When Two Giants Intersect: Healthcare Meets Fintech

23:43And that's the entire kind of sheltered ecosystem. And so I think a lot of the question that entrepreneurs ask themselves, when they're embarking on building businesses, will I be able to sell them to historically slow moving incumbents, right? And I think the pandemic created a sense of urgency because everybody went remote because both the provider and peer systems were challenged in different ways. The willingness and urgency, again, to adopt new technologies, I think it's an interesting kind of, you know, tail -wended opportunity for a pretty large, and I think a really unique accountant why now.

24:13Obviously, an unfortunate one, but a reality. Certainly why are core DCs at A16Z has been that every company is gonna become a FinTech company. And Julian and I have been reflecting that, you know, either every healthcare company is already a FinTech company or is certainly gonna become a FinTech company. And I think in large part, as you mentioned, that's been enabled by new FinTech infrastructure. So, you know, our partner, Alex Rampell, is really quite a bit about, you know, FinTech really becoming kind of a third leg of business model stool, right? If you think about historically most, you know, technology companies, the core kind of monetization mechanisms were either, then you would sell advertising to generate revenue, or it was sort of transactional in nature, maybe you're paying a subscription or buying a product.

24:53I think increasingly, FinTech is becoming kind of a third stool, which can become embedded within kind of all different types of technology companies as a way to drive engagement or retention or certainly modernization. There are companies delivering kind of banking to the service, sort of enabling you to offer new car products or embed lending or embed payments. All of these are basically primitives that can kind of be plugged into transactional points of intent, right? Any time a consumer is through transactional, there's an opportunity to embed a financial product to finance that transaction or for a small business owner accelerate the working capital, right?

25:31We'll probably get into this, but a lot of the providers in the country are small businesses at the end of the day and they're delivering services and then ultimately waiting up to nine days or longer to get reversed by these big insurance companies. They've already delivered the service for a kid patient and that can create a lot of strain just in their own working capital and ability to pay employees. And one of the biggest reasons small businesses died and saw this intimately through Bond Street was just working capital. And so one, just tangible example for how, I think a really interesting kind of opportunity at the intersection of fifth -technical healthcare that we've invested in is a company called Juniper.

26:06They built effectively billing software for highly recurring healthcare. And so their insight was that areas like the Abra Health, today they serve some of the largest autism clinics in the country. These are practices where patients are visiting their provider over a hundred times a year, right? These are recurring nature of that experience creates the opportunity to automate a lot of the back -end workloads, you know, more significantly they would argue than a one -off kind of elected procedure. And so again, they built technology that essentially submit, you know, health insurance claims programmatically to the insurance companies, to the pairs.

26:42They take on kind of the revenue cycle management and deal with, again, all of the denials and adjudication that comes with submitting those claims and it really cowering the provider to get reversed by the pair, get paid by the pair. And what's really unique about that, again, having built the small business lending company is that because of the position they say if they really understand the entire kind of working capital or cash flow lifecycle of that practice, right? They're effectively processing 100 % of their revenue, right, through their system. Every patient that walks through the door, they're submitting the invoice to the payer and they're seeing statistically when and how much and at what rate, you know, those services are being reimbursed by the insurance companies.

27:24By the way, they get paid 3 to 5 % just for that, right? So for delivering that technology and improving efficiency. Historically, it's been a very manual process for a lot of these providers with a couple of folks in the back office. But again, from a think that perspective, if you understand statistically the probability of repayment and the timing of that cash flow, you can extend credit, right? So you can advance working capital to the small business or to the provider and let them get paid tomorrow, right? Or the same day for delivering that same service because you know, based on all their historical data and all of the, you know, practices in your network, the statistical probability of getting repaid.

28:02And that's a really important, and I think you're great model for a lending business because importantly, again, you're not getting, you know, negatively selected, right? They're not cherry picking a specific invoice that you're trying to essentially what's called factor that they believe they may never actually get a reversal. And ultimately, you as the lender taking that credit risk, you're seeing 100 % of their revenue and 100 % the data and statistical probability of repayment, you can extend, you can choose yourself to kind of push credit or factor it entirely, right? And just deliver that as a value proposition to the provider that, look, if you work with Juniper, you don't have to wait 90 days to get reverse.

28:41You can continue scaling your business, serving your patients, which is really why you started this practice in the first place. That was the other key insight from again, and the industry was that most of these entrepreneurs started their businesses because they were passionate about their product or their service or their craft, not because they wanted to be the CFO of their business. And so I think the ability to sort of abstract away a lot of that financial complexity and drive efficiency for these small business owners is just, it was funny, I was an angel investor in the business before joining degrees.

