Insurance start-up Clover aims to "reinvent" health care

Insurance start-up Clover aims to "reinvent" health care | Insurance Business America

Insurance start-up Clover aims to "reinvent" health care
Wearing blue scrubs and a 1,000-watt smile, Nikesha McPherson arrives for her annual visit to the home of an octogenarian couple in Plainfield, New Jersey. This time she’s going to pitch Margarita and Alfonso Varon on the benefits of brown rice. The nurse practitioner barely gets a sentence into her spiel before Margarita, 83, interrupts her with a long roll of laughter that bounces off the beige walls covered in family photos. “Oh! Speak to the devil,” Margarita says. “In Puerto Rico, we eat white rice.”

McPherson divides her attention between the couple and an iPad on the table, entering notes as they answer questions about their diets, medications and exercise habits. She tries again to explain that eating brown rice helps lower the risk of diabetes. Margarita rolls her eyes and then recites her recipe for oven-baked plantains, with the following conclusion: “What I like, I eat. I don’t know how long I’m going to live.”

For as long as the Varons do live, it’s McPherson’s job to make sure they’re taking care of themselves. She joined the health care startup Clover Health shortly after it started two years ago. The company thinks it can upend conventional insurers by using data to encourage healthier living and identify potential issues before they need to be treated. Now with a dozen nurse practitioners like McPherson, it has established a major presence in eastern and central New Jersey. Advertisements for Clover’s insurance plans for seniors are on buses, local radio, mailers and a billboard near Newark airport.

One of the most astonishing accomplishments in Clover’s short life is the amount of money it’s raised. Venture investors have put in almost $300 million since last year. Backing an insurance business reliant on Medicare payments is an unusual bet for Silicon Valley, especially one that only operates in nine counties of the Garden State. The company has 19,000 members, a rounding error for Aetna, United Health or other major providers.

But Sequoia Capital, known for its early investments in Apple and Google, thinks Clover’s impact will be enormous. Mike Dixon, a partner at the venture firm who led an investment in Clover last year, says the startup’s data-driven approach to health care could substantially bring down what Americans spend annually—about $3.2 trillion last year. With plenty of money in the bank, Clover can focus on improving its service, says Dixon, who sits on the company’s board. “This is one of the biggest opportunities to build a large company that I’ve come across,” he says.

Clover is now finishing up its busiest time of the year, with the end of Medicare’s open enrollment period on Wednesday. The company has a contract with the U.S. government to provide insurance plans for Medicare Advantage customers. Some 18 million seniors or people with disabilities are enrolled in the federal program nationwide.

New Jersey is something of a beta test for Clover. The real reason venture capitalists are bullish on the startup is the data science operation at headquarters in San Francisco. “We’re not just using [technology] to pay out claims,” says Vivek Garipalli, Clover’s co-founder and chief executive officer. “We’re building a learning machine, and we’re using it for health.”

The promise of using technology to solve such a large and socially significant problem as health care is one of Clover’s most powerful recruiting tools. The company also provides the expected perks of a Silicon Valley workspace. The 235 employees in San Francisco can enjoy daily catered lunches, an always-stocked snack wall, chilled coconut water, purple beanbag chairs and a dedicated meditation room.

Clover has built data science, design, engineering and product teams with pedigrees from several Valley giants, including Facebook, Google and Microsoft. The technical groups are led by Kris Gale, who started the business with Garipalli after leaving Microsoft’s Yammer. They’re developing software to organize the trove of data coming from workers on the ground in New Jersey, mine it for likely health problems and suggest ways to prevent them before they happen.

A recent addition to the team is Sandy Ryza. He joined as a senior data scientist in March from Cloudera, where he was crunching data for banks and telecoms. He says he likes the challenge of bringing order to disparate health data and believes in Clover’s mission of fixing the nation’s health system. “By the time I’m an adult, we will have hopefully put our country on a better track,” says the 27-year-old. “It may sound cheesy, but I really want to make a difference.”

As an insurer, Clover pays all its members’ bills. This gives the company an evolving health profile for every customer. Since Medicare members visit doctors more frequently and have higher costs than anyone else in the country, Clover is amassing a huge volume of data. The company has trained its system to look for anomalies, such as missed doctor’s appointments, failures to pick up prescriptions or visits to the ER.

