09 June 2022 |

Healthcare’s Fintech Opportunity

By Blake Madden

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Introduction

Healthcare is a huge pain point for millions of people in the U.S. and worldwide.

Total healthcare spending waste in the system is estimated between $760 and $935 billion. Improper payments in Medicaid alone totaled almost $90 billion in 2020. On top of that, fraud in healthcare reached $68 billion.

And we haven’t even gotten to the patient and consumer facing issues yet.

With all of that said, healthcare-focused fintech firms have a huge market opportunity to help people and the healthcare system get in control.

But first, let’s address the problem.

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Healthcare’s Abysmal Financial History

It’s no secret that we could improve MANY healthcare systems, and the financial side is no exception.

Regulatory change in healthcare is slow AF, and while companies are working to improve policies, there’s still plenty of opportunity within the existing healthcare industry.

It’s very easy to identify problems in healthcare. Finding the right solutions that stick is the difficult part.

Physicians, patients, and health systems face constant financial roadblocks on a day to day basis. Here are some great examples:

Medical debt is rampant: Out-of-pocket healthcare costs and hospitalizations, in particular, are massive. So massive that the number one cause of bankruptcy in America is medical debt. Affording healthcare is an ever-growing, ever-present issue. On top of that, high-deductible health plans are more rampant than ever, squeezing consumer dollars. Health insurance is covering less and less for the average American.

Price transparency isn’t there yet: We as healthcare consumers don’t know how much anything costs. Would we accept that in any other industry in America?

In 2021, the Centers for Medicare and Medicaid (CMS) dropped a rule on hospitals that required them to disclose “clear, accessible pricing information online about the items and services they provide.”

These transparent price disclosures take time to build out and are an additional burden on health systems (both administratively and economically through disclosing closely-held negotiated prices). As a result, lots of health systems still aren’t compliant with the CMS ruling. Which honestly, I get.

Still, it’d be nice to know how much you’re paying before going under the knife or even getting something as basic as an MRI or colonoscopy if you’re going to a hospital-based facility.

I’ve seen a few surgery centers prioritize transparent price procedures to much success, and we’ve only just scraped the surface of possibility here.

Medical billing is nuanced: If you haven’t read it, Nikhil Krishnan provided an excellent overview of all the excruciating detail involved in medical billing. Here’s the general outline of a billing cycle:

  • Insurance eligibility check – in-network or out of network?
  • Clinical documentation
  • Converting healthcare-specific diagnosis codes into an insurance claim, sent to clearinghouse
  • Review by payor
  • Claim approval/denial and appeal, if necessary
  • Payor pays the claim

As you can tell, healthcare-focused fintech startups have their work cut out for them when it comes to streamlining the entire excruciating medical billing process. For example, it might take 90 days to receive payment from a payor after a patient visits you – even longer if the appeal is needed.

Bottom Line: These topics barely scratch the surface of fintech opportunities in healthcare.

I could go on and on about the need for an expanded HSA, what’s going on with health reimbursement arrangements, the need for capital and financing within value-based care arrangements, and plenty of other problems.

But instead, let’s highlight some of the fintech companies and solutions presenting themselves within the space!

Fintech Co’s Stepping Up

There has been a ton of chatter about the parallels between finance and healthcare and I’ve enjoyed reading recent pieces from a16z and Jacob Effron on the space and more specific opportunities. Pretty much everyone I’ve talked to thinks that healthcare is lagging finance by 10 or so years.

With so much opportunity for fintech companies to make healthcare suck less, why aren’t we there yet?

Our $4.1T healthcare system is a bit complex between the many third-party payors involved: insurance carriers, self-funded employers, government entities, and regulatory dynamics. It requires a more nuanced product.

So while the “Plaid for healthcare” concept sounds like a no-brainer, building an interoperability network for data sharing is hard. But it’s necessary to power many of these new healthcare fintech products.

The healthcare market is a hard one to penetrate for a generalist company.

Instead, it’ll take very healthcare-specific fintech companies to win in this space. However, some companies are already on the scene:

  • Firms like Turquoise Health are partnering with health systems to gain compliance with the CMS price transparency ruling. Better knowledge of prices upfront also helps healthcare organizations with bad debt (better collection rates) and faster payment.
  • Walnut is a lending platform that works with medical providers to focus on making healthcare payments more affordable for patients. Founded by Roshan Patel and Yash Joshi, Walnut brings the BNPL model to healthcare via $100-a-month increments for 30 months.
  • Olive AI has been a star child of the healthcare x fintech world (with a $4 billion valuation). Instead of building new software to replace the disconnected interfaces, Olive built the first healthcare AI workforce to automate the robotic, error-prone workflows, emulating the manual tasks employees were stuck doing.

Amazing, right? But if Olive is the solution healthcare needs, why is the company going through a fallout with employees? Axios reports that the company overpromises benefits to clients.

As we said, this is a complex industry to penetrate. However, the fintech companies capable of moving the healthcare industry forward without drama will be legends.

TL;DR

  1. Healthcare is 10 or so years behind the financial industry regarding change.
  2. The parallels between healthcare and finance are insane, including dynamics like entrenched incumbents, huge markets, and archaic regulations.
  3. Health tech is following a similar journey to fintech, and there’s ample opportunity for healthcare-focused fintech operators.
  4. While issues and problems are easy to spot in healthcare, implementing solutions that stick is a challenge that takes patience, time, and much capital.
  5. The ultimate goal for fintech x healthcare should result in better patient care by creating a more efficient, consumer-friendly infrastructure.

Big shoutout to my Workweek teammate Nicole for co-writing this story with me! If you love this, be sure to follow Nicole and check out her newsletter WTFintech!


Miscellaneous Maddenings

  • Nick Maggiulli always has thoughtful pieces on finance and building wealth. His most recent newsletter on solving life backwards generated a thought-provoking question – what do you want to be able to do when you’re 100?
  • A Disney employee crashed a proposal between a couple right in front of the castle at Disneyland! Can you imagine if this happened to you?? Brutal scenes.
  • Down in my neck of the woods, DFW is building out a new hub for biotech – the new Pegasus Park, with huge investments slated and billions expected in investment.

Hospitalogy Top Reads

  • KHN dove into the AARP’s royalty business practices specifically highlighting its partnership with Oak Street.
  • This article on soaring drug prices is insane. List prices continue to increase, and once again we’re back in that political phase where policymakers are trying to figure out how to lower costs (paywall – Bloomberg).
  • A guy with the last name “Shams” tried to defraud Medicare for $214 million. You really can’t make it up, fam. This thing was a complex operation: “The married couple allegedly paid kickbacks to marketers for specimens and test orders, the department said in April, before laundering their profits through shell companies and the purchase of real estate, luxury items and personal goods and services.”
  • Pitchbook wrote a good article on the most active private equity players in healthcare, giving a list of the 10 or so most prevalent players in the space.

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