Clover’s growth projections reveal direct contracting pivot

When it announced plans to go public through a blank-check company, Clover Health shared ambitious projections for its future membership. Much of that growth is pinned on plans to launch a direct contracting business.

When Clover Health announced its plans to go public via a blank-check company, the insurance startup pitched investors on its growth plans. Its CEO and founder, Vivek Garipalli, claimed it was the fastest growing Medicare Advantage plan over 50,000 lives — based on internal data — and that much of the $1.2 billion in proceeds from the deal would be used to fund its future expansion.

But a closer look shows that much of the San Francisco-based company’s forecasted membership growth hinges on a yet-to-be-launched direct contracting program.

Social Capital CEO Chamath Palihapitiya, who is known to invest through special purpose acquisition companies, plans to take Clover public through a merger that would value Clover at $3.7 billion. He shared a one-pager for the deal on Tuesday that showed Clover is expected to have more than 273,000 members in 2021 — more than four times its current membership of roughly 57,000.

How would it reach that improbable pace of growth? A chart in its investor deck shows that 200,000 of Clover’s planned covered lives would come from direct contracting with physicians that use its software. The new risk-sharing model is expected to launch in 2021, and would apply to traditional fee-for-service Medicare patients.

Notably, direct contracting does not factor into Clover’s revenue projections for next year. The company brought in $462 million in 2019 and expects to have $880 million next year.

“We have a lot of doctors who are excited to work with us. So we think we can get that number of lives under management,” Clover President and CTO Andrew Toy said in a phone interview. “It’s a speculative membership number — we know where we want to be. But this program has not launched.”

Like the rest of Clover’s business, it’s a bet on the underlying software. The company’s software assistant offers physicians care recommendations and pulls in information, such as whether a patient filled their medication.

“This is our bet: We can provide amazing healthcare at great prices effectively underwritten by software,” Toy said. “We base our relationship with the physician on software. … Now those doctors will be using Clover Assistant both for Medicare Advantage and traditional fee-for-service Medicare lives.”

For its Medicare Advantage plans, the company claims its software helps it manage the cost of care and deliver better patient outcomes, where other companies use value-based care contracts or narrow-network models.

But the company still has a way to go to get there. Its plans were rated at three stars in 2020, well below the average star rating of 4.16.

Clover reported a $177 million net loss in 2018 and a $176 million net loss last year, but it plans to be profitable by 2023.  Whether its direct contracting plans will pay off, time will tell.


Photo credit: Nuthawut Somsuk, Getty Images