The a16z Show - When Two Giants Intersect: Healthcare Meets Fintech

Starting point is 00:00:00 Until recently, it was nearly impossible to figure out what something cost. What words come to mind when you think of buying something with the click of a button? How about just tapping your card to pay? Or your credit card being paid off automatically, or even your credit card company automatically detecting fraud? Well, when I think of those things, the words that come to mind are things like seamless, clean, easy. And these are affordances that the world of fintech have granted us. Now let's do another exercise. What happens when you think of the healthcare industry in America?

Starting point is 00:00:39 I assume that seamless is not the word popping into your head. And you're actually not alone if your conjurant terms like confusing, clunky, or even broken. But what you may not know is it's not just the consumer that's hurting. Every year medical debt is increasing, billions are lost in unpaid claims, hospitals are in the red, Service prices can range up to 30x, there must be a better way. Well, in this episode, we talked to A6 and Z general partners, Julie Yu and David Haber, who highlight the emerging intersection of healthcare and fintech, and how changes in regulation and technology may actually enable founders to pave a better future. They talk about exactly where health care breaks down and how the three-party system of payers, providers and consumers, can actually be re-examined through the lens of fintech. And if you'd like to learn a lot more about the fascinating intersection of healthcare and fintech,

Starting point is 00:01:43 our team just came out with a microsight, which you can find at A16c.com slash healthcare dash meets dash fintech. And of course, you can find that link in our show notes. As a reminder, the content here is for informational purposes only. should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the companies discussed in this podcast. For more details, including a link to our investments, please see A16C.com slash disclosures. So today we are talking about the fascinating and emerging intersection of healthcare and fintech.

Starting point is 00:02:39 And we have two people here who know a lot about both of those spaces. And so Julie and David, I'd love if we could just start there. If you could introduce yourselves and talk about why you're interested in this space in particular and how maybe your backgrounds, both as investors but also builders in your respective spaces, has led you here. Well, it's great to be here. I'm Julie, you, a general partner on our healthcare team. We focus on all things technology as applied to healthcare, broadly speaking. Healthcare fintech, as we'll talk about, is obviously a huge part of that.

Starting point is 00:03:09 We believe there's massive market opportunity, which is obviously one of the reasons that I'm excited about it. But I would say the primary source of my inspiration of passion for healthcare fintech comes from my entrepreneurial career prior to this. So I was a co-founder of a company called Kairus. We built a scheduling-oriented product, a software product, that was sold to large provider organizations. Where scheduling is obviously a very sexy area of healthcare. We always sat right adjacent to what's called the revenue cycle in healthcare. So, you know, sort of how the payments are processed, how claims are submitted. And I was always like sort of peeking next to me at the revenue cycle space thinking,

Starting point is 00:03:46 gosh, that's where the action is at, right? Like, that's where the transactions are. That's where the payments flow. That's really where the rubber hits the road in terms of, you know, all of the weird incentive structures that drive the seemingly irrational behaviors of healthcare. I always aspired to sort of expand my product into that zone. We never quite got there.

Starting point is 00:04:02 But when I came into this seat, I was very, very motivated to explore that opportunity set from an investment lens. Thanks so much, Steph, for having us on. I'm David Haber, a general partner here at Andreessen. Yeah, joined the firm a little over a year and a half ago as a GP on the fintech team, but had spent, you know, the prior decade, both as an investor and an entrepreneur, had started a fintech company called Bond Street, which was in the small business lending space. We financed a number of practices at the time, and then ended up selling the business to Goldman Sachs in 2017

Starting point is 00:04:29 and had sort of a variety of strategy roles there before joining the firm. One of my sort of core beliefs, I think both in life, but specifically in investing, is that opportunities live between fields of expertise. And I find myself really enjoying spending time at those intersections. It's one of the reasons I've always loved FinTech because I've always viewed it candidly more as a horizontal than is a vertical. It's just been an amazing kind of collaboration, spending time with Julie and the rest of the Bioman Health Organization, you know, kind of going deep on this intersection.

