--:-- Host: 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? I assume that seamless is not the word popping into your head. And you're actually not alone if you're conjuring up 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 talk to a16z 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 healthcare 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, our team just came out with a microsite, which you can find at a16z.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 a16z.com slash disclosures.
--:-- So today we are talking about the fascinating and emerging intersection of healthcare and fintech. And we have two people here who know a lot about both of those spaces. 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.
--:-- Julie Yu: Well, it's great to be here. I'm Julie Yu, 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. We believe there's massive market opportunity, which is obviously one of the reasons that I'm excited about it.
--:-- But I would say that the primary source of my inspiration or passion for healthcare fintech comes from my entrepreneurial career prior to this. I was a co-founder of a company called Kairos. 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, how the payments are processed, how claims are submitted.
--:-- I was always sort of peeking next to me at the revenue cycle space thinking, gosh, that's where the action is at. That's where the transactions are. That's where the payments flow. That's really where the rubber hits the road in terms of all of the weird incentive structures that drive the seemingly irrational behaviors of healthcare. I always aspired to expand my product into that zone. We never quite got there, but when I came into this seat, I was very motivated to explore that opportunity set from an investment lens.
--:-- David Haber: Thanks so much, Steph, for having us on. I'm David Haber, a general partner here at Andreessen Horowitz. I joined the firm a little over a year and a half ago as a GP on the fintech team, but had spent the prior decade both as an investor and an entrepreneur. I 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. I had a variety of strategy roles there before joining the firm.
--:-- One of my core beliefs, both in life and specifically in investing, is that opportunities live between fields of expertise. 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 more as a horizontal than as a vertical. It's been an amazing collaboration, spending time with Julie and the rest of the a16z Health organization, going deep on this intersection.
--:-- I think bringing the depth of both of our experiences and the operating platforms behind us to look at this problem space through both lenses — deeply understanding the healthcare side and understanding the fintech ecosystem and the infrastructure and how that enables new business models — is really opening up a ton of opportunities in this space. That's why we're so excited to spend more time in this category.
--:-- Host: Absolutely. And with healthcare in particular, many people would agree — Julie, you used the word irrational, but I think other people may apply terms like clunky, maybe even 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. So maybe we can kick things off there. Julie, where do you think the healthcare system breaks down the most?
--:-- Julie Yu: You're absolutely right that it's pretty much all broken. The other way that people oftentimes talk about it is that it's actually working as designed. A lot of that turns back to the way that payments are designed and processed, which exacerbates the challenges 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. When you look at it from the system lens, the core trifecta of stakeholders in our healthcare domain, very simply put, would be the following.
--:-- One is you have the providers — the actual doctors and nurses and all of your care providers and services companies that actually deliver care. They are a key stakeholder. You've got your payers, which are largely either insurance companies, private insurance companies, or government funded insurance. And then, arguably even consumers to some degree are payers themselves for the out-of-pocket component of what we pay for healthcare. And then the third party being the patient themselves.
--:-- The point is that the people delivering the service and receiving the service are not the people paying or privy to the payments flow of those services. 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 probably rightfully so — 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. When price is not a factor in the initial decision as to where to send the patient, there can be a ton of lack of transparency and surprise down the road when those bills actually come to roost.
--:-- Similarly on the consumer side, a lot of us 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. 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. There is a little bit of legitimacy there — based on your diagnosis, 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 billed for, and how they get paid for.
--:-- The payer side of the equation is equal parts obscure and obtuse in terms of the rules that each individual plan product within the carrier universe operates under in terms of determining what something should be reimbursed for under what circumstances. It's not the case that if you get the same exact service from different providers in different locations, you're necessarily going to get the same price, which is kind of crazy. That payer angle is the overlaying dimension that creates all this uncertainty and results in this poor user experience for all parties involved.
--:-- Host: 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. Maybe what would be helpful to set the tone — if we started with a couple statistics of where we are now, 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 kind of set the foundation, the reality that we're in within healthcare?
