Today, we are excited to amplify the news of SmarterDx’s latest milestone, as they announce the launch of Smarter Technologies, a new AI-enabled automation and insights platform that will drive administrative efficiency in healthcare and hospital operations. SmarterDx recently took on growth capital from New Mountain Capital, which has brought together three leading companies, SmarterDx, Access Healthcare, and Thoughtful AI, to form Smarter Technologies.
From our Seed investment in 2022 to this milestone just three years later, the company’s rapid ascent is a bellwether for digital health and the emerging category of healthcare AI solutions. In this post, we take a step back to retrace SmarterDx’s journey – from idea to full scale leader – and spotlight the key characteristics and decisions that we believe have fueled the company’s ongoing success. We share more about why we think a purpose-built team, product and ROI positioning, customer success and proactive decision making have accelerated the company’s rise as a category-leading AI platform.
The Origin Story
On a Tuesday morning in 2019, I made the trek from my apartment in Hell’s Kitchen to 466 Lexington Avenue in Midtown Manhattan, getting ready for NewYork-Presbyterian (NYP) Hospital’s Transformation & Finance Steering Committee meeting. In these meetings, we discussed operational areas that NYP was prioritizing for AI so that my team (Ventures) could collaborate with the hospital’s Transformation team to address each area, via internal or external partnership efforts.
The day’s agenda included a meeting to review “CDI Virtualization” led by Dr. Mike Gao, who was the Medical Director of NYP’s Transformation team overseeing applied AI. In 2019, AI adoption was still in its relative infancy, so many of our meetings involved scoping emerging opportunities and discussing pilot programs with distant ambitions to scale and maybe even point to ROI. But this meeting was profoundly different from the norm, and four things struck me when Mike began to present that morning.
It was obvious to anyone in the room that morning, that Mike and his team had lived conviction in this problem and unmatched depth of clarity into a solution with outsized potential. Needless to say, that morning’s “CDI Virtualization” meeting left a distinct impression on me. When I left NYP to join Flare Capital in 2019, Mike was at the very top of my short list of colleagues to continue to collaborate with.
All the while, Mike had been exploring a longstanding entrepreneurial ambition. He would eventually partner with his colleague, Dr. Josh Geleris, who was similarly a physician with a technical background (Josh was doing NIH and DoD-funded data science research as faculty at Columbia). Together, they began to develop early ideas for what would eventually become SmarterDx. Below are early versions of the story and some of the product’s early (and promising) signals of impact.
Over the next couple of years, Mike and I would periodically check-in. I was a sounding board as he would highlight their progress and we’d discuss the signals that could unlock venture capital.
The Investment Decision
In February 2022, with line of sight into their first few commercial contracts, Mike and Josh kicked off SmarterDx’s Seed fundraise. We, at Flare Capital, seek to back exceptional founders reinventing multi-billion-dollar healthcare markets. We seek out founding teams with technical advantages who can uniquely connect these advantages to an empathic understanding of customer pain points. Unsurprisingly, therefore, we jumped at the opportunity to partner with Mike and Josh in what quickly became a competitive Seed financing round.
As soon as our partnership heard the pitch, we had quick conviction in the management team and market opportunity. Mike and Josh were purpose-built to solve this problem and the appeal of a product guaranteeing top-line ROI for health systems recovering financially from the pandemic was obvious.
The primary uncertainty at this stage of the company was its differentiation in a crowded CDI landscape. To pressure test our conviction in the company, we introduced Mike to several of our most sophisticated revenue cycle executives at leading health systems across the country. Their endorsement of the value proposition was both unanimous and consistent, a rarity from our experience evaluating thousands of Seed stage healthcare technology assets. What clearly distinguished SmarterDx’s value proposition at this stage was its:
These were important foundational advantages that would compound value for the company over time. Needless to say, these diligence insights bolstered our decision to co-lead SmarterDx’s Seed financing in April 2022 with Ann Miura-Ko at Floodgate. Together, we focused on establishing scalable product-market fit, driving “agree rates” with the product’s findings and building out the team.
Growth Accelerates
In 2022, the company began to scale its first two hospital customers, launched with a third and entered into contracting with three more. Before the end of that first year, all three of its initial customers were referenceable accounts at the senior executive level and two of its customers had expanded the product systemwide. While hospital sales cycles can be notoriously slow, the company was closing new contracts at twice the speed of their targeted 12-month rate. An important hack at this point was their willingness to offer a retrospective review of historical claims data to prove ROI, and willingness to go “at-risk” at a moment in time where hospital CFOs were struggling to rationalize the ROI of Software-as-a-Service contracts.
At this point, the company had collected several critical proof points of product-market fit. Nonetheless, there was a continuing need to standardize product performance and further develop the commercial pipeline. Despite offering an almost zero-risk, fully attributable, multi-million dollar ROI product, early sales cycles indicated many hospitals were reluctant to disrupt incumbent relationships to take a chance on a new vendor. Moreover, there was a meaningful variance in the value of findings per site as well as the company’s contingency fees for value creation. Knowing that reliably accurate product performance would be a bigger driver of referencability, the company focused on product-workflow enhancements (i.e., model output review loops, user training, change management), which facilitated more consistent product performance and value creation.
