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Mr. Sylvain Raines at the whiteboard.
Hiroko Masuike/New York Times/Redux
Sylvain Raines has made it his life’s work to finance health care through the wonder of finance: securitization. It didn’t work.
by Bob IveryForbes staff
MArsha Obermeyer’s stomach still turns every time she remembers it. It was a dark September morning in 2021 when she felt like she might lose her husband of 50 years, Dean. His spasms were mysterious and painful, but he was still able to walk. Marcia was able to get him into her car for the one-mile drive to the hospital in Herrington, Kansas, a town of 2,110 people. Emergency room doctors diagnosed a life-threatening intestinal obstruction and airlifted Dean, 74, 240 miles away to Kansas City, where he was successfully treated.
In October, the 104-year-old Herrington City Hospital closed, a casualty of declining patient numbers and “prolonged financial difficulties,” the newspaper said. The Obermeyer’s nearest emergency room, a three-minute drive away for him, is now 30 miles away.
“When you see someone getting worse and worse by the minute, it’s a terrible feeling, like, this is it, I can’t do this anymore,” Marcia Obermeyer says.. “Every second counts.”
According to the Sheps Center for Health Services Research at the University of North Carolina, the gradual culling of rural hospitals has seen about a dozen closures a year since 2010, but that may be manageable considering there are 2,282 hospitals nationwide. do not have. That sounds like a big number for a rural area of 60 million people, but the closure meant people living in rural areas had to drive an average of 24 miles for inpatient care in 2018, compared to 2012. This was increased from 5.4 miles. Chad Austin has something to say. The CEO of the Kansas Hospital Association points to “increasing uncompensated medical costs.” Countless facilities remain open, but are cutting staff or suspending services due to lack of funding.
Five years ago, a brilliant but elusive entrepreneur from Quebec named Sylvain Rains came up with a solution. Instead of waiting three months to get a little more cash for healthcare providers, he would get paid immediately, using a marvel of financial engineering called securitization. His approach would turn the country’s $2.6 trillion medical debt market into an asset that investors can buy and sell. This funding will free hospitals from having to borrow money and keep them away from private equity firms, whose for-profit ownership is generally not good for patient outcomes. His North Carolina-based startup, Collarate Velocity, has raised $1.6 million in funding, which he says was more than enough. And by 2022, he said, the product would be ready for beta testing at his three hospitals.
But like countless seers, his plans were in vain. His Collarate Velocity partners decided to go in a different direction at a critical moment, leaving Reigns stranded with no way to bring his innovation to market. A seemingly ill-timed business decision turned his success story into an epic tale of missed opportunities.
But first, there’s horse semen.
financial transformation
In 2005, a group of investors approached Raines about helping raise money for a stud business. By then, he had already become a celebrity in a corner of Wall Street devoted to structured finance.
Raines, 66, who grew up in the Montreal suburb of Ville d’Anjou and studied aerospace engineering after receiving his doctorate from Princeton University, has worked at Citibank, Credit Suisse, UBS Paine Webber, and Goldman Sachs. He ended up working for the bond rating agency Moody’s, where he met Ann Rutledge. He and Rutledge, whom he married in 1995, together built a reputation as experts in securitization, the process of converting contracts such as mortgages into tradable assets.
In 2003, the two collaborated on a textbook called . Analyzing structured securities: Accurate risk measurement and capital allocation. Its prose, peppered with long equations that became TikTok memes, may have blinded civilians, but among true believers, it was treated badly. Fifty Shades of Grey. That same year, Rains and Rutledge, who launched their own shingle line under the name R&R Consulting (now Credit Spectrum), predicted the subprime mortgage carnage that would disrupt the market four years later.
Securitization has transformed finance by dispersing wealth, lowering the cost of capital, and allowing investors to purchase assets that were previously difficult to trade.
Securitization has transformed finance. It spreads wealth by reducing the cost of capital, allows investors to buy assets that were previously difficult to trade, and greases the money machine so that it can generate more assets such as mortgages. Now available for supply. However, its abuse caused the Great Recession and became the scapegoat that brought the global financial system to the brink. “You said the word Securitization In 2010,” Raines said, “and you were the Antichrist.”
For R&R Consulting, predicting financial Armageddon didn’t necessarily lead to customers paying. Reigns cemented his reputation as good but difficult on CNBC that year. When Raines mocked panel member stock market informant Jim Cramer, host Erin Burnett, then the sweetheart of American cable news, had Raines removed from the show.
