Editor's Note: This is a complimentary research note published by Healthcare Policy analyst Emily Evans on 2/4/21. CLICK HERE to get COVID-19 analysis and alerts from our research team and access our related webcasts.
As we have said several times, from a policy perspective, managed care and especially Medicare Advantage plans are facing some stout headwinds.
Enrollment is more penetrated than most assume; competition is emerging from alternatives like primary care practices; the politically friendly environment is shifting; and the Medicare Trust Fund is expected to be insolvent by 2024, which will lead inevitably to reimbursement reductions.
In spite of that, it is easy to be captivated by a story like $CLOV that claims they will “do health care differently.” Back in the 1990s, we felt the same way. Unfortunately, after a few years we have come to understand that health care is the way it is because a. the stakes are high; and b. it is a highly regulated industry. In short, the incentives to do things differently aren’t there like there were for book selling by $AMZN.
That said, with proper regulatory changes, innovation is possible. The Direct Contracting models at CMMI are probably going to be game changers if enough primary care practices can resist acquisition by insurers and instead seek to compete with them. Price transparency also offers enormous possibilities for changing consumer behavior.
Not to suggest a software platform cannot be important - $AMN’s Shiftwise system for example – but innovation in health care cannot be solely dependent on an app. Selling an insurance company with a small membership in New Jersey as a technology company denies the realities of regulation – both state and federal – but something you might expect from an former Facebook employee we suppose. It also ignores the long time incumbents who are adept at navigating a complex system and a lot of public scrutiny and the highly competitive nature of the Medicare Advantage program.
Nonetheless, all $CLOV’s issues Hindenburg outlined today may be true and certainly should have been disclosed but they aren’t all meaningful. Sadly, if you know anything about health care you know False Claims Act inquiries are common enough that they alone are not dispositive.
If you know anything about Medicare Advantage, you also know that plans have used aggressive coding tactics for many years and why CMS started adopting encounter data to determine patient acuity. Same goes for quite a few providers and their consultants who have treated the Medicare Trust fund like an ATM machine whose code just needs to be cracked.
What is meaningful is this:
- $CLOV is tiny. It is attempting to enter a highly competitive industry in a particularly highly regulated state. It has the largest market share in Hudson Co. and Passaic Co., NJ with 10.8% and 7.1%, respectively. In most counties where it operates market share of eligible beneficiaries is less than 5%. Given the penetration of MA plans generally, $CLOV has a steep climb to be a contender in any of the markets in which they operate.
- The company is not particularly good at its job. As Hindenburg pointed out, $CLOV’s plans get three stars overall from Medicare. However, if you dive deeper into the star ratings data, you see that they get two stars of customer service; one for care coordination; one for getting needed prescription drugs. No app is going to fix those things.
- $CLOV appears to be targeting low income, minority beneficiaries but they do not offer a dual eligible plan (which would involve the state Medicaid program). If Hindenburg’s claims of patient steering and violations of the Anti-kickback Statute bear out, the questions about civil rights and equity might get very uncomfortable for the company’s founders and board, especially those of which are eyeing the Governor’s mansion in Sacramento