Healthtech x Fintech’s biggest prize: The Financial Operating System for Healthcare

Consider this: most healthcare professionals are flying blind when it comes to their finances.

When a medical provider treats patients, they don’t really know how much they’re getting paid, when they’re getting paid, and whether that payment is more or less than they owe. In many cases, providers lack insight into whether they will be able to make payments based on the expected supply of cash from insurance and patients. This is true for most independent medical practices, and even many larger hospital systems.

This is particularly tragic after what was arguably one of the toughest years in recent history for providers in terms of financial performance. By 2022, even the most prestigious hospitals were seriously unprofitable, and overall visit volumes and payment rates showed volatility that has been detrimental to most traditional medical practices.

For healthcare professionals, the electronic health record (EHR) system serves as the clinical source of truth, but an economic source of truth does not yet exist. Most industries (not to mention $4 trillion industries) don’t work this way!

Why is it like this in the healthcare system? It has to do with the flow of funds, and the lack of healthcare-specific accounting and financial planning systems that track that flow of funds. Here is a typical example of how money moves when a patient visits a provider:

A patient visits a healthcare professional. They are asked to share their insurance information and accordingly they pay the copay amount and – if the provider runs an eligibility check – that part of the bill insurance does not cover. Or the patient will pay out of pocket or be sent a direct bill if he does not use insurance.

The provider then delivers care and sends a summary of that care to an internal or external medical biller. This person converts that documentation into billing codes (known as “CPT codes” and “ICD codes”) and figures out how to format the claim to be accepted by the insurance company. Each insurance company and plan product may have slightly different forms and submission requirements.

Then the invoice issuer usually does not send the claim to an insurance company (as one might think). They send it to something called a clearing house, which is an intermediary between the provider and the insurance company. The clearinghouse reviews the claim, and then may reject it (if, for example, the CPT code does not match the services provided), or send it to the insurance company if everything appears to be in order.

Once the claim is with an insurance company, the insurance company will adjust the claim based on factors such as contract agreements, secondary payers, benefit coverage, and expected copays and insurances, and send this information back to the clearinghouse. The insurance company will then pay the doctor what they decide they should.

Then, up to 90 days after they submitted the claim, the provider will receive that money (in most cases via a paper check in the mail) and try to understand why they were paid that amount by manually scouring their bank account, EHR, RCM, and unique payer contracts. If they are able to catch the payment discrepancies, the provider can try to fight for more money, or go to the patient and try to collect what the insurance didn’t pay.

In other words, it’s no wonder medical practices have no idea how much money they’ll make and when!

The above process is called revenue cycle management (RCM) and there are countless vendors handling this (it’s a multi-$100 billion industry today). But most of them do not track supplementary accounts receivable in relation to accounts payable and the practice’s actual cash balance. As such, we have found that healthcare providers are fraught with financial pain points, including but not limited to:

• Disconnect clinical and financial data: Most physician offices think of the EHR and/or Practice Management System (PMS) as the operating system (OS) that runs the practice. These tools include some billing data, but are far from sources of financial truth. The fullest (but rarely complete) financial picture is often found in general ledger (GL) tools, such as Quickbooks and Sage, or enterprise resource planning tools (ERP), none of which are purpose-built for the complexities of healthcare. GLs and ERPs are rarely integrated with a practice’s EHR or RCM, but if they are, it’s usually a hacky plug-in that breaks every time payer contracts or CPT codes are updated. This leads to inaccurate revenue figures and…
• Shocking Manual Income Reconciliation: Given the lack of EHR integration, accounting departments export spreadsheets and manually compare EHR codes, RCM data, and final insurance payments at the end of the month or quarter. This leaves considerable room for error and makes proactive cash flow adjustments almost impossible. We’ve heard a number of anecdotes from practice and hospital CFOs about knowledge of millions of dollars they found were owed many months after the fact due to accounting errors.
• Rudimentary Business Forecast: Most strategic planning is done by exporting historical financials (which are often inaccurate) from the general ledger, and using that data to build ad-hoc models in spreadsheets. In addition, most practices do not have a good sense of how much they expect to be paid by each payer and on what timelines, making cash flow management a challenge.
• Lack of health-specific tools: The vendors that make up the current financial technology stack for providers are not healthcare specific, meaning they were not built to easily capture the complex flow of money in this ecosystem. Nor are they built for the coming wave of increasingly complex financial structures (eg, value-based payments) and Medicare and Medicaid regulatory compliance.
• Limited access to debt financing: With manual revenue reconciliation processes making the timing and extent of outstanding claims payments difficult to predict, healthcare often struggles to access affordable debt financing, as lenders prefer to guarantee simple and repeatable cash flows in a business. This has many consequences for the practice, from the inability to expand (eg opening a new practice) to insolvency (eg the inability to take a salary).

Although the above may feel like an insurmountable web of administrative problems, with major pain points come major opportunities. We at a16z believe we are in the earliest days of a major wave of fintech innovation in healthcare, and Financial OS for Healthcare can serve as the system of record for it all. A healthcare financial OS will act as a real-time, action-oriented engine that ingests financial data from EHR, RCM, banking and credit products, and payroll to become the financial system for the practice; predictive analytics to highlight opportunities for proactive and reactive improvements; and a trusted source of truth for lenders, supplier partners and insurers when underwriting loans or contracts. We are looking for builders to tackle any or all of the product features below as a wedge into the wider opportunity:

• Automated budgeting and forecasting: Streamline and up-level financial planning and analysis (FP&A) by pulling in accurate, comprehensive and real-time financial data that enables finance teams to refocus their time on strategic financial assumptions and decisions.
• Smart revenue reconciliation: Ensure consistency across claims (EHR), submissions (RCM) and final record (GL) tools, again primarily via real-time data integrations and updated chargemaster linkage.
• Financial regulation modules: Provide customized accounting infrastructure for complex business structures such as those in value-based care or managed service organizations (MSOs). Help clients navigate federal and state-by-state regulations and reporting.

Products with these capabilities are well positioned to become the financial source of truth for accounts payable, accounts receivable and other payment streams throughout the practice. From here, the doors open to an even broader product footprint (and higher annual contract values) by integrating adjacent financial products, such as merchant bank accounts, credit cards, expense management, asset-based lending, patient finance, claims coding, and even data-driven revenue cycle management and payer contracts. A financial operating system with this reach and centrality to a practice’s financial health holds the promise of reorienting the focus of EHRs (and care) from billing to patient outcomes.

Leaning into financial services has become more possible with the widespread proliferation of fintech infrastructure, which makes it easier than ever for non-bank entities to offer financial services to their existing customers, leading to higher LTV without incremental CAC. In many cases, the registration systems are uniform better better positioned than banks to guarantee said customers, since they have ongoing access to all important operational data for the business. In fact, we believe either wedge – software or financial services – could be viable for an initial go-to-market approach. That being said, we believe it is important that any business truly pursuing the full financial operating system for healthcare embed itself in the platform architecture referenced above and lay down solid roots in the form of core software functionality.

As healthcare increasingly absorbs more of the nation’s GDP – while still relying on disconnected, outdated economic rails – building in the healthcare x fintech space becomes more critical to the health of the system as a whole. If you deal with any or all of the points described here, we’d love to connect.

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