Is Clover Health a Disruptor or Distractor?

Clover Health (CLOV 0.27%) has been one of the most controversial Medicare insurance providers since being brought public by Social Capital and Hedosophia.

In this episode of Industry Focus: Wildcard, Motley Fool contributor Jason Hall and analyst Emily Flippen discuss Clover's business and its unique value proposition, and then debate whether the controversial short-seller report should have investors running for the door.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks . A full transcript follows the video.

This video was recorded on February 24, 2021.

Emily Flippen: Welcome to Industry Focus. Today is Wednesday, February 24th, and I am your host Emily Flippen. Today I am joined by Motley Fool contributor Jason Hall as we unpack one of the most controversial health companies on the market today, Clover Health. Jason, thanks for joining!

Jason Hall: This is going to be fun. It's interesting, because it's a little bit out of our wheelhouse. But I think we're both people that can be, I don't want to say critical, but you and I both really try to be eyeswide-open when we dig into any company, especially companies we don't understand as well. So I think this is going to be a great prime around this company.

Flippen: I will take full responsibility for this episode because when we were originally scheduling this Wildcard Wednesday, I did want to make something healthcare focused. I know that's an aspect of Industry Focus that is sorely missing since Shannon Jones has since moved onto bigger and better things at The Motley Fool. But when I had the idea, maybe [...] Clover Health, I mean, it sounded good to you. I don't think either of us really had a grasp about just how deep this business runs. So, at least I know I didn't, so I will put the caveat out there that this is my interpretation of the business. When you're looking at healthcare businesses, especially insurance providers of which Clover Health is, it's complicated, especially when you get into things like Medicare. We'll do our best. We will do our best with this episode, I've explained our perspectives on the business. But that's the probably necessary caveat to add out there that... I host the consumer goods show for a reason, obviously.

Hall: I want to point out too, I think it's important to remember that you don't have to be a complete expert on the healthcare industry to look at a company and find clear risks and things that can be easily misunderstood and apply them to how you understand that business as a possible investor, right? Sometimes being outside of the industry is beneficial.

Flippen: Yeah, that's definitely true. I like how you pointed that out. It can be harder for analysts to look at companies if they are looking at terminology that they're not familiar with. But once you get past that initial hurdle and sometimes an outside perspective is that fresh eye that you need on the business. I know we're both two fresh eyes on Clover Health over the past week or so. So it will be a fun conversation today. Before we get into the business. It might be beneficial to talk about its history. Part of the reason why Clover Health is so popular is because it was one of the businesses that was brought public through a SPAC, a Special Purpose Acquisition Corporation through that was founded and led by Chamath. I know that he has gotten a lot of -- I'm not going try to pronounce his full name, so I apologize. I'll leave it there.

Hall: Palihapitiya.

Flippen: Wow, good job, Jason. I will not try to repeat it. But what can you tell us about a little bit of the background of Clover Health before we get into the business?

Hall: So Clover Health has actually been around for a while. This isn't a super-duper brand new business and just the background there is social capital aligned with Hedosophia, I think that's how it's pronounced, Hedosophia Holdings are trying to bring, I think, 26 different companies public in a really short period of time across a variety of needs. This is one of the ones that they identified as a way to address healthcare, improve healthcare, drive down costs, improve outcomes. All of the things that we call out as being problematic with healthcare in the U.S. and one of the things that makes this really interesting is Clover Health focuses on Medicare right? Medicare Part B, Part C. Here's the key though, one of the things that makes that really interesting right now is we're in the midst of this massive secular aging trends. By 2030, there will be 80 million Americans who are over age 65, which means they are eligible for Medicare, right? So in terms of what that means, that's about a double in that age group over a 25 or less year period. The number of 80-plus Americans is going to be over 40 million by that period. So in terms of people that need lots of healthcare, that's one of the reasons why this is such an interesting and really potentially compelling opportunities because their caps about how much profit these companies can actually take. But it's an enormous market that is growing very quickly, and if you can find some sort of competitive advantage that proves durable and they're claiming that with their software and the use of technology to drive down costs and help increase their share and increase their margins too to be more profitable than other companies that insure in the same area. That's the thesis, right? Even with being a somewhat fixed and very heavily, heavily regulated industry, the sheer growth and the opportunity to drive out costs could make it a market beating investment.

