Why we raised $55M: Partnering with health plans to bend the cost curve in healthcare

When people say the U.S. healthcare system is “broken,” they’re usually pointing to one core issue: rising costs. But at Alaffia, we know the deeper problem is that too much healthcare spending never reaches the patients it’s meant to serve. The US spends the most on healthcare in the world ($5.3 trillion in 2024), yet we don’t have the highest life expectancy rates. Where’s the disconnect? 

In our view, the disconnect between spend and outcomes largely arises from waste and abuse. The harsh reality is that roughly 25 cents of every healthcare dollar goes toward administrative costs, not patient care or outcomes. And to make matters worse, wasteful administrative spending is estimated to cost America’s healthcare system up to $570 billion annually, and despite years of reform efforts, that financial burden is only growing. What does this burden look like in practice?

When you seek care in the U.S., an intricate back-and-forth between providers and payers begins. Teams pull medical records from disparate systems. Providers manually document care, and payers manually validate the coding and billing that follow. Claims are then later reprocessed and appeals are filed. Each step takes time, and repeated verification by specialized talent across fragmented systems pulls focus away from what matters most: treating patients and delivering positive outcomes.

Traditional approaches to claims processing and payment integrity as described are simply not sustainable. It leads to further systemic friction, which is the precise problem we’ve set out to solve at Alaffia. We’re proud to have secured $55 million in new Series B financing, led by Transformation Capital, to help guide our next chapter in combatting waste and making healthcare more affordable. 

There are many approaches to making healthcare less costly, with various companies playing their own respective roles, but in our view, bending the cost curve starts with administrative “back-office” operations.

Considering healthcare spending is now north of $5T, even small improvements will compound at such scale. A 1% reduction in avoidable administrative work and payment friction is tens of billions of dollars per year that can be redirected toward preventative care, richer benefits, and lower premiums for members.

Our view here is simple: you don’t simply “cut” your way to affordability. You digitize and modernize the workflows where spend becomes real — the claim, the medical record, and the decision-making around them.

What LLMs and agentic AI have unlocked for healthcare

For years, healthcare has had plenty of data, but most of it has lived in unstructured formats (e.g., PDF medical records, clinical notes, policy documents, etc.) that don’t exactly fit the profile for traditional automation. That’s what large language models (LLMs) have finally unlocked for healthcare. LLMs can interpret, extract, and summarize information from unstructured clinical and administrative files, making them usable and useful for various operational workflows.

This matters because healthcare operations are fundamentally “document-and-decision” workflows. Someone has to read the patient record, understand the context, compare it to the policy, and then take an action (e.g., approve, deny, pend, request more information, adjust coding, or route elsewhere). LLMs make it possible to scale this work without scaling headcount and costs.

But LLMs alone are not the end state. The real unlock is agentic AI. Agentic AI is essentially an LLM system with pre-defined guardrails that can reason and execute multi-step workflows. Instead of producing a single answer or completing a single task, an agent can:

• Ingest relevant data and documents from various sources (e.g., claims data, EHR files, policy guidelines, etc.)
• Extract and compare clinical facts against specific policies and criteria
• Generate a series of recommendations with rationales and traceable citations
• Route claim cases to the right team or queue, or auto-resolve no-risk items
• Learn from clinician feedback and continuously improve

Agentic AI adoption works best when it complements existing systems, not when it tries to replace them overnight.

Modernizing healthcare at the point of care

Now imagine a healthcare system where administrative complexity no longer dictates how we deliver or reimburse care. When providers and payers align directly at the point of care, they can:

• Structure and interpret clinical documentation instantly
• Cross-reference policy guidelines against patient records autonomously
• Determine accurate payment options with speed, consistency, and transparency
• Avoid prolonged reimbursements, payment disputes, or reworks
• Reduce strain across relationships throughout the entire healthcare ecosystem

Achieving these outcomes demands new technologies that break down the silos that separate providers, payers, and clinical documentation systems. The infrastructure currently underpinning these workflows was never designed for the real-time coordination happening at scale today. It also requires a new design philosophy that keeps human judgment central in decision-making.

In 2020, we founded Alaffia with a clear intention: to address the persistent strain of administrative waste on the U.S. healthcare system, so payers and providers can work together more effectively.

Having spent years working in our family’s medical billing business, we founders understood the magnitude of this challenge. We saw medical coders struggle to navigate disparate systems to analyze clinical documentation to generate accurate medical claims, wasting valuable time and resources. While the opportunity to streamline this work was evident, the right technology didn’t yet exist, so we set out to build it, in partnership with health plans.

Why health plans are the best place to start

Health plans are large aggregation centers of lives, and as a result, spending. They also sit at the operational intersection of claims, clinical documentation, reimbursement/clinical policies, and appeals decisioning. Furthermore, they face tight constraints: rising upcoding, staffing shortages, and increasing complexity, all while having a core mandate to improve member experience and affordability. Agentic AI gives plans the leverage they need, now more than ever. This translates to more throughput for ops teams, greater consistency, and lower cost-to-operate at scale, without sacrificing clinical oversight.

We’re leading the way in scaling a new model for health plan operations

At Alaffia, we’ve designed our solutions to help health plans and payers of all sizes better address rising claim complexity, cost pressures, and clinician shortages. To continue this work, our recent funding round will support two primary priorities: 1) increasing R&D to advance our AI capabilities, and 2) educating the market on high impact, low-risk areas to transform their core operations.

A key focus area is our ability to proactively deploy engineers & clinicians to work directly with health plans, expanding support across the entire claims lifecycle. From prior authorization through post-service review and appeals, we’re strengthening our hybrid engagement model so plan leaders can choose to fully outsource workflows, enhance internal teams with our support, or adopt a blended approach based on evolving operational needs.

We’re also committed to keeping “humans at the helm”. At Alaffia, as our AI agents review patient medical records, they extract and normalize unstructured data with more than 97% clinical accuracy. Every recommendation includes a clear clinical rationale. Users can see why each decision was made, with traceable citations linking back to medical records and policy documents. Put simply, our platform offers clinicians and medical coders the benefits of AI and automation, as well as complete visibility and control.

For example, in workflows such as Sepsis DRG validation, where manual review can require hours of specialized clinical analysis and review, our AI agents normalize documentation, compare records against plan-specific criteria, and route the most complex cases to clinicians. This approach reduces review time by up to 80% and lowers validation costs by 60–70%, while maintaining clarity into how determinations are made.

We’re laser-focused on reinforcing and building on these hallmarks to improve our user experience, where humans and AI work together seamlessly to drive better outcomes.

Where Alaffia is headed next

Our goal at Alaffia has never been automation for its own sake. We’re guided by the pressing need to bring efficiency, accuracy, and consistency to healthcare’s most complex and high-friction workflows. Now, with our Series B raise, our attention turns to scaling our impact. That means building on our foundation in payment integrity to support more workflows across the claims continuum (e.g., prior authorization, appeals and grievances, and more), while maintaining our commitment to transparency and human oversight for our health plan partners.

Our mission to reduce administrative waste doesn’t just benefit health plans. When plans operate more efficiently, even modest reductions in avoidable expenditures across the trillions of dollars spent annually on U.S. healthcare can drive better patient outcomes and greater affordability at the member level.

We’re deeply grateful to our partners and customers who have supported our work to optimize claims operations, enabling our team of 50 people to deliver more than $120 million in savings for health plans to date. Together, we will continue to amplify these results and work toward a healthcare system that works better for everyone.

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