an ambitious enterprise, was always under constant refinement. Our vision, however, has stayed the same-to connect all the constituents in the healthcare industry," says Nigam.
Punita Pandey, who worked at Healtheon in the initial years, remarks, "To integrate the highly fragmented healthcare space is a daunting task. There are just too many proprietary technologies all over the map. There were countless occasions when people spent the nights at Healtheon, trying their best to make the legacy IT systems seamlessly integrate with the Internet."
Cupidi adds, "We spent 16, 17 hours and most of our weekends together. This was not a job, this was more than that. This is about who you are and what you are. It might sound simple but chemistry is of fundamental importance in a start-up and Pavan was a huge part of it."
Nigam had instituted an open-door policy where everyone in his team would be easily available. Pandey remembers paging Nigam in the wee hours and getting a prompt response.
"He brought a great deal of energy and leadership skills to Healtheon and kept the team morale high through difficult times. In a fast-paced start-up environment, team spirit is what counts the most," says Pandey, founder of a new start-up called NetCustomer.com.
She often turns to Nigam for mentorship and guidance.
While Nigam was busy with the technological issues, the company was getting ready for its IPO. However in late 1988, it had a failed IPO. Nigam says the failure was due to market conditions then.
"The market had taken a dive," he says. This once again led to despair since many were banking on the new company. But in February 1999, they had a very successful IPO and one of the best in Wall Street.
Even though Healtheon has not been profitable, it has been busy acquiring new start-ups like WebMD.
Asked about it, Nigam answers, "Our priority at this stage is market share. That requires huge investments. The currency being used for the acquisitions equity and therefore no funds are needed."
Analysts point that Healtheon's valuation is about 20 times more than their competitors like Dr Koop and Physiciansonline.
Nigam explains, "Healtheon is focused on execution because that is the best guarantor of long-term growth and recognition by Wall Street. In general, Wall Street seems to be recognizing companies based on their future potential."
What it boils down to is brand name and market share and that is the dominant strategy adopted by many Internet start-ups.
According to Manoj Kenkare, healthcare industry analyst at Frost and Sullivan, in Internet stocks, a company valuation has no correlation with revenues generated.
"The valuation is the function of future revenues, a sign that investors are actually rewarding the companies for being aggressive," he says. "Internet companies have no tangible assets, they boast little or nothing in the way of earnings, and their future growth is impossible to predict."
Healtheon faces tough competition from vendors in the 'business to business' model. These include adam.com, americasdoctor.com, drkoop.com and Andersen Consulting, among others.
Kenkare believes, "Healtheon has all its pawns in the right place and is strategically placed on the healthcare chessboard."
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