Flippen: That idea is really compelling and it's easy to see why Chamath and Social Capital and Hedosophia wanted to bring this company public. We got excited by the idea of disrupting some aspect of healthcare, in this case, a portion of Medicare. It was previously known as Social Capital Hedosophia Holdings 3, also better known as IPOC. The deal has since closed and the company has now independently listed as Clover Health on the NASDAQ under CLOV but that's a good little summary about why Clover Health was such an attractive target for the SPACS. They're looking for businesses that they can perceive to be disruptive, to deeply entrenched industries. That being said, Clover is still a medical insurance provider. There are Medicare Advantage insurer, which I believe is Part C, a Medicare advantage insurer in the U.S. and what that means is that Medicare, which is our government provided health insurance for qualifying Americans, uses Clover to provide insurance through an access of network of independent providers and doctors. So they're using technology to improve the experience. But when push comes to shove, and I will make this argument a little bit later, there's still an insurance provider for Medicare Advantage patients. So the way that work is Clover takes money from the government's Medicare program and pays out to insures' medical bills. Just like every other health insurer. Currently, I think Clover has around 55,000 qualifying patients, that number could be a little bit wrong, maybe a little bit on the low end. But the vast majority of whom come from two metropolitan areas of New Jersey, which is where Clover got started. That's the interesting aspect of this business is. They're getting paid by the government and as you mentioned, there's limits on how much profit they can take from the government since they're getting paid per customer from the government. We'll get into the details a little bit more. But that just essentially ensures that Clover Health doesn't have the permission to just deny care to people because they want to keep the profit levels at a certain level. I believe they're legally capped on profits somewhere around 15-20%. So that's something that I think is important to keep in mind when you're looking at Clover Health.

Hall: Yeah, I agree. Again, that's where it gets back to those key points that they say are part of the thesis is that Clover assistant, right? So using their technology to help drive down costs, improve outcomes, and they claim this is a competitive advantage. Again, just the sheer amount of growth in the aging population, that's what they say. [laughs]

Flippen: Well, currently Clover gets around $11,000. It's not specifically broken out, but you can infer certain levels. So somewhere around $11,000 per year per patient from Medicare in order to pay out their medical claims. So the way the business works is that anything they don't pay out in claims they get to keep for business purposes, for profitability purposes. So they definitely have a vested interest in, you could say, improving the health of their clients. Essentially paying less than claims that I mentioned before they can't just deny care. So Clover definitely takes a focus on improving patient outcomes to decrease cost, and you mentioned what they perceive to be this proprietary technology that's Clover Assistant, that's provided free of charge to qualifying doctors in their network who use the platform when they treat Clover's Medicare members. This platform just essentially keeps track of member outcomes and ensures that Clover is constantly up to date on any health challenges that their insurees are going through. It's not meant to replace something like an electronic health record which is legally required to be retained. But it is meant to better improve Clover's ability and doctor's ability to provide care for their patients. So this is a controversial aspect of Clover's business because as we found out through a short report, which we'll definitely talk about later in the show, is essentially doctors are encouraged to use this platform for more for just improving patient outcomes. They're actually getting paid nearly twice the traditional Medicare fees when treating Clover patients and putting it through that Clover Assistant platform. This reimbursable fee is something that Clover believes incentivizes the primary care physicians to code and treat patients accurately, and if that is the case, theoretically, it should lead to lower cost being paid out on Clover side, which theoretically again, should lead to higher levels of profitability.

Hall: It's another thing, so we talk about pretty regularly on the forum for our members, especially the growth of the Cloud, that growth of software, the growth of analytics. The more data the company has, you would think, the more they could utilize that data to improve outcomes, to lower cost, to figure out how they can leverage their technology, leverage their relationships with healthcare providers to try to improve out those outcomes and lower costs. Today they are paying for it, they pay roughly double. [laughs] So that's on that front side of the physician, so at what point is this going to be about collecting data that they can use? Because at this point, and we are going to talk more about getting the short, but the short thesis is that this is really more a tool that they are using to try to increase billings.

