Americans spend over $1 trillion on healthcare each year. ⁱ Of this, $350 billion, or 34% is spent on Medicare and Medicaid. ⁱⁱ The Department of Health and Human Services estimates that approximately 14% of Medicare claims dollars, or $28 billion, are paid inappropriately, due to fraud, abuse or lack of medical documentation to support claims. ⁱⁱⁱ Because of this, the government empowered the Health Care Financing Administration ("HCFA") to audit medical institutions for health care fraud. HCFA can now impose fines of up to $10,000 per claim found in noncompliance with government regulations, plus triple the fee for the claim.

THE CONCEPT
Veritex is a medical software company that will offer a cost-effective means for medical service providers to: ensure compliance with government regulations and avoid the substantial fines imposed by HCFA; increase service provider revenue by minimizing under billing for legitimate medical services, and educate physicians about current HCFA guidelines. VeriType will develop software targeted at approximately half of the nation's 779,000 physician specialists and practitioners affected by HCFA guidelines.

CURRENT ENVIRONMENT
When a physician sees a patient, he or she must document the visit in the medical record. HCFA requires that each component of the documentation contain specific elements. The number and complexity of these elements determine the level of service provided by the physician. The amount of reimbursement received for the visit is based on this "level of service." The physician is personally accountable for the content of the medical record and the charges submitted based on this medical record. HCFA guidelines are the standard for not only Medicare and Medicaid reimbursement, but also most private insurance reimbursement.

Currently, most medical documentation is dictated and later transcribed. The physician or other office personnel then review the documentation for compliance with HCFA guidelines and appropriate billing. Time delays and inaccuracies inherent in this system exacerbate its cost. In response, clinicians have begun to use many forms of technology to digitize medical records for same-day analysis, including voice recognition software and digital tape recorders. While these changes have improved turnaround times for documentation and billing, they do not ensure compliance with HCFA regulations. The medical community continues to search for a solution.

THE VERITYPE SOLUTION
VeriType software will process digital medical records using a natural language algorithm. It will search for the required elements HCFA uses to determine the level of service provided. The software will then generate a report that a clinician can use to improve the record and more accurately reflect the level of services rendered. Under the current system, the medical record is reviewed only after it has been signed and sent to billing. At this point, if there is a discrepancy between the record and the charges corresponding to the level of services rendered, the charges must be "downgraded," resulting in lost revenue.

PRODUCT BENEFITS
Using VeriType analysis will facilitate improved documentation. This will increase revenues for legitimate services rendered and prevent HCFA fines. VeriType software is used at the point of service. This will benefit the physician by:

• The documentation can still be improved at the point of service, or place of examination. Under the current system once the record has been signed and submitted to billing, it can no longer be changed.
• Physician education regarding documentation completeness occurs at the point of service and not months after the patient visit, when review is completed under the current system.

MARKET OPPORTUNITY
HCFA began investigating academic medical institutions because of their high proportion of Medicare and Medicaid reimbursement. Thus, the initial target market for our product will be physician specialists in teaching hospitals and subsequently all physicians in public and private practice in the U.S. Physicians in both hospital and clinical settings can benefit from VeriType analysis. The software will operate on a desktop computer, and will not require the presence of a multimillion dollar electronic medical records system. Secondary users of VeriType analysis may include medical records audit firm such as RevMax, a division of Deloitte and Touche, and potentially HCFA itself.

COMPETITIVE OFFERINGS
VeriType software is designed to allow a physician to continue using familiar means of documentation, such as dictating a freeform medical record. To date no company offers this type of analysis. There is one product on the market that offers a form of HCFA compliance analysis as part of a larger electronic medical record system. However it requires the physician to significantly deviate from their traditional documentation method and use a much more structured approach. Thus, a significant opportunity exists for VeriType.

COMPETITIVE ADVANTAGES AND DISTINCTIONS
While the use of technology is advancing in the medical industry, our research shows that there has been little application of artificial intelligence in the area of real-time medical record analysis. VeriType has an advantage in being the first to apply linguistic technology to a HCFA compliance product. The software will incorporate a natural language processing algorithm that has already been developed at the University of Arizona. This tool, the Arizona Noun Phraser, was created at the Artificial Intelligence Lab run by Dr. Hsinchun Chen, a member of the VeriType advisory committee.

VeriType's physician-centered approach also affords it a competitive advantage. Physicians retain more control over the reimbursement process by using VeriType analysis than in the current system. VeriType is also designed as an educational tool for physicians. Finally, VeriType is a small, stand-alone application that is easier for a physician to use than a larger, more complex and costly electronic medical records systems.

MANAGEMENT TEAM
CEO and co-founder Jennifer Brunner brings to this company prior experience in small and mid-scale database development, electronic marketing, and contacts in the software development community. Scott Klewer, M.D. and co-founder is a pediatric cardiologist who developed the initial concept for the HCFA compliance software while seeking to improve his documentation and billing process. COO Wayne Gyllenhaal, P.T. brings 14 years experience in patient care in physical therapy, and expertise in billing and medical regulation compliance. VeriType will form a Board of Directors with representatives from the software and medical industries.

INVESTMENT, REVENUE AND PROFIT
VeriType will seek $1.5 million in two tranches to begin software development, with a subsequent capital infusion of $750,000 in year two. We estimate a conservative development period of one year to develop the first module. VeriType is expected to realize an ROI of 13% at the end of year two, with net income of $328,000 on sales of 400 units. The firm will break even in quarter 10, and achieve net income of over $6 million by the end of year three.