“Yankee Swap is like Machiavelli meets… Christmas,” Dwight Schrute, legendary character on The Office and healthcare pundit
Faced with unsustainable, soaring healthcare costs and an aging, increasingly sicker population, The Centers for Medicare & Medicaid Services (CMS) have been working to accelerate the adoption of Medicare Advantage (MA) as well as other value-based care models such as Direct Contracting. This structural shift in reimbursement and the $800B+ Medicare market has attracted many new entrants to the health insurance space.
Medicare Advantage: Buyer Beware
It is generally agreed upon that CMS’s shift to value-based care is the right thing for healthcare. Moreover, companies that can leverage technology to implement meaningful preventative care may very well be saviors of our nation’s healthcare system. However, in the Wild West of Medicare Advantage, there is no shortage of companies seeking to capitalize on irrational exuberance and a race to capture lives, without the capacity to drive value.
Clover Health: Cautionary Tale
Clover Health is a Medicare Advantage insurance startup who announced in early March 2021 it is going public via a SPAC owned by Chamath Palihapitiya at a $3.7 billion valuation. Their investor presentation is filled with compelling slides such as:
Kevin O’Leary throws a pail of cold water on the pitch with some hard data, “It’s obviously a great exit for everyone associated with Clover, but you’ll have to forgive me if I’m a bit befuddled that a 3-star Medicare Advantage plan with an MLR of 98.8% in 2019 and ~57,000 lives is somehow being valued at $3.7 billion.” Mr. O’Leary details a sobering recap of Clover’s operating results to date:
· Clover is in the bottom 13% of all Medicare Advantage for its Star ratings
· It only has meaningful market share in a handful of counties where its CEO used to own hospitals and started the plan as part of the hospitals
· It is not growing meaningfully anywhere outside of its stronghold counties in NJ
· It has a historical MLR running over 98%
· It is hemorrhaging cash, with over $200 million in losses each of the last two years
Technology to the Rescue?
Surely even Clover would agree that its valuation does not make sense if you’re just looking at them as a Medicare Advantage insurance company. Naturally, Clover is positioning itself as a technology company. There is Clover, the Medicare Advantage plan, and Clover Assistant, the PCP technology platform. Throughout the investor presentation Clover Assistant is heralded as the company’s key to long term success. Clover Assistant is an AI software platform for primary care physicians intended to help physicians drive patients to high quality, low cost care, as well as get them paid faster and potentially more.
There is an important implication here: success in MA requires both technology capable of generating value-additive insights and clinicians to act on those insights. Based on the available data, Clover has failed to demonstrate sufficient technology or adoption.
Clover suggests its AI platform can generate higher quality care at lower costs; their medical cost ratio is slated to drop from 89% in 2020 to 76% by 2023 for the Clover Assistant Returning Member population. However, there is no evidence of any differentiated technology. Clover only points to the below generic example, which is more akin to a care delivery model change than a technology enabled innovation.
Kevin O’Leary more bluntly comments, “This slide reads like it came from the founders of a startup trying to get into a Y Combinator program after they stayed up all night reading academic papers on how software can bend the cost curve in healthcare.”
Also not addressed by Clover are concerns around interoperability. Physicians are tied to specific EMRs and becoming a seamless part of that system poses both technical and business-oriented challenges (Hackensack Meridian Health System in New Jersey, for example, has over 170 distinct EMR platforms).
Furthermore, it appears Clover has been unable to attain physician buy in. There are essentially no numbers anywhere in the presentation on how many physicians are actually using Clover Assistant. The most relevant number is that ‘Clover Assistant Penetration is at 59%’ but there is no context for what the numerator and denominator of that equation are.
Looking Forward
In the short-term, reimbursement structures that reward value over volume will likely result in more companies that masquerade as a cutting-edge technology firm but ultimately operate as a change management company. Ryan Hamilton, Senior Vice President & Chief Architect at Cerner, stated in a speech to a class of Columbia Business School students that value-based care technology is largely commoditized today.
Moreover, he posits that to get real physician adoption, a value-based care enablement company will need to feel more like Amazon than healthcare software… A company so user friendly and adept at offering recommendations that it seems to know what you want more than you do.