Flippen: Yes. It's an easy argument to make and we'll talk about it in a bit more detail. But essentially, if you're taking the, I guess the bare side of the Clover argument and there are clear people on either side of this fence, let me just be upfront about that. You can definitely see how bulls in this case, argue that Clover is moving fast and breaking things. Whenever that happens, whenever we see disruptions, and traditionally entrenched industries, there's always pushback. My mind goes back to Invisalign and the struggles that they had getting off the ground because of the deeply entrenched orthodontists industry that didn't necessarily want people cutting into their profit margins. It's easy to say that while they're facing some road bumps, while trying to get this disruption off the ground that's to be expected when trying to disrupt such a traditionally focused industry. At the same time, numbers when looking at this business are extremely challenging and it's clear that the picture that Clover Health painted when they initially went public through this SPAC was not necessarily fully representative of the experience that providers and users of Clover Health were experiencing. But again, we'll get to that. [laughs]

Hall: We'll get there, and the other thing I think it's worth pointing out when you are talking about disruption in an industry with some very entrenched players, and highly regulated program that's essentially their money is taxpayer money. At the end of the day, that's what pays for this is a massive federal program. As you're dealing with change management 101, you're largely expecting people that have done things a certain way for a very long time to start thinking about doing things differently which is hard, that's the hardest thing to do is manage this kind of change. So great top technology, great software, all of that's fantastic, which you still have to manage through the change.

Flippen: Definitely. Before we move on to their financials, I think it's worth digging more into the market opportunity. You mentioned it as we head off the top of the show about what a big opportunity Medicare is, and you can talk a little bit more about how Clover expects that to grow in the future. But I'll quickly mention how the government pays out for their Medicare insurance providers. It's actually based off a star rating, depending on reviews left by people who use those insurance provider. So every Medicare advantage provider, Clover Health in this case, gets ranked one to five on a medley of different aspects of service they provide. Depending on where their star ranking provides, actually depends on how much money they get per customer. These insurance providers are incentivized to further improve their services to benefit people using the system, and while there is ranges, I'd probably say Cigna, one of their bigger competitors, consistently has 4-5 rankings. Clover seems to hover somewhere a little bit closer to 3-3.5 stars. It's not bad, but it definitely leaves room for improvement, and if they were able to improve those patient outcomes, could potentially let them earn more revenue per person they're bringing into their network. When I think about the market opportunity and as you talk here about the people coming in to Medicare program, it's important to remember that the value of each individual does depend on the level of service that they're able to provide.

Hall: Again, I think the number I haven't seen the exact most recent number that they've released but I think it's still around 55,000 or so. Their target is to have between 70 and 75,000 members by the end of 2021, so roughly 50% growth. That's an enormous rate of growth. How does that happen? Well, again, that trend we talked about with the aging, somewhere around 10,000 Americans become eligible for Medicare every day. It's about 10,000 a day is the run rate over the next decade or so. So when you're this small, as you're starting at this point, there is a vast opportunity to grow at a very outsized rate, so we think about that. Just again, that shared growth is huge. The other thing too, is that this is a business that's still very geographically concentrated. The vast majority of their members now are in New Jersey.

Flippen: I think it's like 98% in two urban areas of New Jersey. That's some intense concentration.

Hall: It is, and I think there's probably also some bias to the ratings. They are one of the things that would be helpful, I think in evaluating the company. What we just ran out of time to do is, how did those star ratings compared to its peers in the same markets? Because I think that can help inform the quality of their [...]. I didn't see that, Emily have you seen that data?

Flippen: I did some independent research. I poked around, pretended I was signing up for Medicare to look at and compare. I'm not sure if there's an aggregated approach. You will see people claiming different aspects, but I think the best way to do it, because it is so geographically dependent is to look into different areas that they're providing, and since 98% of their users come from New Jersey, when I was doing my research, I pretended that I was looking for Medicare in New Jersey. The plans that they offered were comparable to their competitors, I did notice potentially slightly lower costs in their competitors, but their rating system is also a little bit lower. Surprisingly, part of what kept their star ratings lower, and this is all just independent. Googling on my part. There's really no centralized star rating system. But what I know has kept them down was actually not necessarily patient outcomes, but the ease of experience for the patients. That's something that I think is probably going to be a challenge for them to incorporate the ease of experience that the Clover Assistant provides to physicians, also providing that needs of experience to their users as well.

