Last week, New York-based fintech start-up Cedar, which simplifies the processing of medical bills for patients, acquired San Francisco-based OODA Health for $425 million.

The deal, a mixture of cash and equity, is in a bid to tap insurers – the natural next step for a start-up which already processes the payments and eligibility checks for patients’ operations.

Cedar’s co-founders Arel Lidow and Florian Otto, and OODA co-founder Seth Cohen

Asked who he considers to be Cedar’s rivals upon the acquisition news, German-born co-founder Florian Otto tells FinTech Futures: “Our competition is the status quo and inertia. Nobody wants to change. Something that’s new is always tougher to adopt.”

The start-up will therefore remain focused on being the facilitator, rather than the provider.

“We definitely will not become an insurance provider,” says Otto. “It is very difficult to break through the insurance market. I don’t think we want to take the risk [of becoming an insurance company]. Pricing and underwriting are a very different business.”

Over in the UK, challenger banks have steered clear of insurance products for the very same reason.

The healthcare and insurance sectors will, as a result, likely remain the same at their core. But fintech start-ups like Cedar are endeavouring to better join the dots between them.

The middleman

Cedar’s self-built core technology, which Otto says didn’t exist before, seeks to digitise and harmonise what has long been America’s highly fragmented health care system.

The start-up is well on its way, having bagged a $200 million Series D investment in March led by Tiger Global Management, at a valuation of $3.2 billion.

Until its acquisition of OODA, Cedar sat between the patient and the healthcare provider. Patients use Cedar to pay their healthcare provider, which then pays a fee to Cedar for processing the payment.

Now, not only will Cedar bridge the gap between patient and healthcare provider, it will also digitise the process of involving an insurer.

So, when Cedar lets a patient know their bill is ready, the insurance company will have already adjudicated these claims and sent a revised bill to the healthcare provider. Then as before, Cedar will collect the payment on the provider’s behalf.

Whilst other companies do offer parts of Cedar’s workflow, such as digital invoicing, Otto claims no-one is offering the pre- and post-treatment service Cedar offers.

Taking the payer angle

OODA’s technology is the biggest reason for the acquisition. It connects Cedar to these insurers, making it easier for patients – Cedar’s end customers – to tie up their operations and treatments.

Whilst Cedar began from the provider perspective, OODA tried to solve the same problem from the payer angle, explains Otto. OODA’s technology includes a ‘OODA Optics’, which covers pre-authorisations – something the NHS also operates with.

This was another key reason for the deal. Except in an emergency, a patient’s health insurance or health plan may require pre-authorisation for certain services before they receive them.

Otto says Cedar is taking the entire team from OODA. “We don’t have overlap. We’re literally expanding the market.”

Cedar uses some typical vendors, including Twilio for texting patients, and Amazon’s AWS for cloud hosting, as well as its own technology – and now that of OODA’s.

Before Cedar, Otto started a company in Sao Paola akin to Groupon. Groupon later bought it, promoting Otto to head up Groupon’s Brazilian operations for a time.

His fellow co-founder, Arel Lidow, previously developed trading platforms for Bridgewater. He then moved to AppNexus, which was sold for between $1.6 billion and $2 billion.

The two are confident this isn’t the end of its expansion in terms of services. “There’s definitely a lot of other workflows,” says Otto. The start-up plans to build these new products on top of its now enlarged network, with the patient – being the client of both Cedar’s customers – at the center.

In terms of scale, Cedar has reached more than 12 million patients across 36 health systems.

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