InnovAge Stock Falls as Regulators Scrutinize PACE Operations

by Lauren Flynn Kelly

Despite better-than-expected financial results posted for its fiscal-year 2022 second quarter, shares of InnovAge — the largest provider of Programs of All-Inclusive Care for the Elderly (PACE) — tumbled earlier this month amid concerns about its ability to grow in the face of intensifying regulatory scrutiny. Between federal audits and issues with its state partners, InnovAge’s many struggles relate to program compliance and may demonstrate the difficulties of scaling up a specialized care model in a highly regulated industry. 

InnovAge ended 2021 with myriad woes 

• The company in December was hit with its second CMS sanction in a year and was barred from enrolling new PACE participants in Colorado. 
• The organization’s Sacramento operations were subjected to an enrollment freeze in September, after a CMS audit found that InnovAge lacked contracts with providers in certain key specialties, and its interdisciplinary team — a critical component of the PACE model — did not receive or review assessments from specialists and failed to provide services recommended by specialists.  
• The company’s stock in late December fell by 11% after Barclays and Goldman Sachs both recommended downgrades. 
• Moreover, its longtime CEO Maureen Hewitt resigned in January, when President Patrick Blair was promoted to CEO. 

Earnings didn’t assure investors 

• For the fiscal second quarter ending Dec. 31, 2021, InnovAge reported above-consensus revenue of $175.4 million, representing growth of 11.5% from the prior-year quarter, and net income of $1.1 million, down from $9.6 million for the year-ago quarter. 
• During a Feb. 10 call to discuss second-quarter earnings, Blair said regulators have identified care coordination and care documentation as two areas of needed improvement. “The challenge posed by the pandemic and the workforce challenges have contributed to the challenges with care coordination and documentation, he stated. “We clearly need to do better in both areas. I’ll reiterate that I believe these deficiencies are all addressable with strong leadership, focus, and execution.” 
• On Feb. 10, InnovAge’s share price dropped 17% to $4.56. That’s down from a peak of around $26 in March 2021, when the company began trading on the Nasdaq. 
• “Establishing a PACE organization is very capital intensive and typically requires 18 to 24 months or more to start enrollment,” Stephen Wood, co-founder and partner at Clear View Solutions, LLC, tells AIS Health. “Also, administering the programs requires a large number of highly trained staff and clinicians that even pre-COVID were a challenge to locate and retain.” 
• “We continue to believe that there are a number of favorable longer-term opportunities for INNV and its positioning within the PACE program, but as the fallout from these updates continues with unknown time frames for remediation, it becomes difficult to justify any meaningful multiple expansion in the near-term, in our view,” wrote Citi analyst Jason Cassorla. As such, Citi downgraded its revenue estimates for the 2022, 2023 and 2024 fiscal years.  

From Radar on Medicare Advantage

Subscribers may read the in-depth article online. Learn more about subscribing to AIS Health's publications.