--:-- David Haber: I'll start with the headline number of healthcare costs and healthcare spending in our country: $4.3 trillion every year, which is roughly about 20% of GDP spent on healthcare. The key thing there is not necessarily how much we're spending, because if we were spending that much and getting amazing service and amazing outcomes, then we would all want to pay more for it because we're getting value.
--:-- The challenge in our country is that our healthcare outcomes are actually getting worse. I don't know if you saw the stats recently on life expectancy decreasing over the course of the last couple of years, obviously largely driven by the pandemic. The yield of a given healthcare dollar spent in the U.S. is far lower than all other developed nations in the world, which is a sad state of affairs. I think that's probably the headline stat that we should start from.
--:-- Related to what I said earlier, I'll call out another stat: 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 or pure administrative overhead. 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're only seeing roughly about a 70% yield on every dollar that you're actually supposed to get paid for your services, purely based on the work necessary to file the claims, to get claim status, to negotiate those claims, and then ultimately get paid. That illustrates the amount of embedded overhead in the healthcare system that results in cost structures that are unsustainable over time.
--:-- The other big trend that we've seen over the last decade is dollars shifting towards the patient and their responsibility for paying for healthcare. It's grown to something about 50% of all healthcare costs — something like $370 billion a year are patient-led responsibility. Half of Americans carry medical debt today. 20% of them don't believe they'll ever be able to pay it off. This is a huge cause for bankruptcy, a huge cause for stress and other issues beyond just their physical health. The financial health impact that this is having on everyday Americans is pretty significant.
--:-- Look, it's one of the biggest industries in the country. It's also one of the biggest problems. That's one of the reasons why we're so excited for entrepreneurs excited to tackle these big challenges.
--:-- Host: I'm so excited to talk about those solutions. But 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. Hospitals are inefficient. Medical debt is increasing, impacting the consumer who has to sometimes pay that debt. Billions are lost in unpaid claims every year. It's not like of the three parties, someone is winning. It's a mess all around.
--:-- Maybe to reiterate this question: 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?
--:-- Julie Yu: I think each individual party will certainly not take the blame themselves. But there's been a lot of pressure on the payer-provider axis of that trifecta that I described earlier that is really driving a lot of that breaking point.
--:-- When you look back at the last couple of years, it was a super tough couple of years for all industries, let alone healthcare. But in particular, provider organizations really suffered during that period of time. Remember, we shut down the world in 2020 — no one could go in for any kind of service. The majority of healthcare spend prior to the pandemic was physical in-person visits where you were going to a hospital, going to a clinic, getting those in-person services. All of that was shut down except for COVID-related things. Revenue lines went to zero for a lot of service lines for these major hospital systems and clinics.
--:-- Hospitals were much more on their heels. Whereas if you think about the way that insurance works, during those same years, we were all paying the same levels of premium dollars to our health plan, but our utilization went way down. Health plans were actually sitting on a tremendous amount of cash. Obviously there's regulation around the level of profits that health insurance companies can make on the core business, but in essence, those companies were in a much different and much more positive financial position than the provider side of the market.
--:-- There is a groundswell of pointing the fingers at the entity that is sitting on a lot of capital that did benefit from the underutilization that we experienced over 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 versus necessarily the pain of the payer. There are many ways in which both sides certainly suffered through all this.
--:-- I just read a headline recently about how the payer-provider contracting dynamic can be very hostile. When these contracts come up for renegotiation every couple of years, it's always this sort of game. We've actually talked about this on our prior podcast — it's kind of this dark art of contract negotiation where the provider assumes that whatever rate they contract will get negotiated down by the payer, so they inflate the price that they present in those contract negotiations and it just spirals upwards. That's actually what a large portion of the driver of the increase in price year over year in healthcare has been — simply that contracting motion. No basis in reality of actual cost structure of the providers, though arguably some of that might have been wage inflation related in the last couple of years.