Starting point is 00:04:56 And I think bringing, again, the depth of both of our experiences and the operating platforms behind us to kind of look at this problem space through both lenses. I think having both perspectives of deeply understanding kind of the health care side and understanding kind of the fintech ecosystem and the infrastructure and how that sort of enables new business models, I think is really opening up kind of a ton of opportunities in the space and why we're so excited to kind of spend more time in this category. Absolutely. And I think with health care in particular, many people would agree, you know, Julie, you use the word irrational, but I think other people may apply terms like clunky, maybe even

Starting point is 00:05:29 broken. But to your point, David, they may not know the depth of that particular industry and they may not understand why it might be broken. And so maybe we can kick things off there. Julie, where do you think the health care system breaks down the most? Yeah, you're absolutely right that it's pretty much all broken. Or, I mean, the other way that people oftentimes talk about it is that it's actually working as designed. And a lot of that, you know, spends back to the way that payments are designed and processed exacerbates. I think a lot of the challenges that we experience as consumers. I often take the system view to this space. I'm very enterprise focused in the companies that I primarily spend time with. And when you look at it from the system lens, the core trifecta of

Starting point is 00:06:08 stakeholders in our healthcare domain, very simply put, would be the following. So one is you have, obviously, the providers, the actual doctors and nurses and all of your care providers and services companies that actually deliver care. They are obviously a key stakeholder. You've got your payers, which are, you know, largely other insurance companies, private insurance companies, government funded insurance. And then, you know, arguably even consumers to some degree are payers themselves for the out-of-pocket component of what we pay for health care. And then, of course, the third party being the patient themselves. And so the point there being that the people delivering the service and receiving the service

Starting point is 00:06:41 are not the people paying or, you know, sort of privy to the payments flow of those services. And that very bifurcation is what causes so much of the incentive misalignment that we experience in our healthcare system today when a provider delivers a service. And I think like probably rightfully so, like they don't necessarily care about the cost of things, as long as it's the right thing for the patient. But that's where you start to land in the territory of these surprise bills, these prices that end up much higher than you had anticipated. And, you know, when price is not a factor in the initial decision as to where to send the patient,

Starting point is 00:07:15 obviously there can be a ton of, you know, lack of transparency and just surprise, you know, down the road when those bills actually come to roost. And then similarly on the consumer side, you know, a lot of us, you know, think about how do we shop for care, how do we make sure that we're getting agency in the process of determining where we should get a certain service. And yet, until recently, it was nearly impossible to figure out what something cost. And it was both the price of that service, as well as the mix of services that would actually be required as part of a certain encounter. So there is a little bit of legitimacy there where, you know, based on your diagnosis,

Starting point is 00:07:47 you might not actually even know the full breadth of services that you need. But all of those factors contribute to the overall obfuscation of what things actually truly cost, what ultimately gets built for. And then, you know, lastly, how they get paid for. and that's, you know, the payer side of the equation is equal parts sort of obscure and obtuse in terms of the rules that each individual planned product, you know, within the carrier universe operates under in terms of determining what something should be reimbursed for under what circumstances. So it's not the case that if you get the same exact service from different providers in different locations that you're necessarily going to get the same price, which is kind of crazy. That payer angle is, I think, the kind of the overlaying dimension that, creates all this uncertainty and, again, results in this poor user experience for all parties involved. Yeah, I mean, it feels like there's a bunch of actors, a bunch of incentives that all go into this funnel, and then the output of that is what everyone experiences and maybe actually what would be

Starting point is 00:08:45 helpful to set the tone. It feels like listeners maybe don't need this reminder, but if we started with a couple statistics of where we are now, like almost as if the output of that funnel of those actors, of those incentives, are there any facts or statistics that either of you have run into that again, kind of just set the foundation or almost like the reality that we're in within healthcare. Yeah, I mean, I'll just start with like the headline number of health care costs and healthcare spending in our country, $4.3 trillion every year, which is roughly about 20% of GDP, is spent on health care. And I think the key thing there is not necessarily how much we're spending because, you know, if we were spending that much and getting amazing service and

Starting point is 00:09:24 amazing outcomes, then we would all want to pay more for it because we're getting value. But I think the challenge in our country is that our health care outcomes are actually getting worse. I don't know if you guys saw the stats recently on life expectancy decreasing. Of course, the last couple of years, obviously largely you're in by the pandemic. But the yield of a given health care dollar spent in the U.S. is far, far lower than all other developed nations in the world, which is a sad, state of affairs. So I think that's probably like the headlines that we should start from.

