Daybreak - Health fintechs have cracked the 'cashless insurance' dream. How long before the bubble pops?

Episode Date: September 3, 2024

In the last decade, the number of people covered by health insurance has more than doubled. Of course, big hospitals – both the state funded ones and the private ones that look a lot like five-star resorts – are making the most of it. They are really raking it in. But there is a sizeable chunk of the healthcare system that is left out. The small, private hospitals that make up nearly 85 per cent of the industry. This is the ‘missing middle’. It’s disorganized and severely underfunded. It’s also stuck in a bureaucratic maze of claims and reimbursements. The patients that rely on these facilities are  very often stuck between subsidised schemes and private insurance. But here’s the thing – where there is chaos there is also huge opportunity. Opportunity that a new crop of health fintechs have identified. Enter Gmoney, Digisparsh, Healthcred, and Carepay. All of them are waiting to disrupt the ‘cashless insurance’ space. They’re coming to the rescue with plans to connect the dots between insurers, hospitals, and patients. Tune in. P.S The Ken's podcast team is hiring! Here's what we're looking for.Daybreak is now on WhatsApp at [phone]. Send us a hello with your name and since when you've been listening to us and be a part our community. Also, if you have any recommendations for this Thursday's Unwind segment, send them to us as texts or voice notes.Want to be part of the Daybreak community? Introduce yourself here.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

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In the last decade, the number of people covered by health insurance has more than doubled. And then the pandemic came along, and even more people started opting for health insurance coverage. Of course, big hospitals, both the state-funded ones and the private ones that look a lot like five-star resorts, are making the most of it. They're really raking it in. But there is a sizable chunk of the healthcare system that is left out.

I'm talking about the small private hospitals that make up nearly 85% of this industry. This is the missing middle. It's disorganized and severely underfunded. It's also stuck in a bureaucratic maze of claims and reimbursements. The patients that rely on these facilities are very often stuck between subsidized schemes and private insurance. But here's the thing. Where there is chaos, there's also huge opportunity. Opportunity that a new crop of health fintechs have identified.

Enter G-Money, Digi Sparge, Health Cred, and Care Pay. All of them are waiting to disrupt the cashless insurance space. They're coming to the rescue with plans to connect the dots between insurers, hospitals and patients. And the timing could not be better. You see, the Indian government has been on a spree. It's launching health insurance. scheme after health insurance scheme, not to mention the Ayushman-Bhara digital mission,

which is essentially like a treasure map for these fintechs. It has 43% of all private health facilities registered under it, with more and more joining the list every single day. And many of these are smaller hospitals. So how exactly do these fintechs work? Okay, let's take G-Mani, for instance. It's a four-year-old startup based out of Mumbai. It promises low or even no interest loans to patients and hospitals. It's the cashless insurance dream. Patients get their treatment covered and hospitals get a steady flow of cash. And as you would imagine, there's a lot of money up for grabs.

But while these fintechs shake up the industry, it's only a matter of time before the big lender starts sniffing around. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Rahal Philippos, and I'll be joining my colleagues, Nikda Sharma, week to bring you one business story that is worth understanding and worth your time. Today is Tuesday, 3rd of September. A little while ago, I told you about the Mumbai-based startup, Jemani. The company actually has a very interesting backstory.

The Ken reporter Soudeshina Ray spoke to the founder, a man named Gurmeet Singh. He said that the company was founded because of a personal gripe. During the COVID era, one hospital refused to accept his mother's insurance policy. That does happen sometimes. You may have a policy, but a hospital may not accept it if they're not impaneled in the insurers network. Singh said that that leads to another massive headache. Patients end up footing the bill up front and waiting for their money back, aka reimbursements. And it isn't just patients that suffer in the process.

You see, typically, an insurance claim can take anywhere from 90 to 120 or even more days to process. So until that happens, many small hospitals are concerned. cash strapped. Plus, the rates these hospitals get under Ayushman-Bharat are often lower than what they would typically charge, further squeezing their already thin margins. So companies like G-Mani are trying to cash in on that gap. For patients, they're alleviating the pain of having to front cash while waiting for reimbursements and for hospitals, they're solving the cash crunch caused by slow insurance payouts. All while avoiding the nasty surprise of being broke while waiting for those cashless claims to come through.