Hall: Again, this is, it's really just a sheer share growth opportunity is the big thing if they can, even, and that's the interesting thing. Again, part of the thesis here is their technology to help them be more profitable. But there's also the very real prospect that because this is a very small business compared to the addressable market and the growth of the addressable market. Even if they can just meet the basic expectation and funnel their profits toward expansion, this could be a wonderful investment. But that's not the whole thesis, that's just part of the thesis.

Flippen: We'll talk, I mean, I know where we're burying the lead here with the true questions and we'll definitely get to those questions, especially those raised by the short report at the end of the show. But part of my skepticism in terms of meeting those base-level expectations is that Clover historically hasn't met them. In fact, Clover, as you mentioned, is a private company, been around awhile before the SPACs took interest in them, and reports heading back, even in 2016, seemed to imply that the company internally expected much faster growth, than they actually experienced. If you look at reports back in 2016, they said the company expected it would have 65,000 members by the end of 2017. For reference, that's again 10,000 members or so more than they have right now, and heading into 2021?

Hall: Three years ago.

Flippen: Yes. That's three years ago, and they missed that number by nearly 40,000 in 2017. Part of that reason could have just been funding though. I mean, the huge influx of money that Clover has experienced over the past year could potentially let them be more aggressive in how they expand their program offerings, especially beyond just New Jersey, so I don't want to approach it with too much skepticism, but when I hear them say that they're going to grow their membership from 55,000 to 75,000 just over the course of 2021, it does make me ask how is the approach that you're taking this year different than they approach that you took in 2016, 2017, when you so grossly missed those internal expectations?

Hall: Yeah. I mean, that's a really good point. I think part of the argument there is, while we've raised some capital and we can use that capital to deploy, but then the other side of that argument is, there's also been enormous turnover in their executive suite, and there's been a lot of turnover in the people behind the technology, and if the company's saying that technology is one of our competitive advantages, what's happening? Are you going to be able to allocate these new resources in a more effective manner, that remains to be seen.

Flippen: Speaking of allocated resources and effective manners, I think their financial picture definitely reflects this high level of turnover. It's a little all over the place, when you look at Clover Health's financial performance. You would expect these from a disruptive company, they are unprofitable and always in need of more cash. If you look at 2019, 2020 was a weird year because of the pandemic. If you look at 2019, they had over $350 million in net losses, on revenue of under 500 million, so some pretty hefty net losses. Things did turn around in 2020, although they did attribute to their small at first nine months net loss of $10 million largely to the effect of the pandemic pulling off non-necessary procedures for those covered under their plans, so they did have some cost savings in 2020, they're definitely headed in the right direction. But when you look at this business, I think it's probably valuable to look at what they're projecting long-term. If you take the margins that they expect, they could have gross profit around 1,600, $1,700 per coverage user, per person signed up for their plan, so that's the amount leftover up that 10 or $11,000 after paying out medical claims, so one to $2,000 per person. This is because of that critical ratio, they call it the medical loss ratio. It cannot be less than 80 or 85%, otherwise, you're going to have issues from the government, but anything above 90% and definitely anything above a 100%, would imply that you're not operating a sustainable medical insurance business, and Clovers Health was above a 100% for many years. Meaning that for every dollar they brought in from people signing up, from their plans and premiums, they are paying out more in medical costs, they've since brought that down. I think it's great that that number, is trending down closer to where their peers are, I think it's around 86% right now, which is pretty impressive for Clover Health, but that will be something to keep your eye on when you're evaluating the financial performance of this business, because just how much they want you to think they are tech company, ultimately they are providing insurance for people under Medicare Advantage plans, and if they can't keep their medical loss ratio at an industry average, that's going to be a big concern.

Hall: Yeah, I agree, I think you nailed it. I think that's where it's important to be critical of any company that's leading with technology or software as being some, like the magic bullet. They're in an industry where there are very large players that are already just about squeezing every profitable dollar out of it. Because at the end of the day, they are still married to those regulations, they are still married to those fixed costs. Zoom Communications we're using right now, Zoom Video Communications can generate 55% free cash flows, because their fixed costs are relatively fixed and every incremental customer they add beyond that can be very nearly 100% profit. That's never going to be the case with Clover Health, it legally cannot do that, so that's a really important differentiator you have to remember. Doesn't make it about investment, but it means it's a different industry and you have to understand those industry norms. I think that's one of the things you've talked about in terms of thinking about how to value the company, right?