Although Horse People was able to borrow from banks at 13%, Raines said it could unlock value in the business’s unique cash flow that lenders wouldn’t consider. This will give the investor access to more cash and reduce his cost of capital by an estimated two-thirds. According to Raines, they raised $75 million to fund the securitization of Stallion Syndicate stock, the only deal made to date.
The success of the project encouraged Rains. If he could build structured finance around a stud, how difficult would it be to do the same for medical receivables?
“Beautiful Deal”
Mr. Raines said his obsession with health care finance began in the men’s room more than 20 years ago. He was chatting with a Fannie Mae executive (Fannie Mae (2022 sales: $116.8 billion), which funds mortgages through securitization) when the executive said, “What this country needs is… It’s Fannie Mae for medical debt.” From that moment on, Rains said, solving the mysteries of medical funding became his “life’s dream.”
In 2020, Raynes started Collarate Velocity with Christopher Langley, who has a fintech background. Raines said the two men each own about 45% of the company, with a handful of investors controlling the rest. Mr. Langley contracted with a clearinghouse to handle the paperwork, hired a New York private equity firm to sell the securities, and was able to persuade a handful of hospitals to beta test Raines’ plan. “We completed everything within six months,” Raines recalls. “It was a great deal.”
Raines’ secret sauce was a way to value medical debt in real time. “Without it, you get nothing,” he says.. Real-time securitization means that providers can get cash on Tuesday for procedures done on Monday, as long as they promptly submit the appropriate claim forms. Because everyone looked better and was happier, Rains said, patient outcomes likely improved as well.
He never knew it. Everything came to a screeching halt before beta testing. According to Raines, he received a call on September 27, 2021, effectively terminating him. “Overnight I became nothing,” he says.. Raines said the company told him they could do without him. Langley disputed this, saying he and the investors who jointly owned a majority of Collateral Velocity decided securitization was not the answer. Langley says Raines did not agree and quit.
“I was naive,” Raines says. “Their life dreams were not affected. Only I was.”
After Mr. Raines left, Mr. Langley shifted the focus of the company, now known as Carefi, from paying for services provided by Mr. Raines to value-based care. This includes a patient’s health assessment, similar to his FICO score for credit. A Nashville-based startup called Verikai compiles scores based on anonymized personal data, such as number of fast food restaurant meals (bad) and church attendance (good) . Healthcare providers would receive a fixed fee for treating patients with specific illnesses. If you spend less, you’ll be able to maintain the difference. If they spend more money, they will be in trouble. Langley said the system will be tested this year at Cone Health, a nonprofit chain of five hospitals based in Greensboro, North Carolina.
Raines’ secret sauce was a way to value medical debt in real time. “If you don’t have that, you don’t get anything,” he says.
According to Nathan Powell, Entrepreneur-in-Residence at Cone Health Ventures, value-based care allows health care providers to “identify and prevent people before they become chronically ill or sick.” It is said that it will become like this. “That’s where savings come in.” Powell said Cone Health has invested in Carefi, which he called an “early-stage startup,” but declined to say how much.
Langley declined to share additional investor information, but said it was “invaluable” to have an “end buyer” like Cone Health willing to help test the product. .
“We would have made this turnaround with or without Sylvain on the team,” Langley said.
Reigns scoffs at that. He said what Langley called the “old model,” in which hospitals receive compensation for services provided, remains the industry standard.
“What was appealing to me was that if I could do this, I could leave something behind,” Raines said. “I knew healthcare finance wasn’t something someone else could solve. It’s called an ego trip. That’s fine. All entrepreneurs are ego trippers. I did it because I couldn’t do it. I’m not sorry at all.”
Raines says he hasn’t given up on his dream of financing medical debt in real time. He vows that it will happen next time.
30 mile journey
Last week, Dean Obama cut his leg. The retired mail carrier needed medical attention because he had just had knee surgery.
With Herrington City Hospital closed, Dean and his wife, Marcia, drove 30 miles to Marion, Kansas, in cold weather where the winds were “well below freezing and the snow was blowing and blowing,” according to Marcia. I traveled. “I couldn’t drive in that kind of weather.” Thankfully, Dean was able to do it, even with his injured leg. But her thoughts naturally turned to the life-threatening emergency they experienced in 2021 and what they would do if something like it happened again.
“We’re praying,” Marcia Obermeyer said.
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