Silicon Valley Power Reforms Healthcare: Clover Health Leverages Big Data to Enable Preventive Insurance
A nurse named McPherson made an annual home visit to a couple in their eighties, meticulously recording their dietary habits, medication regimens, and exercise routines on an iPad, and advised them that consuming brown rice could help prevent diabetes. This is a typical scenario for Clover Health Insurance.
As long as the elderly couple remains alive, McPherson’s job is to continue visiting them year after year to ensure they maintain their physical health. Clover Health is precisely such a company: it aims to identify potential health issues before patients reach the stage of needing to see a doctor and to recommend the most suitable healthy lifestyles for its users. All of this is derived from personal Medicare data, disrupting the traditional health insurance model.
Clover Health Nurses Conduct Annual Visits to Members
For example, this year Clover’s system was monitoring an octogenarian who had been hospitalized following a fall. Frail, with lower-extremity ulcers and type 2 diabetes, the elderly patient now relies on a wheelchair for mobility, and Clover’s health risk assessment indicated a high likelihood of recurrent falls. Shortly after his discharge, Clover alerted its care team in New Jersey to dispatch a nurse to his home. The nurse identified an issue: the patient had been using a plastic toddler step stool to facilitate getting into bed at night, which was clearly inadequate. On the same day, the nurse arranged for the installation of bedside rails.
As a medical insurance carrier, Clover pays the bills for all its enrolled members. This allows the company to capture each member’s evolving health status. Given that Medicare beneficiaries have high healthcare utilization rates and account for the largest share of national healthcare spending, Clover is able to accumulate a vast amount of data. The system can also automatically detect anomalies in the data, such as missed doctor appointments, medication errors, or emergency department visits.
In cases of readmission, the average additional cost per patient is $10,000, which collectively amounts to a substantial national expenditure. Vivek Garipalli, a CEO with a prior background in the financial sector, chose to launch ventures in the healthcare industry—becoming a serial entrepreneur—driven by his aim to leverage data technology to predict risks and eliminate unnecessary hospital readmissions.
Clover leverages Silicon Valley technology to realize the medical concept of “preventive care,” a feat largely attributable to its team’s Silicon Valley DNA. Its data science, design, engineering, and product teams are all led by elites from major Silicon Valley giants such as Facebook, Google, and Microsoft.
From left to right: CEO Vivek Garipalli, Technical Lead Kris Gale, Data Scientist Sandy Ryza
The company’s technical team is led by Kris Gale, who co-founded the firm with Garipalli after leaving Yammer, a Microsoft subsidiary. They are progressively refining software designed to integrate vast amounts of health insurance data collected from employees in New Jersey, thereby uncovering individuals’ potential health issues.
A key recent addition to the team is Sandy Ryza, who serves as a Senior Data Scientist. Previously, he worked at Cloudera, a data management software company, where he handled data for the banking and telecommunications sectors. Ryza stated that identifying patterns within seemingly unrelated health data presents an exhilarating challenge, and he aligns with Clover’s mission to improve the national healthcare system. “This may sound cliché, but I genuinely want to make a difference.”
As the Medicare open enrollment period ended this Wednesday, Clover also concluded its busiest time of the year. The company has an agreement with the U.S. government to provide insurance products for users of the Medicare Advantage program, which has approximately 18 million elderly or disabled individuals enrolled nationwide.
For each enrolled member, the U.S. government pays Clover Health a monthly fee. While capitation rates vary by region, the Medicare Rights Center reports that the average monthly amount per person is approximately $850, assuming no additional chronic disease management or health behavior coaching services are required. Clover uses these funds to cover members’ healthcare costs; after reimbursing providers such as physicians, hospitals, laboratories, and pharmacies, the remaining balance constitutes the company’s revenue. Additionally, the company offers insurance plans not subject to monthly premiums, with a maximum value of $225. However, Clover has stated that business volume from other insurance types or arrangements involving employee premium contributions is relatively small.