--:-- That dynamic, that hostile relationship, has been one of the primary drivers of some of the nefarious behaviors that result in this continuous bloat on the system side. That obviously contributes to a lot more systemic costs. 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.
--:-- Host: It feels like one of the main complaints from 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 certain things have changed more recently, or at least there may be certain unlocks that allow founders to step in and build within this intersection of healthcare and fintech. What gets you excited today about perhaps new openings within this arena and what may have changed over the last few years?
--:-- Julie Yu: It's rare that people talk excitedly about regulation, but healthcare is one of those domains where regulation can be a tailwind for innovation and category creation. There are lots of historical examples of this. The most traditional example that a lot of people point to is electronic health records did not really exist in 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. That was the sea change that drove so much of the digitization of our infrastructure layer of healthcare.
--:-- Similarly, right now, we have a number of regulatory tailwinds that are driving payment-related reform. We have things like a price transparency law 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 are still lawsuits in play. People are still pushing back. But the fact of the matter is, we now have thousands of hospitals and hundreds of payers who have published all this data.
--:-- Obviously, they're publishing it in forums that make it very difficult to parse. Entire companies exist to actually process that data. We're investors in Turquoise Health, one of those players, which makes it actionable in the context of their contract negotiations and the way that they engage with both providers and patients. 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 with people having no place to hide when it comes to comparing prices between two different providers who are providing the same service at widely different prices. That's been a massive change that is only just starting to play out. I think we still have years for it to really seep through the system and address a lot of the challenges that we described earlier.
--:-- Host: 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?
--:-- Julie Yu: I have some degree of sympathy for these businesses. Effectively what we're doing is taking proprietary contracts and publishing them on the web. 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 — we're able to negotiate special rates with our counterparties, and we lose all of that competitive edge if we put it out there. That's the crux of most of the pushback from the incumbent lens.
--:-- The counter argument is that there had been previous laws that required things like upfront estimates for consumers. If you called your hospital, you were mandated to be able to present an estimate prior to coming in for a certain procedure or a certain set of services. From a consumer lens, those never really got implemented or enforced in a way that was reasonable, in my opinion.
--:-- I remember in my past life when that law went into effect in the state of Massachusetts, we actually did a bunch of secret shopper calls to hospitals to see what that user experience was like. You basically got told, "Oh, you'll get a call back in an undetermined amount of time." It was generally one monolithic number with no explanation as to the range of assumptions that went into that number. You'd get the call back like a week later when you might have had the procedure two days after that call. The whole implementation was really poorly executed.
--:-- The argument on the consumer side is, "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." Those are the siren calls on both sides of the argument.
--:-- Host: 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.
--:-- Julie Yu: Just one more call out, which we've talked about before: all of the movement towards value-based payment models. A lot of the reason that 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. If the service was not delivered, you didn't get anything.
--:-- Value-oriented models tend to be much more bundled in nature — either getting a set upfront rate or price for a set of services related to an encounter. A value-based orientation around a knee replacement surgery would be, rather than charge for every individual doctor 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. The provider is at risk. 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, then they get to pocket the difference.
--:-- 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. There's been a whole set of regulation around driving adoption of those payment models. Medicare Advantage 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 promising means to align incentives in a fundamentally different way that results in much more transparent behaviors.
--:-- Host: Absolutely. And maybe before we jump into the fintech side, I wanted to clarify the No Surprises Act and the Cures Act. It feels like those also were pretty fundamental to changing this incentive structure that you've talked about so far.
--:-- Julie Yu: The No Surprises Act is very closely tied to the Transparency Act, which basically limits the ability to do surprise out-of-network billing for patients. You've probably read in lots of news articles about incidents where you go get a surgery in an in-network hospital, the actual surgeon is in-network, but the anesthesiologist is out of network. All of a sudden, you're getting a bill for just that slice of the service at a rate that's outsized relative to what you would have had to pay had it been an in-network doctor as part of that procedure. This act limits the liability on the side of the patient and the provider in those situations.
