Addressing the Burden of Healthcare Costs

In the United States, healthcare insurance frequently covers only a portion of medical expenses. Consequently, patients often encounter substantial charges, including high deductibles, costs from out-of-network providers, and significant co-payments. Innovative solutions for managing these large bills are therefore in considerable demand, particularly given the ongoing uncertainties surrounding the handling of COVID-19 and its long-term effects by both patients and insurance companies.

Introducing Walnut: A New Approach to Healthcare Financing

Walnut, a company established by Roshan Patel, presents a novel point-of-sale lending solution tailored for the healthcare sector. Leveraging the “buy now, pay later” concept – popularized by companies like Affirm and Klarna – Walnut enables patients to spread the cost of their medical bills over time, avoiding a single, large payment, such as a $3,000 expense.

Walnut collaborates directly with healthcare providers to facilitate repayment plans. Instead of a single payment, a patient’s bill can be settled through monthly installments of approximately $100 over a period of 30 months, eliminating the need for a substantial credit card transaction.

A Unique Value Proposition: Zero Interest or Fees

While this payment structure is beneficial, Patel emphasizes a key differentiator for Walnut: the company does not impose any interest or fees on consumers.

“Unlike nearly all ‘buy now, pay later’ services in e-commerce and personal loan providers, we abstain from charging interest or fees,” he stated. “My primary goal is to avoid increasing the already significant cost of healthcare. It’s a truly patient-centered product.”

Revenue Model: Provider Discounts

To generate revenue without burdening patients with interest or fees, Walnut charges healthcare providers a percentage of each sale or transaction.

If a provider typically collects 50% of out-of-pocket expenses, Walnut proposes a 40% discount in exchange for guaranteeing upfront cash payment. The startup assumes the financial risk, while the provider benefits from a 60% collection rate.

Risk Mitigation and Realistic Expectations

Ideally, providers would receive full payment for their services, but this is rarely achievable. Patel notes that a significant number of bills remain unpaid due to factors like bankruptcy or payment defaults – the average collections rate for hospitals for out-of-pocket expenses is less than 20%. Therefore, a service like Walnut can offer a degree of financial stability to hospitals, even if it represents 60% of the total bill rather than 100%.

Advanced Underwriting for Loan Qualification

Walnut employs “extensive underwriting models” to assess a patient’s eligibility for a loan. Patel explains that the startup moves beyond traditional credit scores, which he considers an “outdated metric,” and instead analyzes thousands of data points from various sources, including side hustle income and spending patterns on essential expenses like groceries and utilities.

Challenges and Future Growth

Walnut’s primary challenge lies in underwriting loans and providing upfront cash to healthcare providers while managing the risk of patient repayment.

“Successfully managing the risk associated with patients who have limited credit history remains a complex issue, and a definitive solution for healthcare is still evolving,” he acknowledged.

Targeting Specialized Practices

Currently, Walnut is partnering with smaller, private practices consisting of one to five physicians specializing in areas such as dentistry, dermatology, and fertility.

Expanding Access to Elective Care

The success of Walnut will depend on its ability to attract individuals who genuinely require flexible financing options. Currently, the company does not collaborate with hospitals, which would provide access to a larger patient base with potentially greater financial needs. At present, “those who can afford it are the ones accessing elective-care surgery.”

However, Patel views this as an opportunity to broaden access to elective medical procedures for a wider range of individuals.

“I recently spoke with someone who is without teeth and desires dentures, but the cost is $6,000,” he shared. “This individual should have the ability to afford them, and we have enabled them to pay $100 per month.”

Key Customer Segments

Walnut’s two primary customer groups are the uninsured – including those who have lost employment due to COVID-19 – and consumers with high-deductible health plans.

Competition in the Market

Walnut is not alone in this space. PrimaHealth Credit, its closest competitor, offers point-of-sale lending for elective medical procedures like cataract surgery or dental work. PrimaHealth Credit currently operates in Arizona, California, Florida, Oklahoma, and Texas, with plans for nationwide expansion this year. Walnut, in contrast, is primarily focused on the East Coast and intends to achieve national coverage by the end of the year.

The average loan size with PrimaHealth is $1,800, while Walnut’s average loan size is $5,000.

Current Performance and Future Funding

Walnut is currently piloting its services with several healthcare providers in dermatology, dentistry, and fertility. The company has received over 500 patient loan applications, totaling over $4.6 million in application volume year-to-date. Patel indicated that Walnut has approved only a fraction of these applications but declined to disclose the exact percentage of loans granted.

Up to this point, Walnut has funded loans from its own balance sheet. To facilitate substantial growth, the company will need to secure additional capital through a credit line, debt financing, or venture capital investment. Patel stated that the startup is in discussions with banks and has rejected a debt offer due to unfavorable terms.

Securing Seed Funding

Venture capital appears to be the preferred path forward. Walnut recently announced a $3.6 million seed round led by investors including Gradient Ventures, Afore Capital, 2048 Ventures, Supernode Ventures, TA Ventures, Polymath Capital, Tack Ventures, Awesome People Ventures, Newark Ventures, and NKM Capital. Angel investors include the CEOs of Giphy and PillPack, the CTO of Ramp Financial, and an NFL coach. The company is also a participant in Plaid’s inaugural accelerator program.

“My intention is not to simply introduce another startup offering a generic insurance plan,” Patel concluded.