Prior authorization has long been a source of friction between payers and providers, and now, with algorithmic tools for claims reviews and LLMs for appeals, it's evolved into an AI "arms race" as organizations on both sides try to get the upper hand.
Healthcare startup Otter Health aims to overhaul utilization management and dismantle the administrative "arms race." The company built an AI-powered real-time clinical quality platform to better manage healthcare utilization by influencing care decisions rather than requiring clinicians to get permission for them.
Otter Health officially launched with $8 million in seed funding co-led by Fika Ventures and Evidenced Capital. Investors Slow Ventures, Metrodora, CoFound Partners, Patient Capital, SemperVirens and Layout Ventures also backed the round.
The startup uses AI to give payers and providers a shared view of how clinical decisions compare with evidence-based standards, identifying variation and supporting clinician engagement across referrals, outpatient procedures and care transitions. The goal is to improve quality and control unnecessary spending without requiring an authorization checkpoint. This collaborative approach can also align payers and providers around the same clinical and financial goals, according to executives.
Healthcare strategy leaders and clinicians Amol Navathe, M.D., Ph.D., Keith Florance, Ram Keralapura and Will Bartlett teamed up to launch Otter Health. The founding team brings experience in utilization management, clinical quality and healthcare technology, with the goal of using real-time clinical data to rethink how healthcare organizations manage utilization.
"What Otter Health is really trying to do is dismantle this arms race that's been building up between payers and providers around how do I make sure on the provider side that I'm getting as much as humanly possible for what I'm trying to do, and then on the payer side, how do I put as many barriers up as humanly possible to having to pay for anything to get done," Florance told Fierce Healthcare in an interview.
"Instead, we're saying, can we change the utilization management paradigm more generally, and instead of using prior authorization, or where you can't use prior authorization using retrospective or risk-adjusted claims-based analyzes, to instead use real clinical data in real-time to create highly visible, transparent, two-way, collaborative-led quality, and engage providers on the gold standard of care so that you don't need prior authorization," Florance said.
The seed funding will help Otter Health scale its platform, expand into additional clinical specialties and improve its ability to identify opportunities to manage healthcare spending and quality. The company also plans to build out its team of engineers and physicians as it expands to more healthcare organizations.
There's a rapidly growing market of AI-powered prior auth and revenue cycle management tools to automate manual processes and bring agentic AI into back-office billing software.
But Florance argues that automating prior auth, or just making it a faster process, doesn't address the underlying adversarial relationship that has developed between payers and providers when it comes to UM and quality.
"It's the workflow that's the problem in general. So throw the workflow out, and instead have something that's actually meaningfully guiding providers towards the gold standard of care," he noted.
Using AI to streamline prior authorization and claims reviews amounts to an incremental improvement rather than a foundational change, Florance argued. It simply makes prior auth "taste better."
"Whereas [Otter Health] is a new category of looking at it in terms of how do I just measure quality differently and use that to eliminate all these frictions and workflows," he said.
Historically, prior auth has served as healthcare's primary tool for managing utilization and cost. While the goal was to ensure patients received appropriate, evidence-based care, prior auth and claims-based reviews evolved into mechanisms for controlling utilization that often put payers and clinicians at odds.
Prior auth should function more as a "penalty box," Florance asserts.
"It's not like when you turn prior authorization off, the clinicians are thinking to themselves, 'I can't wait to do fraud.' That's not what 99-plus percent are doing. But the problem is if you take that gate away, while it reduces all these frictions, there's no longer any visibility or accountability," he said. "Otter Health is a platform that actually delivers the visibility in real time, the clinical precision around what was this provider actually trying to do, and was it concordant with the goal standard of care? And then using that to really support quality performance for the provider but give the lens back to the payer as well so that they can help manage that and they can manage their networks in a much more quality-focused way and have a better relationship with the provider and their own network."
As a healthcare strategy leader, Florance spent two decades focused on innovative value-based care and payment models at companies like Evolent Health and Boston Consulting Group. He built a startup called Embedded Health with Navathe and Zeke Emanuel, M.D., which they sold to Clarify Health Solutions in 2022. Florance led Clarify's payer business for nearly two years before launching Otter Health.