Starting point is 00:09:53 And then, you know, related to what I said earlier, I'd probably call out additional stat, which is, you know, just the administrative waste and bloat in our system due to the fact that we have this complex trifecta of payer-provider patient results in a tremendous amount of spend that is completely unnecessary and or just pure administrative overhead. So, you know, the stats that we see are roughly about a third of every dollar of revenue collected by a hospital is spent on administrative tasks required to collect it, you know, meaning really you're only seeing roughly about a 70% yield on every dollar that you're actually supposed to get paid for your service is purely based on the work necessary to file the claims, to get a claim status,

Starting point is 00:10:31 to negotiate those claims, and then, you know, ultimately get paid. That in of itself sort of, you know, illustrates the amount of just embedded overhead in the healthcare system that results in, you know, these sort of cost structures that are unsustainable over time. I think the other big trend that we've seen certainly over the last decade is just, you know, dollar shifting towards the patient and their responsibility for sort of paying for healthcare. And I think the status that it's grown to something about 50% of all healthcare costs, you know, something like $370, something billion a year, our kind of patient-led responsibility. Half of Americans carry medical debt today, 20% of them don't believe the law would be able to pay it off. So this is a huge cause for bankruptcy,

Starting point is 00:11:11 huge cost for stress and other, you know, issues beyond just the physical health, the financial health impact that this is having on, you know, everyday Americans is pretty significant. And so, look, it's one of the biggest industries in the country. It's also one of the biggest problems. And so it's one of the reasons why we're so excited for entrepreneurs excited to tackle these big challenges. Yeah, and I'm so excited to talk about those solutions. But I guess something that is still sitting with me is it doesn't seem like the system is really working for any of those three parties that you mentioned, Julie. I mean, hospitals are inefficient. Medical debt is increasing.

Starting point is 00:11:44 That's impacting the consumer who has to sometimes pay that debt. Billions are lost in unpaid claims every year. And so, again, it's not like of the three parties, someone is winning, right? it's a mess all around. And so maybe just to reiterate this question, like, what is going on here? Is it the rails of the payments that we're using? Is it just the incentive structure that is misaligned between three parties that all have different goals? What really is underpinning this reality that we're in today? Yeah, I think each individual party would certainly not take the blame themselves, but I think there's been a lot of pressure on the sort of the payer provider access

Starting point is 00:12:20 of that trifecta that I described earlier, that I would say is really driving sort of a lot of that breaking point. So, you know, to be honest, when you look back at the last couple of years, it was a super tough couple of years for all industries, let alone, you know, healthcare. But in particular, provider organizations

Starting point is 00:12:36 really, really suffered during that period of time. And, you know, remember, we shut down the world, right, in 2020, meaning, like, no one could go in for any kind of service. You know, the majority of health care spend prior to the pandemic was physical, in-person and visits where you were physically going to a hospital, going to a clinic, getting those in-person services, and obviously all of that was shut down except for, you know, COVID-related things. And so literally, revenue lines went to zero for a lot of service lines for these major hospital

Starting point is 00:13:04 systems and clinics. Hospitals arguably were much more on their heels, whereas if you think about the way that insurance works, right, during those same years, we were all paying the same levels of premium dollars to our health plan, but our utilization went way down, right? So health plans were actually sitting on a tremendous amount of cash. And obviously there's regulation around the level of profits that health insurance companies can make on the core business. But, you know, in essence, those companies were in a much, much different and much more positive financial position than the provider side of the market. So I think there is a groundswell of pointing the fingers at the entity that, you know, is sitting on a lot of capital that did,

Starting point is 00:13:41 you know, sort of benefit from the underutilization that we experienced it with that course of time. Meanwhile, last year, I think it was literally 50% of hospitals were in the red. I think there's a lot more focus these days on the pain of the provider, you know, versus necessarily the pain of the payer. Whereas, you know, I think there's many ways in which both sides certainly suffered through all this. But I think that's where, you know, you saw, like I just read a headline recently about how the payer-provider contracting dynamic, it can be very hostile. And, you know, when these contracts come up for renegotiation every couple of years,

Starting point is 00:14:12 it's always this sort of game. we've actually talked about this on a private podcast where it's kind of this dark art of, you know, contract negotiation where, you know, the provider sort of assumes that whatever rate they contract will get negotiated down by the payer. And so they inflate the price that they present in those contract negotiations and it just spirals upwards. And that's actually what a large portion of the driver of the increase in price year over year and healthcare has been is simply just that contracting motion. So no basis in reality of actual cost structure of the providers or, you know, arguably some of that might have been wage inflation related in the last couple of years,

