Most hospital executives will say it’s impossible to run a business on Medicare rates. The government health insurance program for seniors pays less for services than it costs to deliver them and private insurance has to make up the difference. But Eren Bali doesn’t buy the cost-shifting argument. The serial entrepreneur who grew up in rural southeast Turkey believes the issue isn’t the rates but an outdated system using old technology. “There's so much waste because providers are so used to charging through the roof in this country, they've never thought about being efficient,” says Bali, 37, the CEO and cofounder of Carbon Health.
Part of the problem, he says, is the underlying technology infrastructure. Many doctors are locked in a constant administrative battle with expensive, clunky medical records software that sucks up hours of their time each night after they finish seeing patients. And while most hospitals are too scared to rip out their full tech stacks after having sunk tens of millions of dollars into frustratingly inadequate technology, Bali decided to start from scratch.
He teamed up with cofounder Caesar Djavaherian, 47, an emergency medicine doctor who moved to the U.S. during the Iranian revolution, to create a system built hand-in-hand with doctors and patients that would be intuitively easy-to-use instead of requiring hours of training. Combine that with machine-based learning to surface most likely diagnoses, in-app messaging to get second opinions, integration with electronic prescribing and labs, as well as detailed analytics for every step of the patient and doctor interaction and you get a recipe for cost savings. Thanks to these features, the San Francisco, California-based company, which has treated more than 1 million patients over the past year, only charges Medicare rates. Carbon declined to disclose revenue numbers but says the first quarter of 2021 already surpassed total revenue in all of last year.
While the reimbursement structure may be unusual, it’s resonating with investors. Also helpful in attracting investment is Bali’s track record: he is the cofounder and chairman of another unicorn, the online learning platform Udemy, which was valued at $3.3 billion last year. On Wednesday, Carbon Health announced it secured $350 million led by Blackstone’s Horizon platform to further its mission of becoming the largest primary care provider in the country. Atreides, Homebrew, Hudson Bay Capital, Fifth Wall, Lux Capital, Silver Lake Waterman, and BlackRock participated, along with returning investors Dragoneer Investment Group and Brookfield Technology Partners. The funding round values the six-year-old company at nearly $3.3 billion, according to a person familiar with the deal.
“Carbon starts from a principle of lowest cost wins and lowest cost is good for the consumer,” says Eric Jones, a partner at Dragoneer. While there are other public primary care companies like One Medical, which is membership-based, and Oak Street Health, which focuses on Medicare patients, Carbon Health doesn’t restrict the patients it serves or require a subscription. “Carbon is a beautiful mass market opportunity that can really exist—whether it's a pop-up or full-scale clinic or virtual—in every kind of nook and cranny of the U.S.,” says Jones. “And that's what I think makes it really special.”
The hybrid model is key when it comes to patient relationships. “Venture capitalists, in general, passionately hated anything that touches brick and mortar,” says Bali. “I was passionately opinionated that without physical locations, there's no great healthcare.” That made fundraising a bit trickier, but the post-Covid landscape is starting to shift, especially as the cost of acquiring customers through digital advertising on Google and Facebook ads becomes increasingly expensive with no storefronts to drive organic traffic. “The downside of telemedicine is that your customer acquisition costs are actually a lot more than what we spend on clinics,” he says. In the Bay Area, 95% of Carbon patients are from word-of-mouth and walk-bys, while only 5% of new customers are from paid channels, says Bali. More than 1,000 of Carbon’s 1,600 employees work in the clinics providing care.
Doctors love tech just as much as everyone else. What we hate is bad technology.
Bali first got the idea for Carbon in 2014, when his mother experienced an unexplained stroke that paralyzed different parts of her body. He ended up taking two months off from Udemy to travel back to Turkey and take her to a seemingly never ending stream of specialists as they searched for a diagnosis. “I was going from doctor to doctor with thousands of pages of documents—all the DVDs, all the lab records,” he recalls. “I just started realizing that the tools that doctors had to use were not really designed from their perspective at all. And, as a patient, they obviously are not designing our perspective either.”
A career software engineer, Bali first applied his skills to make education more accessible. It soon became clear his next mission was to do the same for healthcare. In 2014, he stepped down as CEO of Udemy and into the role of chairman. He spent the next few years working on what he thinks of as the next generation of healthcare software: a combination medical record, clinician workflow, revenue cycle management and patient-facing platform from the ground up.
In 2017, he met Caesar Djavaherian, an emergency medicine doctor and owner of several Bay Area urgent care clinics called Direct Urgent Care. The two had been introduced by a doctor who was applying for jobs at both places and recognized both men had a similar mission to better technology in healthcare.
Djavaherian had spent years researching medical informatics and left academic medicine to start his own clinics after becoming increasingly frustrated by the sluggish pace of adopting new technology. He had MacGyvered a new system for his clinics by piecing together software from multiple different startups. Bali was offering one seamless platform.
“Technologists will often say, ‘Doctors don't like tech.’ And my response to that is, every doctor I know is on Facebook or Instagram and uses Google every day,” says Djavaherian. “Doctors love tech just as much as everyone else. What we hate is bad technology.” He started a pilot program with Carbon and within 3 months it was up and running in his clinics. In 2018, his urgent care business was acquired by Carbon forming the company that exists today.
Djavaherian explains that Carbon uses machine learning to make the patient intake process more efficient, but he isn’t worried about artificial intelligence taking over his job. “We use the technology as a risk mitigation tool to improve clinical outcomes,” says Djavaherian. He gives the example of a 3-year-old who comes into the clinic vomiting. The vast majority of the time, the issue is a simple viral infection. But, on rare occasions, it’s the first sign of type one diabetes. The software will recommend the provider order a blood sugar test to check.
But one of the main benefits of the Carbon platform, says Djavaherian, is the ease-of-use. Originally, the doctors at Djavaherian’s clinics were spending about two hours a night filling in medical record charts. “When we switched over to Carbon, those providers are now spending an average of 15 minutes charting after their shift with the maximum time of roughly 30 minutes,” he says. “If that doesn't help the burnout problem. I don't know what does.”
In 2019, Carbon had 7 clinics, and has now grown to 80 clinics across 12 states with an average of 2 new clinics opening every week, says Bali. Growth was vastly accelerated during the Covid-19 pandemic as Carbon administered more than 1.4 million COVID-19 tests and 1.5 million COVID-19 vaccines.
“Our intention is to be an independent public company, as early as next year,” says Bali. Rumors have also been circulating that his other company, Udemy, could go public sometime this year. The markets seem to be aligning for Bali. While other public primary care companies have gone after higher-income patients or older Americans, says Bali, “we've definitely seen a lot of appetite for a company like ours, which is neither high-risk nor high-end but can really be accessible to the entire population.”
One of the major milestones to test readiness will be hitting a 25 to 35% EBITDA margin throughout all Carbon’s clinics, Bali says. It has happened for some of the older clinics, but he says that needs to be replicated across the new ones that are opening at a steady clip. For now, he’s focused on taking the model nationwide, with the goal of being within 10 minutes of access to a majority of the U.S. population. That’s why he decided to name the company Carbon Health in the first place. Carbon is the most commonly found element in organic life, says Bali, and it’s a metaphor for the healthcare network he wants to create. “Amazon does the same thing,” he says, “which is to charge as little as possible while you're still profitable. And then you use that as a way to have a strong customer relationship.”
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