The company works with health plans, health systems and risk-bearing provider groups. Otter Health says its AI-powered platform is already being used by major payers and provider groups to reduce unnecessary care and clinical variation without relying on traditional prior authorization.
In its initial work with healthcare organizations, Otter Health has shown that by removing prior authorization combined with the right clinician engagement through its platform, the organizations limited non-concordant decisions to less than 5%, executives said. The organizations also captured substantial savings on low-value care that falls outside the prior authorization process.
An American Medical Association survey found physicians complete nearly 40 prior authorizations per week. Ninety-three percent report that prior authorization delays necessary care, and 82% say it can cause patients to abandon treatment altogether. Otter estimates that roughly 60% of low-value healthcare spending occurs outside traditional authorization controls, representing millions of dollars in avoidable annual spending per 1,000 lives.
Otter Health takes a different approach by providing continuous, real-time comparison to the evidentiary standard across a much broader range of clinical decisions, including referrals, outpatient procedures, pathway adherence and care transitions. The platform's AI helps identify opportunities to reduce low-value care, improve quality, create greater accountability and lower costs without relying on administrative friction as the primary means of control, executives said.
Otter Health provides rapid, decision-level analysis of physician adherence to standard of care. Every physician's decision is automatically analyzed against gold-standard evidence. Physicians are notified when a care decision does not align with the standard of care, and documentation missing crucial data is flagged. Providers are given clear explanations and transparent clinical rationales.
“What we want to do is only engage providers when we think that there is a really good reason to engage them. Otherwise, we lose that trust, and part of what we want is to be the trusted guide for those providers,” Florance said.
Otter’s approach creates an incentive model that aligns providers with the standard of care, he noted.
"We have a great opportunity to support clinicians in the thousands of decisions they make every day," said Kate Goodrich, executive in residence at Optum, former Humana chief medical officer, and director of the CMS Center for Clinical Standards and Quality, in a statement. "Creating greater visibility into evidence-based practice through guidance and tools can empower a more proactive and collaborative approach in supporting clinicians to deliver the highest quality care while effectively managing cost and improving access."
Otter is tackling a problem that gets lost in the debate over prior authorization, noted Bryan Sivak, managing partner at Evidenced and former chief technology officer of the U.S. Department of Health and Human Services.
"Payers need confidence that the care they're paying for is appropriate. Physicians need room to exercise judgment without repeatedly defending their decisions through paperwork. Both needs are legitimate, but the process connecting them has become expensive and adversarial. Otter gives those organizations a way to examine care decisions against shared clinical evidence and address variation directly with clinicians. That creates the possibility of removing an authorization requirement while maintaining accountability for quality and cost," he told Fierce Healthcare via email.
Otter’s current deployments show that can work in practice: a plan can remove the requirement and still see, physician by physician, whether care stays appropriate, Sivak said. "The team also understands how physician behavior actually changes. Giving a physician another score or alert won't accomplish much on its own. The evidence has to be credible, the feedback has to be useful, and clinicians need to be involved in responding to it. Otter combines the technology with that engagement. That's what gave us confidence in the approach and the team behind it," he said.
Otter Health enters the market as federal regulatory rules and state laws push health plans to drop prior authorization for routine services. But plans still need visibility into care.
"This is what Otter is built for," Sivak said. "There are two sources of value here. One is reducing the work and expense involved in administering prior authorization. The other is addressing unnecessary care that never encounters an authorization requirement in the first place. A company that can do both has a much broader opportunity than one focused on making the existing process faster."
The economics also create a reason for both sides—health plans and providers—to participate, he noted. “For us, the bigger prize is becoming part of how quality and the standard of care are measured and managed every day. A customer could begin with a particular procedure or referral pattern, demonstrate a result, then extend the approach into other clinical decisions. The value grows as Otter proves it can help organizations spend less while protecting appropriateness and outcomes. That combination gives customers a reason to adopt it and a reason to keep expanding its use,” Sivak said.