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Exclusive: Stitch notches $9M for medical practice HR services

Jun 10, 2024
Illustration of knitting needles making a red health plus.

Illustration: Gabriella Turrisi/Axios

Stitch, a professional employer organization (PEO) for independent medical practices, snagged an $8.75 million seed, CEO Rajesh Voddiraju tells Axios exclusively.

Why it matters: Independent medical practices have been squeezed by surging overhead costs, forcing many to close or sell to corporate giants.

Zoom in: Redesign Health built the startup.

  • Funds will go towards building Stitch's operations and go-to-markets teams.
  • Voddiraju says Stitch would be thinking about raising a next round focused on scaling nationally in the second half of 2025.

How it works: The San Francisco-based PEO acts as a co-employer to small-and medium-sized health care practices and provides HR and employee benefits services including recruiting, hiring, onboarding, and benefits administration.

  • Other services include those for payroll, workers compensation, training, and compliance.
  • Partners include Independent Physicians and Providers of Illinois, Dermatology Specialists of Illinois, and senior living facility Regency Palms Oxnard.
  • Stitch charges a per-employee, per-month fee for its services.

Driving the news: Economic pressures from the pandemic, alongside rising overhead costs and a 25% decline in Medicare reimbursement rates over the past 20 years, have led to closures or sales of many independent medical practices.

What they're saying: "Knowing the [health care] segment very well and knowing the hiring and managing challenges, we can do something without the onerous control of an MSO or a full-on acquisition by a health system or private equity," says Voddiraju.

  • "Practitioners want to practice medicine and they want autonomy, not the red tape they experience in large health care systems," Voddiraju adds.

The big picture: While digital health enablement startups — which help with administrative tasks like scheduling, payments, and compliance — have drawn venture dollars in recent years, the HR-focused PEO sector has seen less entry by startups.

State of play: Major generalist PEO players include Insperity (NYSE: NSP), ADP (Nasdaq: ADP), Justworks (which withdrew its IPO effort in 2022 after six months), and Papaya Global (which raised a $250 million Series D in 2021).

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