PayZen, a startup that offers AI-powered patient financing solutions, picked up an oversubscribed series B funding round led by NEA.
The round includes $32 million in equity, backed by existing investors 7wireVentures, SignalFire, Viola Ventures and others. In conjunction with the equity round, the company also secured a new $200 million credit warehouse from Viola Credit and a syndicate of insurance companies, the company announced Tuesday. The additional credit facility will support PayZen's continued rapid growth and market expansion, the company said.
PayZen launched in late 2019 offering "buy now, pay later" services to the healthcare industry. The aim is to make healthcare make affordable for patients by offering interest-free and fee-free payment installments over time.
"I think every American who used healthcare services in the past probably got some sticker shock after a procedure," Itzik Cohen, CEO and co-founder at PayZen, said in an interview.
Launching PayZen was a "data-driven decision to solve a big problem," he noted.
Cohen previously was an executive at Prosper Marketplace, a lending marketplace. "We were mostly giving personal loans to people online, and as part of the application process, we asked for the reason for the loan. One of the things that I noticed is that the reason for lending towards medical bills was growing faster than anything I've seen," he said.
Cohen then served as CEO at Beyond Finance, a debt settlement company. "Again, the fastest growing type of debt enrolled in our program was medical debt," he noted.
According to a KFF analysis, people in the U.S. owe at least $220 billion in medical debt. 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.
"Looking at the nature of the problem, I realized that both constituents here, the medical providers and the patients, are in an unsustainable situation. Essentially, more and more of the out-of-pocket expenses are shifted to the patient. Essentially, premiums are lower to make it more affordable, but deductibles are higher. So essentially, you get a pretty hefty amount on an annual basis that comes out of your pocket, and a lot of people cannot afford it," Cohen said.
The status quo also has exacerbated the friction and administrative burden on healthcare providers, he noted.
"If you look at the provider side, they're getting paid less from the payers and the insurance companies, and they need to collect more from patients, but they're not collecting so part of their revenue is becoming very challenging. And, it's affecting their operating margins and sustainability," he said, adding, "It turns out one of the biggest reasons for non-payment is just lack of payment options."
The company uses proprietary AI and machine learning models, automation and integration into providers' electronic health records systems to simplify the patient payment process for health systems, according to the company. Further, the company's automated payment plans make it easier for millions of patients to access and afford the care they need.
PayZen currently works with about 60 health systems and physician groups including Geisinger, CommonSpirit and Appalachian Regional Healthcare System.
Providers who work with PayZen increase their patient collections between 23% and 35%, Cohen noted.
The startup has raised $72 million to date, including $20 million in equity financing in 2022. Cohen declined to disclose the company's valuation but said it has more than doubled since the last fundraising round. TechCrunch reported that the latest funding deal values PayZen upward of $200 million, citing a person familiar with the deal.
PayZen is projecting to be cash-flow positive by next year, Cohen noted.
The company started with customized healthcare payment options and is focused on continuing to develop new AI-driven solutions that further address the affordability needs of patients, Cohen said.
"We got into this business with a fintech lens, then you realized the problem is a lot more complex than you thought initially, and you start solving more and more problems that have to do with affordability," he said. "So, here we are, five years later, and we're we're thinking of ourselves as more of an operating system that solves affordability, because it cannot be solved with one solution only. There's a lot of different root causes that lead to lack of affordability and limiting access to healthcare, beyond just a payment plan product."
PayZen plans to use the series B funding to fuel continued development of its products and expand into additional solutions to remove financial barriers to care for patients, he noted.
Along with payment plans, the company also offers a PayZen Care Card, a physical and virtual debit card to enable patients to prepay for scheduled procedures or for longer care cycles.
"That's designed for longer care cycles, where you need multiple swipes or multiple bills rather than just one final bill," Cohen said, noting that the Care Card is the company's fastest-growing product and now makes up 35% of PayZen's revenue.
PayZen also offers technology to automate assessment of patient financial eligibility for government financial assistance. "A lot of people are eligible for financial assistance or charity care, but it's just not being processed correctly because of a lack of underwriting and a lack of automation around it," Cohen said. "What we do is trying to analyze someone's capacity to pay and really understand the financial situation, it's very adjacent to what we do and a lot of the components in our technology platform allows us to expand into that area as well."
He added, "That is one of the biggest investments we're going to make in the next 18 months—automating another big friction point between providers and patients."
Over the last two years, PayZen claims it has consistently achieved 6x year-over-year growth. It also boasts 100% customer retention and 132% net retention.
"Healthcare affordability is an enormous pain point for patients and providers in the U.S.," Mohamad Makhzoumi, co-CEO at NEA, said in a statement. "We believe PayZen's AI-enabled platform is a category leader, as evidenced by the company's explosive traction in the past year and ability to disrupt a market that's been historically difficult to address."
Makhzoumi will be joining PayZen's board of directors.