SmarterDx closed a $50 million Series B funding round on Tuesday, bringing the startup’s total funding to date to $71 million. The New York-based company is a healthcare AI startup that provides clinical review and quality audits for medical claims.
The company was founded in 2020 after Dr. Michael Gao, who was a physician at NewYork-Presbyterian at the time, noticed a significant problem that many health systems still face.
Many hospitals make significant investments in documentation improvement and coding, Dr. Gao noted. Hospitals’ quality review teams “always” find opportunities to make documentation more accurate, but the physicians on these teams can only review a small slice of charts — and they are expensive to employ for this administrative task, he explained.
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“Hospitals spend over $350 billion annually on administrative tasks related to revenue cycle. Much of this cost arises from the manual reconciliation of clinical documentation and coding. Small errors or omissions in this process lead to missed, rejected or underpaid claims, resulting in either lost revenue or drawn-out corrections before hospitals receive fair compensation for care delivered,” Dr. Gao remarked.
To address this, Dr. Gao and his fellow co-founders — Dr. Joshua Geleris and Nathan Perilo — developed AI to help hospitals run second reviews of all patient charts. This technology has the potential to save hospitals millions in revenue leakage, as well as ensure that care quality is accurately represented, he declared.
SmarterDx’s approach is rooted in the idea that AI solutions should complement the expertise of professionals — not replace them — Dr. Gao added. By eliminating the manual administrative tasks that humans aren’t particularly adept at performing, the startup is seeking to empower clinical documentation integrity (CDI) teams to work at the top of their profession, he pointed out.
“For example, scouring 30,000 data points for one patient visit to confirm the diagnoses are complete and accurate is incredibly tedious. With our AI, CDI teams are presented with recommendations, including supporting evidence from the record, in just seconds that they can validate with their clinical judgment,” Dr. Gao said.
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SmarterDx’s target customers are large acute care hospitals and health systems. The startup currently has 15 health system customers, according to Dr. Gao.
The company operates on a contingency-based business model — SmarterDx is paid a percentage of the cost savings achieved or new revenue generated.
“Hospitals only pay a set rate for the findings that their CDI team approves and begin realizing net new revenue on Day One,” Dr. Gao explained. “Additionally, if hospitals improve upstream processes, they pay less. This model has contributed to the company’s rapid growth because it minimizes financial risk for the hospital.”
In Dr. Gao’s view, no company is doing exactly what SmarterDx is. While there are companies that use AI to analyze physician documentation and others that automate coding based on the content of clinical notes, SmarterDx is “unmatched in the breadth of clinical data ingested and in the accuracy of its proprietary clinical AI algorithms,” he declared.
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