In many ways, these initial challenges and solutions were typical of an early-stage healthcare technology company. It was the team’s stoic composure, analytical rigor and proactive thinking that distinguished how quickly and effectively the company was able to navigate these challenges and break through to success. This was best exemplified during a series of bank failures in 2023. While much of the ecosystem was still processing the news, Mike and Josh had already gone into action. Within days of the news beginning to unfold, Mike and Josh were walking Ann and I through wargaming scenarios assessing funding optionality and business outcomes across a complete spectrum of possibilities. The analysis projected a commanding confidence in the midst of dynamic chaos, and this would continue to be a hallmark of Mike and Josh’s leadership.
On the heels of this series of events, in April 2023, 12 months after the Seed, the company received a pre-emptive Series A term sheet from Bessemer Venture Partners. At this point, the company had burned just $3 million of capital to secure three referenceable customers with clear line of sight to the next 11 customers. Positive market feedback was catalyzing momentum, unlocking a hospital CFO network effect that would accelerate commercial progress. Notably, the company received a 98.1 KLAS Score in 2023, with customers citing rapid time-to-ROI (revenue, case mix index, risk adjustment), an easy-to-use user interface and consistent product accuracy as distinguishing capabilities.
Said another way, the company had begun to solidify trust with a conservative buyer base that was notorious for harboring a skepticism of AI. That trust unlocked a deeper level of partnership with customers, who were now pulling SmarterDx into new product opportunities.
With product-market fit now established, the company hired Wayne Grodsky, a seasoned commercial executive with a long history of scaling high-growth healthcare technology businesses. In partnership with Wayne, the company further systematized its sales motion and invested in a brand and marketing refresh. Within two quarters, the company had signed nine more customers, and its commercial pipeline had grown by 4x.
Though there was significant opportunity ahead, at this rate of growth, implementation, scalable customer onboarding and hiring were emerging as bottlenecks for the business. The company’s KPI scorecard grew to prioritize these operational metrics, as new data science and clinical quality training enhancements drove steady improvements in clinical findings. Key senior additions to the data science and clinical operations teams were also instrumental in this progress.
Another important series of developments were occurring around this time. By late 2023, technological advances had begun to commodify access to performant AI models. As a result, new AI-enabled RCM solutions were beginning to proliferate, posing disruptive potential and increasing noise in the market.
In response to customer demand to further bolster their strategic positioning, the company began beta testing a denials automation product in late 2023. Given denials management follows CDI in the RCM process, this was a strategic and intentional effort to expand the product’s aggregate ROI potential. Product positioning and distribution velocity would become even more important factors at this next stage of growth.
The AI market was now evolving rapidly, and hospitals had begun increasing their AI budgets, which would accelerate market pull for SmarterDx’s product. By the end of 2023, the company had grown more than 5X in revenue (compared to the prior year). Product ROI was increasing and as a result the company was able to command material increases in contingency payments, which tripled average contract values compared to the two years prior. Critically, the company’s customer and revenue base had grown increasingly diversified, a demonstration of broad product appeal, and a hallmark of business strength. Around this time, the company hired Jonathan Crawley as its Chief Financial Officer. Jonathan brought strategic finance and corporate development experience to the company from several prior roles at high-growth healthcare technology companies like PointClickCare and would play an important role in its future strategic growth.
In early 2024, or two years into the commercial journey, Transformation Capital pre-empted the company’s Series B financing. As we conducted our own market diligence on a follow-on investment into the Series B, what we remarked at was the fact that the company had not wavered at all from their Seed value proposition. In fact, they had deepened their appeal on every single one of these original dimensions. Some customers were now reporting over 10x in ROI within 12 months of use from just revenue integrity alone. Customers were reporting additional ROI from improvements in quality performance and market perception / Net Promoter Score improvements. Implementation timelines, in some cases, were as fast as 4–6 weeks, which is on the faster end for this end-market segment. Almost all customers pointed to the company’s customer and engagement style “transparent, proactive, they listen” as appealing factors. To many customers, SmarterDx had become a safety net and co-pilot for clinicians and coding teams, improving their productivity, consistency and overall experience of care.
At this stage, the company began to draw the attention of larger strategic healthcare technology partners, many of whom were eager to introduce a trusted AI solution into their pre-existing hospital relationships. Though forward-looking commercial signals for SmarterDx were stronger than they had ever been, Mike and Josh were looking to take the company to the next level and build a platform company that could address a wide range of customer needs. Strategic partnerships were therefore appealing, because they could unlock faster inroads with new customers. Additionally, as product positioning discussions were ongoing, certain partnerships were also appealing as pathways to organic or inorganic expansion.
With over 50 hospital system customers and a commercial engine at full throttle, the leadership team, ever proactive and analytical, began evaluating levers to widen the company’s market leadership.
The Next Leg
By the end of 2025, SmarterDx is tracking to again grow over 5X. The team’s differentiated technical and clinical talent, as well as unparalleled growth accelerated the achievement of this most recent milestone. We’re thrilled for the entire team as they join Smarter Technologies, a move that will turbo charge distribution and the breadth of offerings the company can bring to hospital RCM teams.
With a full spectrum of offerings, Smarter Technologies will now be able to:
As a new era of AI emerges, Smarter Technologies is poised to shepherd the healthcare industry into it.
Straight to the Source
To go a click deeper into the SmarterDx story, we sat down with Mike Gao to retrace SmarterDx’s journey – from idea to full scale leader – and spotlight the key characteristics and decisions that have fueled the company’s ongoing success.
Watch the full video interview below and reach out to Parth Desai at parth@www.flarecapital.com to let us know what you think!
