The Life and Near Death of Drkoop.com

Baldwin Louie — Mon, 31 Jul 2000 18:00:00 -0400

On the eve of his 83rd birthday last October, former Surgeon General C. Everett Koop sat glumly in his suite at the Waldorf-Astoria in Manhattan. As an attorney grilled him about fraud charges leveled against executives at Drkoop.com, he must have wondered what had gone wrong at the Web site that bore his good name.

Just four months earlier, Drkoop had gone public, making Koop an instant Internet icon, a multimillionaire on paper and an elder statesman in an industry of young turks. Drkoop quickly had become one of the most popular health-information sites on both the Web and Wall Street. It seemed that Koop's high-minded objective - to get important health information to the public by exploiting the gold-rush mentality of the Internet - was paying off.

But as Koop was beginning to discover, success can be fleeting in the Internet Economy. First came a startling front-page story in the New York Times (NYT) questioning Koop's online ethics, of all things. Now, just weeks later, he faced serious questions from an attorney about whether his chief executive and vice chairman had cheated a consultant out of stock options worth millions of dollars.

As surgeon general, Koop stared down senators and took on Big Tobacco. But as chairman of Drkoop, he had trouble answering the most basic questions about his own company. He conceded to the consultant's lawyer that he knew next to nothing about the allegations of wrongdoing. Nor was he aware that CEO Donald Hackett had handed out stock options worth $1 million to a lawyer friend. Nor did he know what services Drkoop's biggest investor had provided the company. As the deposition dragged on, it was apparent that Koop was almost completely out of the loop about the goings-on at Drkoop headquarters in Austin, Texas. "I don't micromanage problems that I delegate to people that I trust," said Koop, parrying with the attorney.

Perhaps he should have. Today Drkoop is struggling to survive as its cash runs out, its stock price hovers near $1, and senior managers and staff head for the door. While Koop remained in his Hanover, N.H., home, Drkoop executives were cutting questionable deals and handing out lavish salaries that drained the company's coffers in a matter of months. Now, some angry investors, feeling swindled after Koop and three other directors sold stock at a handsome profit before releasing damaging information about the company, are suing Drkoop and its executives for fraud. Koop, who made nearly $1 million in his stock sale, won't escape shareholders' ire - as chairman he has a legal duty to safeguard their interests.

Koop isn't talking, but the reversal of his fortune has left his old friends and supporters bewildered. Koop, the best-known surgeon general of the 20th century, stepped down from public office in 1989. His principled stands on divisive issues like AIDS and his proselytizing on behalf of public health made "Koop" a symbol of integrity. A pop-culture fixture, "Koop" continues to carry weight years after he returned to private life. Now, in the twilight of his career, Koop's reputation is in jeopardy.

Koop may have been a good doctor, but events would show he wasn't a savvy businessman. It was only three years ago that his first venture into the private sector - a health videotape series backed by Time Life - collapsed in bankruptcy. Then, like now, Koop trusted business associates bent on making a profit to carry out his public health mission. "I have been quite saddened at the turn of events affecting my good friend since the summer of 1999," says George Lundberg, the former longtime editor of the Journal of the American Medical Association (dossier) and now editor of MedicaLogic/Medscape, an online health company.

In an industry that has attracted its share of dreamers, schemers and oddballs, no dot-commer has ever been quite like C. Everett Koop. A pioneering pediatric surgeon in Philadelphia, Koop was 64 years old when President Ronald Reagan appointed him surgeon general in 1981, when many of today's Net executives were barely out of elementary school.

Koop's knack for doing the unexpected - who would have guessed he would become chairman of an Internet firm - was apparent soon after he took office. His anti-abortion views and ties to the religious right made him a natural choice for the Reagan administration. Once installed as surgeon general, however, Koop surprised his liberal critics and infuriated the White House by crusading against tobacco companies and making AIDS a priority. Koop's white beard and bearing gave him the air of an Old Testament patriarch delivering the Word from on high. Koop gripped the public's imagination, and after eight years of service had earned the title of "America's doctor."

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.

"As I came to the end of my surgeon general years, I felt that I had gained the public's trust and that I should do something with it," Koop wrote in his 1991 autobiography. "First, I wanted to make sure that I did not use that trust only for private gain. Like many Americans, I was disgusted with the way retired politicians - even presidents - cashed in on their celebrity status."

