“Seniors today are different than they were 20-plus years ago—they believe technology can help solve healthcare challenges,” Kao wrote in a letter to potential investors.
“There is a convergence occurring between traditional healthcare coverage and delivery with senior lifestyle needs and the adoption of technology.”
That letter was part of a prospectus to go public from Alignment Healthcare Inc., an Orange-based Medicare Advantage insurance provider that Kao began in 2013.
Kao, who is in a growing industry where 10,000 Baby Boomers daily turn 65 years old, has assembled a team deep in knowledge about Medicare insurance.
A who’s who of Wall Street are underwriting the initial public offering, which could result in a market capitalization in the billions.
While the 59-year-old Kao wasn’t available last week to speak with the Business Journal due to IPO quiet period restrictions, he’s previously said he started the company after seeing how America’s fragmented healthcare system treated his mother, who suffered a heart attack.
“The care inside the hospital was fantastic,” Kao recalled after being honored
“If I wasn’t involved as a navigator, the likelihood of her going back into the hospital was pretty high.”
Industry data
Kao has more than two decades in the healthcare system.
He and other investors in 2006 acquired Downey-based CareMore Medical Enterprises Inc., where he became president. It was sold for about $800 million in 2011 to Indianapolis-based WellPoint Inc.
Since beginning Alignment, he’s raised $375 million from private equity investors like General Atlantic, Warburg Pincus and Fidelity Investments. Each firm has more than 5% of the company’s shares, according to the prospectus. The filing didn’t indicate how much Kao owns of the company.
The company listed a $100 million placeholder figure as the amount it is trying to raise.
One potential drawback to investors could be its $144.2 million in long-term debt, the prospectus said; it also reported cash of $207.3 million as of Dec. 31.
“Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged,” the prospectus said.
The company posted a net loss of $22.9 million last year, an improvement over 2019 when it lost $44.7 million.
More losses are possible. Alignment’s prospectus notes “aggregate costs will increase substantially in the foreseeable future as we expect to invest heavily in increasing our member base, expanding our operations, hiring additional employees and operating as a public company.”
Alignment employed 775 people at the end of last year.
The Advantage
Medicare Advantage plans, like the ones Alignment offers, are required to cover traditional Medicare expenses such as doctor visits and hospital costs. They are also increasingly popular because they offer extra coverage for things such as vision, dental and hearing exams, and prescription drugs.
Alignment said the legacy healthcare system relies on payment models that compensate healthcare providers based on the volume of services delivered rather than the quality of the care they provide.
By contrast, Alignment said it has developed a proprietary technology platform called Alignment Virtual Application that is specifically for “end-to-end” coordination of senior care.
The company’s edge is to provide constant monitoring of elderly, particularly high-risk patients who have complex medical problems.
Alignment patients are monitored wirelessly at their home for measurements in items like weight, heart rate, blood sugar and blood pressure information. The platform then uses this data to triage each member every 30 minutes, 24 hours a day—identifying any signs for needed immediate intervention or changes in care—from oxygen deficiencies to lapses in medication pickups.
The platform, which is designed to scale, has more than 100,000 unique data signals per member that identify changing care needs in real time to provide care when and where seniors need it most.
The goal is to reduce the average length of hospital stays for its patients and continue to manage care after discharge, whether at home, a rehabilitation center, or another facility.
“We have designed our platform to be consumer-centric, to listen to and understand our members’ needs, and to delight our senior consumers,” the prospectus said. “We believe that our primary role is to act as a trusted advocate on behalf of seniors and to design and offer healthcare plans that meet their unique healthcare and lifestyle needs.”
Doubling in Two Years
Alignment has about 81,500 health plan members in 22 markets across California, North Carolina and Nevada, almost double the number it had in 2019.
That number represents a 3% share among seniors in its current markets where there are an estimated 5.5 million Medicare eligible seniors and approximately 2.8 million Medicare Advantage enrollees, with a total addressable market of approximately $71 billion.
Last October, Fountain Valley’s MemorialCare Health System, Orange County’s largest nonprofit health system, said it would join Alignment’s provider network at the start of 2021.
The partnership means that Medicare beneficiaries who enroll in select plans from Alignment will have access to MemorialCare’s 200 hospitals, health centers and urgent care locations and may seek “in-network” care from physicians associated with MemorialCare Medical Foundation.
The Alignment prospectus said it plans to expand nationally, focusing on markets with significant senior populations where it can replicate its model.
The national market promises to be huge with the ongoing retirement of Baby Boomers.
Net Medicare spending was about $630 billion in 2019 and expected to double to more than $1.3 trillion by 2029, representing an 8% compound annual growth rate, the prospectus said.
With seniors increasingly choosing Medicare Advantage over traditional Medicare, the $271 billion Medicare Advantage market is projected to grow at a rate of approximately 11% annually to over $500 billion by 2025.
Simple Model
Alignment ranked No. 4 among OC’s fastest-growing large private companies in 2020, with two-year revenue growth of 59%, according to the Business Journal’s September rankings.
The company generated $959.2 million in revenue in 2020, up 27% from the prior year. Revenue at Alignment has seen a compound annual growth rate of 40% since its founding in 2013 through the end of 2020.
Kao has long been aiming for a billion-dollar company. In 2019, he told the audience at the Business Journal’s Innovator of the Year Awards ceremony that the business model isn’t complex.
“Take care of every patient [like] your mom or dad. It’s so simple,” he said.
