Interview
Why 50% of Every Dollar Billed Is Lost In Healthcare
- Approximately 50% of every dollar invoiced in the U.S. healthcare system goes uncollected, a collection rate described as unheard of compared to other industries.
- Service prices within the healthcare sector can range up to 30x, contributing to a market characterized by extreme opacity where consumers cannot determine costs beforehand.
- Hospitals face critical financial instability, with some unable to cover payroll if payments are missed in a single month.
- Medical advancements in clinical technology (e.g., surgical robots, MRIs) have improved significantly over the last 50 years, while administrative systems remain stuck in the 1980s, relying on fax machines and mailed checks.
- The billing process is so fragmented that patients may receive multiple surprise invoices months apart, including separate bills for imaging, labs, and primary care, leading to lost patient trust.
- Cedar co-founder and CEO Florian Otto launched his company following a personal family crisis where his wife fainted, was admitted to the ER, and subsequently suffered a traumatic, opaque billing experience.
- Recent advances in machine learning, specifically multi-armed bandit algorithms, are being used to personalize patient outreach based on insurance type, demographics, and past payment history.
- For a health system with $1 billion in net patient service revenue, increasing direct collections by 30% could generate an additional $15 million in bottom-line profit, representing a 1.5% margin increase.
- The "one size fits none" billing model fails to address diverse patient barriers, such as language differences, liquidity constraints, or housing instability.
- Personalized engagement strategies now include timing communications based on patient convenience (e.g., text messages at 8 AM) and offering payment plans as low as $50/week or multi-lingual email options.
- The core industry goal is to eliminate barriers to care, ensuring patients do not avoid necessary medical treatment due to cost uncertainty or fear of unmanageable debt.
- This video is the first installment in a six-part series by a16z on the intersection of healthcare and fintech, with subsequent content covering Juniper and chronic condition payment solutions.