Koop's celebrity was built on doing just the opposite, on standing up for the public good. After leaving his post in Washington, he continued to work on problems patients had with managed health care organizations obsessed with controlling costs. To help patients learn more about medicine and take more control of their health, in 1992 he established the C. Everett Koop Institute, a nonprofit at Dartmouth College.

So Koop was receptive when former advertising executive J. Keith Green pitched him a proposal in 1994 to market a series of health information videotapes that would take Koop's message to the masses. Green had lined up Time Life to license its venerable name and provide financial muscle. But he needed Koop as the company's public face. As an incentive, Green reportedly promised Koop a salary of $750,000. Koop signed on as chairman of the company, Patient Education Media, but his chief responsibilities were to appear in the Time Life Medical videos. "These videos are designed to help newly diagnosed patients get their feet on the ground and communicate more productively with their physicians," Koop said at the time.

The venture's fate would foreshadow Drkoop's later troubles: It had an unproven business model - selling $19.95 videotapes in pharmacies - spent extravagantly and ultimately failed to meet sales projections. "We didn't spend too much, we just didn't raise enough," Green told the Wall Street Journal in 1997 before the company filed for bankruptcy with liabilities of $39 million. Green would later resurface at Drkoop.com.

By most accounts, the Time Life debacle left Koop bewildered and embarrassed. But the experience didn't inoculate him against the charms of smooth-talking Internet entrepreneurs who could spin a vision of using Koop's name to promote his public health mission while making a buck for themselves.

One of those entrepreneurs was John Zaccaro, who would play a key role in the formation of Drkoop.com. Zaccaro has not been shy when it comes to selling himself to others. "Actor, stunt man, adventurer, million-dollar-a-year salesman and master consultant John F. Zaccaro reveals the secret forces that bring riches and help you change your life and fortune," reads a publisher's blurb for a 1986 motivational book Zaccaro wrote titled Climb Your Own Mountain: The Ultimate Success Guide.

The reality of his career is somewhat more prosaic. Zaccaro, now 65, made his fortune in carpet padding and pool covers. Even when selling pool covers, Zaccaro infused the job with a sense of grandeur. "I did indeed personally help install the solar pool cover on the White House pool while President Gerald Ford was in office," he writes in an e-mail. "He's a super salesman, a promoter, a media-type guy, but a man of integrity," says T.J. Dermot Dunphy, chairman of Sealed Air (SEE), which sold the pool blanket Zaccaro marketed. "It's absolutely natural he would end up promoting an e-commerce company."

In the early 1980s, Zaccaro joined a startup founded by the ex-wife of health-and-beauty mogul Vidal Sassoon. The relationship ended badly, and Zaccaro sued the company for nearly $20 million, claiming Beverly Sassoon and her partners reneged on an agreement to make him president and COO "at an annual salary of $120,000, plus luxury automobile and 20 percent equity," according to Los Angeles County court records. Zaccaro later dropped the case. He then jumped back into the pool industry. By the end of the decade he switched gears again, joining Physician Computer Network, a New Jersey company that sold software to doctors.

While at PCN, Zaccaro hired a then-thirtysomething former computer salesman named Donald Hackett. Like Zaccaro, Hackett was ambitious, entrepreneurial and a natural salesman. But if Zaccaro could strike associates as arrogant, Hackett displayed a charisma and a sincerity that inspired loyalty among his colleagues. (Even after suing him for fraud, a former consultant fondly recalled his friendship with Hackett.) Hackett left PCN in 1996 and began a short-lived stint as COO and later CEO of TradeWave, an Austin company that made Internet security software. But he had bigger plans.

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.

Hackett wanted to start a company that would market an electronic medical record to enable patients to share information with their doctors and health plans. The Internet would provide a way to widely distribute such a document. But Hackett needed a trusted name to persuade consumers to put their sensitive health information online.

Zaccaro had just the person. By this time Zaccaro and Koop had become good friends, having met in the early 1990s when Zaccaro was producing the International Health and Medical Film Festival. Koop had attended the festival, and soon afterward Zaccaro wooed the former surgeon general to join his board by telling him the event needed an "icon." "Since 1991, we have become very good friends. There's a great trust and a bond between us," Zaccaro says in a deposition.

That Zaccaro would be attracted to Koop's star power was not surprising. "I'm well connected. ... I know how to bring people in from both the entertainment community and the [medical] community," Zaccaro brags in the deposition, dropping the name of heart-transplant pioneer Michael DeBakey as someone he knows.