--:-- The Cures Act is a little bit orthogonal to fintech, but certainly related. The main provision that people care about is patient data access — enabling patients to readily access their full medical record data and limiting the cost of access. It used to be the case that you'd have to potentially pay a couple hundred dollars to get access to your own medical records on paper or even a CD-ROM. 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 collect all your medical records from multiple providers in a single swoop and have agency over them.
--:-- The way that it relates to the fintech universe is that a lot of insurance adjudication acts require access to patient data to approve 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 an indirect impact in the fintech world.
--:-- Host: Absolutely. It's kind of crazy to even reflect on the fact that some of this system is still running on faxes, on CD-ROMs. Not some — it's like most. It's surprising, but at the same time, I guess it aligns with 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. David, maybe you can take this on. How has the fintech infrastructure or technology that has been built up over the last couple of years or decades fundamentally changed and can be introduced into this new world?
--:-- David Haber: I'm going to jump into that. The other thing I would just add is I think it's important to emphasize that we just lived through a global pandemic, and that affected the entire healthcare ecosystem. A lot of the question that entrepreneurs ask themselves when they're embarking on building a business is, "Will I be able to sell into historically slow-moving incumbents?" The pandemic created a sense of urgency because everybody went remote, because both the provider and payer systems were challenged in different ways. The willingness and urgency to adopt new technologies is an interesting tail-ended opportunity for new entrepreneurs. Obviously an unfortunate one, but the reality.
--:-- Certainly one of our core theses at a16z has been that every company is going to become a fintech company. Julie and I have been riffing that either every healthcare company is already a fintech company or is certainly going to become a fintech company. In large part, as you mentioned, that's been enabled by new fintech infrastructure.
--:-- Our partner, Alex Rampell, has written quite a bit about fintech really becoming a third leg of a business model stool. Historically, most technology companies' core monetization mechanisms were either selling advertising to generate revenue or it was transactional in nature — maybe you're paying a subscription or buying a product. Increasingly, fintech is becoming that third stool which can become embedded within all different types of technology companies as a way to drive engagement, retention, or certainly monetization.
--:-- There are companies delivering banking as a service, enabling you to offer new card products or embed lending or embed payments. All of these are basically primitives that can be plugged into transactional points of intent.
--:-- David Haber: Anytime a consumer is going to transact, there's an opportunity to attach a financial product to finance that transaction, or for a small business owner, to accelerate the working capital. We'll probably get into this, but a lot of the providers in the country are small businesses at the end of the day. They're delivering services and then waiting up to 90 days or longer to get reimbursed by these big insurance companies. They've already delivered the service right to the patient, and that can create a lot of strain in their own working capital and ability to pay employees.
--:-- David Haber: One of the biggest reasons small businesses died—I saw this intimately through Bond Street—was just working capital. So, one tangible example of a really interesting opportunity at the intersection of fintech and healthcare that we've invested in is a company called Juniper. They built billing software for highly recurring healthcare. Their insight was that areas like the Ebro 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. The recurring nature of that experience creates the opportunity to automate a lot of the back-end workloads more significantly than a one-off elective procedure.
--:-- David Haber: They built technology that submits health insurance claims programmatically to the insurance companies, to the payers. They take on the revenue cycle management and deal with all of the denials and adjudication that comes with submitting those claims, really empowering the provider to get paid by the payer. What's unique about that, having built a small business lending company, is that because of the position they sit in, they understand the entire working capital or cash flow lifecycle of that practice. They're effectively processing 100% of their revenue through their system. Every patient that walks through the door, they're submitting the invoice to the payer, and they're seeing statistically when, how much, and at what rate those services are being reimbursed by the insurance companies.
