Full Press Release Details
In Response to Short Seller Firm s Questions
Vivek Garipalli, CEO and
Andrew Toy, President of Clover Health
Clover s mission is to improve every life. We do that by scaling the Clover Assistant platform across
physicians to drive a meaningful positive clinical impact towards as wide a percentage of our membership as possible. We align our incentives for the Clover Assistant by embedding our software platform inside of the business of our Medicare
Advantage plan. As we improve outcomes, and lower costs, Clover can pass those savings on to consumers, improving the attractiveness of our plans and spurring rapid growth. We ultimately seek to transform healthcare for each and every one of us.
Clover welcomes questions about our business, as it gives us the opportunity to share our vision and to address any skepticism, whether founded or
unfounded. As you will see from our detailed,
point-by-point response to the short seller firm s questions, the alleged report is rife with ad-hominem attacks, sweeping inaccuracies and gross mischaracterizations. Importantly, the short seller firm did not contact Clover, and we had no knowledge of the short seller report prior to it being made publicly
available. In our view, it belies a desperate attempt for publicity while sacrificing any regard for the truth.
In addition, we would note that the
report s title specifically calls out the involvement of The King of SPACs, Chamath Palihapitiya, and accuses him of a dearth of diligence. This, as we will show, is completely untrue, and we suspect this was done in order to
sensationalize what is otherwise a rather underwhelming piece of research. Given the market s latest views on short sellers, we believe that Hindenburg, which takes pains to call out their altruism in saying that they are not short on CLOV
stock, is foolheartedly seeking to redeem itself by posturing as a white knight of the financial markets.
We ve put together this response as
rapidly as possible. We hope you will find it extremely informative.
1. Did Chamath and/or Clover know about the ongoing DOJ investigation? If so, why was it concealed from investors?
Chamath and Clover were fully aware of the DOJ inquiry.
To be clear, Clover does not believe it is, or has been, in violation of any rules or regulations related to the inquiry.
We went through both an IPO and de-SPAC due diligence process, and this subject received extensive focus and
attention. Consistent with the views of Clover s outside counsel, Social Capital s outside counsel, and independently retained outside counsel of third parties, including IPO underwriters counsel, we concluded that the fact of
DOJ s request for information was not material and was not required to be specifically disclosed in our SEC filings.
How could a DOJ inquiry not
be considered material information? As heavily regulated organizations participating in Medicare Advantage, Clover and its peers receive frequent requests for information from regulatory bodies. These are typically confidential. We promptly
respond to these requests as and when they come in. As the short selling firm points out, the DOJ also often reaches out to ex-employees, including by civil investigative demands, as part of their
information-gathering process.
For absolute clarity:
2. Is Clover aware of any other regulatory investigations into the company or Vivek Garipalli and his
related companies? If so, what are the details?
Clover is unaware of any other ongoing regulatory investigations, except, as noted above, following the
short selling firm s report yesterday morning, Clover received an inquiry from the SEC. We believe this request is based on the short selling report issued yesterday morning.
3. Has Clover received any subpoenas or civil investigative demands from regulators? If so, how many and from which regulators?
No. Clover has not received any civil investigative demands or subpoenas from the Department of Justice. Clover has received a request for information from
the Justice Department, to which, as we do with all requests from regulatory bodies, we responded on a voluntary basis.
4. Why does Clover s
subsidiary, Seek Insurance operate a website called SeekMedicare.com claiming to offer independent and unbiased advice on selecting Medicare plans without disclosing that it is owned by a Medicare plan
provider, representing a blatant conflict of interest?
Seek Medicare is a startup that was incubated and set up as a separate company from Clover it has its
own management team, outside investor (a nationally-recognized public company), board and employees. Clover and the outside investor share in governance of Seek at the board level, including decisions such as the nomination of the CEO. Clover has
the right to appoint a Board Member (currently Andrew Toy, Clover s President & CTO), the outside investor has a right to appoint a Board Member (currently an employee of the outside investor), and the third Board Member, the CEO, must
be mutually agreed upon. In addition, this investor has a unilateral contractual option to convert its investment into 50% equity ownership of Seek.
It s not unusual for payors to create or have stakes in FMOs. What makes Seek different is its fundamental belief that Medicare consumers are simply not
well-informed and that hurts their ability to get affordable, great healthcare. Seek is purpose-built to deliver against that problem. In order to make sure it could effectively pursue its goals, Seek was set up as a separate company, and it has
raised nearly all of its capital from the outside investor.
At Clover, we obviously want everyone to pick a Clover plan, but we want to earn that
business by providing great and affordable healthcare coverage. The most important thing is that Medicare eligibles end up in the right plan for them.
One final note here: Seek is a brand new startup, and its website is still in version 1.0. Please take a look back next week when its planned version 2.0
5. Clover s subsidiary, Seek Insurance, claims on its website We don t work for insurance
companies. We work for you despite literally being owned by Clover, an insurance company. What is your response?
