Patrick Quigley's "aha" moment came after an MRI exam.
After submitting an insurance claim, Quigley was still left with a $1,300 bill. A few months later, he needed an MRI again. He arrived at the same facility, underwent the same procedure but, this time, offered to pay with his debit card, thinking it might be more convenient than dealing with the bureaucracy around his high-deductible insurance plan. The secretary told him the cash price for the service was just $330.
"This was a huge wake-up call for me," Quigley said.
Healthcare systems often prefer cash-pay because it cuts the administrative burden of dealing with prior authorization, billing and other bureaucratic aspects of the insurance experience, said Aaron Miri, chief information officer at UT Austin Medical School. A 2019 study by Vanderbilt University found providers will cut their prices by up to 40% for patients who pay with cash.
"Cash is consumer access," Miri said. "It reduces the friction, it increases the velocity and, more importantly, it'll make hospitals more competitive."
Now the COVID-19 pandemic has forced health systems across the country to be more flexible in how services are paid for in response to changing consumer expectations around how they access their healthcare. Some systems are even allowing users to pay through Bitcoin, he said.
Quigley's experience led him in 2018 to co-found Sidecar Health, a cash-pay insurtech startup that is now valued at $1 billion.
The El Segundo, Calif.-based company's strategy hinges on increased price transparency and capitalizes on providers' preference for cash over traditional insurance. The app allows users in 16 states to customize their benefits structure and includes a price comparison tool for viewing different services from local providers. Quigley declined to comment on Sidecar's membership size but has said he aims to end the year with more than 30,000 enrollees.
"In the U.S. healthcare system, we're all trying to lower the cost of care and increase access, right? The main thing where everybody's stuck is that the actual cost of care keeps going up," Quigley said. "With our model, we're taking the administrative costs of care away. We actually think we can we can reset the cost in the U.S. healthcare system by about a trillion dollars."
In parts of the country, like El Paso, Texas, Miri said providers are often used to dealing with cash since it's common for "folks to show up with a duffel bag full of cash because, culturally, they may have migrated from a different country where cash was a lot more predominant."
Because Sidecar does not offer comprehensive coverage, he does not believe the startup represents a competitor to traditional insurance companies. In the short-term, he feels bullish about Sidecar's ability to partner with legacy insurers to cover simple procedures for its millennial and Gen Z customers while leaving the complex and chronic condition management to more experienced players.
"If we could get a bulk of the U.S. population to a cash-pay basis, we could eliminate so much back-office nonsense and hoops and hurdles and all the administrative burden that it costs health systems and reduce the overall cost of care," Miri said.
Indeed, several studies show that providers spend 40% of their time dealing with administrative processes, said Caitlin Donovan, a spokesperson for the Patient Advocate Foundation. In a move to devote more time to patient care, an increasing number of providers are operating only on cash-only models. Dr. Timothy Wong in Pittsburgh, for example, operates a "microclinic" and charges a flat $35 fee for every service provided.
"It kind of undercuts the whole reason for insurance," Donovan said.
She credited the Affordable Care Act for creating a rise in cash-pay, as some opposed insurance over ideological purposes and, some, could not afford the prices offered by the exchanges. The company is not the first to try and shake up the healthcare market through radical price transparency.
CashMD launched last year with a similar business model. MediBid went live during the Great Recession with the idea that providers would want to bid on a patient's business. Bind launched in 2016, allowing people to pick and choose what services they wanted covered. These ventures have had middling success, in some cases reducing healthcare costs by dissuading individuals from seeing their doctors, and generally do not address the complex reasons healthcare overall costs keep rising, she said.
"People are misled into thinking that transparency alone is going to solve the problem of high prices in this country," Donovan said. "If transparency alone worked, we'd have lower costs for labor and delivery because there's something where you have almost 10 months to plan for it, shop around and it's not happening. We are one of the most expensive places in the world to give birth, and to be pregnant, and we do not have better outcomes."
Sidecar will admit its product is not for everyone. The startup aims to expand coverage to the 15 million uninsured or underinsured, like Quigley was with his high-deductible plan. The company plans to enter at least two new markets this year—Michigan and California—and offer its first ACA-accredited product during open enrollment in the fall. At the start of 2022, it will offer its first employer-sponsored plan and will eventually follow other startups like Clover Health, Devoted and Oscar Health into the lucrative Medicare market.
"If you think about the growing category of uninsured and underinsured, combined with the whole notion of the gig economy, flexible workforces that do not necessarily seek their health insurance directly from their employer anymore, there starts to become a much larger population that is seeking coverage from an organization like Sidecar," said Alyssa Jaffe, a partner at 7wireVentures, a Chicago-based private equity firm.
Sidecar offers to reimburse consumers for the average price of their service in their market. Patients who go above this determined rate must pay the difference. For those whose coverage falls below, they get to keep the cash savings. To determine the average price for a service, the startup surveyed 120,000 doctors across 10 different practice areas to create a predictive pricing algorithm, which determines the cash price for 170,000 different services anywhere in the U.S.
By offering to pay what it defines as the median price in a given market, Sidecar is essentially acting as a reference-based pricing plan. This is not a new product—Blue Cross and Blue Shield of North Carolina is just one insurer that offers a similar plan. But because the price can vary so much by geographic location and facility type, Jaffe said price transparency "is much more nuanced and much more challenging" than simply the average cost of care in a market.
"I have a healthy skepticism that price transparency can exist today," she said. "This whole plan is great if you're healthy. But if you have a chronic condition, or if you have a catastrophic event happen, it's not going to be the answer for you."