--:-- David Haber: By the way, they get paid three to five percent just for that—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 from a fintech perspective, if you understand statistically the probability of repayment and the timing of that cash flow, you can extend credit. You can advance working capital to the small business owner, to the provider, and let them get paid tomorrow 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.
--:-- David Haber: That's a really important model for a lending business because you're not getting negatively selected. They're not cherry-picking a specific invoice that they believe they may never actually get reimbursed. You, as the lender, are taking that credit risk. You're seeing 100% of their revenue and 100% of the data and statistical probability of repayment. So you can extend credit or factor it entirely, and deliver that as a value proposition to the provider: if you work with Juniper, you don't have to wait 90 days to get reimbursed. You can continue scaling your business, serving your patients, which is really why you started this practice in the first place.
--:-- David Haber: That was the other key insight from Bond Street: most of these entrepreneurs started their businesses because they were passionate about their product or service or craft, not because they wanted to be the CFO of their business. The ability to abstract away a lot of that financial complexity and drive efficiency for these small business owners is powerful. I was an angel investor in the business before joining a16z. In my first conversation with the founders, I said, "It's awesome that you guys are a fintech company." They said, "What are you talking about? We're a healthcare company." I said, "You're in the payments flow. You're seeing the working capital lifecycle." It's been amazing to watch them come up to speed on the fintech side. Six months later, Christophe, the CEO, said, "Dude, you're totally right. We're a healthcare company and a fintech company."
--:-- Host: Exactly. This is the intersection that both of you have been working on exploring. I think you mentioned this earlier, David, but there is this unique perspective when you have the expertise from both sides. You understand what these providers need and want. I love that you pointed out that most of them want to provide care and operate. They don't want to be in these deep, complex payment workflows and dealing with invoicing. So I think that's one very clear area where you've identified a problem that these providers have. We talked about the provider, the payer, and the consumer. 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.
--:-- Julie Yu: Yeah, I'll key off of a couple of themes that Dave mentioned that I think are super relevant to a lot of healthcare fintech 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 underwrite risk in a different way than any single player who's in the end-to-end value chain of healthcare payments. The second piece is how do you take a product that exists in other places and then make it understand healthcare.
--:-- Julie Yu: One example that covers those two themes in a completely different space than Juniper, but with a lot of the same rationale, is a company called Thatch that's doing this in the employer-sponsored healthcare space. If you think about what David was saying about SMB business owners and no one going into business to be a CFO, the same thing applies to a company. What's the number two line item in their P&L outside of payroll? It's typically healthcare expense, because you have to cover 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. Yet as a founder, you're faced with having to choose your poison: what health plan do you provide for your employee base? Or do you provide an ICHRA product that gives them cash to go shop on their own? Those are non-trivial decisions with real tax and administrative implications.
--:-- Julie Yu: What Thatch is doing is creating a card. It has all the characteristics you would expect of a card, but it also understands healthcare in the sense that they've coded it so it can pull from your healthcare savings account, your HSA account. The spend is tax-advantaged. There's a whole layer of logic that needs to be codified into the card so it understands what it can be used for under what circumstances and treats those payments one way versus other payments outside of those rails.
--:-- Julie Yu: Because Thatch is then in the flow of all of the healthcare expenses that the employees or consumers are taking on, they can have a better underwriting chassis to suggest better healthcare benefit products to the employer. Every year they can optimize their spend, optimize the categories they're covering, and deprioritize things people are not utilizing. This notion of the last mile utilization data around healthcare benefits is kind of a holy grail problem. We all get coverage for our healthcare expenses, but it's very difficult to track exactly what benefits are being used over time. I think that's another spin on some of the same themes.
--:-- Host: 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 they can utilize it more effectively. Are there any other themes you'd call out here in terms of how founders can look at this industry and say, "There's this data opacity. Let me solve that"? Or any other gaps that you see that are maybe just waiting to be addressed?
