Investing in SmarterDx
Author: Parth Desai
The Origin Story
When we met Mike Gao and Josh Geleris in 2022, we knew what they were setting out to build was something truly unique.
We have met hundreds of healthcare AI companies over the last few years. During these meetings, we often talk about a “future” of AI transforming healthcare, balancing optimism with pragmatism. In 2022, however, Mike and Josh convinced us that this future was here. SmarterDx’s elegant product positioning, guided by Mike and Josh’s clinical and technical fluency, was a compelling offering to hospital leaders seeking to boost their financial performance after the Covid-19 pandemic. We jumped at the chance to co-lead SmarterDx’s Seed financing and just two years and some incredible progress later, we’re thrilled to be participating in their $50M Series B financing. Now, a bit more on how we thought about the opportunity ahead of us.
Sizing the Opportunity
Today, hospitals spend an estimated $250 billion annually on administrative activities, the vast majority of which are in support of translating care to reimbursement (see image below). This process, know as revenue cycle management (RCM), is extremely labor intensive, contributes to clinician burnout and costs up to 25% of revenue. RCM is therefore consistently ranked as a top priority for technology-enabled transformation. Within revenue cycle, the clinical documentation improvement (CDI) process involves reconciling clinical data with the coding and billing data that constitutes a claim. It is a critical function that determines how much hospitals ultimately get paid for the services they provide, and is therefore a priority focus area within RCM. Typically, reconciliation involves coding teams and clinicians harmonizing thousands of often unstructured clinical data points across multiple settings and IT systems (i.e., imaging, labs, medications, procedures), in support of auditable billing codes. Unsurprisingly, this is a manual process involving repetitive, error-prone steps. Errors and omissions in CDI can lead to millions of dollars in “missed” revenue and quality performance, not to mention avoidable work to rectify these errors downstream. This happens to be a very good problem for AI.
SmarterDx’s Solution
Enter SmarterDx. With the company’s clinical AI algorithms, hospitals can automatically and more accurately reconcile clinical data to properly coded claims. In a world where hospital systems are skeptical about AI’s reliability and value, SmarterDx’s solution harmonizes data faster, deduces missed / incorrect diagnoses, rectifies errors, and surfaces auditable clinical evidence in support of its findings. This results in “found” revenue that is more likely to be reimbursed, and a simpler workflow that enables higher clinician and coder productivity. The solution also allows hospitals to develop a more complete picture of care delivered and correlated outcomes, which is important for quality reporting purposes. Importantly, this positioning leads to 100% ROI attributability.
Today, SmarterDx’s 18 health system customers are discovering an average of $2 million in revenue per 10,000 discharges, a 5:1 ROI, and significant margin uplift. The company’s “value-based” business model also ensures that they are paid based on the value they create. With this magnitude of value creation and the team’s obsession with customer success, it’s no surprise that they have a 100% customer retention rate and 98 KLAS score.
The Road Ahead
Notably, the team is just getting started. The SmarterDx product not only uncovers revenue and quality impacting codes, but it also allows the company to create a cleaner data layer. This data can enable hospitals, health plans, and life sciences to collaborate in new ways, including clinical research, outcomes-based contracting, and care quality improvement activities. With the Series B funding, SmarterDx will continue to enhance their market-leading product in addition to launching new products to broaden ROI.
None of this would be possible without the team in place. Mike and Josh are not just technologists, but also former clinical leaders at NewYork-Presbyterian Hospital (NYP). Mike and I first met at NYP, where Mike ran the hospital’s Applied AI program, overseeing external partnerships and building new AI applications to improve the hospital’s operating performance. Through this work, he and Josh encountered many of the hospital’s operational challenges first-hand while developing a unique appreciation for the opportunities these challenges created. Mike and Josh ultimately brought their clinical and technical skillsets together to launch SmarterDx and since launching, they’ve attracted world class talent to the team. Chief Commercial Officer, Wayne Grodsky, is formerly Chief Growth Officer of PointClickCare, ZirMed and Optum Risk and Quality Solutions. Chief Financial Officer, Jonathan Crawley, is the former Chief Financial Officer of Collective Medical and VP of M&A at PointClickCare. Additionally, SmarterDx has attracted leading AI and Data Science talent from Stanford, Verily, Twitter, and Optum to their product team.
With this strong foundation in place, we are excited to continue collaborating with the SmarterDx team alongside our friends at Transformation Capital, Bessemer Venture Partners, Floodgate Fund, and Virtue VC as we leverage AI responsibly to solve complex and high-value problems for the healthcare ecosystem. To learn more about SmarterDx or our other investments, please reach out (parth@flarecapital.com)!
