Why You Should Be Optimistic About Fintech in Healthcare - Part I
Why You Should Be Optimistic About Fintech in Healthcare - Part I
An Outsider Approach To Solve Big Problems
Sources: ANS, anahp, Marcel Van Oost
Part I: The Evolution
Fintech in healthcare is a huge opportunity. Julie Yoo, of a16z, remarked in an interview for Healthcare Dive about fintech’s potential in the digital health market, "We’re in 1999 of the internet era". As a huge optimistic about this thesis and thrilled to witness it happening in the US, what about Brazil and Latam? The undeniable fact is that healthcare, as a huge market, faces so many pains and challenges, opening a lot of space to innovative solutions. This the inaugural part of a series called "Why You Should Be Optimistic About Fintech in Healthcare".
Before jumping on the content, a brief introduction is in order. My journey as an entrepreneur began at this intersection back in 2016, co-founding Medicinae Solutions alongside Luciana Lessa. In 2017, we introduced our MVP to initial clients, fast forward and by 2021 we were acquired by NASDAQ:AFYA. Our endeavor, powered by all the ups and downs, was an amazing experience and we were able to build a solution that helped doctors to get paid better and faster. Our proudest achievement? A whopping 87% client base originated from referrals, each of whom would recommend us to an average of 4 medical peers. Working within the provider revenue cycle made me passioned about the transformative potential of financial solutions in this vital sector. This report represents my personal insights, experiences and curiosities on the topic. While I strive for accuracy, please forgive any mistakes (sometimes data gets confused) and feel free to disagree. I genuinely hope you enjoy the ride and its potential impact!
Upon examining Marcel Van Oost's graphic detailing the evolution of digital payment methods, I became curious about the trajectory of healthcare payments in Brazil. The first impression? We are trailing behind. Although we did move towards digital billing via TISS, a visit to a hospital demands you to sign a lot of papers. Automation, digitization, data intelligence, great UX and innovative trends seem absent in healthcare payments. While other markets are rapidly advancing, healthcare billing (payment) is just far away. Yet, there are startups creating new solutions to longstanding challenges. This led me to build this graphic showing the emerging players in this niche. I feel excited both for the ongoing shifts but, especially, for what is about to come.
How it Started
The journey begins with an important regulatory initiative back in 2003, when ANS (National Healthcare Agency) in collaboration with IDB (BID for the Brazilians) created TISS - a the mandatory standard for electronic healthcare data exchange. In 2012 it became mandatory for all healthcare insurance companies to adopt TISS, digitalizing and standardizing billing. Unfortunately, providers still use a lot of paperwork manually, transcribing then data digitally. The result? A complicated process with a lot of codes, operational filling effort and excessive friction.
Turning to the regulatory breakthroughs, huge wins can be seen in other markets. The transformative approach the Brazilian Central Bank brought to financial services over the last decade is impactful. Such proactive agenda not only benefits the market, but mainly the population that can access so much more alternatives today than in the past. The global success story of PIX, driven by regulation, offers hope of similar impacts in healthcare.
The First Wave
Considering TISS the foundation, the "Evolution of Healthcare Payments in Brazil graphic" identifies 3 distinct waves in the payment landscape. The first one was an evolution of the regulatory framework, giving rise to companies and products optimized for insurance billing better. This transaction triangulates 3 different stakeholders: patients, payors and providers. Orizon and Carefy came to help insurance companies, whereas TKS, Feegow, Shosp, Medicinae, Intuitive Care and Avatar championed providers. Noteworthy to understand that each of these companies had distinct strategies. For instance, Shosp and Feegow emerged as vertical SaaS solutions for providers, offering several features for medium and big clinics, but with a strong value proposition in the revenue cycle improvement. In contrast, Medicinae tailored its product for individual doctors and smaller, drawing parallels with fintech trailblazer Guia Bolso, connecting automated inputs from insurance receivables (instead of banks data). Our solution approach helped doctors to manage their payments, plus unlocking them to receive upfront, rather than waiting months to get paid. The credit product was an innovation at the time, as banks and credit players did not understand the specific insurance billing dynamics and its rules, underserving this segment with commoditized products for SMBs.
During this phase, out-of-pocket flow didn't capture the spotlight. It was a place to see doctors being paid via paper checks and cash. I can remember a specific use case from Medicinae that a doctor kept around BRL 15.000,00 (USD 3.000,00) in cash in his car trunk. Doctors usually do not have any financial education, so we often see behaviors like this one. By that time, it was also very usual to hear patients saying they still use bank checks just because it was the main payment method with their physicians.
