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Automated medical coding startup Fathom filed a $46 million Series B round, CEO Andrew Lockhart tells Erin exclusively.

Why it matters: Pandemic-related clinician shortages are spiking demand for automated medical software that promises to boost efficiency while cutting costs. Fathom tackles the laborious medical reimbursement and documentation process — a particular pain point for health systems.

Deal details: Lightspeed Venture Partners and Alkeon Capital led the round, bringing Fathom's total capital raised to $61 million.

Cedars-Sinai, Inflect Health, ApolloMD and insiders Founders Fund and Tarsadia joined.

Alongside the funding, Fathom named Lightspeed partner Galym Imanbayev and Alkeon general partner Mark McLaughlin to its board of directors.

Fathom will use the fresh funds to hire more engineers and expand its specialty support offerings.

Flashback: After starting pharmacy company TinyRx with cofounder Chris Bockman and thinking about pivoting the business model, Lockhart tore a knee playing basketball — an experience that ended with a massive bill and a desire to automate the medical coding process.

"It’s hard to have a scalable impact on the clinical side, which pushed us towards the administrative side," Lockhart tells Erin.

How it works: San Francisco-based Fathom uses natural language processing (NLP) in an effort to speed the reimbursement process at 4,000+ provider sites, serving roughly 60 million patients and 25,000 providers.

Lockhart says the company is growing quickly and has been "flirting with profitability for several quarters."

State of play: Digital health infrastructure is a hot subsector of health tech, with companies that support small startups and hospital giants alike raking in recent funding.

Rhyme (FKA PriorAuthNow) in February raised $25 million to streamline the treatment approval process.

Medical software company Tebra in July raised $72 million at a $1 billion+ valuation.

Capable Health, a maker of plug-and-play enablement tools for digital health startups, in May raised a $6 million seed round.

What they're saying: Lightspeed's Imanbayev tells Axios he's spent the better part of 10 years looking for a medical coding company to back but stayed away after seeing several companies tackle the problem with messy, human-intensive tools.

Fathom has "reached an inflection point at which their model can perform in a way that doesn’t require much human interaction," he says.

"They're not just doing data aggregation but data architecture, which allows them to take learnings from one specialty and apply it to another," he adds.

⚓ One fun thing: Fathom's name is a double-ode to its core deep learning tech: As a verb, "fathom" means to understand. As a noun, it's a measurement of nautical depth.

1 big thing: Fathom files $46M for billing tech

Illustration of a filing cabinet in the shape of a red cross.

Carlyle Group portfolio company CNSI has agreed to merge with Apax-backed Kepro, Carlyle and CNSI tell Axios' Claire Rychlewski exclusively.

Why it's the BFD: The merger of equals creates a powerful platform for Carlyle in the under-modernized space of Medicaid and Medicare management. 

By the numbers: The combined entity is “approaching $500 million of revenue,” says Carlyle managing director Dayne Baird.

The new company has contracts in 45 states, along with federal agencies.

Details: CNSI CEO Todd Stottlemyer will lead the new company, and Kepro CEO Susan Weaver will serve as president.

How it works: CNSI provides IT systems that states and federal programs use to administer their Medicaid programs, via the Medicaid Management Information Systems (MMIS) market. 

Kepro partners with government entities and private health care companies to help historically underserved populations receive care in-home or in their chosen community. 

Together, they’re better able to compete for contracts with a fuller offering of program management capabilities, such as claims payment or call center operations.

What’s next: After the ink dries on this latest transaction, analytics acquisitions may be on the docket, Stottlemyer says.

Both CNSI and Kepro bring mountains of administrative and clinical data, respectively, he says.

"Our clients want an organization that can look at all sources of data," he says. "The more we can provide that longitudinal look, the more beneficial we are."

The company could acquire in niche areas of claims management, like third-party liability capabilities (determining whether a third party is liable for payment of service for a covered member), Baird says. 

Flashback: Carlyle had Kepro on its wish list of possible acquisition candidates since spring, Baird says. 

The deal was made on direct approach, without an auction.

Gainwell Technologies’ $3.4 billion acquisition of HMS Holdings and Veritas Capital-backed Guidehouse’s acquisition of Dovel in 2021 were looked at as potential comps, Baird said.

Similar to its 2021 acquisition of CNSI, Carlyle's internal deal team combined its government services, tech and health sector groups.

2. The BFD: CNSI and Kepro to merge 

Illustration of a doctor's bag with stethoscope featuring a computer mouse at the end

Secure AI Labs, a Cambridge, Mass.-based developer of a clinical data registry for patient advocacy groups, has raised $4.7m in seed funding led by Asset Management Ventures with support from Mozilla Ventures, Future Labs and York IE, bringing total capital to $9m. https://secureailabs.com

Elevance Health has acquired BioPlus, a specialty pharmacy company serving patients with chronic conditions, from Nautic Partners portfolio company CarepathRx. BioPlus will sit under Elevance's PBM unit IngenioRx. https://www.bioplusrx.com/

3. Deals o' the day

MDVIP appointed former Healthline Media CEO David Kopp to its board of directors. 

Thrive Pet Healthcare named Angela Jaskolski its COO.  

4. It's Personnel

🚴 Situational awareness: Erin is moderating a late addition at HLTH in Las Vegas next week. She'll be sitting down Monday evening with Lance Armstrong to talk about facing adversity, from cycling to health tech investing.

🌇 Erin gave in to the hype and binged three episodes of "Selling Sunset," which was a fun escape from "real" life. 

✅ Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Brad Bonhall. Please ask your friends, family and colleagues to sign up.

November 09, 2022

1 big thing: Fathom files $46M for billing tech