29:10And in my first conversation with the founders, I was like, it's awesome that you guys are a Fintech company. You're like, what are you talking about? We're in healthcare company. And I was like, ah, you're in the payments flow. You're seeing that we're in capital life cycle. And it's been amazing to watch them come up to speed on the fintech side. And six months later, Christophe and CEO is like, dude, you're totally right. We're helped you're coming in and fintech out to me. Exactly. This is the intersection that both of you have been working on exploring. And I think you mentioned this earlier, David, but there is this like unique perspective when you have the expertise from both sides.

29:44So you understand what these providers need and want. And I love that you pointed out that most of them, they want to provide, they want to operate, they don't want to be in these deep, complex payment workflows and to be dealing with invoicing. And so I think that's one very clear area where you've identified a problem that these providers have. And we talked about, you know, there's a provider, there's a payer, there's a consumer. And so within that ecosystem, it'd be great to hear from both of you what other gaps you see where healthcare and Fintech can intersect and solve a problem for one of those three parties.

30:18Yeah, I'll actually key off of a couple of themes that Dave mentioned that I think are super relevant to a lot of healthcare -finder companies that we see. One is the notion of how do you get into the full data flow of finances running through the system for a given party such that effectively you can underwrite risk in a different way than any single player who's sort of in the end time value chain of healthcare payments. And then the second piece being, you know, how do you take product that exists in other places and then make it understand healthcare. So one example that sort of covers those two themes and it completely different space than Juno Burba with a lot of the same sort of rationale is a company called Thatch that's actually doing this in the employer sponsored healthcare space.

30:54So if you think about like what David was saying about like SMB, you know, business donors and the one going into this business to want to be a CFO, same thing with a company, right? Like what's the number two line item in their P &L outside of payroll? It's typically healthcare expense, right? Because you have to cover your health insurance benefits for your employee base by law. But again, we weren't founders because we wanted to pay healthcare expenses for our employees. And yet, as a founder, you're basically faced with having to choose. You have to pick your poison, basically, of what health plan do you provide for your employee base, or do you provide an IGRAR product that just give them cash to go shop on their own?

31:28Those are pretty non -trivial decisions to make and have real everything from tax to administrative implications. And so what that's just doing is basically creating a card that has all the characteristics that you would expect of a card. but it also understands healthcare in the sense that they've coded it in such a way that it can pull from your healthcare savings account your HSA account the payments are tax advantage or the spend this tax advantage There's a whole like layer of logic that needs to be codified into the card such that it understands what it can be used for under what circumstances and sort of treat those payments one way versus you know other payments that you might be making outside of those rails and then you know because that's just then in the flow of all of the healthcare expensive that the employees or the consumers are taking on They can then, again, have just a better, sort of, underwriting chassis to then suggest better healthcare benefit products to the employer, such that every year they can optimize their spend, they can optimize the categories that they're covering, you know, deprioritize things that people are not utilizing.

32:23You know, this notion of sort of the last mile utilization data around healthcare benefits is kind of a holy grail problem, where, you know, we all sort of get coverage for our healthcare expenses, but it's very, very difficult to track exactly what benefits are being used over time. I think that's another sort of spin on some of the same themes. Absolutely. It feels like in both cases there's an element of data transparency that we alluded to earlier, which you're giving in this case the company access to that information so that they can utilize it more effectively. Are there any other themes that you call out here in terms of how founders can look at this industry and say, huh, there's this data opacity.

33:00Let me solve that. Or any other gaps that you see that are maybe also just waiting to be addressed. So many. So we wrote a piece a few months ago called payviders on bundled. And so what we did was we looked at the biggest companies in the healthcare space and even in like markets in general. Most of them are large insurance companies that also have a provider component to their business so they're called payviders because they're sort of vertically integrated across insurance and care to the resources. And we sort of did a breakdown of what are the drivers of their business models, what are the kind of key components of them, what are opportunities to basically do what they're already doing 10x better as a startup and directly compete, but then also articulated a number of underserved areas that those incumbents are not really paying attention to where there's sort of white space opportunity for startups.

33:45And so a couple of examples there, core insurance products are obviously a place where there's a lot left to be desired in terms of everything from user experience to the cost, the set of services that you get as part of an insurance plan. But we also recognize, especially from seeing insured tech play out outside of healthcare. It's a really hard business to build and a really hard business model to get right. And so that said, we think there's a huge opportunity for sort of neo -carriers, so to speak. So upstart health insurance products to be built in a tech native fashion. That number one does focus on user experience.

