- Hindenburg Research published a report making several allegations about insurer Clover Health.
- Clover, which saw its shares fall in the wake of the report, responded to the report on Friday.
- Insider outlined the biggest claims and Clover’s responses.
- Visit the Business section of Insider for more stories.
On Thursday, short-seller Hindenburg Research published a lengthy report that accused health insurer Clover Health of misleading its investors, customers and the federal government.
Shares of Clover, which went public last month in a $3.7 billion SPAC deal led by billionaire Chamath Palihapitiya, plummeted in the wake of the Thursday report. The stock rebounded on Friday.
Hindenburg said in its report that it investigated Clover for nearly four months and interviewed former employees, competitors and industry experts.
It alleged that Clover is being investigated by the US Justice Department, has used misleading sales tactics to grow its business, and has failed to disclose certain conflicts of interest.
Clover, which sells private health plans for seniors in the booming Medicare Advantage market, responded to the short-seller’s claims early Friday in a post on the website Medium. The post was authored by Clover CEO Vivek Garipalli and President Andrew Toy.
In a statement posted on Twitter, Palihapitiya said the Hindenburg report was “rife with personal attacks, thin facts and bluster that has been rebuked by the company,” and linked to Clover’s response.
Insider combed through Hindenburg’s report and Clover’s response. We examined 4 of the biggest disputes below.
1. Hindenburg alleged that Clover is being investigated by the US Justice Department and failed to tell investors
Hindenburg said that Clover is under investigation for “at least 12 issues ranging from kickbacks to marketing practices to undisclosed third-party deals,” citing a civil investigative demand that Hindenburg said was sent to a former Clover employee in October.
In the blog posted Friday, Clover refuted that allegation, saying it hasn’t received any civil investigative demands or subpoenas from the Justice Department.
However, Clover said it has received and responded to a voluntary request for information from the Justice Department. It chose not to tell investors because it decided with its legal counsel that the request wasn’t material.
Clover said it doesn’t believe it’s in violation of any rules or regulations.
The insurer also said it received a notice of investigation from the US Securities and Exchange Commission on Thursday following Hindenburg’s report, but isn’t aware of any other ongoing investigations into the company.
Bill Horton, a partner at law firm Jones Walker, told Insider that federal agencies send requests for information for various reasons, and sometimes because they’re trying to determine whether they need to take enforcement action. Companies that get these voluntary requests must make judgement calls on whether to disclose them to investors based on the information being requested.
A civil investigative demand is more serious than a request for information because the government can compel a response and because it indicates the government is actively evaluating a potential False Claims Act suit, he said.
Clover declined to disclose the contents of the DOJ’s request for information when asked by Insider. The DOJ also declined to comment.
2. Hindenburg said that Clover has used “deceptive sales practices”
Hindenburg said in its report that Clover owns a subsidiary called Seek Insurance Services that helps seniors choose Medicare plans. The subsidiary markets itself as independent, even though it is owned by Clover, Hindenburg alleged.
“We think Clover is misleading seniors to steer them toward plans where it has an obvious conflict of interest, without disclosing that conflict,” Hindenburg wrote in its report.
Clover said in the post that Seek is a new affiliated startup that was set up as a separate company from Clover with its own management team, board, employees and investor. Clover and the investor share governance responsibilities for Seek, it said.
Clover said it’s not unusual for insurers to create or have stakes in companies like Seek, which it said offers coverage from many insurers and gives “neutral, objective advice” to seniors.
3. Hindenburg said Clover’s sales are driven by a brokerage firm owned by a Clover employee
The short seller’s report claims that much of Clover’s membership growth has been “fueled” by a New Jersey brokerage called B&H Assurance.
That outside brokerage is controlled by Hiram Bermudez, Clover’s head of sales, though that relationship wasn’t disclosed, Hindenburg alleged. The firm also alleged that Bermudez tried to the hide the relationship by moving the Clover contract into his wife’s name.
Clover hit back at those allegations, saying that while Bermudez owns 50% of B&H, he doesn’t receive any compensation from the brokerage for work related to Clover. Clover said it’s paid B&H about $160,000 since 2017.
Clover also denied that B&H has driven its growth.
About 8,200 current Clover members were referred by B&H, the insurer said. The latest federal data shows that Clover serves 64,461 Medicare Advantage members.
Clover also said Bermudez never transferred any relationship between the insurer and the brokerage to his wife, Yesenia Bermudez. Instead, Clover said regulatory filings show that it appointed Yesenia Bermudez to be able to sell its plans as an agent.
4. Hindenburg said that Clover’s software, Clover Assistant, encourages fraud, citing former Clover employees
Clover’s clinical decision support tool, Clover Assistant, aims to equip primary care doctors with information about a patient’s diagnoses and health history so doctors can make more informed decisions about treatment.
Clover says the goal is to improve patients’ health outcomes and lower the cost of their medical care.
But Hindenburg said multiple former employees told the firm that Clover Assistant encourages doctors to exaggerate the illnesses of patients in order to get more money from the government, under a practice known as “upcoding.” The US pays health insurers like Clover more money for patients with more medical conditions.
Citing Clover’s 2020 provider manual, Hindenburg also alleged that Clover pays doctors $200 per visit to use the software, resulting in it paying twice the Medicare rate for visits.
Clover denied that it encourages upcoding. It said it pays doctors who use its software a flat fee per patient visit, but it never pays them more or less for agreeing or disagreeing with the software’s recommendations.
The $200 payment covers both the patient visit and the use of Clover Assistant, Clover said.