New startup, Stitch PEO, emerges armed with $9M to alleviate pain points for independent medical practices

Independent medical practices face unique challenges to keep their businesses thriving with declining healthcare reimbursements, rising costs and widespread staffing issues.

The decade-long decline of independent physicians rolled on in 2022 and 2023 with a new high of 77.6% doctors employed by hospitals or other corporate entities as of the new year, according to a report.

Data from the American Medical Association show that the percentage of physicians in private practice fell to 46.7% in 2022, down from 60% a decade ago.

The task of managing staff, providing benefits and maintaining compliance becomes increasingly formidable for small and medium-sized practices.

"To remain independent, you've got all these challenges. Number one is rising costs, including wage inflation and the cost of benefits. Reimbursements are going down and costs are going up," Rajesh Voddiraju, a serial entrepreneur with experience building startups in the healthcare space, said in an interview.

"Practices also face continued administrative burdens and complexity in terms of managing the back office of a practice. And, there is an increased amount of regulatory burden, I would call it risk and compliance, that independent practices face," he noted.

Stitch PEO, the first professional employer organization specifically for independent healthcare groups, officially launched out of stealth to tackle these pain points, Voddiraju said. The startup offers HR, benefits, compliance and employee engagement solutions.

"We help independent practices focus on providing excellent patient care while we take care of the back office relative to their employees," Voddiraju, founder and CEO of Stitch, told Fierce Healthcare. "All the administrative burden relative to employee management is effectively offloaded to Stitch."

Established companies that offer PEO services include ADP TotalSource and Insperity.

The startup, built at Redesign Health, bands independent healthcare groups together to achieve greater economies of scale on all employee benefits, human resources, payroll and compliance functions. Stitch says it offers a seamless solution designed to improve recruiting, hiring, onboarding and other essential HR functions—enabling practices to attract and retain the best talent possible.

"There are three fundamental pillars to our service. The first is providing better benefits at a better price so medical practices can attract and retain talent. We provide HR as a fractional service so practices can get the right HR support and those certified HR professionals who can make sure they're running a very compliant practice. And, we provide payroll support. We run payroll effectively on behalf of those clients," Voddiraju said.

He added, "We are adapting the PEO business model specifically for independent healthcare groups."

The startup nabbed $8.75 million in a seed funding round backed by Redesign Health, an innovation platform that has built more than 60 companies from the ground up.

"That seed investment gives us the ability to not only build a vertically focused PEO, but also the go-to-market motions to develop traction," Voddiraju said.

The company launched with multiple partners, including Independent Physicians and Providers of Illinois, a network of more than 120 independent practices with over 1,000 employees where Stitch serves as the exclusive employee benefits option.

Stitch also is working with Dermatology Specialists of Illinois, a Chicago-based independent practice with 43 staff members, and Regency Palms Oxnard, a senior living community with over 50 employees.

Stitch eases the HR administrative workload for partners, enabling them to prioritize patient care and reduce overhead costs. Leveraging a co-employment model, the company pools employees together so practices can access specialized HR functions at an efficient price.

Many PEOs collect a percentage of payroll as their revenue model. Stitch's business model is based on a per employee/per month administrative fee, Voddiraju noted. 

"That fee is massively small compared to the cost of hiring an individual HR expert, payroll specialist or benefits administrator. It's a superior level of capability that we are providing because we are, in the PEO model, aggregating employees across a large number of practices," he explained. "By aggregating small and midsize practices together, we are allowing them to get greater economies of scale on all things related to employee benefits. We can give them much better benefits, which will help them, of course, attract and retain staff. We are able to spread the cost of HR by providing fractional HR and payroll support. From a risk and compliance standpoint, all these practices are covered under our employment practices liability insurance."

For independent practices, Stitch oversees HR policy, providing healthcare-specific guidance and consultation, implementing and running regular payroll and procuring and managing workers' compensation plans.

The company is experienced with the specific clinical job functions of a medical practice and supports the sourcing and hiring process from start to finish—providing guidance on job descriptions, job listings and the appropriate salaries. Stitch also offers specialized resources for employee onboarding in healthcare, covering topics such as "healthcare 101," electronic medical records, HIPAA and OSHA.

The company also can oversee practice compliance, guiding practices through the complexities of healthcare regulations. This includes providing training and guidance on continuous education and robust policy implementation, according to the company.

"There's an ever-changing sea of regulations that affect everything from labor laws to paid time off," Voddiraju said. "By keeping practices compliant, that also can help practices if they ever want to think about mergers and acquisitions."

The company initially focused on physician practices, but its clients now include senior living facilities, dental practices, ambulatory surgical centers and specialty medical practices.

"We are pleased to partner with Stitch as the employee benefits option for the IPPI network," said Samuel Girgis, M.D., an IPPI board member. "They understand the unique challenges we face running an independent medical practice and have tailored their offerings to meet our needs. In the evolving landscape of healthcare, we are enthusiastic to have Stitch PEO as a partner, offering independent doctors and providers a welcomed option for cost savings and practice management streamlining."

Prior to Stitch, Voddiraju helped build a startup called Health iPASS, which provides software for cloud-based patient engagement revenue cycle management. The company was acquired by payment and security software provider Sphere in 2020.

"I worked with thousands of independent physicians and providers, from large multispecialty groups to small practices, and got a firsthand view of the challenges in the backdrop of what's happening to independent practices," he said. "I strongly believe that independent practices have to remain as the backbone of our healthcare system. Independent practices deliver great care and great patient relationships at the right price."

Stitch's goal is to get to about 30,000 worksite employees over the next five years, Voddiraju said.

"The independent healthcare market has often been ignored by the large, publicly traded PEOs out there. We think catering to that segment and creating services that are specific to independent healthcare groups is key. We will continue to deepen our healthcare-specific capabilities as part of our service offering and continue to expand from three regional hubs to being a national player," he noted.