Flippen: Yeah, this is where I get my biggest hiccup as an investor is. I have a hard time justifying, making an argument that you can value Clover as a tech company instead of as an insurance company when their own internal projections, only half their long-term margin at 2-3% higher than their entrenched competitors. I'm not sure if that's something that's worth paying 8-10X sales for, this isn't a particularly profitable business in terms of the amount of free cash flow that they generate, especially in comparison to other companies that are trading at similar valuations. For me, I feel like it's a little bit frothy, but I've said this before on Industry Focus and I say it a lot in my day job as an equity analyst is I think I tend to be a little bit slow to the uptake in disruptive businesses and that can oftentimes be to my detriment, but at similar points, they can protect me from downside here. I can definitely see the argument that this is a disruptive healthcare tech company. I tend to fall on the side that this is a disruptive insurance provider that's trying to prove out its technology still to this day and it's not showing up in their finances right now. For that reason, I have a hard time putting a premium valuation on it.

Hall: I'll take the counter on that.

Flippen: Oh, really?

Hall: Yeah. Well, with nuance, because I think that's important. I think if you believe in a couple of things, if you believe in the growth prospects, and again, you think about these big trends and the starting point for this business right now, if you believe that there are some competitive advantages, even though it's an industry that has a lot of regulations about how profitable it can actually legally be, it's a $4 billion company. Market capitalization today is $4 billion. If you're going to wildly overpay or pay an extremely high valuation for a company, make sure it's in a company when it's still very small and has an enormous addressable market that you think that it's able to grow at a much faster rate than the industry. I think that absolutely describes Clover Health to a T right now. Is it going to be worth 6X sales in 10 years, 8X sales in 10 years? Of course not, it's going to revert to a mean valuation that's more close to the industry that it participates in. With that said, is it going to be worth a lot more today in terms of value, is it going to beat the market? If what they're saying proves to be true and it can continue to slice off a larger piece of that opportunity, absolutely, it can be a market-leading investment. But, right? And I think that's what we're going to talk about next.

Flippen: Yes, let's talk about the elephant in the room, which was this short report released earlier this month by Hindenburg Research, who called out a lot of issues that they perceived with Clover Health's business, a few of their payment processes, the way that they paid primary care physicians, issues with their technology. They call out any number of things, management's conflict of interest. The big one though, is they found out, and as was later disclosed to investors, that Clover Health did have an inquiry from the Department of Justice into their business practices. What was your take on reading this short report, Jason?

Hall: A couple of things. Like any good short report, there's a lot of inflammatory language, a lot of things that will invite a strong emotional reaction in a short report. The two motions that drive us as investors are fear and greed. We know that. So a good short report hits that fear thing, and it does. This one hits it very well because it talks about a Department of Justice investigation, calls out a litany of things ranging from illegal payments to people working in these doctors offices, and maybe giving gift cards to the receptionist, having what they call Clover ambassadors. A litany of things that are potentially against the law. That definitely hits that fear thing. I think, are they making a mountain out of a molehill or is it a mountain of mole hills? Are There a lot of little things that this company is potentially doing that enough of them could be illegal to cause substantial problems for the business? The one thing to me that just jumps out is, so with this Department of Justice investigation, the founder obviously knows about the CEO of Clover Health, knows about it. Of course now I'm drawing a blank on his last me. Knew about it. There was a question whether or not Chamath knew about it. He knew about it. The Company's issued a follow-up response. They said, "This is something that all of our legal counsel, both our corporate counsel and the counsel we were working with through the process of going public, said we do not need to disclose this." Because I think it's important to remember that these sorts of companies do get inquiries from regulatory bodies on a regular, ongoing, consistent basis. To a certain extent, there is a certain amount of how important is it, how meaningful is it, what passes that test of needing to be disclosed.