Hackett also began attending the festivals, and in 1996 met Koop at one of the events. To Hackett, it was a no-brainer: Who better to endorse an online medical record than "America's doctor"? And who better to broker Koop's participation than their mutual friend, Zaccaro?

"Don viewed getting a commitment from Dr. Koop through John was really the key element," testified consultant Andy Agrawal, who helped write the company's early business plans, in his fraud lawsuit against Drkoop. "That without Dr. Koop's participation, he had serious reservations about whether the company focusing on a personal medical record that would be accessible through the Internet would ever fly without Dr. Koop's credibility."

Hackett approached Zaccaro with his pitch for a company called Personal Medical Records. Zaccaro liked the proposal from the start. Then Hackett talked about the need to associate the company with a trusted name. "I knew what he was getting at," recalled Zaccaro. "He wanted an introduction to Dr. Koop. I was very guarded about that because of the many years of good relationships with him."

Zaccaro decided to visit Koop alone. It was a delicate time. By early 1997, Koop's Time Life video venture was sliding toward bankruptcy and Koop was wary. "It was one thing for me to say to Dr. Koop, 'This is a great idea, Dr. Koop. This is going to help you, you know, realize your mission,'" says Zaccaro. "A man who has given 52 years to the public-service sector is not used to this kind of approach."

Koop did not dismiss the idea out of hand, and on Zacarro's next trip to Koop's home Hackett came along. Over the next two months, Zaccaro and Hackett visited Koop twice to discuss his participation in the company. The lobbying paid off. On Oct. 1, 1997, Koop officially signed on as chairman and director of the company that would become Drkoop.com. At age 80, Koop became America's most-senior Internet entrepreneur.

At the time, the idea that Koop would risk his reputation again in the private sector - and with something as new as an Internet startup - did not seem so foolhardy. After all, he had known Zaccaro for six years and Zaccaro was personally vouching for the integrity and skills of Hackett and his team. And the Internet offered Koop a new medium to deliver his message. "I have tried to deliver those messages to patients all of my life. The Internet is invaluable in this. It has the potential to help people take charge of their own health by providing a wealth of knowledge," Koop told Yahoo (YHOO) Internet Life magazine. Still, he acknowledged it was not an easy decision to lend his name to an untried Net company. "As surgeon general, I had developed a following. I became a sort of folk hero because of my work with tobacco and AIDS. It took a lot of persuasion in my own mind to decide to do it."

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.

Koop's earlier video venture at least carried the prestige of the Time Life name and a Sixth Avenue address; his foray onto the Internet came with no such flash. When Zaccaro and Hackett were courting Koop, the company was run out of Hackett's home in the Austin hill country. Hackett paid the bills from his own pocket.

The company, still called Personal Medical Records, was developing technology for an electronic personal medical record, or PMR. An April 1997 business plan that Hackett showed to potential investors described how consumers could use a PMR stored online or on their computers to share health information with physicians and health plans.

It seemed a questionable premise, especially in 1997. At the time, consumers were still leery of entering their credit card numbers online, let alone sensitive medical information, and Hackett was gambling that the Koop name would overcome such resistance. There were plenty of other hurdles. To succeed, the company had to persuade consumers to track down their health records from their physicians and enter the information into an online database. Doctors also had to cooperate. The medical-software industry had spent decades unsuccessfully trying to create an electronic medical record for physicians, and whether doctors would now accept the legitimacy of medical records created by patients was anyone's guess.

The company's plan to make money was hazy at best. The 1997 business plan discussed how the health care industry would use the company's software, but Personal Medical Records had no product to offer at the time. All company executives had was the Koop "brand" and an almost mystical belief in the power of a brand to overcome all obstacles.

Hackett moved the company out of his home and eventually into modest offices with used desks and chairs that, as one former staffer recalled, "made your butt hurt at the end of the day." Hackett sat in a cubicle like everyone else and installed a Web camera so colleagues could check on his whereabouts.

The surroundings were modest, but not the executive perks. The company paid chairman Koop $8,333 a month as a consulting fee - that would rise to $12,500 a month in 1999 - and awarded him an initial 11 percent ownership stake in the startup. His duties, as outlined in his contract, were few, though. He was charged with helping to organize a medical advisory board and, at his discretion, speaking with clients and at conferences on the company's behalf.

