Interview, Sermo - A Conversation With the Founder of Sermo

Prelude: This conversation with Daniel Pallestant, MD, founder and CEO of Sermo.com, appeared on HealthLeaders News on Oct.31. 2007. The conversation runs 1500 words, a length for which I apologize. But as a wise editor once explained, “Some articles are too long at 200 words, some are too short at 2000 words. I trust this is just about right. I recently had a far-reaching conversation with Dr. Daniel Palestrant, who founded Sermo.com and launched it in September 2006. I use the word “conversation” in the title because Palestrant, trained as a general surgeon, and now full-time as Sermo.com’s CEO, believes passionately in the value of conversation between doctors.

Sermo, he indicated to me, is Latin for “conversation” He espouses easy-to-access Internet-based conversation as a powerful means for transforming and empowering doctors, understanding the health system, and making doctors principle agents for promoting socially responsible health care that works to everyone’s best interest.


Palestrant, who has a BS in the history of science from Johns Hopkins and an MD from Duke, was in his third year as a surgical resident at Beth Israel Deaconess when an L4-L5 herniated disc laid him low. While recuperating he wrote the business plan for Sermo.com, an idea that had been gestating in mind for several years.

Palestrant oversees Sermo’s vision. He concentrates on ensuring Sermo as a valuable resource to physicians. Daniel’s first experiences with health care information technologies came when he conceived, designed, proposed and managed deployment of CIBUR (CIGNA Internet Based Universal Resource), one of the first commercial Web-based health care resources for physicians and allied health professionals.

He founded his first company, Azygos, Inc., in 1998. He successfully raised $2.2 million for Azygos. He sold the company to BioNetrix in May of 2001. After selling Azygos, he joined BioNetrix (Now BNX Systems) as director of health care. At BNX Systems, he helped health care-focused businesses increase network security, improve patient privacy safeguards, and comply with HIPAA.

By nature an entrepreneur, Palestrant thought a place existed for an Internet-based free-wheeling conversational forum for licensed practitioners to talk to each other without interference by outside parties, and to feel free, frank, and uninhibited about their opinions. Access to the site is limited to physicians licensed in the U.S., a model he plans to retain.

Before writing his business plan, he had observed doctors had become “too busy.” They were so preoccupied by dealing with managed care hassles, pressures to install electronic record systems, coping with ever-lowering reimbursements, making a living, and meeting the bottom line. Many, he felt, no longer had time to talk to one another in staff rooms, hospital corridors, and other settings where physicians consult meet, kibitz, and exchange views.

Yet he knew full well physicians are the driving force in the health system, initiating in one way or another 80 percent of health costs. He knew business leaders, health care executives, marketing experts, and venture capitalists, aware that health care was consuming 1/6 of the gross national product, were vitally interested, indeed obsessed, with what doctors thought about the system and their responses to innovative products that we’re being introduced into the market.

Palestrant, in short, intuitively sensed business executives and venture capitalists were vitally interested in what doctors thought. Financial institutions, health care organizations, and government were hungry for information on physician trends and opinions.

While on his back, incapacitated by his herniated disc, Palestrant wrote his business plan, approached venture capitalists, learned from his past experiences in founding another Internet-based company, Azygos.com, in 1998 which he sold, and began to assemble a management team. In retrospect, he regards his herniated disc as an act of serendipity, for it gave him the opportunity to think through and formulate his business plan.

The rest is history. Sermo.com has garnered a total of $39 million in venture capital funds, attracted 35,000 practicing physicians into contributing, commenting, and seeking information from its site; succeeded in growing its readership by 1000 doctors a week; struck an alliance with the American Medical Association in May 2007, and caught the attention of the media world.

His site has been called MyFace.com for doctors, and has been cited by the Wall Street Journal as the leading example of “social networking sites” among professionals ( Jessica Vascular, “Social Networking
Goes Professional: Doctors, Salesmen, Executives Turn to New Sites to Consult, Commiserate With Peers; Weeding Out Impostors”). Sermo.com is now featured in Wikipedia, a dubious honor, and has withstood a security probe from critics, who claimed the site was an invitation for hackers to steal doctor identities

None of these happenings seem to faze Dr. Palestrant. He is following his passions – empowering doctors through frank exchanges between peers, identifying physician problems, seeking solutions, and learning what works.