Trump once claimed that he would eliminate many provisions of the Affordable Care Act, causing considerable panic among both insurance industry giants and startups in the United States. However, health policy experts say it is highly unlikely that the Medicare Advantage program will be altered, and the change of presidential administration will have little impact on Clover Health’s business. “Tweaks may occur, but they are not necessarily going to diminish the influence of Medicare Advantage,” said Stacy Sanders, federal policy director at the Center for Medicare Rights, a consumer advocacy group. Similarly, John Gorman, founder of the government consulting firm Gorman Health Group, noted that Medicare Advantage enjoys “broad bipartisan support.”
The company now boasts a large cohort of nurse practitioners like McPherson, mentioned at the outset, and has secured a significant market presence in eastern and central New Jersey. Clover’s Medicare Advantage advertisements are ubiquitous, appearing on buses, local radio stations, direct mail campaigns, and a large billboard near Newark Airport.
But for Clover Health, its operations in New Jersey are merely a “beta version.” Clover has plans to expand into other markets and had previously given serious consideration to entering Texas. However, venture capitalists are not impressed by these operations alone; what they truly value is the data-driven engine operated from Clover’s San Francisco headquarters. “We are not just a tech company that processes insurance claims. At our core, we have created a machine-learning platform for healthcare.”
The most striking aspect of Clover Health is the sheer volume of funding it has raised in just a few years since its inception—starting last year, investors have poured approximately $300 million into the company. For Silicon Valley, investing in a company built on top of Medicare appears to be an unconventional move, especially given that the company only operates in nine cities in New Jersey. With a total workforce of just 19,000, Clover Health is merely a fraction of the size of major insurance providers such as Aetna and UnitedHealthcare.
Nevertheless, the renowned venture capital firm Sequoia Capital believes that Clover will have a significant impact. Mike Dixon, a partner at Sequoia Capital, which led the investment in Clover Health last year, stated that this insurer is transforming healthcare delivery through a data-driven approach, which can substantially reduce medical expenditures in the United States—where national spending reached approximately $3.2 trillion last year. Dixon, who has now joined Clover’s board of directors, remarked that with substantial investment secured, Clover can focus on enhancing its services. “This is the best opportunity to witness the emergence of a major company.”
The power of data-assisted rehabilitation therapy is unbelievably strong, and many startups dedicated to transforming the healthcare industry have adopted this as their guiding principle. According to data from CB Insights, a venture capital data firm, last year venture capitalists injected $1.2 billion into technology-driven health insurance companies. Representative companies in this sector include Zenefits, Oscar Health, and Clover.
“But many next-generation healthcare companies exude an air of arrogance,” remarked Les Funtleyder, investment manager at E Squared Asset Management. He believes that most of these companies are overvalued and that their technologies are not significantly more advanced than those used by traditional insurers. “Many people in Silicon Valley say, ‘We will let data optimize everything.’ Yet so far, we have not seen these new players achieve anything noteworthy in healthcare. The outcomes are likely to be disappointing, resulting in substantial waste of capital.”
Healthcare is a heavily regulated industry, which clearly dampens the aggressive fervor of startups. Clover Health stumbled over regulatory issues this year: federal regulators fined the company $106,000 because, according to the U.S. Centers for Medicare & Medicaid Services (CMS) enforcement team, its advertising slogan “misled and confused potential users into believing that Clover Health had the capacity to provide long-term coverage for their Medicare benefits,” and the company failed to correct it despite multiple explicit orders to do so. Ultimately, the company paid the fine and withdrew the slogan. The lesson here is that healthcare startups must ultimately accept and comply with official regulatory oversight.
Health Insurance Companies Face Daunting Challenges in Innovation
Despite having secured substantial investment, Clover has not actually achieved unicorn status. According to data from Equidate, a platform for private company equity transactions, the company’s valuation stood at approximately $850 million following its Series C financing round in May. For insurance companies, maintaining a smaller scale actually entails higher costs. Consultant Gorman noted that the more enrollees an insurer has, the greater its leverage in negotiations with various entities across the healthcare sector, allowing it to derive greater benefits from sick enrollees. “Startups in the health insurance sector indeed face numerous obstacles.”