34:21Number two does use data in novel ways, whether it be on the under running side, whether it be on the consumer engagement side, whether it be in terms of how insurance carriers interface with their providers and maybe be helpful versus being belligerent as they traditionally might have been. That we believe is a hard and very non -tribal type of business to build. But certainly one that's right for opportunity and we have a few in our portfolio like devoted and firefly that are pursuing business models like that. And so that's an example of where again you'd be sort of competing within convinced but you know trying to emphasize user experience, constructure, efficiency, using technology.

34:56Another article we wrote which had the title healthcare context biggest prize was the financial operating system for healthcare. And I think the core kind of ethos was, you have a lot of patient data, right, living in practice management systems or INEHR, that are often unbundled or kind of separate from, you know, the cash flow life cycle of these providers. So both understanding kind of cash in and cash out in terms of expenses. And I think there's a huge opportunity, kind of reconcile or kind of synthesize both sides of that equation. And again, the example with Juniper is just sort of, We talked about a piece of it, both in enabling a provider to more efficiently process plans, understanding the full cash flow life cycle of our practice, but the implications and wedge for starting there, I think, are pretty significant because you could extend into the consumer facing experience, get on to scheduling and estimating health care expenses, getting to payroll and other expenses for the provider, enable the small business order to forecast their cash flow and improvise for business analytics for them, again, to kind of run their practices more efficiently.

36:02And I think this analogy, again, doesn't just exist kind of at the small business level, but at some of the largest kind of health systems level. And it was a great graphic, maybe Julia, you can talk about, which was like the pilots are flying blind, but not understanding kind of their own, you know, cash -wise, even for some of the biggest provider networks in the country. Yeah, we were astounded in the market work that we did on that one. And we sort of assume that like the large enterprises have their act together and it's really kind of the SMBs that need some of these tools. But it turns out it's a relatively universal problem, this notion of kind of a system of record, a source of truth for the finances of healthcare providers.

36:37And that has such significant implications on like broad swaths of workforce, right? As David mentioned earlier, just a lot of these CFLs were saying like there are months where we don't know if we can make payroll. and these places that manage staff of hundreds of providers sort of fly that blind is quite incredible. So certainly believe that there's a massive opportunity there. And I think those are also great examples where you can take software -oriented products that sort of manage financial insight, but add on financial services products to contribute to the financial health of the practices that are using them so that you have that sort of bifurcated software plus Fintech revenue stream dimension that you see outside of healthcare as well.

37:17You know, something that's coming up as you guys are highlighting the vast amount of opportunity here is that a founder or Potential founder might say you know what maybe I do have background in fintech but not healthcare or vice versa And that might sound intimidating to not really understand Let's say if you are coming from fintech to understand the like Complexity the deep complexity that exists in this world and so how would you think about that? How would you think about what problem is worth solving depending on a founder's background or how they can further get immersed in this really interesting intersection.

37:49Simply put, if you're from HealthThera, go find your David Haber. And if you're a whole Black Goh Finder, Julia, you. But it's not serious in this, I think, like, first of all, we should acknowledge like each individual space is super hard, let alone like the intersection. You know, there's just a lot of esoteria that makes it really challenging to know just off the cuff. As David mentioned, we truly do believe in this kind of intersection thesis. And we think that the only way to get it right is really to have hybrid DNA on the founding teams of these companies, such that you truly have expertise on both sides of the aisle, so to speak.

38:20I think both healthcare and fits that kind of for North York often, kid -rich spirits, right? I think a lot of like on each side, you know, both got in because there was some often overarching mission right behind kind of the business and problem that they were trying to solve. Both healthcare and financial services are fairly complicated, highly regulated industries. And so it's not that you're coming from, you know, building a DEC, e -commerce business into healthcare, necessarily, are coming from the Fintech site, from a place of understanding capital efficiency and regulation, and now applying some of those insights to the healthcare space.

38:54And Fintech has a tendency to intersect across a lot of different categories and is becoming very much of a business model. I think you've seen that play out over the past five plus years in areas like vertical software, where again, companies have started by solving a software workflow in lots of different categories. And then it become kind of layering in financial products as a business model. I think people are now recognizing that that same playbook and opportunity, you know, exists in a healthcare side. Partnering up is really mentioned with somebody who kind of understands those lip problems, whether it is from the provider, whether it is from the payer, whether it is from the consumer.

