Investing in Healthcare

On 7 January 2021 Clover Health became a public company. A Medicare Advantage plan founded in New Jersey by Vivek Garipalli, it had raised about $925 million privately on the promise that data science and a software tool for physicians, the Clover Assistant, would let it manage seniors' care better than incumbents. It listed by merging with Social Capital Hedosophia Holdings III, a special purpose acquisition company sponsored by Chamath Palihapitiya, at a pro forma equity value of about $3.7 billion, with about $1.2 billion of gross proceeds including a ~$400 million private placement (reported). Four weeks later, on 4 February, the short seller Hindenburg Research published a report saying Clover had not disclosed a Justice Department investigation. The SEC opened an inquiry, the DOJ investigation was confirmed, and in June the shares spiked to about $28.85 intraday as a meme stock before sliding below $1 in 2023 (reported). Clover lost about $588 million in 2021.

Clover was one of a class. Cano Health, a Miami primary-care group founded by Dr Marlow Hernández with one clinic in 2009, merged with Barry Sternlicht's Jaws Acquisition in June 2021 at an implied enterprise value of about $4.4 billion, borrowed about $1 billion to buy practices, and filed for Chapter 11 in February 2024; it emerged that June as a smaller, Florida-only company owned by its former lenders. Babylon Health, founded in London in 2013 by Ali Parsa, had raised $550 million in 2019 at a valuation above $2 billion on the promise of AI-led primary care. It listed through a SPAC in October 2021 at about $4.2 billion, bet the company on full-risk US Medicaid and Medicare contracts, grew revenue to about $1.1 billion in 2022, and collapsed in August 2023; its UK operations were sold to eMed and its US units went into Chapter 7. Clover survived, rebuilt around a wide-network plan and its software, and by 2026 expected its first year of GAAP profit. This chapter explains who funds healthcare companies, how the 2020–21 cycle formed and broke, and how experienced investors underwrite a business in this sector.