For some hospitals, this arrangement has worked out pretty well. Take Pathway Hospital, for example. This 50-bed multi-specialty facility in Bangalore faced a classic conundrum, securing insurance coverage. New hospitals often face hurdles in getting insurers on board, and for Pathway, it meant initially teeming up with a company like Gmany, which offered a lifeline of cashless treatment. The G-Mani partnership was a complete game-changer for Pathway.

In just two years, it addressed the patient retention challenge by aligning with insurance partners, eliminating the need for G-Mani to offer cashless treatment. But not everyone is as successful. For instance, consider Pralakshah Hospital, a 30-bed facility grappling with a revenue split in half cash and half credit. The issue here is that the cash flow is often swallowed up by daily operational costs, leaving very little room for flexibility. This highlights the less glamorous side of quote-unquote cashless.

While the concept sounds great on paper, the execution can be fraught with difficulties. So how are fintech dealing with it? More on that in the next segment. These fintechs catering to the missing middle of the health insurance space have managed to craft a business model that almost seems like a win-win for everyone involved, both the patients and the hospital.

patients get loans at 0% interest or low-cost EMIs, which works out way better for them than regular medical loans. These very often leave them gasping for breath even before they get to see the hospital bill. This can be a real lifesaver, and I mean that literally. But you're probably wondering how these fintechs make money. Well, they do that by charging hospitals a subvention fee. Like I said earlier, hospitals usually have to deal with delays

in receiving reimbursements. So they're often strapped for cash. But thanks to these fintechs, hospitals can have faster patient turnover, better retention, and as a result of all of that, way better revenue. So they are more than happy to pay these subvention fees. But running a private hospital is not for the faint-hearted, particularly in the case of small private hospitals. People who do it for a living will tell you that you can't start a hospital business

unless you can cough up some of your own money from your own pocket. For many small and mid-sized hospitals, up to 70% of their revenue is tied up in claims. And meanwhile, surgeons and referrals come knocking on the door for upfront payments. That's where receiving financing comes into play. They are literal lifelines for hospitals that are otherwise endlessly awaiting insurance payouts. But it's not all sunshine and rainbows. There's also the issue of health fintechs and the case of unsecured loans for hospitals. These companies are financing hospital receivables based on claim invoices.

So no collateral, just a handshake, metaphorically speaking of course, and a bunch of numbers on a spreadsheet. Some of these fintechs are also trying to lend directly to hospitals. Singh at Gmany says that his company is involved in revenue cycle management for hospitals, which gives him a clear view of their financial health. He says because he knows exactly when and how much cash is coming in, it becomes very easy. It's almost like a no-brainer.

But the elephant in the room is traditional non-banks. What's stopping them from dipping their toes in the space? Well, stay tuned to find out. In the end, it all comes down to positioning. These fintechs aren't just positioning themselves as lenders. They want to be the cornerstone of the ecosystem. Take the case of a fintech called Digi Sparge. It manages the insurance desk at hospitals,

so it handles claim processing, which is a notoriously messy task. G-Money has even expanded into revenue cycle management, so it also deals in streamlining the claims process. But if hospitals start attracting traditional lenders and data ends up becoming more accessible, these fintechs could face competition, especially if lower-cost financing options enter the picture down the line.

But Singh is still pretty optimistic. He says that swift financing and SWIFT, and strong negotiating power with insurance providers will keep hospitals loyal. The fact that it offers a more comprehensive service will give it a competitive edge. Founders like Singh are convinced that they will be able to crack this very, very large market.

But here's the thing. Digitization is on the rise, which means that traditional lenders may soon want in. They will want a piece of the pie. And if that happens, FinTech could face a squeeze unless they stay so deeply integrated into hospital operations that ripping them out becomes too painful.

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Today's episode was hosted by Rahil Filippos, produced by me Snigda Sharma, and edited by Rajiv Sien.