39:29And taking again, a lot of the same playbooks that exist in Fintech, which we're very happy to help with. And if you can to apply those in healthcare, I think is a huge, huge opportunity. Yeah, when we're thinking about that in terms of the investor lens, which is going to sound self -serving, but it's really a serious thing that I would think about if I were a founder in the spaces, the capital requirements of these companies tend to be pretty unique. You're building an insured tech business in healthcare. There are regulatory requirements around cash reserves and what kind of financial profile you need to have as a business to be able to stand up.

39:57And it's state by state as well. And so it's pretty complex landscape that you have to have investors who understand that and properly fund you so that you have enough runway to meet the same set of milestones that you might otherwise take less capital, frankly, with other types of business models. I think there is both a unique playbook for the founders, but also even for us, a unique way that we look at investment opportunities that have these characteristics. Yeah, I feel like if I was a listener to this conversation, I would have taken a few things away. One, healthcare system is broken. I don't think anyone needed a reminder of that.

40:30But two, there is somewhat of a why now. things are changing. Regulation has changed, the technology has changed, the infrastructure has changed, and so there is an opening potentially or several openings and gaps for founders to tackle. But also Julie I think what you pointed out is really interesting that this is like a tough intersection to address as a founder. There may be specific capital requirements. And so given that A16z is focusing on this intersection where funding companies in this space, you two have studied this space, just wanted to give you the opportunity if there are any gaps that you still see and, you know, if a founder is listening and wants to raise their hand and step up and say, hey, I want to fix this problem, anything that you'd like to highlight there in terms of what you're looking for could be the specific problem that you'd like to see solved or the type of founder that you'd like to see get involved.

41:20Yeah, I'll put out one that I consider sort of a grand challenge of healthcare from an insurance perspective. And I think there's some specific examples right now in the market that are unsolved that I think need to be solved just on the basis of trend. So the biggest class of insurance coverage in our country is employer sponsored. Right. So, you know, us three, we all get insurance through our employer. Most people have some sort of health benefit through their employer. The sort of fact of the matter is, is that churn, right, the turnover in a given employee base tends to be a few years, right?

41:52And therefore, the period of time that you are on a given health plan is relatively finite, as well as it will be short. But there's a lot of expenses, a lot of examples of expenses in health care, where you might have a very high upfront cost that doesn't play out from an ROI perspective for a very long period of time. And so if I'm your insurance carrier and I'm going to eat that cost, I'm actually not going to want to eat that cost unless I'm going to have you on my plan log enough for me to see the ROI, right? And that's what results in a lot of these seemingly not understandable, like sort of blockers on the insurance side as to why they're not covering SY or Z.

42:26And so a couple of examples that are prevalent right now, it was embec and these sort of miracle drugs that result in weight loss. They're expensive, right? Thousands of dollars a month. Employers are, you know, really struggling with how to think about supporting these drugs in terms of coverage, right? There's been a widespread adoption among folks who are willing to pay out of pocket, but obviously that's not affordable for the vast majority of Americans. if I'm an employer and I'm going to be willing to sort of put the bill for thousands of dollars per year for this drug, but when it comes to weight loss, obesity, metabolic health, oftentimes the potential heart attack that I avoided down the road, that I'm not going to see that benefit for many, many years beyond the time horizon that you're going to be an employee for me.

43:04That's one example. Another really interesting example that we encounter, given that we invest in biotech companies on the other side of the house of my fund, is these sort of one and done therapies, right? So we've heard about these sort of miracle gene therapy drugs where with one procedure, one injection, you cure a disease that otherwise might have been fatal. And these drugs can cause upwards of a million dollars, right? So very non -true expense, but obviously significant impact to life expectancy and life quality. But again, an individual carrier who pays that fee upfront, you know, again, might not see the benefit or the ROI might not be there for the period of time that the employee is on their plan.

43:42So I think there's this huge problem around how do you properly underwrite these kinds of products as people sort of switch between multiple health plans? Is there some vessel or chassis that you could, you know, sort of use to follow people as they move from health plan to health plan that distributes the load of that financial burden across multiple carriers so that, you know, no single one has to bear the full burden. And so it's a very non -tribule problem, but it's increasing in prevalence in terms of those kinds of products that have that characteristic to them. And I mean, we've spent a lot of time with incumbent insurance carriers.

44:15They have not figured this out yet. I do think that there needs to be a consumer centric type solution that solves for this, that the consumer is aware that they are carrying certain benefits across multiple years and multiple health plans. And so I would love to see that problem solve this own way shape or form, probably in partnership to currently with startups and incumbents, but probably requiring a different type of data model and just to finally different approach from the consumer lens. That is so fascinating and Julie just as a clarifier, is that also why most insurance companies won't cover preventative medicine because it's of that same dynamic?