While Seek is an affiliate, as we
said, it operates separately from Clover, with its own financing and its own goals, which are to provide neutral, objective advice to Medicare eligibles and to empower, educate and assist them. Seek offers Clover plans but, more importantly, Seek
also offers many more coverage options. In fact, in every market in which Seek operates, Seek endeavors to offer at least 80% of available plans in that market.
Even though Seek began very recently, it was able to stand up its agency in the most recent AEP and also launched a pilot in ~100 retail locations in six
states, with a focus on markets in Georgia, New Jersey and Texas.
If you want to see the objectivity of Seek, we think the results of Seek s
initial sales period speak for themselves:
Percent of Seek sales, by insurance plan, in the most recent AEP:
In terms of scale, applications from Seek totaled less than 1% of the total applications Clover received in the most recent AEP.
6. How much has Clover paid B&H Assurance, the undisclosed outside brokerage firm run by Hiram Bermudez (its Head of Sales) since inception?
Clover has paid approximately $160k directly to B&H since 2017.
Hiram has disclosed the following in connection with his B&H relationship:
general matter, Clover engages with brokers in each of its markets in order to distribute its plans. This is standard operating procedure in the Medicare Advantage space. Broker payments are statutorily defined by state insurance regulators, broker
scripts are actively monitored by both internal compliance and CMS including via secret shopper and other methods and we take our obligations to CMS, our members and potential members very seriously. We believe our
marketing materials and the brokers that represent us accurately reflect and portray our plans to our members and potential members and do so with transparency and integrity.
7. What portion of Clover s business has been referred by B&H Assurance since inception? How many members?
Approximately 8,200 of our current members were referred by B&H Assurance to Clover.
While B&H has been a strong producer, we strongly disagree with the statement that B&H alone has
fueled Clover s growth. We believe that all Medicare Advantage plans have key producer relationships, and to say those relationships somehow illegitimately fuel growth is a misnomer.
We believe Clover plans are appealing because they are often amongst the lowest cost plans in our established markets, and they offer the same cost-sharing
for in-network and out-of-network primary care and specialist visits. As we expand across the country, we intend to establish
relationships with additional brokers and key producers.
8. Former employees told us that the relationship between Clover and B&H Assurance was
transferred into the name of Hiram Bermudez s wife for compliance purposes . NAIC filings confirm it was transferred into his wife s (maiden) name weeks after the go-public announcement.
What is the explanation for this?
The statement underlying this question is false and misleading. The reason that B&H Assurance s appointment
list does not include Clover is that B&H has what is referred to as a downline relationship with Ritter Insurance Marketing, which contracts directly with Clover (note that it appears B&H does contract directly with a number of
other plans based on the cited NAIC record page). Rather than a nefarious circumstance, this is also a standard construct in the Medicare Advantage world.
Further, the statements interpreting Yesenia Rivera (Bermudez) s NAIC profile are incorrect in their
conclusions: (1) there was no transfer of any relationship between Clover and B&H Assurance from Hiram to his wife; (2) the NAIC filing simply shows that on August 14, 2020, Mrs. Bermudez was directly appointed by Clover
Health to be able to sell Clover plans as an agent.
For context, Hiram underwent a major organ transplant surgery at the end of last summer due to
chronic kidney disease. He, thankfully, is doing very well healthwise after the surgery. Hiram informed us that he and his wife made a decision for her to go through broker certification so that, if his condition deteriorated further, she would be
able to take over his 50% ownership in B&H.
No one should ever feel compelled to share this type of personal and private health information publicly,
but we deeply respect Hiram s desire to disclose this to make clear he had no malicious intent. Hiram is highly mission-oriented and an amazing teammate at Clover, and pathetic attempts to slander him are shameful.
9. Will Clover produce the agreement showing the transfer of the relationship into Hiram Bermudez s wife s name? Who signed off on the agreement and
which senior members of management knew about the deal?
See previous response.
10. Is Clover aware that disclosure of significant transactions with key senior employees is something
investors like to know about, so they can be made aware of potential material conflicts of interest?
Consistent with applicable laws and regulations,
Clover has conflict of interest policies requiring employees to disclose any existing or potential conflicts of interest. Clover follows SEC rules and regulations regarding the public disclosure of these relationships.
11. Was Chamath aware that the DOJ was looking into issues of potential upcoding when he mentioned, unprompted, on CNBC they don t motivate doctors
to upcode or do all kinds of things in order to get paid ?
We agree (as does Chamath) that upcoding is a significant problem in the Medicare
Advantage industry, and Chamath was fully aware that we have built the Clover Assistant to address the problems in the approaches used by other insurers.
To be clear, Chamath s statement that we do not motivate doctors to upcode or do all kinds of things to get paid is accurate:
To be clear, the focus of the Clover Assistant is driving clinical value. Because of its important role in early and improved detection of disease burden,
accurate risk adjustment is one of the byproducts of clinical engagement with the Clover Assistant. Notably, however, much of the content in the Clover Assistant has absolutely nothing to do with risk adjustment. More than 50% of the clinical data
we capture through Clover Assistant visits has no risk score impact whatsoever.