National Healthcare Company’s Alleged Prioritization of Enrollment-Fueled Profits Over Care Caught in Regulators’ Snares, Resulting in Top Five Worst-Performing IPOs of 2021
DENVER–InnovAge (NASDAQ: INNV), a national healthcare company providing medical care to ailing seniors, allegedly violated federal securities laws when it went public in March of 2021, as detailed by a shareholders lawsuit filed Tuesday.
The filing describes InnovAge’s singular focus on aggressive enrollment for profit at the expense of healthcare for senior citizens whose needs went unaddressed. On average, InnovAge received a fixed amount of $95,000 a year per enrolled patient, meaning that the fastest and simplest way to grow revenue was to increase enrollment. Yet, unbeknownst to investors, InnovAge’s rapid enrollment growth resulted not because of participant satisfaction and health outcomes but at the expense of dissatisfaction and adverse results.
InnovAge centers suffered from severe staff shortages, high caseloads and significant delays and lack of contracts from specialists, lack of coordination with caregivers, and insufficient training on the use of medical records. Nevertheless, InnovAge focused its resources on hiring sales and marketing staff and ignored substandard home and clinical care for its participants. When faced with government audits, InnovAge executives allegedly instructed staff to “clean up” or delete hundreds of records for medical care that were over 180 days outstanding. As a result, in just nine months, InnovAge is facing penalties in three states.
“InnovAge systemically failed to meet the healthcare needs of seniors, in a highly regulated industry that demands holistic care from providers,” said Julie Goldsmith Reiser, Partner at Cohen Milstein Sellers & Toll and Plaintiffs’ attorney. “Upon its conversion to a for-profit entity, InnovAge touted itself as the largest PACE provider in the United States and continued to prioritize enrollment, even while failing at its primary purpose of serving the elder community. This approach harmed patients and did so at the expense of investors that believed InnovAge could deliver on its promise of quality care in a model capable of expansion.”
In May of 2016, InnovAge became the first Program of All-Inclusive Care for the Elderly (“PACE”) organization to achieve for-profit status. As detailed in a recent MarketWatch report, its prior C.E.O., Maureen Hewitt, led the company’s aggressive lobbying campaign to transform from a regional nonprofit to the first national for-profit PACE Provider. PACE, a joint Medicare and Medicaid program, provides comprehensive, community-based medical and social services to frail and elderly people. As Hewitt and InnovAge’s private equity leadership prioritized growth in enrollment, the goal was to advance InnovAge’s vision of rapid growth by providing healthcare to the burgeoning senior population in the United States, a massive market on which InnovAge was poised to capitalize.
During its IPO, led by InnovAge directors including Jeb Bush and Edward Kennedy Jr. as well as the largest investment banks, InnovAge boasted to investors that its meteoric growth was due to its provision of comprehensive care for vulnerable seniors, even though InnovAge was consistently failing to provide timely specialist care and adequate home health services, according to the complaint filed Tuesday in United States District Court in Colorado.
InnovAge is facing a number of governmental investigations. Last September, the Centers for Medicare and Medicaid Services (‘CMS’) notified the company that the government agency was suspending enrollment at InnovAge’s Sacramento, California center after an audit of the facility found that InnovAge “substantially failed” to “provide to its participants medically necessary items and services that are covered PACE services.” InnovAge also revealed last year that CMS and the state of Colorado had decided to suspend enrollment at InnovAge’s Colorado facilities, and the company is currently under investigation by the Colorado Attorney General.
In just the first six months of 2022, CMS has suspended enrollment in existing centers or canceled agreements for new centers in Florida, Indiana, New Mexico and San Bernadino, California.
The class action lawsuit filed Tuesday is brought on behalf of court appointed lead plaintiffs El Paso Firemen & Policemen’s Pension Fund, the San Antonio Fire & Police Pension Fund and the Indiana Public Retirement System.
The plaintiffs bring claims under the Securities Exchange Act of 1934 and the Securities Act of 1933, individually and on behalf of all persons who purchased or otherwise acquired InnovAge common stock between March 4, 2021 and December 22, 2021 in connection with the Company’s initial public offering.
In addition to InnovAge, CEO Maureen Hewitt and Directors Jeb Bush and Ted Kennedy, the lawsuit also names CFO Barbara Gutierrez, two private equity firms and InnovAge’s principal shareholders, Welsh, Carson, Anderson & Stowe (“WCAS”) and Apax Partners (“Apax”), the underwriters in the Company’s IPO, and members of the Company’s Board of Directors.
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