Healthcare & Money

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Here’s the situation.

First, there are the patients:

“Approximately 14 million people (6% of adults) in the U.S. owe over $1,000 in medical debt and about 3 million people (1% of adults) owe medical debt of more than $10,000.”

Then there are the providers:

“Many providers are finding themselves up against the wall in the face of rising expenses and declining admissions. In addition, changes in the insurance industry are having a trickle-down effect on caregivers’ bottom line.”

And then there are payers:

“With more than 900 health insurance companies operating throughout the United States … these companies offer 67.3% of private health care and 34.4% of public health care, respectively, through their health plans. Their challenges include … uncertainty over health care reform, IT/systems integration, aligning incentives with health care providers, consumer education/self-responsibility for health and providers consolidating …”

Tangled Web

Patients, providers and payers must work together to enable healthcare in the US even though their incentives are often diametrically opposed. There’s also a ton of money sloshing around the delivery and payment process, and the amount of financial friction in the system is huge – and growing. This is healthcare USA.

Platforms to the Rescue

None of this is new. The healthcare industry has been a delivery/payment mess for decades. It’s also been a political hot potato, the brunt of sick jokes and a target for entrepreneurs with just the right ideas for fixing a system that’s been broken forever. Improvement cannot, by definition, be comprehensive. There are just too many actors, too many issues and, candidly, way too many philosophies about how much or how little healthcare benefits should be provided in a western democracy.

Many companies have focused on the sloshing money problem. Some have done so from the perspective of the patient, some of the provider and some of the payer. Many of these solutions have been software applications that guide providers and payers though the process.

“Walnut” is Now “Arrow”

Walnut initially focused on patients with a buy-now-pay-later model designed to enable patients to lower their medical debt over time without interest or fees. Walnut was successful with this model, but realized that providers also had challenges collecting revenue from patients and payers. The co-founders – Roshan Patel and Yash Joshi – did what all good entrepreneurs do. They pivoted to a better business model, a larger market and, yes, a sometimes more challenging product or service.

Where are they now? Arrow now offers patient billing with insurance billing so providers can collect more revenue faster from the insurance companies that in many ways control the healthcare delivery process – which explains Arrow’s pivot to widen their support of the cost management process – otherwise know in healthcare as the revenue cycle.

Providers in the Middle

Arrow’s business model looks left and right – from the perspective of providers who make healthcare happen. Arrow looks to patients for payment with multiple options and to payers to help providers manage their cash flow. The integration of these two entities is challenging but necessary to reduce some of the friction in the healthcare delivery and payment processes.

The provider focus is the essence of the business model. Providers link patients with payers. Insurance billing – along with creative patient billing (like BNPL options) – should entice providers into the fold.

Stripe for Healthcare?

Some of this sounds familiar. According to the co-founders, Arrow is “building Stripe for Healthcare, building the financial infrastructure to make healthcare transactions faster, more efficient, and more transparent which will help patients understand costs and afford care, help providers get paid on time, and help payers accurately adjudicate claims and reduce fraud.”

This is the right – and ambitious – goal. Stripe processes payments (of all kinds, including BNPL) through a payment processing platform and a “credit card payment gateway” that enables seamless payments around and through alternative payment mechanisms. Stripe also helps reduce fraudulent transactions, look for mistakes and manage spending limits. Arrow will presumably mirror much of how Stripe operates and accept many kinds of payments – all tailored to healthcare payments. Arrow is positioning itself as an intermediary among patients, providers and payers. Like Stripe, Arrow will support numerous payment methods from credit cards to PayPal. Arrow will generate a revenue stream from healthcare transaction management, which will enable a wider, more predictable revenue stream than was the case at Walnut.

$$$ for the Pivot

Arrow raised $110M in 2022. $10M is equity financing and $100M is debt financing. The equity piece was led by Gradient Ventures, along with existing investors Newark Ventures, 2048 Ventures and Afore Capital. The debt piece was led by ClearHaven Capital. Some new investors include the Weekend Fund, AngelList, Banana Capital, Company Ventures, Muse Capital and Goodwater Capital.

Arrow can fund its pivot and continue to build the Stripe-like technology necessary to connect patients, providers and payers – which is a challenge in an industry that still faxes paper records. The good news is that time is on their side. As antiquated as healthcare can be, there’s a platform model (Stripe) to follow and a general technology adoption trend that’s encouraging even in healthcare. AI, machine learning and (especially) generative AI can be leveraged in some creative ways. One of the advantages of building from the ground up is that emerging technology like AI can be optimized from the outset versus reverse engineering new technology into legacy systems – something that seldom, if ever, goes well.

In addition to all this is the mission. Just as Walnut focused on patients, Arrow is now focusing on patients, providers and payers all – as they say – for a good cause. Healthcare in the US has been broken for decades. If Arrow can fulfill its mission, it will have contributed directly to one of the most expensive and out-of-control financial systems in the country. Let’s wish them well.