“We’re building a learning machine, and we’re using it for health”

This year Clover’s system was tracking the recovery of a member in his 80s who was admitted to the hospital after a fall. Frail, with leg ulcers and Type II diabetes, the man used a walker and, based on his Clover risk profile, would likely fall again. When he was discharged, Clover alerted its customer care team in New Jersey, which dispatched a nurse practitioner to the man’s home. She found a problem: To climb into his bed at night, the member was using a pink plastic stepstool designed for toddlers. The nurse called for a railing to be installed by his bed that day.

The incredible healing powers of data are a guiding principle for dozens of startup founders hoping to reinvent health care. VCs injected $1.2 billion into tech-centric health insurance companies last year, led by Zenefits, Oscar Health, Collective Health and Clover, according to research firm CB Insights.

But many of the new-generation health companies give off a whiff of “arrogance,” says Les Funtleyder, a health care portfolio manager at E Squared Capital Management. He says they’re overvalued and that their technology isn’t all that different from what traditional insurers use. “A lot of people from Silicon Valley say, ‘We’ll just apply data to everything,’” he says. “So far, we haven’t seen any of these new guys do anything interesting. This is going to end poorly with a lot of money wasted.”

Donald Trump has promised to undo portions of Obamacare, which is causing panic among insurance giants and startups alike. But health policy experts say Medicare Advantage will likely remain intact and that the president-elect poses little risk to Clover’s business. “There could be some small tweaks, but I don't expect it will be weakened,” says Stacy Sanders, federal policy director for the Medicare Rights Center, a consumer advocacy group. The Advantage plan has “broad bipartisan support,” says John Gorman, founder of government consulting firm Gorman Health Group.

“Startups in health insurance really have the deck stacked against them”

Uncle Sam pays Clover a monthly fee for each Medicare Advantage customer the startup enrolls. The amount varies depending on where the person lives, but it averages $850 before adjusting for chronic conditions or healthy habits, the Medicare Rights Center says. Clover uses the money to pay members’ bills and generates almost all its revenue from whatever is left over after reimbursing doctors, hospitals, labs, pharmacies and other points of care. The company offers plans with no monthly premiums or ones that go as high as $225. Clover says the amount it gets from those payments and copays isn’t significant.

Health care is a heavily regulated industry, which isn’t the most conducive to the sometimes-frenetic nature of a startup. Clover stumbled this year when federal regulators fined it $106,000 for marketing language that “misled or confused potential enrollees about their ability to always receive covered services” from out-of-network providers and failed to correct the language despite repeated notifications, according to a letter sent by Medicare’s oversight and enforcement group. Clover paid the fine and changed the offending language. The reprimand was a reminder to tread carefully.

By law, Medicare Advantage providers must pay out 85 percent of premiums they get from the government. Companies can keep the rest. Clover CEO Garipalli, who left a career in finance to work in health care, says his technology can eliminate repeatable, preventable hospital stays, which cost an average of $10,000, so the potential savings nationally could be huge. Clover plans to eventually expand to other markets and was seriously considering Texas this year. But Garipalli, 38, isn’t in a rush to go outside New Jersey. “The fastest way to screw this up is to take it on the road before we’re ready,” he says.

While well-funded, Clover hasn’t quite achieved unicorn status: An investment in May valued the company at about $850 million, according to data from Equidate, a stock market for private companies. Staying small can mean higher costs. The more members an insurance company has, the more negotiating power it wields with health providers and the easier it can absorb costs from sick customers, says Gorman, the consultant. “Startups in health insurance really have the deck stacked against them.”

Despite the disagreement over brown rice, the Varons seem pleased to have McPherson’s company. While taking their blood pressure and checking blood oxygen levels, she listens to stories about how they met and what their grandkids are up to. The Varons’ townhome is one of about 60 stops around New Jersey that Clover workers are making throughout the day.

McPherson tries pitching the couple on a gym membership. Margarita smiles and waves her hand dismissively. McPherson dutifully updates the data in Clover, noting what she discussed with the pair. She comes across some new features in the app, the result of a hackathon a month earlier at the company’s San Francisco office. A special version of auto-complete fills in the names of drugs as she types, and a new button lets her sort lab results by type, in addition to date.

As she finishes, McPherson leaves a message for Clover’s customer care team with a couple things to follow up on. Alfonso complained that his blood pressure monitor is difficult to use, so McPherson asks her colleagues to order him a new one. She has a request for Margarita as well: Send her some tips in Spanish on healthy cooking.

Copyright Bloomberg 2016

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