Many traders are betting against this disruptor in the $270
billion Medicare Advantage market.
Zhiyuan Sun (TMFZhiyuanSun) Apr 25, 2021 at 6:10AM Author Bio
Health
insurer Clover Health Investments (NASDAQ:CLOV) has been one of the most
disappointing IPOs in recent memory. Since the beginning of the year, its
shares have already lost nearly 50% in value. To add insult to injury, there is
so much demand for capitalizing off its downfall that an estimated 37% of Clover
Health's entire float is shorted.
Because
of the gloom and doom, Clover Health stock has now attracted the attention of
traders on the r/WallStreetBets SubReddit. Earlier in the year, its members
were responsible for orchestrating a legendary 2,463% short squeeze on shares
of GameStop (NYSE:GME). Will Clover Health stock play out
just like it?
Why so much hate for Clover Health?
On
Feb. 4, short-selling research firm Hindenburg alleged that Clover Health was a
broken business. Hindenberg pointed out several red flags.
Clover
Health reportedly overbilled Medicare, including charging $200 per visit for
physicians to use its medical data software Clover Assistant, at twice the
national reimbursement rate. According to insiders, the Clover Assistant is of
poor quality: It frequently makes irrelevant or old diagnoses that are
difficult to remove once a patient has recovered. Both waste Medicare dollars
-- and send money straight into Clover Health's pockets.
Moreover,
over 96% of Clover Health's customers are in New Jersey, and are concentrated
in just two metropolitan areas. The company allegedly partners with a select
few hospitals in the Garden State with the highest billing rates in the
country. It would be very difficult for Clover Health to scale its business
elsewhere if this were true.
Is this company legit?
In
2020, Clover Health collected $665.7 million in premium revenue (+45.7% year
over year) from its 58,056 members (+36.3% year over year). If we divide its
total premiums by its total members, we find a Medicare expenditure of
$11,466.52 per person, which is actually lower than the national average of
$11,582 per person.
Over
the first two months of the year, Clover Health's total member count increased
to 66,000, and its beneficiaries outside of New Jersey tripled. So, while there
may be problems with the company's software and systems, they have not totally
destroyed the health insurance side of its business.
We
can easily see why the firm's plans are so enticing to retirees, in particular.
Currently, Clover Health offers $0 premiums on its Medicare Advantage programs
(including coverage for Dental and Vision) with $0 deductibles. There are
co-pays for specialist visits, diagnostic tests, emergencies, and mental health
treatments. However, those are capped at a maximum of $6,700 per year. That cap
is lower than the maximum out of pocket costs of $11,300 for the average insurance
plan for those categories.
The
company's plans have an average of three out of five stars in consumer ratings.
On the whole, beneficiaries like Clover Health's $0 cost plans: Most complaints
are geared toward its insufficient prescription drug coverage, difficulty
filling medications, and long wait times to coordinate care. Nevertheless, the
company saw fewer complaints in 2020 than in 2019.
What's the verdict?
It
is clear that Clover Health's insurance side of the business is legitimate and
well-liked. As for its software, the company could potentially secure an
additional 200,000 beneficiaries under a new payment model sponsored by the
Centers for Medicare & Medicaid Services (CMS). The program allows Clover
Health to directly contract with physicians across the nation to use the Clover
Assistant for Medicare patients.
This
year, the company expects to further increase its sales and member count to
$835 million and 69,000, respectively. As we can see, Clover Health is already
on track to surpass that latter metric.
Its
stock valuation of about 4 times sales is a pretty good price to pay for 24%
annual sales growth. With so many traders betting against Clover Health's
fortune, the slightest of positive developments (such as new opportunities to
use Clover Assistant) would lead to an uncontrollable rally to the upside. For
those who like to swim against the tide, Clover Health might be the healthcare stock to buy now.
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