Flippen: That's a fair point. I'll take the counter side of that argument. I'll play devil's advocate here. In my other day job, I manage a cannabis based portfolio. There's an interesting company that recently also went public via a SPAC, or is in the process, I should say, of going public through a SPAC. The business is Weedmaps. Weedmaps had gotten inquiry from the Department of Justice previously. They were fully cooperating, working with the Department of Justice. Didn't expect any negative outcomes from a result of the inquiry, but even they disclosed it in their investor presentation to investors in that SPAC. Maybe they were just being more proactive, or maybe they're legal counsel said, maybe the risk here is greater than what was perceived with Clover Health, so they felt the need to disclose it. But obviously there's a gray area here. Generally speaking, when I see cannabis companies with higher levels of moral disclosure, it makes me a little bit concerned when a healthcare company whose theoretical sole job it is, is to take money from the government to improve people's lives, to take care of their health, hopefully make a profit while doing it. But it makes me a little bit worried about the people who are calling the shots. That may be a totally unfair assessment, because to your point, they had lots of legal counsel acting on this. If they have these inquiries very often, then it really could have been nothing. But from my perspective, I always prefer management, especially in a highly regulated industry, to err on the side of caution as opposed to be taking liberties. This to me felt a little bit like taking liberties. With a number of things that the DOJ inquiry listed off as concerning, specifically calling out gift card payments as an example, a practice that Clover Health has vehemently denied that they take practice in, those things are specialty concerning. Now, as a result of the short report, they got an inquiry from the SEC. There's lots of legal and regulatory risk here that they could have gotten in front of if they had just disclosed it and said, "Hey, we get these a lot, we're working with the Department of Justice, " I think a lot of investors would have just moved on. But now it's a whole thing because management didn't exercise, what is in my opinion, good judgment.

Hall: A couple of other things that jumped out too that I think are important, are related party, relationships. For example, I think it's their chief marketing officer has a long history in the insurance industry owning, is it broker, I guess, that he owns? It's not a broker. It's a company that's involved in connecting insurance companies which patients or payers. It looks like from what I'm seeing, essentially, this was a partnership and moved this partnership into his wife's name, I guess is the accusation. Questions about whether or not there's still a substantial conflict of interest if this executive has a family relationship to a business that's providing a substantial amount of Clover's customers to it. I think that's another thing that ties into that. You have to trust the people that are running the business, I think. That's a questionable thing. One other thing I want to mention too is that I want to call out the Hindenburg on is they try to make a big stink out of Chamath. This is part and parcel with any kind of short report, that you have to get past that, things that are obviously trying to stimulate an emotional reaction, is they tried to keep saying, well, it's only a $25,000 investment to get their founders shares. I mean, the bottom line is Social Capital has probably spent millions, maybe tens of millions of dollars. Their due diligence process, and the time that they spend marketing and promoting the business. I think you have to consider as part of the investment, plus Chamath made $100 million equity investment into Clover, $100 million through one of the entities that he controls that invested in Clover. There is skin in the game that Chamath has. I mentioned that because No. 1, skin in the game is important. It is also a tiny portion of his wealth. To me, that's the big thing, is that the key here is if you're concerned about it, if it's a tiny portion of your exposure, then your direct exposure to this actually being a fraud and a zero, and whatever the worst case scenario is, is minimal by position sizing.

Flippen: Definitely. For me, when I come out at the short report, they called out so many things that we won't have the opportunity to get into everything, obviously, during this podcast. But one of the things that I think is worth mentioning -- two things I should say -- the first is SeekMedicare referrals, this web site that apparently is partly co-owned by Clover Health. It wasn't disclosed that a lot of people running the show were somewhat incentivized to be referring people to Clover Health. What was interesting about the short report is not just these claims, but actually how the company responded to them. It's not very often that we see a company respond so in-depth to a short report. We'll see companies come out with a statement, usually a broad statement that says we're aware, this is completely untrue, we're following up, whatever. They acknowledge that it existed, they say everything they say is false since there are people who are in it just to see our stock price go down, and then they move on. But in this case, Clover Health issued a full, it was almost the size of the report itself, response to the short report, specifically addressing a lot of the allegations. I definitely encourage anybody who's listening, who's interested in getting the full details to take time, read the short report, read the company's response to the short report. They acknowledged that SeekMedicare actually referred over half of their patients to Cigna, for instance, they weren't sending everybody to Clover Health.