--:-- Julie Yu: So many. We wrote a piece a few months ago called "Payviders Unbundled." We looked at the biggest companies in the healthcare space and in markets in general. Most of them are large insurance companies that also have a provider component to their business. They're called Payviders because they're vertically integrated across insurance and care delivery services. We did a breakdown of what are the drivers of their business models, what are the key components, and what are opportunities to do what they're already doing ten times better as a startup and directly compete. We also articulated a number of underserved areas that those incumbents are not really paying attention to where there's white space opportunity for startups.
--:-- Julie Yu: A couple of examples: core insurance products are obviously a place where there's a lot left to be desired in terms of user experience, cost, and the set of services you get as part of an insurance plan. But we also recognize, especially from seeing insurtech play out outside of healthcare, that it's a really hard business to build and a really hard business model to get right. That said, we think there's a huge opportunity for neo-carriers—upstart health insurance products built in a tech-native fashion that focus on user experience, use data in novel ways on the underwriting side and the consumer engagement side, and interface with their providers in a helpful way versus being belligerent as they traditionally might have been. That's a hard and non-trivial type of business to build, but certainly one that's ripe for opportunity. We have a few in our portfolio like Devoted and Firefly that are pursuing business models like that. That's an example of competing with incumbents but emphasizing user experience, cost structure, and efficiency using technology.
--:-- David Haber: Another article we wrote had the title "Healthcare FinTech's Biggest Prize" and was about the Financial Operating System for Healthcare. The core ethos was that you have a lot of patient data living in practice management systems or in an EHR that are often unbundled or separate from the cash flow lifecycle of these providers. Understanding cash in and cash out in terms of expenses—there's a huge opportunity to reconcile or synthesize both sides of that equation. The example with Juniper is just a piece of it—enabling a provider to more efficiently process claims and understand the full cash flow lifecycle of their practice. But the implications and wedge for starting there are pretty significant because you could extend into the consumer-facing experience, get into scheduling and estimating healthcare expenses, get into payroll and other expenses for the provider, and enable the small business owner to forecast their cash flow and run their practices more efficiently.
--:-- David Haber: This analogy doesn't just exist at the small business level, but at some of the largest health systems level. There was a great graphic—maybe Julie, you can talk about it—which was like the pilots flying blind, not understanding their own cash flow lifecycle, even for some of the biggest provider networks in the country.
--:-- Julie Yu: Yeah, we were astounded in the market work that we did on that one. We assumed that the large enterprises have their act together and it's really the SMBs that need some of these tools. But it turns out it's a relatively universal problem—this notion of a system of record, a source of truth for the finances of healthcare providers. That has significant implications on broad swaths of the workforce. As David mentioned, a lot of these CFOs were saying there are months where they don't know if they can make payroll. These places that manage staff of hundreds of providers flying blind is quite incredible. So there's a massive opportunity there.
--:-- Julie Yu: I think those are also great examples where you can take software-oriented products that manage financial insight, but add on financial services products to contribute to the financial health of the practices using them. That gives you that bifurcated software plus fintech revenue stream dimension that you see outside of healthcare as well.
--:-- Host: 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, "Maybe I do have a background in fintech but not healthcare, or vice versa." That might sound intimidating—to not really understand, say, if you are coming from fintech, the deep complexity that exists in this world. 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?
--:-- Julie Yu: Simply put, if you're from healthcare, go find your David Haber. And if you're in fintech, go find your Julie Yu. But in all seriousness, we should acknowledge that each individual space is super hard, let alone the intersection. There's a lot of esoterica that makes it really challenging to know just off the cuff. As David mentioned, we truly believe in this kind of intersection thesis. We think the only way to get it right is to have hybrid DNA on the founding teams of these companies, such that you truly have expertise on both sides of the aisle.