Starting point is 00:14:45 but really there are other existential factors that kind of contribute to that. So that dynamic, that sort of hostile relationship has been probably, you know, one of the primary drivers of some of the nefarious behaviors that, you know, result in this continuous bloat on the system side. And obviously that probably contributes a lot more systemic cost, but in many cases, the consumer also gets stuck in the middle because they're still paying a decent percentage out of pocket and that number is increasing over time too. Yeah, it feels like one of the main complaints from the,

Starting point is 00:15:12 the consumer is not just that they're paying more, but they don't have that transparency into what's happening between these other two parties that are part of the system. But a lot of the dynamics that we've talked about so far aren't necessarily new. The healthcare industry has been slow moving for quite some time. It's been, if we use that term again, broken for quite some time. But it does feel like maybe certain things have changed more recently, where at least there may be certain unlocks that allow founders to maybe step in and build within this intersection of health care and in fintech. And so what gets you excited today about perhaps new openings within this arena and what may have changed over the last few years? It's rare that people talk excitedly about regulation,

Starting point is 00:15:53 but healthcare is one of those domains where I think regulation can be a tailwind for innovation and category creation. There's lots of historical examples of this. I think the most traditional example that a lot of people point to is electronic health records did not really exist in adoption, major adoption until the meaningful use law came into play, where the government literally paid financial incentives to doctors to adopt digitized technologies for medical record storage. So that was really the sea change that drove so much of the digitization of our infrastructure layer of health care. Similarly, right now, we have a number of regulatory tailwinds that are driving payment-related reform. And so, you know, we have things like a price transparency law

Starting point is 00:16:32 that went into effect over the last couple of years that forced hospitals. and insurance companies to publish their contracted rates. It was hugely controversial. There's still lawsuits in play. People are still pushing back. But the fact of the matter is, we now have, you know, thousands of hospitals and hundreds of payers who have published all this data. Obviously, they're publishing it in forms that make it very, very difficult to parse.

Starting point is 00:16:54 And so entire companies exist to actually process that data where investors in Turquoise Health is one of those players and actually make it actionable in the context of their contract negotiations and the way that they engage with both providers and patients, but that's obviously a huge driver of change in terms of how we think about what used to be assumed to be opaque now just being out there and, you know, people not having a place to hide when it comes to comparing prices between two different providers who, again, are providing the same service, but at widely different prices. So that's been a massive change that is only just starting to play out, I would say, so I think we have still years for it to really seep through the system and address a lot of the challenges that we described earlier.

Starting point is 00:17:34 You mentioned lawsuits and some pushback. Just because I feel like listeners might be curious, what is on the other side of that? It seems like maybe an obvious reform that we should be able to see how much something costs if we're paying for it or someone is paying for it for us. So what was on the other side of that? Yeah, I think, you know, again, I have some degree of sympathy for these, you know, businesses. Like, effectively what we're doing is taking proprietary contracts and publishing them on the web, right? So, you know, there's been a lot of pushback from the parties to those contracts, which are the payers and the providers, who say it's proprietary data. And we should not be forced to publish such data in a public forum because that's our competitive advantage in our market, is that we're able to negotiate special rates with our counterparties.

Starting point is 00:18:16 And, you know, we lose all of that competitive edge if we're to put it out there. So that's the crux of most of the pushback from the incumbent lens is really that sort of propriety. The counter argument is that there had been previous laws that require, things like upfront estimates for consumers. If you called your hospital, you were, you know, sort of mandated to be able to present an estimate prior to coming in for a certain procedure or a certain set of services. And from a consumer lens, like, those never really got implemented or enforced in a way that was reasonable, in my opinion. I remember, you know, my past life, when that law went into effect in the state of Massachusetts, we actually did a bunch of, like, secret shopper calls to hospitals

Starting point is 00:18:54 to see what that user experience was like. And, you know, you basically got told, like, oh, you'll get a callback in an undeterminate amount of time. It was generally like one monolithic number and there was no explanation as to what the range of assumptions that went into that number were. And again, you get the call back like a week later when you might have had the procedure like two days after that call. So the whole implementation was really poorly executed. So I think the argument on the consumer side of like, listen, you guys promised this to us years ago. The form of that just didn't address any of our concerns about limiting the amount of financial exposure that we might have related to healthcare services. So, you know, those are kind of the siren calls on

Starting point is 00:19:28 both sides of the argument. And so it sounds like we now have more transparency, but it also sounds like there were a couple other regulation changes that happened alongside that. Yeah, just maybe one more I'd call out, which we've talked about before, is just all of the movement towards value-based payment models. So this notion that, you know, a lot of the reason that, you know, healthcare business models were not resilient during the pandemic was that they were entirely fee-for-service-oriented, meaning you only got paid for the specific services that you delivered. And therefore, again, if the service was not delivered, you didn't get anything. Value-oriented models tend to be much more bundled in nature.

