My last post was partly about healthcare payments in the form of Change Healthcare’s Intelligent Healthcare Network.  I did not set out to write another post about healthcare payments, but reading Phreesia’s S-1 compels me to.  Phreesia has three “businesses” in one:  SaaS applications, payments, and life sciences advertising.

Phreesia Threat #1:  SaaS Applications

If you have been to a doctor you have some idea of what Phreesia’s SaaS applications do!  Phreesia handles the patient intake process, meaning they help doctors offices:

  • set appointments
  • replace that clipboard they give you when you arrive at the office to verify insurance
  • administer intake questionnaires on prior history, etc.
  • and collect your payment information

The value to the healthcare provider is pretty clear:  Phreesia automates manual processes, integrates with practice management and EHR providers, and reduces collections issues.  Patients get a convenient system to use, a free cost estimator, and flexible payment options.  For this value, Phreesia collects a SaaS subscription. (I presume this subscription varies by module and patient count.)  It’s a classic SaaS business representing 44% of Phreesia’s revenue.

Phreesia Threat #2: Payments Facilitator

Being a payments facilitator has become a hot topic because of the popularity of Square and Stripe.  There’s no perfect definition of a payments facilitator (its a little arcane in the world of credit cards) but here’s one from Worldpay:

A payment facilitator is an entity registered by an acquirer to provide payment related services to a group of merchants (known as sub-merchants). Payment facilitators are typically vertically oriented software companies, boarding sub-merchants and facilitating merchant services for them. A payment facilitator assumes all the risk and responsibility of managing payments for their sub-merchants, eliminating the need for those businesses to establish a secondary payment processing account with a payment processor. In that, their software company is also their payment processor.

For our purposes, simply think of payment facilitators as vertical software providers who incorporate payments into their offering.  One of the most famous is MindBody in the studio fitness business.  In any case, Phreesia processed $1.4 billion in payments in FY 2019.  On that flow, Phreesia recorded almost $37 million in fees, which represents a take rate of 2.6% and approximately 37% of Phreesia’s revenue.  Phreesia also reported about $22 million in direct payments processing expense, so its net take rate is about $15 million or about 1%.  This is similar to, but higher than, WEX’s net take rate on their corporate payments business (see here).

Phreesia Threat #3:  Life Sciences Ad Business

Phreesia facilitated 54 million patient visits in FY 2019.  Why not serve those folks some ads (on an opt-in basis) as they are headed to their doctor? It turns out 13 of the top 20 pharma companies think that is not a bad idea.  Phreesia claims:

“Based on our analysis of client advertising campaigns conducted by Crossix and another data analytics company, which we commissioned, patients exposed to a brand campaign using the Phreesia Platform are over four and a half times more likely, on average, to have a prescription filled for that product than control patients.

Ad revenue represented about 19% of Phreesia of revenue in FY 2019.  (As you may know, advertising to patients in the office was recently made infamous by Outcome Health.)

Summary

Phreesia is not yet a “Rule of 40” company.  The company grew about 25% last year and EBITDA is tiny.  Free cash flow is just approaching positive territory.  On the other hand, I love that Phreesia has three different value propositions.  If Phreesia turns out like all the other ones, I will not buy it as it IPOs, I’ll wait and watch it climb forever!!

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