--:-- David Haber: I think both healthcare and fintech entrepreneurs are often kindred spirits. On each side, both got in because there was some overarching mission behind the business and problem they were trying to solve. Both healthcare and financial services are fairly complicated, highly regulated industries. So it's not that you're coming from building a DTC e-commerce business into healthcare necessarily. You're coming from the fintech side from a place of understanding capital efficiency and regulation, and now applying some of those insights to the healthcare space. Fintech has a tendency to intersect across a lot of different categories and is becoming very much of a business model. You've seen that play out over the past five-plus years in areas like vertical software, where companies started by solving a software workflow in lots of different categories, and then layering in financial products as a business model. People are now recognizing that that same playbook and opportunity exists in the healthcare side. Partnering up, as Julie mentioned, with somebody who understands those lit problems—whether from the provider, the payer, or the consumer—and taking a lot of the same playbooks that exist in fintech, which we're very happy to help with, and applying those in healthcare is a huge opportunity.
--:-- Julie Yu: One more thing I would add in terms of the investor lens, which is going to sound self-serving but it's really a serious thing to think about if you're a founder in this space: the capital requirements of these companies tend to be pretty unique. If you're building an insurtech business in healthcare, there are regulatory requirements around cash reserves and what kind of financial profile you need to have to stand up. And it's state by state. It's a pretty complex landscape, and 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 for with other types of business models. 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.
--:-- Host: 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. Regulation has changed. The technology has changed. Fintech infrastructure has changed. So there is an opening, potentially several openings and gaps, for founders to tackle. But also, Julie, I think what you pointed out is really interesting—that this is a tough intersection to address as a founder. There may be specific capital requirements. Given that a16z is focusing on this intersection and funding companies in this space, and you two have studied this space, I wanted to give you the opportunity if there are any gaps that you still see. If a founder is listening and wants to raise their hand and say, "I want to fix this problem," anything that you'd like to highlight in terms of what you're looking for—a specific problem you'd like to see solved or the type of founder you'd like to see get involved.
--:-- Julie Yu: I'll put out one that I consider a grand challenge of healthcare from an insurance perspective. There are some specific examples right now in the market that are unsolved that need to be solved on the basis of trend. The biggest class of insurance coverage in our country is employer-sponsored. Most people have some sort of health benefit through their employer. The fact of the matter is that churn—the turnover in a given employee base—tends to be a few years. Every few years, people change jobs. The period of time you are on a given health plan is relatively finite and short. But there are a lot of expenses in healthcare 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.
--:-- Julie Yu: If I'm your insurance carrier and I'm going to eat that cost, I'm not going to want to unless I'm going to have you on my plan long enough to see the ROI. That results in a lot of seemingly not understandable blockers on the insurance side as to why they're not covering X, Y, or Z. A couple of examples prevalent right now: Ozempic and these miracle drugs that result in weight loss. They're expensive—thousands of dollars a month. Employers are really struggling with how to think about supporting these drugs in terms of coverage. There's been widespread adoption amongst folks willing to pay out of pocket, but that's not affordable for the vast majority of Americans. If I'm an employer willing to foot the bill for thousands of dollars per year for this drug, but when it comes to weight loss, obesity, metabolic health, the potential heart attack I avoided down the road—I'm not going to see that benefit for many years, beyond the time horizon you're going to be an employee for me.
--:-- Julie Yu: Another really interesting example we encounter, given that we invest in biotech companies on the other side of my fund, is these one-and-done therapies. We've heard about miracle gene therapy drugs where with one procedure, one injection, you cure a disease that otherwise might have been fatal. These drugs can cost upwards of a million dollars—a very non-trivial expense, but obviously significant impact on life expectancy and quality. But again, an individual carrier who pays that fee upfront might not see the benefit or ROI for the period of time the employee is on their plan.