Starting point is 00:20:02 So either getting a sort of a set upfront rate or price for a set of services related to an encounter. So like a value-based orientation around a need for placement surgery would be rather than charge for every individual, you know, doctor who's involved in the procedure, the anesthesiology, all the pre-visit, post-visit stuff. You'd actually just get charged one bundle for the entire journey. And then the provider's at risk, right? So if they go above that budget, they are paying out of pocket effectively to cover the remaining cost. But if they stay under that budget and keep you out of the hospital and avoid errors and all that kind of stuff, then they get to pocket the difference.

Starting point is 00:20:37 And so it aligns incentives for the provider and the patient in terms of staying within certain bounds, but also creates a lot more resiliency around the payment flows into the provider practice because they're not just relying on individual services getting billed and paid for. So there's been a whole set of regulation around driving adoption of the. payment models, you know, Medicare Advantage, I think, has been the most prominent form of that. It's very early days in terms of adoption across our industry, but it is a very, very promising means to align incentives in a fun and a different way that results in much more transparent behaviors. Absolutely. And maybe before we jump into the FinTech side, just wanted to clarify the No Surprises Act and the Cures Act. It feels like those also were pretty fundamental to maybe changing this incentive structure that you've talked about so far. Yeah, the No Surprises Act is very closely tied to the Transprivacy.

Starting point is 00:21:25 Parenthood, which basically limits the ability to do surprise out-of-network billing for patients. And you've probably read in, you know, lots of news articles, these incidents where you go get a surgery in an in-network hospital, the actual surgeon is in-network. But lo and behold, the anesthesiologist is out of network. And all of a sudden, you're getting, you know, a bill for just that slice of the service at a rate that's, you know, outsized relative to what you would have had to pay had it in a network doctor as part of that procedure. This act limits the liability on the side of the patient and the provider in those situations. And then the Cures Act, it's a little bit orthogonal

Starting point is 00:22:01 to Fintech, but certainly related in that the main provision that people care about is patient data access, enabling patients to readily access their full medical record data and that, you know, sort of limit the cost of access. So it used to be the case that, you know, you'd have to potentially pay a couple hundred dollars somebody to get access to your own medical records on paper, you know, or even like a CD-ROM. You know, this is a great example of an act that actually incentivized a whole bunch of startups to come out of the woodwork and create apps that allow you as a patient to basically collect all your medical records from multiple providers in a single swoop and really, you know,

Starting point is 00:22:36 sort of have agency over them. I think the way that it relates to the fintech universe is that a lot of insurance adjudication acts require access to patient data to approve, you know, certain reimbursements. This act allows much more data liquidity to support those decisions. versus the traditional way of doing it, which is faxing literally medical records back and forth and having nurses look at them in a manual fashion, it does have sort of an indirect impact in the fintech world. Absolutely. And I think it's kind of crazy to even reflect on the fact that some of the system is still running on faxes on CD-ROMs. Like that's surprising, but at the same

Starting point is 00:23:12 time, I guess it aligns with, you know, the broken nature, the clunky nature that people see on the other side. You talked about these regulations as tailwinds, but another tailwind for founders, can be new technology. And so, David, maybe you can take this on. How has maybe the fintech infrastructure or technology that has been built up over the last couple years or decades maybe fundamentally changed and can be introduced into this new world? Very happy to jump at that the other thing I would just add is I think it's important to kind of emphasize that obviously we just lived through a global pandemic. And that's the entire kind of healthcare ecosystem. And so I think a lot of the question that entrepreneurs ask themselves

Starting point is 00:23:47 when they're barking on building businesses, will I be able to sell into you know, historically slow-moving incumbents, right? And I think the pandemic created a sense of urgency because everybody went remote, because, you know, both the provider and payer systems were, you know, challenged in different ways. The willingness and sort of urgency, again, to adopt new technology is, I think, it's an interesting kind of, you know, tail-winded an opportunity for new entrepreneurs. And I think a really unique component by now. Obviously an unfortunate one, but the reality. Certainly one of our core theses at A16C has been that every company is going to become a fintech company. And Julie and I have been riffing that, you know, either every healthcare