Zaccaro, who was vice chairman and a board member, originally received a 7 percent stake in the company. He signed a three-year consulting contract that also paid him $8,333 a month, topping out at $12,500 a month in 1999. Drkoop also paid for Zaccaro's office near his home in the upscale Los Angeles suburb of Rancho Palos Verdes. The contract called on him to serve as a strategic adviser to the company and to act as the "primary liaison" with Koop and fellow board member Nancy Snyderman, the television doctor and medical correspondent at ABC (dossier).

Celebrity-wrangler was Zaccaro's most visible role to some employees, who saw him squire Koop around company headquarters on the chairman's rare visits to Austin. "He was like the protective right arm of Dr. Koop. If he didn't want someone to talk to Koop, he would step in between them," says one former staffer. Zaccaro calls that characterization untrue.

Hackett also signed lucrative, three-year compensation agreements with the founding executives in August 1997. The salaries were more appropriate for a well-funded company with revenues than a development-stage venture with few assets other than a licensing agreement with its well-known chairman. In a move that would cause a rift in the company, Hackett installed his brother, Robert, a pharmaceutical industry veteran, as an executive vice president. Robert Hackett received a 5 percent ownership stake in the company, a salary of $165,000, guaranteed annual raises of 20 percent and a $600 monthly car allowance. The company's chief technologist received a similar package.

Hackett started off with a $195,000 salary, 20 percent annual raises and a $700 monthly car allowance. (When he loaned the company $216,043, he received 1.8 million shares of stock to cancel the debt. The shares were worth $30 million the day Drkoop went public. Even at Drkoop's depressed stock price, they're worth more than $2 million.)

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.

Hackett recruited a number of colleagues from his days at PCN (which filed for bankruptcy last year) and TradeWave (which was sold for $350,000 a few months after Hackett left). He also tapped Koop's connections. Tom Ferguson, a well-known health care industry figure, joined as a consultant in the company's early days. "I'd been impressed by the passion and the vision and the enthusiasm of Don. I didn't know or ever maintained that one could make money doing this. But he seemed to think you could," Ferguson says. "It was a couple of guys and a bunch of computers in a big, empty office. We were really making it up as we went along."

By the spring of 1998, the company changed its name from Personal Medical Records to Empower Health to reflect Koop's philosophy of empowering patients. The company also expanded its Internet focus with the goal of becoming a health portal. The move seemed less a result of a carefully constructed business plan than a desire to jump on the latest trend. "At that time it was, 'Jeez, everyone else is getting on the Internet. Why don't we actually go full force as an Internet company, launch a Web site, and then we can distribute the [personal medical record] through that,'" recalled Ian Bagnall, who was hired in 1998 to develop the Drkoop site, in a deposition.

The new idea was to create "Dr. Koop's Community," a collection of chat rooms, support groups and health information that would make money through advertising and e-commerce. While the company deployed marketing staff to drum up media interest in the upcoming July 1998 launch of Drkoop.com, it still was struggling to develop a solid business plan for how the site would make money. Consultant Agrawal reviewed the company's business plan before meeting with potential investors. "Don wanted a business plan prepared basically as a marketing document," Agrawal testified in his fraud suit against Drkoop. "The version of the business plan that existed ... wasn't well drafted. It was cut and pasted. A lot of things were wrong. So basically, [we] spent the entire weekend rewriting a major business plan, again, over our objections that it wasn't a very good way to do it." Zaccaro also was not pleased with the document. "I felt [it] was too fragmented, not focused," he said in his deposition.

Meanwhile some senior executives began to grumble about the competence of Robert Hackett, the CEO's 48-year-old brother. Robert Hackett had been installed as executive VP for business development and worked from an office near his home in suburban Philadelphia. "We often complained that he was in the wrong position. He was in too instrumental of a position in an Internet company, specifically a Web-based company, and didn't understand the fundamentals of how Web companies operated," Bagnall testified. When pressed, Zaccaro testified that he was "not completely" happy with the job Robert Hackett was doing in negotiating content deals for Drkoop. Robert Hackett declined to comment on his colleague's characterization of him, as did Donald Hackett.

A deal Donald Hackett negotiated with a Michigan health care consulting firm, Superior Consultant Holdings (SUPC), also caused some friction in the executive ranks. The company became Drkoop's biggest outside shareholder in April 1998 when it agreed to invest $6 million. But in return, Drkoop was bound to purchase $3 million in consulting services from the company and give Superior a seat on its board. Such quid pro quo deals often are the cost of doing business in the Internet Economy, but the arrangement rubbed some the wrong way. "In the beginning, I don't think we got as much as we should," Zaccaro said. "But, you know, that's what it is when you look for startup capital."

