Case's quest to transform the healthcare industry has tragically earnest roots; he started the effort after his brother, Dan, died of brain cancer. Hospital bureaucracy always frustrates the patient's kin — but suffering does not always lead to wisdom. Dan, a tech investment banker, might have cautioned Case against this plan.

Revolution Health has ended up as a mere information middleman, buying ads on Google and then selling the users who click on them to other advertisers. That's why it inevitably needs to sell; online advertising is a game of volume. With Google eager to bulk up its own health efforts, it's not clear how much longer there will be room for third parties to play. And arbitrage is hardly a revolutionary exercise.

Someone needs to fix the healthcare system. Case's story is suitably tragic; his motivation, noble. But he's not the man for the job.

The first, most famously, was AOL, which he offloaded on Time Warner's shareholders. The second, less well known, was Flexcar, a car-sharing startup which he ended up combining with Zipcar. Dumping Revolution Health would just be the latest face-saving exit for Case.

That the rationale for the deal with Everyday Health is consolidating Web traffic speaks to Case's diminished ambitions. Instead of transforming healthcare, as he loudly said he hoped to do, Case has ended up optimizing websites for search engines. Case's holding company would retain some other health-related startups after the proposed deal, including clinic chain Redi-Clinic and insurance broker Extend Health. None show transformative promise, but unlike Revolution Health, they at least sound like sensible businesses.

Now rumors have it that while the upper management is desperately seeking to merge with another player in this space to help stop their cash hemorrhaging (Healthline, HealthCentral and Waterfront are all leading candidates), they'll have to push out another set of layoffs on the quickly-shrinking company. My contacts suggest the next set of layoffs will occur by month's end and be in the 35 - 45 person range, bringing the company down to a 140-person business (from its high of 250+).

The save-the-company-through-acquisition plan is believable. Revolution Health's latest strategy has been to pursue traffic for traffic's sake — like last month's deal with social network Daily Strength. The company, we're told, earns most of its revenues from CarePages, a previous acquisition. Combining with other health sites to increase advertising inventory essentially turns Revolution Health into a vertical ad network. Because of the pace at which ad dollars are moving online, it's a very popular move for failing companies these days. But it's not the consumer revolution in healthcare Case promised.

According to my sources, Steve Case's Revolution Health has signed a deal to act as the exclusive ad rep for DailyStrength.org and its 40 MM+ pageviews with minimum quarterly revenue guarantees. The deal reportedly includes traffic assignation in comScore.

However, word is that Revolution may not issue a press release on the deal because they may be afraid ComScore is looking at whether Revolution really fits within the Health category. The representation of advertising and traffic for Daily Strength, a social networking platform that could be best described as a "feel good Facebook-lite," isn't likely to help their case.

Our source tells us Revolution Health will acquire fitness planning Web site SparkPeople and either acquire or settle for a majority investment in HealthTalk, another health information site. No prices disclosed yet. By acquiring two presumably successful businesses, Revolution Health returns to the only strategy that's worked for the company so far. When the company reorganized earlier this fall, a tipster told us the only revenue generator the company had was its CarePages unit, a community website it acquired.

Revolution Health president Tim Davenport butters them up ...

As a newcomer, I've been impressed by the progress that you all have made. From the launch in April to now, the growth has been terrific. With the drugstore.com partnership, Revolution Health Networks will aggregate over 9 million unique visitors in October, and more than 100 million page views - the latter will make us the third most viewed health information network on the web, behind only WebMD and Weight Watchers.

After studying all of this, I've decided that we need to do some restructuring at Revolution Health Networks, to position us for our next phase of expansion. As you might expect, these changes involve some people switching jobs, and others leaving the company. When all the shifting and changes are done, I expect that RHN - which has about 240 employees now - will have about 180 by January 1st

despite these changes at RHN, the overall number of employees in the Revolution Health Group companies (Revolution Health Networks, CarePages, Extend Health and RediClinic) will continue to grow this year: Revolution Health Group (and its affiliates) began the year with about 500 employees, and will end with about 700 employees, a sizable increase.

For those remaining at the company, we will then have an all-hands meeting after these individual and departmental discussions have been completed. There is much to be proud of at Revolution Health, and the overall growth of the company is impressive.

(Photo by mre770)

Management is characterizing the layoffs as part of a move from "building a world-class health site to operating and running such a site," but anyone who's been witnessing this Revolution knows better. None of the boldfaced names who signed on as Revolution Health board members or investors — a list that includes Colin Powell, Carly Fiorina, Jim Barksdale, Frank Raines, and Miles Gilburne — signed on Case's latest venture, Revolution Money. Once burned, twice shy. (Photo by mre770)

Revolution Health investors and board members included a series of boldface names: Colin Powell, Carly Fiorina, Jim Barksdale, Frank Raines, Steve Wiggins, Miles Gilburne, John Delaney, Jeff Zients and David Golden. None of them showed up for Revolution Money, whose backers instead include retired AOL executive Ted Leonsis, controversial former Harvard University president Larry Summers, ousted Charles Schwab CEO David Pottruck and Russell Hogg, the father of Revolution Money CEO Jason Hogg. Perhaps Case's old moneymen have started paying attention to his track record.

On Wednesday, Tim O'Shaughnessy, one of the leading product managers, left along with 3 key developers to do their own startup. This is in addition to the departure of key lead developers last week that were laid off. During an employee lunch meeting today, the morale is at an all-time low.

Another tipster says that after the departure of most of Revolution Health's lead developers, the remaining stalwart is Todd Fisher, son of Revolution CTO Marty Fisher. Ah, family.

Revolution, conveniently, bought Todd Fisher's company, Simo Software, in 2005. Simo was one of four acquisitions by Revolution that year — all of which Revolution has since shut down or left to languish.

To make up for the traffic lost from its failed acquisitions, we hear the company is now pushing employees towards a goal of garnering 5 million Web visitors in five months. To meet that goal, Revolution is spending heavily on search-engine marketing — as much as $700,000 a month, a tipster says. Not that advertising on search engines is such a terrible idea, mind you, if done well and frugally. But at that spendthrift rate, will Revolution have much money left to enter the bidding for diet site SparkPeople, which it's rumored to be interested in?

(Photo of Tim O'Shaughnessy by Robert A. Reeder for The Washington Post)