Starting point is 00:24:24 company is already a fintech company or is certainly going to 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 Rampel has written 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. I think increasingly, FinTech is becoming kind of that third stool, which can become embedded

Starting point is 00:24:59 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 as a service, sort of enabling you to offer new card products or embed lending or embed payments. All of these are basically primitives that can. can kind of be plugged into transactional points of intent, right? You know, anytime a consumer is through transactant, there's an opportunity to bid a financial product

Starting point is 00:25:25 to finance that transaction or, you know, for a small business owner, accelerate the working capital, right? We'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, you know,

Starting point is 00:25:40 up to 90 days or longer to get reimbursed by these big insurance companies. They've already delivered the service, right, patient. And that can create a lot of strain, you know, just in their own working capital and ability to pay employees. And one of the biggest reasons small businesses died saw this intimately through Bond Street was just working capital. And so one, you know, just tangible example for how I think a really interesting kind of opportunity at the intersection of fintech and healthcare that we've invested in is a company called Juniper. They built effectively billing software for highly recurring

Starting point is 00:26:10 healthcare. And so their insight was that areas like the Hebrew Health, today they serve some of the largest autism clinics in the country. These are practices where patients are visiting their provider over 100 times a year, right? These are a 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 build technology that essentially submit, you know, health insurance claims programmatically to the insurance companies, to the payers. They take on kind of the revenue cycle management and deal with. with, again, all of the denials and adjudication that comes with submitting those claims

Starting point is 00:26:50 and really empowering the provider to get reversed by the payer, get paid by the payer. And what's really unique about that, again, having built a small business lending company, is that because of the position they said they really understand the entire kind of working capital or cash flow lifecycle of that practice. 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.

Starting point is 00:27:24 By the way, they get paid three to five percent just for that, right? For delivering that technology and improving efficiency. Historically has been a very manual, you know, process for a lot of these providers with a couple of folks in the back office. But again, from a fintech perspective, if you understand statistically the probability of repayment and the timing of that cash flow, you can extend credit. So you can advance working capital to the small business owner, 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 of their historical data and all of the practices in your network, the statistical probability of getting repaid. And that's a really important and I think you're a great model for a lending business because importantly, again, you're not getting negatively selected, right? They're not cherry picking a specific invoice that you're trying to essentially,

Starting point is 00:28:15 it's called factor that they believe they may never actually get reimbursed. And ultimately, you as the lender are taking that credit risk. You're seeing 100% of their revenue and 100% the data and statistical probability of repayment. So 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, you know, if you work with Juniper, you don't have to wait 90 days to get. reimburse. You can continue scaling your business, serving your patients, which is really why you

Starting point is 00:28:45 started this practice in the first place. That was the other key insight from, again, Bons Street, 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 a recent. And in my, in my business, and in my, my first conversation with the founders, I was like, it's awesome that you guys are a fintech company. They're like, no, no, no, what are you talking? We're an healthcare company. It's like,

Starting point is 00:29:18 you know, you're in the payments flow. You're seeing the working capital life cycle. And it's been amazing to watch them kind of come up to speed on the fintech side. And, you know, six months later, Chris Doff and the CEO is like, dude, you're totally right. We're a health care company and a fintech company. 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. So 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

Starting point is 00:29:57 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 the provider, there's the payer, there's the 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. Yeah, I'll actually key off of a couple themes that Dave mentioned that I think are super relevant to a lot of healthcare fendic 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 you can effectively, you can underwrite risk in a different way than any single player who's sort of in the end-end value chain of healthcare

Starting point is 00:30:37 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 in a completely different space than Juniper, but 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. So if you think about like what David was saying about like SMB, you know, business owners and no 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 health care expense, right? Because you have to cover your health insurance benefits for your employee base by law.

Starting point is 00:31:11 But again, you know, we weren't founders because we wanted to like pay health care expenses for our employees. And yet, like, as a founder, you're basically faced with having to choose. Like, you have to pick your poison basically of like, what health plan do you provide for your employee base or do you provide an ICRA product that, you know, just give them cash to go shop on their own? You know, those are pretty non-trival decisions to make and have like real everything from like, tax to administrative implications. And so what Thatcher's doing is basically creating a card. It 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 advantaged or the spendest tax advantage. There's a whole

Starting point is 00:31:49 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, you know, treat those payments one way versus, other payments that you might be making outside of those rails. And then, you know, because Thatch is then in the flow of all of the health care expenses 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 health care 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. You know, this notion of sort of the last mile utilization data around health care