Hall: I think there were at least three providers that received more referrals than Clover did. Maybe four, it may have been, I think it was the fourth on the list. [laughs] By far, more went to other providers.

Flippen: Again, in the context knowing that they only provide coverage in such limited geographies right now, it's a hard thing to quantify. But that was the company's response to it and their response to the related party issues, the conflict of interest in regards of this New Jersey-based entity that was co-owned, referring people to Clover Health. It was accounted for something like 8,600 out of their 55,000 existing members. Not nominal, but also not everybody. If you just read the short report, they would make it out to seem that there are no genuine people who are using Clover Health as a Medicare Advantage Plan. If you read the company's report, it would make it seemed like everything they're doing is with the patient or the user in mind and they're doing everything by the book. I think reality, as with many things, is somewhere in the gray area.

Hall: It is. Yeah, I agree. I would encourage people, look up Hindenburg Research, Clover Health short, and you'll get a linking Google right to it. Then I encourage you to go to Clover Health Investor Relations page blog, not the Clover Health blog, but their Investor Relations blog to read the response. Then you can start forming your own thoughts on this.

Flippen: This is a fun episode to do. I know that we didn't have time to talk about everything that we wanted to talk about here. If you gave us time, we'd talk for three hours and still not get a quarter of the way through this business. It's such a challenging business to analyze. I hope that we've done justice to both sides of this argument thus far. I think it's definitely one to keep your eye on. I'm interested in it. I am not touching this right now as an investor with a 10-foot pole. However, I'm extremely interested in what I could do in the future, so I'm definitely keeping my eye on it. But Jason, before we head out, is there anything that you wanted to really hit home, wanted to add before we close out this podcast?

Hall: Yeah. Just a couple of things I want to hit on. No. 1, Clover is leading with their technology, as they say, a differentiator. We don't know that is the truth. One thing from the short report somebody pointed out, well, Cigna's got 20,000 programmers. [laughs] How are these guys that have had constant turnover in their technology suite and a handful of coders, how have they figured out the formula? My counter to that is, well, Emily and I don't cover this industry and we talked about the fact that some time, somebody from outside the industry can find the disruption. I would say don't sell them too short just because somebody else is throwing more money and more dollars at something. They're throwing money and dollars at things the same way they've been doing it for forever. I think that's important to remember. The other thing, too, is I think, again, assuming that all of the allegations of illegal behavior turn out to be overblown, I think even if these guys don't have a magic bullet, because it's such a small business, and because there is so much growth happening, it could still turn out to be a great investment over a five or 10-year period. I think that, again, that truth is somewhere in the middle. I'm definitely in the wait-and-see camp right now. I want to give this some time to play out before I consider. But if I own shares, I don't know that I'd be so quick to sell it either. I don't know if I'd want to just move on that quickly.

Flippen: Well, I agree. Well, Jason, thank you so much for joining today, and I apologize. You probably spent 10X more time on prepping this podcast than you initially planned to when I reached out to you about joining today, so I really appreciate it.

Hall: I'm going to just sneak in a little bit of insider baseball here. Usually, what happens when I'm on with Emily, folks, is she does a ton of prep, and I'm that kid from school that would always show up unprepared for the test and just find the smartest kid in the room, which is usually Emily, and talk them into letting me look over their notes. I actually researched a lot for this one. It was fun. It was a lot of fun.

Flippen: Jason is selling himself short. What actually happens is I use our pre-planning document as essentially a notepad where I write down 20 pages of unnecessary details, [laughs] and then have no ability to really determine what's important to speak about, which leads to 40-minute long Industry Focus episodes that are mostly me rambling without any intended consequence. [laughs] You're selling yourself short, Jason.

Hall: No. The queen of Cogent, you are fantastic, Emily. This was fun.

Flippen: Yes, we'll have to do it again sometime. [laughs]

Hall: Sounds great.

Flippen: Listeners, that does it for this episode of Industry Focus. If you have any questions or just want to reach out, feel free to shoot us an email at [email protected] or tweet at us @MFIndustryFocus.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned. So don't buy or sell anything based solely on what you hear. Thanks to Tim Sparks, for his work behind the screen today. For Jason Hall, I'm Emily Flippen, thanks for listening and Fool on!