Drkoop's relationship with another consultant, brought in during the summer of 1998 to help get the company's house in order, would prove to be more problematic. Andy Agrawal was a South Carolina attorney and health care executive who Donald Hackett had met in 1996 through mutual friends in the medical industry. The two hit it off and Hackett asked Agrawal to help develop the business plan for Personal Medical Records. In the company's April 1997 business plan, Agrawal is listed as a director.

Agrawal never joined Personal Medical Records, and he went on to form a consulting firm. But in June 1998 Hackett brought him back to Austin to work on legal and business matters for the company's latest incarnation, Empower Health. Hackett asked Agrawal to join the company as COO, offering him options on 31,000 shares of stock. In an August 1998 e-mail, Hackett offered Agrawal an additional 40,000 stock options as further incentive.

Hackett then withdrew the job. Instead, he signed another consulting agreement with Agrawal, giving him 30,000 stock options, court records show.

Hackett subsequently accused Agrawal's company of overbilling Drkoop and terminated the consulting agreement. Hackett's handling of the Agrawal dispute would soon come back to haunt him in a fraud lawsuit. But as the year came to a close, more pressing problems were on the horizon.

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.

Not surprisingly, Drkoop was facing a cash crisis at the end of 1998. Only five months after the site's launch, the company counted a grand total of $303 in cash on hand.

Relief came in January from Adventist Health Systems, a Florida company that operates the Seventh-Day Adventist Church's hospitals in the U.S. The company invested $3.5 million in Drkoop in exchange for 1 million shares of stock. Adventist also gave Drkoop 10 percent ownership of HealthMagic, its medical software subsidiary.

As part of the deal, Drkoop turned over its electronic medical record technology to HealthMagic, which then assumed the task of developing the personal medical record. Yet only three weeks after Hackett closed the HealthMagic deal, and with a technology that was still a long way from being ready, the company trotted out Koop to make a big promise that would not be kept: Koop vowed to provide a free personal medical record "for all Americans" by the summer.

The next month the company filed for what became a $88.5 million initial public offering and changed its name from Empower Health to Drkoop.com, binding Koop even closer to the company. Never mind that the company sold only $15,470 worth of advertising the previous year and had accumulated a deficit of $15.2 million in 18 months. Never mind that such a cash flow prompted Drkoop's auditors to warn that there was "substantial doubt" about the company's viability. Net IPO fever was upon the land. Even the company's lengthy disclosure about the risky nature of investing in Drkoop was not about to deter Wall Street.

So confident of success were Drkoop executives that before one share was sold, they signed a three-year, $57.5 million portal deal with Disney to become the featured provider of health information on Disney's Go site. Portal deals were all the rage in the spring of 1999. After all, analysts applauded when equally unprofitable competitor WebMD signed a series of high-profile deals with the likes of CNN, creating a buzz that helped propel the startup into a multibillion-dollar merger with Healtheon.

And so no one paid much attention when three days after the Go deal hit the headlines, Agrawal filed his multimillion-dollar fraud suit against Drkoop, Hackett and Zaccaro. The company's former consultant claimed he had been cheated out of stock options, and his suit would open a window into the internal machinations at Drkoop.

On June 8, 1999, the former surgeon general saw his name literally transformed into a symbol of the new economy when KOOP appeared on Nasdaq trading screens. Drkoop ended its first day on the market 83 percent over its opening price of $9 a share. The company now had $88.5 million in the bank. Three weeks later it essentially turned over its IPO proceeds to America Online (dossier) when it agreed to pay the online giant $89 million over four years to be its premier - but not exclusive - provider of health information. The agreements had been principally negotiated by Bagnall, a 27-year-old community college dropout and tech company veteran originally hired to oversee the Drkoop Web site. Three weeks after the AOL alliance was announced, Hackett promoted Bagnall to chief strategist.

Analysts and journalists would later fall over themselves in slamming the AOL and Go deals as reckless. But at the time Wall Street was not exactly punishing Drkoop for trashing the capitalist rulebook. On the contrary, news of the AOL deal pushed the company's stock to an all-time high of $45.75 on July 6.

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.

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.

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.

More puzzling was the appearance in Austin of J. Keith Green, another old colleague of Koop's. Green was the CEO of Koop's failed Time Life Medical video company. Given the embarrassment the company's bankruptcy caused Koop, it seemed more than a little strange that Green would join Drkoop to advise the company on strategy. Green declined to discuss his work at Drkoop, referring a reporter to Hackett. Hackett also refused to talk about Green's role at the company.

