By now, everyone who reads TheStreet.com knows about the poor financial health of the two best-known health-care Web sites, drkoop.com (KOOP) and Healtheon/WebMD (HLTH) . The Koopster is off 85% so far this year and Mr. Healthy is down 58%.

Look at their current stock prices compared to their peaks, and the chart is even more frightening. Once upon a time -- i.e., last year -- Koop traded as high as 35; it closed today down 1/8 at 1 11/16. And HLTH peaked at 126, only to fall to its current teenaged range (today it rose 1 15/16, or 12.3%, to 17 3/4 on a strong buy recommendation at

Prudential Securities

).

The basic problem? They lose a ton of money. Koop cannot break even on its consumer site, and Healtheon has yet to prove that it can make money on its combination consumer and professional sites. The only reason Healtheon, which plans to change its name to WebMD, is not quite so comatose as Koop is that it has more cash to burn. Wall Street analysts do not expect the companies to turn a profit anytime soon.

Is there any way to offer medical information online and not lose a ton of dough? You would think there would be some business model to allow a medical information and services company to profitably leverage the Internet's low-cost distributive power. After all, the health-care information market is already $32 billion in revenues a year and growing.

To get an informed answer to that question, I spoke the other day with the head of a small, privately held company that has figured out a way so far to launch consumer and professional medical Web sites without going bust.

A 'Class Act' Carves Out a Niche

Harry Levy is CEO of

interMDnet

, which runs two highly praised health-care sites. One,

Cyberounds

, is aimed at doctors and medical professionals. Cyberounds sells continuing medical educational programs to its 36,000 member doctors and a further 145,000 medical professionals who come in via affiliated gateways.

Last November, the company also launched

TheDoctorWillSeeYouNow.com

, a consumer site. Levy and his team are also developing a suite of online software products for doctors and their patients. They include a scheduling application for doctors and Web-based software designed to allow doctors and patients to track chronic medical problems like diabetes via wireless technology.

Founded in 1996, the company is owned by Levy; his wife, Leslie Carr; and, perhaps most significantly, by a panel of 17 eminent medical doctors who create the content and host the discussion groups. The docs have 32% of the equity. To get good editorial content, Levy needed experts, and to attract experts, he needed to give them a piece of the long-term action. Revenue in the first six months of the year was about $400,000.

Levy, an M.D. himself, has positioned the sites as authoritative providers of medical information. He has succeeded too. The sites have won sponsorship from the

Albert Einstein College of Medicine

in New York, and

Lancet

, a prestigious medical journal, recently called Cyberrounds "a class act."

Similarly, TheDoctorWillSeeYouNow.com routinely ranks high on medical-related

Google

searches. (A recent search on Google using the phrase "cholesterol and diet" turned up 166,997 sites of which TheDoctorWillSeeYouNow.com was No. 11. The site did even better with the phrase "tobacco and women," which ranked it No. 8 out of 241,998 hits.) When

Yahoo!

begins to use Google as a search engine, Levy expects traffic, currently only 5,000 to 10,000 page views a month, to pick up.

"The thing that a lot of people in the Internet sector do not fully understand is that health-care information must be authoritative," says Levy. "Sound bites do not work with either the professional or consumer markets. You must go into depth and you must not give them platitudes. You need to build trust."

Physician Sites, Heal Thyselves
drkoop.com and Healtheon/WebMD, one year

The company has, so far, bootstrapped its growth. Initially, Levy and Carr used their credit cards to get the ball rolling. A further $200,000 has come from the nonprofit arm of the drugmaker

Novartis

(NVS) - Get Report

. The company has done little marketing. Membership has grown largely by word of mouth and the reputation of its panel of medical moderators -- the traditional way a doctor's practice grows.

Levy knows that cannot last. interMDnet will lose money this year -- albeit a pittance compared with its competitors, because it does not have to spend oodles buying content. (The company expects to break even within 18 months.) The company has been talking about future financing with VC's, and perhaps more importantly, to

Fortune

500 companies with large stakes in the medical information management business and in the media.

Why does he think so many competitors stumbled?

"They do a pretty good job. I think the basic problem at drkoop is that they have to pay so much for content and that the content is very hard to distinguish from other sites," he says. "They get a lot of traffic, but they also face the issue of having to pay so much for the content. If I were them, I would look to connect to an appropriate health information company like, say,

Prevention Magazine

. That would be a natural fit."

And what about Healtheon/WebMD?

"They have an interesting business model," says Levy. "They are primarily focused on the business end of medicine -- the payment system to doctors and insurance claims processing. If done right, it would make a tremendous difference in how health care could be deliver. The problem is that the health-care system is very, very complex and extremely resistant to change. They have taken on the proverbial thousand-pound gorilla. The amount of time and money it will take is enormous. They seem to have the money to sustain themselves but they have bitten off so much."

Is Levy dreaming of an IPO? He says not. He knows the little company would not be ready for the public markets even if conditions were less hostile. "I think we will grow through a series of strategic partnerships," he says. "Unfortunately, some health-care Internet companies got caught up in the gold-rush mentality last year and lost their way a little bit. Perhaps they can come back."