Health insurance, if you’re lucky enough to have it, only covers a subset of conditions in the United States. As a result, patients can often be overwhelmed by the costs of horror stories, like huge deductibles, off-grid costs, and expensive co-payers. Thus, for both the uninsured and the insured, innovative methods of managing large bills are in great demand, especially as uncertainty remains. how COVID-19 and long-term symptoms will be treated by patients and payers.
Walnut, founded by Roshan Patel, is a point-of-sale loan company with a health twist. Walnut uses a “buy now, pay later” model popularized by Affirm and Klarna to help patients pay for health care over a period of time, instead of $ 3,000. Walnut is working with healthcare providers so that a patient’s bill can be paid off in increments of $ 100 per month for 30 months, instead of a simple aggressive credit card swipe.
It’s a good deal, but Patel added another detail that he says sets Walnut apart: The startup doesn’t charge consumers any interest or fees.
“Almost all ‘buy now, pay later’ e-commerce businesses charge interest or fees, and every personal loan provider charges interest or fees, but we don’t,” he said. . “And it’s really important to me not to make healthcare more expensive than it already is. It is a very patient friendly product. “
Companies that use the buy now model, pay later without interest or fees have to generate revenue somehow, and in Walnut’s case, that’s by charging healthcare providers. a percentage of each sale or transaction.
If a supplier’s collection rate for direct payment is 50%, Walnut will come to them and say, “Give us a 40% discount, and we’ll guarantee payment up front.” The startup will take the risk, then the supplier is able to make 60% of the collection rate.
Now ideally a supplier would want to get 100% of the payments owed to them, but that is wishful thinking. Patel explained that a large number of bills go unpaid due to bankruptcy or default (the average collection rate for hospitals is less than 20%). Because of this, a company like Walnut has the ability to offer hospitals at least a stable initial amount, even if that ends up being 60% of the overall bill versus 100%.
The company uses “extensive underwriting models” to determine whether a patient should be eligible for a loan. Patel says the start-up is going beyond the use of credit score, which he describes as an “outdated metric,” and instead examines thousands of data points from different vendors, from scrambling income. secondary to spending habits on things like groceries and bills.
Walnut’s biggest challenge, Patel says, is securing the population and paying the health care provider up front in cash. He then collects the patient from the back, which carries his own risk.
“Being able to take on this risk for patients who are less creditworthy is a very difficult problem, and I don’t think it’s really solved in health care yet,” he said.
The startup begins by working with small private practices of one to five doctors that focus on specialties like dentistry, dermatology and fertility.
Much of Walnut’s success will be determined by its ability to attract people who genuinely need flexible financing options. For example, the company does not yet have any hospitals as a partner, which could affect a larger group of patients who are probably most in need of flexible financing options. Right now, “the people who have elective surgery are the ones who can afford it.”
But Patel doesn’t see this as a disconnect; rather, he sees it as an opportunity to expand access to elective medical care to a greater number of people.
“I spoke to a person last week who has no teeth and wants dentures, but it costs $ 6,000,” he says. “This person should be able to afford it, and we allowed him to pay $ 100 per month.”
Walnut’s two largest customer groups are the uninsured (people who have lost their jobs due to COVID-19) and consumers with high deductible plans.
Walnut is not the first. PrimaHealth Credit, Walnut’s closest competitor, offers point-of-sale loan procedures for elective medical procedures. Think about surgeries like cataract work or dental work. The company said the service is currently available in Arizona, California, Florida, Oklahoma and Texas, and will be expanded to all 50 states this year. Walnut, comparatively, focuses primarily on the East Coast and plans to expand nationwide by the end of this year.
The average loan amount from PrimaHealth is $ 1,800 and that from Walnut is $ 5,000.
The company is currently piloting with a handful of dermatology, dentistry and fertility healthcare providers. It has received more than 500 patient loan requests, totaling more than $ 4.6 million in request volume since the start of the year. Patel says Walnut only accepted a fraction of those requests, but refused to share the percentage of money she has loaned so far. As Walnut refines his model, he might be able to cover other categories.
Until then, Walnut has lent on his own balance sheet. In order to truly scale, it will need to secure a new source of capital – either a line of credit, a round of debt financing, or venture capital – to provide more loans. Patel says the startup is in talks with the banks and turned down a debt offer because of its size and rate.
Venture capital seems to be the solution for the moment: the startup has announced that it has raised a funding round of $ 3.6 million from investors such as Gradient Ventures, Afore Capital, 2048 Ventures, Supernode Ventures, TA Ventures, Polymath Capital, Tack Ventures, Awesome People Ventures, Newark Ventures and NKM Capital. The angels include the CEOs of Giphy and PillPack, and the CTO of Rampm Financial as well as an NFL coach. The company is also part of the inaugural Plaid accelerator.
“I don’t want to be yet another startup trying to give you an undifferentiated insurance plan,” Patel said.