If Koop was attempting to exert more oversight of Drkoop, it was too little, too late.

The company spent the summer of 1999 fighting attempts by former consultant Agrawal's lawyers to take testimony from Koop. But a Texas court ordered Koop to testify, and in October Agrawal's Austin attorney, Donald Taylor, flew to New York to depose the former surgeon general while he was there on business.

The deposition had barely begun when Koop betrayed his ignorance of the company that bears his name. While Zaccaro looked on, Taylor asked Koop if he understood that Superior Consultant Holding, Drkoop's largest outside investor, had acted as a key consultant in the company's early days.

"I don't think I ever was aware of that, who they were," replied Koop. His answer seemed incomprehensible given that he sat on Superior Consultant's board between 1998 and 1999.

Although Agrawal's suit potentially could cost the company millions of dollars, Koop testified that he became aware of the dispute only after receiving a letter from Agrawal's parents, who were investors in Drkoop, asking him to investigate the alleged wrongdoing. Their son was claiming that Hackett and Zaccaro reneged on a promise to hire him as COO and cheated him out of stock options worth millions. Koop turned the letter over to Zaccaro and Hackett and asked them to investigate, even though they were named in Agrawal's suit.

"I realized it was something that I had nothing to do with, knew nothing about," Koop told Taylor. "Inasmuch as [Zaccaro and Hackett] were both involved in it, I asked [Zaccaro] to continue to act for me in this matter with Mr. Hackett, and that is all I have ever done about this thing until I heard that I had to appear to give a deposition." Koop admitted he was relying on legal advice from a company attorney who also was representing Zaccaro and Hackett. (Hackett would later obtain his own attorney. Agrawal later dropped his suit against Zaccaro.)

Koop seemed unfazed by the potential conflict of interest of having one attorney represent the company as well as the executives accused of wrongdoing. He conceded he had not sought independent legal advice for Drkoop.

Did the chairman know that his CEO had given stock options worth, at one time, at least $1 million to a lawyer friend who did legal work for the company at $200 to $250 an hour? Taylor asked.

"No," Koop answered.

"This is the first time you have learned about that; isn't it?" said Taylor.

"That's right."

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.

Such admissions are the stuff that shareholder lawsuits are made of, and attorneys have been pouring over the Agrawal case. Even more damning was Hackett's testimony that he signed an employment contract with Agrawal and promised him stock options without the consent of the board of directors.

The board, however, was unlikely to act as much of a watchdog over Drkoop's executives. Three of the eight board members - Koop, Hackett and Zaccaro - were company insiders. Two other board members - Superior's CEO and Adventist Health's president - were officers of companies with significant investments in Drkoop. That left just three independent board members - a retired Ziff-Davis executive, a Dell Computer VP and celebrity doctor Nancy Snyderman. The outside directors received stock options worth, in some cases, millions of dollars. (Superior's CEO and Adventist Health's president have since resigned, as have the ex-Ziff-Davis and Dell directors.)

By the end of 1999 it was becoming apparent that the company's business model wasn't working, despite that Drkoop.com had become one of the most popular health sites on the Web. The company took in $9.4 million in 1999. But Drkoop faced some big bills in 2000 - $38 million in payments to AOL and Go combined. Meanwhile, executives couldn't make up their mind about the company's direction as it drifted from an online medical record provider to a media outfit. At the time, the online medical industry was moving in the opposite direction, from providing medical information to consumers to connecting them to their doctors, hospitals, health plans and pharmacies.

"I think [Drkoop] management got enamored with the media play; they didn't stay focused on the medical record," says one former high-ranking Drkoop associate.

Hackett recognized that Drkoop was increasingly out of step with its industry. In January he told investment bankers at a closed-door meeting that the company was evolving into a disease-management company that would offer services like medical monitoring through its personal medical record. "We've been very quiet about our plans in this area," Hackett said at the meeting.

For good reason. The personal medical record project, already months late, was foundering. Patients testing the record at a Florida hospital were reluctant to put their medical information online. There also were problems with the technology being developed for the company by HealthMagic. "The relationship never produced satisfactory results," Drkoop subsequently reported in an SEC filing. Under the terms of a settlement, Drkoop retained the technology it contributed to the project, but is barred from developing a similar product until next year.

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.

The Industry Standard - The Life and Near Death of Drkoop.com - Comments

The Life and Near Death of Drkoop.com