- Medicare-focused insurtech startup Clover Health reported a net loss of $48.4 million in the first quarter, up 71% year over year, as the company faces an ongoing federal review of its business practices.
- The deteriorating bottom line was due to higher-than-expected medical costs, and would have been worse if not for new Securities and Exchange Commission guidance that impacts reporting of its merger with a special purpose acquisition company, CFO Joe Wagner told investors.
- The Nashville-based payer did beat Wall Street expectations with $200.3 million in revenue, up 21% year over year and a record for the company, spurred by notable growth in its Medicare Advantage membership. MA members grew 18% year over year to 66,300 enrollees, expanding Clover's total membership to 130,000 overall.
Clover sells Medicare plans, directly contracting with primary care physicians and leveraging a software platform for clinical decision making in a bid to lower costs. The startup has grown quickly since its founding in 2013, and enjoyed rapid growth last year as the coronavirus pandemic spurred consumer demand and investor interest in digital health offerings.
That momentum hit a hurdle in February after investment research firm Hindenburg Research issued a short report revealing the federal government was investigating Clover for a range of issues including alleged kickbacks, inappropriate marketing practices and shady third-party deals.
Clover has denied inappropriate conduct and chalked the investigation up to regulators' routine analysis of companies prior to going public, a step it took through a merger with a SPAC that closed in the first quarter.
Clover has said it is cooperating with the investigation, and management declined to further comment following their first quarter results released Monday. But the stock has plummeted following the allegations, which also sparked a wave of class action lawsuits from shareholders. Its shares have fallen more than 50% year to date.
COVID-19 caused the insurer's medical expenses to balloon, but Clover's wide net loss in the quarter could have been worse, if not for a change in SEC guidelines on SPAC warrants causing it to recognize a gain of $85.5 million during the period.
Clover was disproportionately impacted by the pandemic compared to other insurers in the privately run MA program, Wagner said, because half of its members identify themselves as minorities, a population which has contracted COVID-19 at higher rates than other enrollees. Additionally, the older Medicare population is more likely to have severe health complications from the virus.
Clover's medical loss ratio, a marker of how much it shells out in patient care, was 107.6% in the quarter due to higher than expected treatment costs for its members. That's compared to an MLR of 89.4% during the same time last year.
"A lot happened in this first quarter, obviously we got hit pretty hard with COVID. We've seen some return of deferred care. We also have some headwinds, as every other MA plan does, in terms of some depressed risk score coding, although again not as much of an issue for us, and the submission fee schedule increase," Wagner said.
He said those factors led to a short term hit to its MLR, and noted lower costs going into 2021 with more members getting vaccinated.
A bright spot in the quarter was participation in CMS' direct contracting program, which pays insurers to manage traditional, fee-for-service Medicare beneficiaries — a much larger market opportunity than in MA. It's a significant growth area for Clover, which expects its membership to grow to 200,000 in the program in 2021 and that it will contribute about $20 million to $30 million of revenue this year.
Overall, Clover expects to end the year with at least 68,000 MA members, a growth rate of 17% compared to the end of 2020. Total revenues are expected to be in the range of $810 million to $830 million.
On the call, Clover management also gave an update on its new partnership with Walgreens, which is currently live in 30 retail locations.
The pilot, which began in the second half of 2020, gives Walgreens health advisors access to Clover's artificial intelligence-backed Assistant platform to offer services to Clover members, while keeping patients' primary care physicians up to date on their blood pressure testing, BMI measurements, flu shots and other tests performed at the stores.