Can startups that tackle the U.S.’s broken healthcare system scale across the world?

Hello, this is Jonathan Vanian filling in for Lucinda, who is on her much-deserved vacation.

The shiny new thing for investors: startups using artificial intelligence to fix healthcare woes.

Healthcare-related A.I. funding jumped 14% to $1.1 billion in the second quarter of 2020 from $986 million during the previous quarter, according to market intelligence firm CB Insights.

One of the biggest deals in recent months was Cedar’s $77 million round, which it landed in June. That startup uses machine learning and related automation tech to make it easier for patients to pay their healthcare bills.

He Wang, a healthcare analyst for CB Insights, told Fortune that “the biggest theme” he sees is the idea that machine learning is “automating” time-consuming tasks, like those related to billing and payments. 

Healthcare firms are especially interested (and under pressure) to use automation tech “to cut costs” as the economy continues to decline, Wang said. Those firms spend a lot of money on “human capital in this space,” or the agents who act as bill collectors or the middlemen who call insurance companies regarding behind-the-scenes financial minutiae. Especially in these trying times, they want to save money by employing less people than they used to.

“Every CFO is looking to cut 10% of their cost structure in the next 10-18 months,” Wang said.

But would an investment in a startup that specializes in automating mundane tasks for healthcare firms “scale” in countries outside the U.S., where healthcare systems may be less complicated?

In Shanghai, where Wang is based, he says people can get a routine physical exam at a hospital and simply pay for the visit using their smartphone and the Alipay service app. Compare that scenario to going to the doctor in the U.S., which can entail multiple phone calls with insurance providers, tons of bills, and a general sense that even after you pay for a visit, something isn’t quite finished—there could be some sort of calculation error resulting in another bill down the road.

You could argue that the healthcare system in the U.S. is so broken, with so much wasted spending, that a startup could become a massive business simply by helping domestic healthcare firms manage their IT better. Who needs the rest of the world when the majority of the healthcare-related IT problems are here in the U.S. anyway?

But we all know that venture capitalists aren’t merely looking to fund your run-of-the-mill software business. They want to put money into a startup that will generate exponential returns—and oftentimes that means these companies need to go global.

Jonathan Vanian 

@JonathanVanian

[email protected]

Anne Sraders curated today’s Term Sheet.



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