Among his observations, gathered from his web site and his own insights, are these.

• The deck is stacked against doctors – by government, health plans, policy makers, lawyers, general hospitals, the U.S Congress, and elites- through rules and regulations, restrictions against independent pricing, collaboration with each other, and innovations to improve the system. As I was speaking to him, he had started to read Regina Herzlinger’s book Who Killed Health Care? America’s $2 Trillion Medical Problem – and the Consumer-Driven Cure (McGraw Hill, 2007), which outlines the forces “killing” doctors and the health system and restricting innovation.

• A genuine and deep physician “supply and demand” dysequalibrium exists for American physicians. Because of low reimbursement, loss of autonomy, bureaucratic red tape, patient overload and loss of respect, American medicine is no longer attracting the best and the brightest of young Americans. Palestrant fears U.S. health care may sink into mediocrity.

• We live in a world that rewards “perfect information, ” i.e., the better and more sophisticated your information the greater your market dominance. What particularly disturbs Palestrant is health plans’ storehouses of claims information. Through predictive modeling and data mining models techniques , the plans have knowledge of transactions across the entire system – information individual physicians do not possess. Plans can use this information to control physicians and, in essence, to tell doctors how to practice the health plans brand of medicine. He believes one solution for improving the system may be removing the middlemen.

• Ultimately he sees cost shifts to consumers, making them conscious of what they’re paying for, market transparency of prices, and personal responsibility as the outcome of current trends. He says the recent GM-UAW pact, which set up an independent trust run by the union, and giving members a lump sum of money to spend rather open ended benefits as evidence of this trend. He believes the pact will have a catalytic effect inducing other industries to follow suit to be globally competitive.

• He doesn’t think the way doctors are paid will remain static, under the strict control of third parties. Given the diminishing supply of doctors and the accelerating demand of their services, he foresees many practitioners charging extra fees to patients who want to be seen. This is already happening on a significant scale in New York City. And he believes other business models – concierge and retainer or cash only practices – will proliferate.

• Despite the success of Sermo.com in facilitating conversations among doctors (“Physicians spent 3000 hours on Sermo yesterday”). Palestrant is not an unabashed enthusiast of information technologies and their application to medical practice. He believes pen and paper will retain their power because they are a more human means of expression. He isn’t surprised electronic medical records have failed to catch on a big way. “Once you put a computer in a room with a doctor and a patient, something is lost. It just isn’t the same as a doctor with pen and paper, with the doctors setting down thoughts with pen on paper in a patient’s presence.” He feels the same about the limited success of e-prescribing.

• The information generated and contained on sermo.com is much sought after, as well as Pelestrant’s opinions, by Wall Street firms, the AMA, and venture capitalists. Through Sermo, for perhaps the first time on a large scale, analysts and health care marketers have solid data, enabling to discern how doctors feel and act, and what they’re likely to invest in. A good example is doctors’ attitudes towards electronic medical records. If you read the Sermo site, you quickly realize economically hard pressed practitioners simply don’t see either the clinical usefulness or the return on investment of these new wondrous information technology systems.


Has anything about Sermo surprised Palestrant? Yes, he says, the biggest surprise has been the age of physicians participating. Three fourths of physicians joining the site are over 45. This flies in the face of the stereotype that young doctors are the first to embrace information technologies. The high participation rate could reflect several things; pent-up frustrations of dealing with a dysfunctional system, desire for informal consultation among others encountering similar problems. He has also been surprised by the length of time and the frequency of physician visits to Sermo. Some physicians visit Sermo.com, four or five times a day.

Finally, Palestrant has been impressed by the spirit of camaraderie among physicians. There’s a brotherhood and sisterhood out there, and doctors are eagerly embracing the opportunity to help each other and to make sense out of a sometime nonsensical system.