Can Clover Health solve Medicare problems?

It’s no secret that the Medicare program faces daunting challenges. However, the petty health insurance fund Clover Health Investments (NASDAQ:CLOV) think it brings solutions. In this Motley Fool live video recorded November 16, 2020, Tom Gardner, co-founder and CEO of The Motley Fool, speaks with Clover Health co-founder and CEO, Vivek Garipalli, about how he thinks Clover Health can solve some of the Medicare’s biggest problems.

Tom Gardner: We’ll talk about portfolio management a bit later, but I just want to jump into global health now and hear from Andrew and Vivek about what’s insufficient and inadequate in providing health care to people over 65 in the United States. United ?

Vivek Garipalli: Yeah. So, great question, and when you think about our purpose, my first three companies that I started in healthcare were all on the service side, probably 16 or 17 years ago. On the outpatient side, a hospital company created a national revenue cycle business, and I created a lot of business value doing that. But I would say what was very clear to me through all of these experiences is that for most healthcare companies, especially on the service side, business value is not correlated to value for the consumer, and often it conflicts with that.

So we think of the many trillions of dollars of public market value and private market value that exist within healthcare companies today, you can’t really correlate that market value with consumer value. Now, there is no doubt that these trillions of dollars of market value, private and public, have led to healthcare innovation that has helped the world. Even when you look at the vaccines announced in the last two weeks, it was due to intensive R&D that started 10-15 years ago and we are seeing the fruits of that.

I would therefore be the last to say that the money wasted on health has not led to very positive things. But when we think about where we are, the very cost of doing that has become astronomical. Much of this is driven by the alignment of interests. So whether it’s hospitals, skilled nursing facilities, EHR companies, or PBMs, there are many ways they drive business value, whether it’s maintaining prices high, keeping patients longer, keeping branded drugs, blocking data, all of these lead to commercial value, but do not generate consumer value. Often they conflict with this.

My thinking started to change as frankly as I started figuring out what kinds of businesses I wanted to start in the future, and for me it was really about how to get around a very difficult problem that I think is important and solve it on a large scale. . So my pre-Clover and post-services experience, I was building a cancer data company called Flatiron Health which we ended up selling to rock for about a couple billion dollars two years ago, and that was my first experience building something on the tech side, whether it was in healthcare or out of healthcare.

Frankly, for someone starting on the services side, when you build something where software and technology are at the core, your brain is really rewired on how to think about problem solving and your ambitions grow because you know what can be done on a large scale. You know that what would normally be considered impossible is actually possible. Through this experience, as we considered the next problem we wanted to tackle, we saw a huge opportunity in terms of reducing the variability of physician decision making.

When we think about where it has the biggest negative impact, which is variability decisions, and just to bring a clear lens to that. In very simple terms, if you take an elderly person, say who is 80 years old, if they go to see 10 different primary care doctors, each doctor is going to come out with a different set of diagnoses, a treatment plan, treatment regimens, even different dosage levels, and it’s not because they’re bad doctors, they’re not. They really don’t have access to accurate, prioritized and actionable data at the point of care. When that happens, these doctors, in those 10-15, 20 minutes, they rely on intuition, pattern recognition, a quick set of questions, and you end up having a wide scatter of decisions. Often this is not tied to evidence-based protocols, and this wide dispersion of decisions leads to wide dispersion of costs and poor short-, medium-, and long-term outcomes.

If we look at that population, so we take the 60 million people covered by Medicare, that’s the highest per capita cost when you think about demographics. So the average cost for someone in this demographic to the US government is over $10,000 a year, 80% of those people have at least one chronic condition. Nearly 70% of these people suffer from two or more chronic diseases.

So when we think of what a real consumption space is, Medicare is very similar in terms of consumption space because the way we can think of Amazon as a consumer product in e-commerce. Health, when you are under 50, is not necessarily what you would call a product for daily use. When you get a Medicare age for more than 70% of the population, that is, from the frequency of seeing a doctor five or more times a year, an average of three drugs. So we didn’t start saying, let’s build a better Medicare insurer. For us, it was really around what is the problem that we want to solve. For us, it reduced that variability in decision-making, and our determination was that if we could bring great software to physicians, we could reduce that variability gap.

We started this based on first principles, ie, could we build something that could serve the current incumbents? Can we contribute something and just be a supplier for participating players and work within the ecosystem? Having started within the ecosystem myself, I didn’t have this fascination with disrupting an industry that I was already part of in many ways. But it’s really, really important if your goal is to really solve a problem. It’s not really about what is the most difficult execution path, but what gives you the highest probability of solving this problem.

Sometimes the path to generate the highest probability of solving this problem can be the most difficult path to execute. So the easiest route to execute would have been to create something as Service Providers, but that would have created the lowest likelihood that we could actually fix this problem. There is a reason for this.

So, when we thought about how to create the best software, we have to tick a few boxes. First, we needed access to our customers’ data. Secondly, we had to be able to deliver software to physicians and ensure that there was high engagement, and ensure that we could drive really high usage and customer experience in terms of physicians using it. use. Then if we could leverage that use, improve decisions, reduce total costs, improve outcomes, reduce emergency room visits, reduce hospital admissions, increase mortality, or prolong mortality, how do we benefit as a company, as an organization?

So for us, it was all about building best-in-class software. In our mind, this was only possible if we built it into our own verticalized insurance company. That’s really where the thesis started, and why we started our own insurer, and why I had to put my own capital and start it over those many years, because everyone we went to initially on the side of the company wanted us to take the lowest risk path of execution. As an entrepreneur, you’re sometimes very optimistic and delusional, and you take the approach of, well, I want to solve the problem, and that’s the way I have to go and no one will remember if I have lost that money because it will just be what I have to limit myself with. But when you manage to take those first steps, then it becomes clearer to investors that this might be the right path. You have gone through the hardest part on the execution side.

So we’re at a point now, many years later, where we’ve adapted the software for doctors, produced it where it emanates from consumers in the cheapest product, in terms of insurance plans for our consumers. But from the perspective of physicians, they have excellent access to point-of-care information regarding accurate diagnoses, appropriate treatment planning, evidence-based protocols, and coordination of care.

Now we’re extending that software beyond the traditional Medicare or PHI benefit, which is just over 20 million of the 60 million. But now in the additional 40 million people under traditional paid-for health insurance where the government is rolling out a program called contract direct next year, where Clover, we’re in a prominent or prominent position, where we can extend our software into the population of Medicare patients who don’t actually have private health insurance, but are directly paid by the government, and where physicians can actually take the full financial risk, offload it to Clover. Then Clover monetizes that by offering our software for free and retaining the savings we generate for the government and for consumers.

Much of this was not possible until about three years ago when Andrew and I met. So at that point we were just about to finish building our data platform and then either have to spin it up or turn it over now to the doctors where we were literally bringing in this pane of deposits to produce it . essentially. Andrew and I got to know each other for a while and there are very few people who were able to get health care as quickly as him that I have ever met. His background, as he’ll see, is really in a unique position, set up to not just fully understand the technology aspect, but to actually apply it to health care and what we’ve been doing for the last few years or so.

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