Lilly Outsources To EDS

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February 23, 1998

Lilly Outsources To EDS

Venture will manage drug maker's online health-care network

By Marianne Kolbasuk McGee with Gregory Dalton

harmaceutical maker Eli Lilly & Co. is handing over management of its ambitious online health-care network to EDS, conceding that a technology company is better suited to the effort. A new joint venture, called Kinetra, will take over Lilly's Integrated Medical Systems Inc. unit, which operates a private data network that links about 70,000 U.S. physicians to hospitals.

Lilly had spent about $4 bill ion in 1996 to acquire IMS and PCS Health Systems Inc., a pharmacy benefits manager. The plan was for physicians using PCS services to tap into the IMS network to process claims and write prescriptions electronically. Lilly had aimed to wire 100,000 physician offices into the network.

While Lilly is keeping PCS, it's handing over IMS to Kinetra to expand the network to hundreds of thousands of physicians, pharmacies, hospitals, and health-care payers, such as various state Blue Cross/Blue Shield organizations and Medicare systems, says Kinetra CEO Tim Hargarten, formerly VP of pharmaceuticals marketing at EDS. "EDS brings to the table relationships with payers, such as the Blues in 17 states, but also technical assets and expertise that Eli Lilly recognized it did not have," Hargarten says.

Kinetra will continue to service IMS and PCS customers. One of Kinetra's other goals, Hargarten says, will be to establish relationships with Lilly's pharmaceutical competitors, such as the pharmacy benefits-management companies of Merck and SmithKline Beecham.

EDS will own 51% of Kinetra; Lilly will own 49%. Up to 170 of IMS's 275 employees will join Kinetra, while the others will be offered jobs at EDS "based on skills," an EDS spokeswoman says.

Small Steps
Online health-care networks for clinical and financial applications continue to be a hot area targeted by both service providers and product vendors. But the health-care industry has been slow to adopt new technologies, notes Chris Pazlic, an analyst at the Aberdeen Group. "Small successes are very important," he says. "While health-care companies are interested in Web solutions, they don't want to rip everything out to get there."

Beech Street Corp., a managed-care company in Irvine, Calif., is working with online specialist Healtheon Corp. to dev elop Net applications for hospitals, doctors, insurance companies, and patients. "We can't do what they do in banking and finance because health care doesn't have data standards," says Beech Street president George Bregante. The company will take a step toward interoperability next January in a pilot to test applications for functions such as contract management and claims pricing.

IBM this week will introduce product packages that will let health-care companies launch Web initiatives in small pieces. Health Village Express is for Web-based consumer services, while Health Data Network Express will let health-care providers roll out Web applications in components.