Start-up DaisyBill Wants to Fix Workers' Comp

Workers' compensation is supposed to be a simple form of insurance that gives people full medical coverage and compensation for job-related injuries and illnesses.

However, the regulations are so complex, they often lead to mountains of paperwork, unpaid bills, and doctors unwilling to take on patients covered by it.

Catherine Montgomery saw a big opportunity to fix the broken system and co-founded DaisyBill. "There is no competition for this segment of the market and we've identified it early on," she said.

According to the Worker's Compensation Information System , 17.3 million workers' comp bills were submitted in California, but only 10 million were paid in 2010. And according to a Texas Medical Association survey, 75 percent of medical doctors in Texas would not treat newly injured workers, citing the complexities of the billing process as the top reason.

Currently, many medical providers have no choice but to submit worker comp claims via snail mail, so the process is slow and complicated, and providers often don't find out if they will be paid on a claim for months.

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Montgomery said DaisyBill's sole focus is streamlining the process by allowing doctors' offices to log on and submit claims electronically. By eliminating the postal service and replacing paperwork with an electronic interface, Montgomery said, claims are easier to submit, more accurate and ultimately paid much faster.

(Read More: Q&A With DaisyBill's CEO and Co-Founder)

"By making it easier for medical providers to get their workers' comp bills paid, more doctors will be willing to treat injured workers and those workers will receive better care and a broader choice of treatment," Montgomery told CNBC.

While other companies like Athenahealth and NextGen Healthcare help facilitate medical billing, they do not help process worker comp claims.

Montgomery said the big players are too busy with the larger insurance market and have little incentive to get into the complicated processing of worker comp, which Montgomery describes as "a sliver of a portion of a market that they already own." But according to the National Academy of Social Insurance that sliver covers almost 125 million workers and paid out almost $29 billion in medical benefits in 2010.

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DaisyBill generates revenue by charging a $5 fee per bill and is already up and running in California. Montgomery would not disclose the number of DaisyBill customers but said she has plans for a multistate expansion this year.

Since 2011, the company has raised $1 million from the medical world and BluePrint Health, a health care-focused accelerator program.

—By CNBC's Erin Barry and Joanna Weinstein