--:-- Julie Yu: So there's this huge problem around how do you properly underwrite these kinds of products as people switch between multiple health plans? Is there some vessel or chassis you could 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 no single one has to bear the full burden? It's a very non-trivial problem, but it's increasing in prevalence in terms of those kinds of products. We've spent a lot of time with incumbent insurance carriers. They have not figured this out yet. I do think there needs to be a consumer-centric type solution that solves for this—where the consumer is aware that they are carrying certain benefits across multiple years and multiple health plans. I would love to see that problem solved in some way, shape, or form, probably in partnership with startups and incumbents, but requiring a different type of data model and a fundamentally different approach from the consumer lens.
--:-- Host: That is so fascinating. Julie, just as a clarifier, is that also why most insurance companies won't cover preventative medicine because of that same dynamic?
--:-- Julie Yu: Yeah, it's a great point. Yep, exactly right. 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 will accrue benefits over multiple years because those people tend to be stickier on their health plans.
--:-- Host: Well, I think that's clearly such a big and important problem to be solved. David, what about you? Does anything jump out as this grand challenge that, if solved, could really fundamentally change this ecosystem?
--:-- David Haber: Yeah, we've talked a lot about provider issues and challenges that patients have. I think we've talked less about the payers. One of the big initiatives that we have focused on, certainly on the fintech side that Julie and I have been beginning to work on at this intersection, is building deeper connectivity to all the incumbent institutions. In fintech for too long, the technology fintech ecosystem and the large incumbent traditional financial services ecosystem were kind of parallel universes. I think that was really a mistake, because I certainly saw this inside of Goldman. The culture of these institutions is changing very quickly. Their 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.
--:-- David Haber: Yet so much of the workflows of these institutions, even in a place like Goldman which is probably one of the more progressive, tech-forward large financial institutions in the world, are still human-driven processes. Thousands and thousands of folks sitting in Salt Lake City or Dallas or Bangalore processing trades. You can imagine that the healthcare system is in a similar place or likely even further behind. One of the opportunities we see here at a16z is just being a bridge between the entrepreneur and that startup ecosystem into these large incumbent institutions. Helping both us and the entrepreneur build authentic, non-transactional relationships with key decision makers—folks running these really important divisions and business units. That can radically accelerate the go-to-market or relationship building for these smaller companies who often find it very difficult to navigate these large organizations.
--:-- Host: For the audience, it'd be helpful to know how big these companies are. How many people work at Goldman? And then Julie, how many people work at UnitedHealth Group? How many employees are we even talking about?
--:-- David Haber: Goldman was, I think now something like 45,000 employees. The last was like over 40 billion in revenue. UnitedHealthcare is significantly bigger than that.
--:-- Julie Yu: UnitedHealthcare is literally the biggest publicly traded healthcare company. I think it's like half a trillion dollars at this point market cap. The latest numbers I have are 380,000 employees. A lot of those are 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, a payer, talking specifically about their call center operations. Because 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.
--:-- Julie Yu: So just imagine—this gets to the point we're making here. These organizations now recognize that they need to engage with innovators to fundamentally transform their businesses, reduce the cost structure through technology, and better engage consumers. At the end of the day, their business is heavily reliant on member engagement as the means for them to manage the costs of healthcare delivery by doing the proactive things, as you were saying, Steph, and getting ahead of potentially high acuity, high cost encounters. I think there's this special window of time where the stars are aligning in terms of what the innovators are working on and what they're great at—what they're much better at, frankly, than the incumbent players—and also what the incumbent players are recognizing that they need as a superpower to move forward.
--:-- David Haber: I'd say for any fintech entrepreneur who is healthcare curious, or healthcare entrepreneurs who are fintech curious, come hang out. Julie and I are often hosting dinners at this intersection in New York and San Francisco and other parts of the country. We'd love to spend time with you. We're really excited about the space, if you couldn't tell. We think there's some massive businesses to be built. So we're excited to hear from you.
--:-- Host: 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.
--:-- Julie Yu: Amazing. Thank you. This is great.
--:-- David Haber: Thank you.
--:-- Host: 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. Bye.
