Flush with success from its IPO and portal deals, Drkoop signed a lease for 81,000 square feet in a new trophy building in Austin's high-tech corridor with a skyline view of downtown. Drkoop's interior designer told a local business journal that the company spent $1 million on employee workstations and $250,000 on other furniture. Price was not an object. "You don't have that many opportunities of a startup company with an unlimited budget," the designer said.
But the bills quickly started piling up. The AOL and Go deals together would cost Drkoop $40 million their first year. The company had taken a huge gamble that the portals would drive enough visitors to Drkoop.com to bring in advertising and e-commerce revenues - from selling health products on the site - sufficient to pay the high cost of the agreements.
"Did anyone ever run the numbers to see how much traffic you have to generate to pay for $89 million?" asks a former Drkoop employee who was not involved in the deals. "I did the math - it does not wash." The company later revealed that only about 5 percent of its traffic came from Go, while the percentage of traffic routed through AOL was equally disappointing - in the teens.
But by the fall of 1999, even the Koop name, the company's most valuable asset and key to its success, was beginning to lose its luster. Success hinged on transferring the respect and trust consumers had for Dr. Koop the man, to Drkoop the brand. But on Sept. 4, five days before Drkoop's content began to appear on AOL, the New York Times published a front-page story questioning the ethics of Koop and his company. The article pointed out that Koop was receiving commissions on products sold on the site (he made $41,000). The company's filings to the Securities and Exchange Commission disclosed that Koop made a commission, but there was no such disclosure on its Web site. Moreover, the company also failed to tell visitors that hospitals paid for placement in a list of health care resources.
Although Koop's contract gave him the right to review and approve all information on the site, he denied he had compromised his integrity. "I cannot be bought. I am an icon," he told the Times. And in a message to Drkoop visitors that appeared on the site two days after the Times story broke, Koop wrote: "Providing consumers with credible, independent information is something I have worked toward all my life. I take great pride in my active participation in Drkoop.com."
To some longtime employees, however, the imbroglio only highlighted Koop's isolation from Drkoop.com "The reality is we've only seen him about a total of four times," says one former employee, whose account was confirmed by three other ex-staffers. Even Koop in his deposition said he knew very little about the workings of the company. But Zaccaro tells a different story, saying Koop was actively involved in the company. "In fact, Dr. Koop was, and is, in daily contact with our company's CEO," Zaccaro says.
In the wake of the Times story, Koop took a leading role in Hi-Ethics, an industry group formed to issue ethical guidelines for Internet health care companies. But Koop's continuing less-than-watchful eye on his own site allowed some questionable practices to flourish. For instance, online mental health company Lifescape.com paid the company $11 million to sponsor Drkoop's mental health center. But unlike other sponsorship deals, Lifescape was also providing medical information for the mental health center.
To this day, the financial relationship between Lifescape and Drkoop is not disclosed on the mental health center part of the site, which describes Lifescape as an independent organization and content provider. In actuality, Lifescape is co-owned by FHC Health Systems, a managed care company that operates mental health and substance abuse programs for 22 million people. Drkoop also had reserved $10 million of its IPO stock for FHC at the offering price. "I didn't feel we were as forthright as we could have been," says John Grohol, a psychologist hired to create Drkoop's mental health center. Grohol estimates that at one time Lifescape provided 90 percent of the mental health center's content.
The ethics flap prompted Koop to dispatch a doctor friend to Austin to keep tabs on the site's medical content, according to Grohol and other staffers. The doctor later became the company's medical director.
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Correction: In a previous version of this story, the related articles box mistakenly identified Adventist Health Systems as Adventist Health. The two companies are unrelated. |