Starting point is 00:32:27 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'd call out here in terms of how founders can look at this industry and say, ha, there's this data opacity. Let me solve that or any other gaps that you see that are maybe also just waiting to be addressed. So many. So we, you wrote a piece a few months ago

Starting point is 00:33:08 called payviders unbundled. 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 can put into their business. So they're called payviders because they're sort of vertically integrated across insurance and care delivery services. 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, you know, those incumbents are not really paying attention to where there's sort of white space opportunity

Starting point is 00:33:44 for startups. And so, you know, 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 and insurance plan. But we also recognize, especially from, you know, seeing insure tech play out outside of health care. It's a really hard business to build and a really hard business model to get right. And so that said, you know, we think there's a huge opportunity for sort of neoc carriers, so to speak, right? So upstart health insurance products to be built in a tech native fashion that, number one, does focus on user experience. Number two, does use data in novel ways, whether it be on the

Starting point is 00:34:24 underwriting 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 it's a hard and very non-trivial 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 with incumbents, but, you know, trying to emphasize user experience, cost structure, efficiency, using technology. Another article we wrote, which had the title, Health Care Pentech's Biggest Prize,

Starting point is 00:34:59 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 in an EHR that are often unbundled or kind of separate from, you know, the cash flow lifecycle 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 to kind of reconcile or kind of synthesize both sides of that equation. And again, the example of would Juniper is just sort of, we talked about a piece of it, right, both enabling a provider to kind of more efficiently process claims, understanding the kind of full cash flow life cycle over practice.

Starting point is 00:35:37 But the implications and sort of wedge for starting there, I think are pretty significant because you could, you know, both extend into the consumer facing experience, you know, get on to scheduling and, you know, estimating healthcare expenses, getting to payroll and other expenses for the provider, enable, again, the small business order to forecast their cash flow and provide some business analytics for them, again, to kind of run their practices more efficiently. And 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 nature you can talk about, which was like the pilots sort of flying blind, but, you know, not understanding kind of their own, you know, cashel icicle,

Starting point is 00:36:17 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. We sort of assume that 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 health care providers, and that has such, you know, significant implications on like broad swaths of workforce, right? As David mentioned earlier, just, you know, a lot of these CFOs were saying,

Starting point is 00:36:46 like there are months where we don't know if we can make payroll. And, you know, these places that manage staff of hundreds of providers, sort of flying 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, you know, sort of manage financial insight, but add on financial services products to, you know, 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. You know, something that's coming up as you guys are highlighting the vast amount of opportunity here is that a founder or potential

Starting point is 00:37:23 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. Simply put, if you're from healthcare, go find your David Haber. And if you're in the whole fact, go find your Julie U. But in all seriousness, 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

Starting point is 00:38:01 of esoteria that makes it really challenging to know just off the cuff. As, you know, 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. I think both healthcare and fintech entrepreneurs are often kindred 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, you know, e-commerce business, you know, into healthcare necessarily.

Starting point is 00:38:45 You're coming from on the Fintech side from a place of understanding capital efficiency and, you know, and regulation and now applying some of those insights to the healthcare space. And Fintech has a tendency to sort of intersect across a lot of different categories and is becoming, you know, very much of a business model. I think you've seen that play out over the past, you know, five plus years in areas like vertical software, where, again, you know, companies have started. by solving kind of 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 the healthcare side. Partnering up, as Julie mentioned, with somebody who kind of understands those lit problems,

Starting point is 00:39:25 whether it is from the provider, whether it is from the payer, whether it is from the consumer, and taking, again, a lot of the same playbooks that exist in FinTech, which we're very happy to help with and begin to apply those in healthcare, I think is a huge, huge opportunity. Yeah, one more thing I would add to 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 space is the capital requirements of these companies tend to be pretty unique. If you're building an insured tech business in healthcare, there are regulatory requirements around cash reserves and, you know, what kind of financial profile you need to have as a business

Starting point is 00:39:56 to be able to stand up. And 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 know, you might otherwise take less capital, frankly, with other types of business models. I think there is a, you know, both a unique playbook for the founders, but also even for us, a unique way that we look at investment opportunities that sort of have these characteristics. Yeah, I feel like if I was a listener to this conversation, I would have taken a few things away. One, the healthcare system is broken. I don't think anyone needed a reminder of that. But two, there is somewhat of a why now. Things are changing.