The Second Wave
However, the focus changed in the the second wave. Startups like Dr Cash, Vidia, Flip Saúde along with vertical software solutions such as Clinicorp and Capim leaded innovations out-of-pocket payments. To offer context, only 26% of Brazilians (as per latest ANS data) are healthcare insured and while the public system (SUS) presents some good achievements such as the vaccine capacity (a global success case), it falls short in delivering a good healthcare system. Even if we already used installments and financing, usually that was not embedded in the patient journey. Especially financing was not customized for the patients’ needs with credit scores making the same analysis as if you are buying a car, for instance. What happens is that usually people have a monthly payment capacity, but that is not transmitted into limit in their credit card or in financing available offers. So Dr Cash enabled payments in up to 24 months, Flip Saúde created different payments plans and some patients started to get care the way it fits their pocket. Vidia also delivered innovation by how you could offer more effective pricing in out-of-pocket surgeries that hospitals usually were not focused. Medicinae launched its second product with an out of pocket payment solution, building a one stop shop for private receivables.
These solutions also created a much more friendly and customer centric payment experience. Just adding a patient-doctor perspective, a Medicinae client mentioned he usually had to charge a father whose son was going on a surgery. For him, it was a tough moment and to have maybe the patient card declined due to an unusual high value transaction was a really bad experience. In his own words "it is not as you are paying for a coffee or a new shirt!". These companies understood how they could improve the entire experience.
The Third Wave
From 2021, the industry began experiencing its third wave. Still in the early days, 2 patterns have emerged. First, healthcare ecosystems are integrating financial services. Bionexo, a leading vertical healthcare SaaS, acquired Avatar and TKS (BeeCare) in 2022. In the same year, Doctoralia, a relevant healthcare marketplace and part of the Docplanner Group, followed this trend with the acquisition of Feegow. Afya, Brazil's leading medical education group, also went shopping and acquired Medicinae and Shosp in the previous year. MV, a relevant software for hospitals, introduced MV Bank to expand its solutions with financial services. It's noteworthy to see banking giants joining the segment, like Bradesco Group with Orizon in the past and Banco BV with its corporate venture capital arm, investing in Dr Cash in 2022. M&A, building in-house or corporate venture investing are on the spot. Players in healthcare are also exploring the path other segments did such as e-commerce, marketplaces and other vertical SaaS before. Mercado Pago is maybe the best Latam case of how successful to bring fintech solutions to their ecosystem can be. Usually, these systems have a competitive advantage not just on distribution, but on data and understanding their stakeholders needs. Banco BV move is someway different, but to see banks entering this market is not something new in the US, for instance, where you can name Instamed big acquisition by JP Morgan.
The second pattern marks a focus back on the insurance financial flow. Problems are still out there, not solved and actually in a survival mode momentum. For each USD 1,00 received in premiums, USD 0,98 goes to medical and administrative costs. Fraud, waste, operational burden and other pain points continue to rise. It is a systemic risk that impacts providers, payors and patients, as well as other stakeholders in the value chain. But we also have good news with rising startups on the block, such as Kuri and Arvo, addressing crucial problems, one focusing on providers and other on payors.
Results and The Future
Some outcomes are compelling. Millions are already impacted by these solutions, according to reported metrics:
Orizon states their solutions have 150 million transactions annually.
Intuitive Care processes 12% of all providers insurance revenue cycle
Carefy covers more than 4 million patients.
Vidia delivers an average 60% cost reduction on surgeries.
Flip has already BRL 1 billion in credit requests.
Arvo brings experience of over 80 million medical bills processed.
Recently, new spotlight for this thesis emerged: early stage venture capital funding. Although some startups have already been VC backed before, to watch top tiers funds such as Kaszek and global funds in the pre seed round stage is a milestone. As healthcare is a segment that sales cycles and product development can take much more time (please read Bessemer Venture Partners mandatory report: 10 Laws of Healthcare), funding is a powerful friend. It is also a niche that demands strong investment in regulation/compliance issues, which can be both time and money consuming. Finally, to have people like One VC, QED, NXTP, Canary, Grão, Norte Ventures and others onboard with portfolio companies in this segment is a great validation of how these opportunities are big enough to a venture capital thesis.
What comes next? If US with great cases such as Cedar, Instamed, Optum Bank and so many others, are still in 1999, I strongly believe Brazil and Latam are also in the very early days. Be it healthtechs, fintechs, startups or conglomerates, the focal point is the innovation addressing core challenges in such a huge and important market. But there is long road ahead… New technologies will play a key whole in this evolution too with embeded fintech, infra structure, AI and tokenization as key drivers.
It's pretty exciting to witness what is about to come!
References:
BSP 10 Laws of Healthcare: https://www.bvp.com/atlas/roadmap-10-laws-of-healthcare)
Julie's Woo Healthcare Dive's interview: https://www.healthcaredive.com/news/julie-yoo-andreessen-horowitz-fintech-digital-healthcare/692341/
Marcel Van Oost's Connecting the Dots in Fintech: