Healthcare fintech provider Cedar paid $425 million to acquire insurance fintech OODA Health on Thursday, in another example of single-point technology startups coming together to expand their reach.
The New York City-based Cedar provides a direct-to-consumer platform that providers can use to translate to consumers how much they will be billed after a visit, and create custom payment plans based on individuals’ credit history. OODA Health, meanwhile, offers the same service to insurer members. The combined company will use insights gained from both providers’ and payers’ perspective to build additional products to help insured patients the financial responsibility related to their benefits, navigate “administrative resolution” processes, automate prior authorization and more going forward, Cedar CEO Florian Otto said.
“By incorporating new consumer use cases and leveraging payer relationships, Cedar will be the only end-to-end consumer financial platform in healthcare, providing a far more expansive scope and value than traditional, provider-specific point solutions,” Otto wrote in an email.
For providers, the new company promises to improve collection rates, reduce the amount of time to collect and decrease bad debt. For payers, Cedar said it will now be able to automate manual processes with providers and, through OODA consumer experience platform, reduce administrative expenses and bad debt.
The acquisition follows the R1 RCM revenue cycle management startup’s $300 million purchase of VisitPay patient billing platform; Grand Rounds merger with Doctor on Demand, which will combine care navigation with telehealth; and Accolade’s $450 million purchase of PlushCare, which will meld navigation with virtual primary care and mental health services. These mergers follow a trend of digital health companies’ rush to add services and cut deals on pricing as a way to stand out in the crowded Medicare Advantage market and employer-sponsored insurance world, said Tom Cassels, president of Rock Health. He said those two segments can represent some of the most profitable business lines for insurers if payers can figure out how reduce the number of people moving in and out of their coverage from year to year.
“The biggest driver of churn, besides potentially physician network changes, is the customer experience,” Cassels said. “That customer experience, frankly, is controlled, not by the payer or the provider, it is a mix of the two. Working collectively is the only way to really change that, or drive retention.”
Cedar’s purchase of OODA will offer that combined solution for health plans, he said. This easy-to-add consumer experience around billing will hit insurtechs’ business, he said, since “the only reason there are Oscars, and Clovers and Devoted is because of that mismatch in the front end.” Cedar’s strong provider relationships combined with OODA’s contracts with larger insurers, including CommonSpirit Health, Anthem Blue Cross and a recently reached enterprise agreement with UnitedHealth Group, takes any competition legacy insurers may have felt from their startup insurtechs off the table, Cassels said.
“If these large players move in the direction of uncomplicated billing, that it will be table stakes, which will make these superpowers the UnitedHealthcares, Centenes, Aetnas, Cignas of the world really choose a category winner,” Cassels said.
Cedar and OODA’s combination will force many of these insurtechs to actually become health insurers, he said, and focus less on user experience and more on offering decent health plans to their members.
The acquisition also comes at a time when many digital startups have seen their share prices fall, said Ari Gottlieb, a healthcare consultant. As examples, he pointed to Oscar Health, that’s stock price has fallen 44% since its high in March; Clover Health, where the shares have fallen 58% since their high in December 2020; and Alignment Healthcare, where shares have dropped 35% since a high in March. OODA may be trying to fetch the highest price it can before prices fall even further, Gottlieb said.
“If you look at what’s happening to some of these health services businesses that are public, they’re just getting really crushed in the past month and a half,” Gottlieb said. “So it also may just be how do you maximize your valuation on the other side?”
He said the market is correcting, after these companies touted “ridiculous valuations,” and credited a rise in interest rates and the opening up of society after a year of COVID-19 precautions with impacting the stock market. He added that many of these businesses have not yet shown they can be profitable. Meanwhile, he noted that traditional health insurers showed a strong first quarter, with several increasing their revenue expectations for 2021.
“You do sort of have to wonder, when you look at some of these [startup] valuations, what is it saying for the entire health ecosystem? Is there really that much profit out there?” Gottlieb said.