Starting point is 00:40:33 regulation has changed, the technology has changed, fintech 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 A16C is focusing on this intersection, we're funding companies in this space, you two have studied this space. I 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 this specific problem that you'd like to see solved or the type of founder that you'd like to see get involved. Yeah, 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.

Starting point is 00:41:31 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 turn, right, the turnover in a given employee base tends to be a few years, right? Like every few years, people change jobs. And therefore, the period of time that you are on a given health plan is relatively finite. It's relatively 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

Starting point is 00:42:12 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 long 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 X, Y, or Z. And so a couple of examples that are prevalent right now, OZembek 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 amongst 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

Starting point is 00:42:47 and I'm going to be willing to, you know, sort of foot the bill for thousands of dollars per year for this drug. But, you know, when it comes to weight loss, obesity, metabolic health, oftentimes, you know, the potential heart attack that I avoided down the road, like I'm not going to see that benefit for many, many years, you know, beyond the time horizon that you're going to be an employee for me. That'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 like sort of miracle gene therapy drugs where with one procedure, one injection, you cure a disease

Starting point is 00:43:22 that otherwise might have been fatal. And these drugs can cost upwards of a million dollars, right? So very non-for-the- expense, but, you know, obviously significant impact to life expectancy and life quality. But again, an individual carrier who pays that fee up front, 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. So 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

Starting point is 00:44:02 so that, you know, no single one has to bear the full burden. So it's a very non-trivial 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. They have not figured this out yet. You know, 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 problems solved in some way, shape, or form probably in partnership currently with startups and incumbents, but probably requiring a different type of data model and just finally a different approach from the consumer lens.

Starting point is 00:44:39 That is so fascinating. And Julie, just as a clarifier, is that also why most insurance companies won't cover preventative medicine because of that same dynamic? Yeah, it's a great point. point. Yep, exactly right. And that's where I think Medicare Advantage, you know, has shown the promise of doing it in a value-oriented way with regards to preventative care, because Medicare, you know, 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

Starting point is 00:45:18 important problem to be solved. David, what about you? Does anything jump out there as, again, this 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 talk less about the pairs. And one of the big kind of initiatives that we have focused on, certainly on the FinTech side that Julie and I have been beginning to work on kind of this intersection is just building deeper connectivity to all 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. And I think that was really a mistake,

Starting point is 00:45:58 because I certainly saw this inside of Goldman, 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 their willingness to adopt third-party technologies is just accelerating. And yet, so much of the workflows of these institutions, even in a place like Goldman, 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 sitting in Salt Lake City or Dallas or Bangaluru processing trades. And 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 Drescent is just

Starting point is 00:46:40 being a bridge, right, between the entrepreneur and that started ecosystem into these large and 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 out of this very difficult to navigate, you know, these large organizations. Even people within an institution like Golden didn't understand kind of a broader surface area in the pockets in the different business units and how they fit together.

Starting point is 00:47:16 For 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? Like, how many employees are we even talking about? I mean, Goldman was, I think, now it's something like 45,000 employees. The last was, like, over 40 billion in revenue. United Healthcare is significantly bigger than that. NetHurop care is literally the biggest publicly traded healthcare company.

Starting point is 00:47:38 I think it's like half a trillion dollars at this point, market cap. It looks like the latest numbers I have are 380,000 employees. I remember a lot of those are, there's like the administrative side of UHG, but there's also a lot of doctors and clinicians. This is not a UHG 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 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

Starting point is 00:48:18 businesses and both reduce the cost structure through technology, but also just better engage consumers, right? Because 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, you know, doing the proactive things, as you were saying stuff and, you know, 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, than, you know, the incumbent players and also what the incumbent players are recognizing that they need as superpower to move forward.

Starting point is 00:48:53 Yeah, I mean, I'd say, you know, for any fintech entrepreneur who are health care curious or healthcare entrepreneurs or fintech curious, you know, coming out. Julie and I are often hosting dinners, 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. We're really excited about the 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.

Starting point is 00:49:13 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. Awesome. Thanks so much, too. Amazing. Thank you. This is great. Thank you.

Starting point is 00:49:32 Thanks for listening to the A16Z podcast. If you like this episode, don't forget to subscribe, leave a review, or tell a friend. We also recently launched on YouTube at YouTube.com. slash A16Z underscore video, where you'll find exclusive video content. We'll see you next time.

The a16z Show - When Two Giants Intersect: Healthcare Meets Fintech

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