44:49Yeah, it's a great point. Yep, exactly right. And that's where I think Medicare Advantage has shown the promise of doing it in a value oriented way with regards to preventative care because Medicare seniors tend to be on the same Medicare plan for much longer, obviously, because they're not changing employers, it's really just their own individual plans. You have much more incentive to invest in preventative care that, you know, again, will accrue benefits over multiple years because those people tend to be stickier on their health plans. Well, I mean, I think that's clearly such a big and important problem to be solved.

45:20David, what about you? Does anything jump out there as, again, this like grand challenge that you think, if solved, could really fundamentally change this ecosystem? Yeah, I mean, we've talked a lot about, you know, provider issues and obviously challenges that patients have. I think we talked less about the pairs. And one of the big kind of initiatives that we have focused on, certainly on the Fintech side that Julian, I've been beginning to work on kind of this intersection is just building deeper connectivity to the incumbent institutions in Fintech for too long, kind of the technology Fintech ecosystem and the kind of large incumbent traditional financial services ecosystem were kind of parallel universes.

45:56And I think that was really a mistake because I certainly saw this inside a gold bit, the culture of these institutions are changing very quickly, right? The recognition that they're not going to build everything in house or that they can't, and they're willing to adopt third party technologies is just accelerating. And yet, so much of the workflows of these institutions, even in a place like gold bit, which is probably one of the more progressive, kind of tech forward, large financial institutions in the world, are still like human driven processes. I mean thousands and thousands of folks that even saw like city or Dallas or Vangliru processing trades.

46:30And you can imagine that the healthcare system is in a similar place or likely even further behind. And one of the opportunities that we see here in recent is just being a bridge, right, between the entrepreneur and that started ecosystem into these large economic institutions. And then just helping both us and the entrepreneur build authentic kind of non -transactual relationships with key decision makers, you know, folks who are running these kind of really important divisions and business units. And that can obviously radically accelerate kind of the go to market or relationship building for these smaller companies who often find, and I found this very difficult to navigate, you know, these large organizations, even people within an institution like Ulvin didn't understand kind of a broader surface area in the pockets of the different business units and how they fit together.

47:16For the audience, it'd be helpful to know how big these companies are, like how many people work at Goldman and then Julie, like how many people work at United Health Group. How many employees are we even talking about? I mean, Golden was, I think now, like something like 45 ,000 employees, the last was like over 40 billion in revenue. You know, you can't even help here. It's significant. Bigger than that. Yeah. Yeah. And literally the biggest publicly traded healthcare company, I think it's like half for trillion dollars at this point, market cap. I look like the latest numbers I have are 380 ,000 employees.

47:44I remember a lot of those are, there's like the administrative set of UHG, but there's also a lot of doctors and clinicians. This is not a UHD stat, but we were speaking with another large national health plan, you know, payer and talking specifically about their call center operations. Because a lot of, you know, to David's point, like a lot of these FinTech operations have manifest in the form of call center agents. This place had 30 ,000 call center workers across their enterprise, right? So, I mean, just imagine, I mean, this gets to the point that, you know, we're making here, is that these organizations now recognize that they need to engage with innovators to be able to fundamentally transform their businesses and both reduce the cost structure through technology, but also just better engage consumers, right?

48:23Because at the end of the day, their business is heavily reliant on member engagement, that being the means for them to manage the costs of healthcare delivery by doing the proactive things as you were saying stuff and just getting ahead of potentially high acuity, high cost encounters. I think there's this sort of special window of time where the stars are aligning in terms of what the innovators are working on and what they're great at and what they're much better at frankly, then the incumbent players, and also what the incumbent players are recognizing that they need us super power to move forward.

48:53Yeah, I mean, I'd say for any Fintech entrepreneur who are healthcare curious or healthcare -ashconor, who are Fintech curious, coming out, Julia and I are often hosting. Dinner's again at this intersection in New York and San Francisco and other parts of the country. So we'd love to spend time with you. You're really excited about this space, if you couldn't tell, and we think there's some massive businesses to be built. So we're excited to hear from you. Amazing, and both of you have written extensively you and your teams on these topics and more. So we'll share a bunch of those links in the show notes as well so that people can go and dig a little deeper if they are interested too.

49:26It's awesome. Thanks so much. Amazing. Thank you. It's great. Thank you. Thanks for listening to the A16Z podcast. If you liked this episode, don't forget to subscribe, leave a review, or tell a friend. We also recently launched on YouTube at youtube .com slash a16c underscore video where you'll find exclusive video content. We'll see you next time!