FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Statements made in this Annual Report that are not statements of historical fact, including statements about our beliefs and expectations, are forward-looking statements, and should be evaluated as such. Forward-looking statements include any statement or information concerning possible or assumed future results of operations, our business plan and strategies, and our operational and financial outlook, estimates, projections, and guidance. These statements often include words such as “anticipate,” “expect,” “plan,” “believe,” “intend,” “project,” “forecast,” “estimates,” “projections,” “should,” “might,” “may,” “will” and other similar expressions. Such forward-looking statements are subject to various risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Factors that might materially affect such forward-looking statements include: a lack of acceptance or slow adoption of our business model; our ability to retain existing consumers and expand consumer enrollment; our ability to obtain and accurately assess, code, and report Individual and Family Plan (“IFP”) and Medicare Advantage (“MA”) risk adjustment factor scores for consumers; our ability to contract with care providers and arrange for the provision of quality care; our ability to accurately estimate our medical expenses, effectively manage our costs and claims liabilities or appropriately price our products and charge premiums; our ability to obtain claims information timely and accurately; the impact of the ongoing COVID-19 pandemic on our business and results of operations; the risks associated with our reliance on third-party providers to operate our business; the impact of modifications or changes to the U.S. health insurance markets; our ability to manage the growth of our business; our ability to operate, update or implement our technology platform and other information technology systems; our ability to retain key executives; our ability to successfully pursue acquisitions and integrate acquired businesses; the occurrence of severe weather events, catastrophic health events, natural or man-made disasters, and social and political conditions or civil unrest; our ability to prevent and contain data security incidents and the impact of data security incidents on our members, patients, employees and financial results; our ability to comply with requirements to maintain effective internal controls; and the other factors set forth under the heading Item 1A – “Risk Factors” in this Annual Report.
The preceding list is not intended to be an exhaustive list of all of the factors that might affect our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Other sections of this Annual Report may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
You should not rely upon forward-looking statements as predictions of future events. Our forward-looking statements speak only as of the date of this Annual Report and, although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in such forward-looking statements will be achieved or occur at all. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this release to conform these statements to actual results or to changes in our expectations.
SUMMARY OF RISK FACTORS
Investing in our securities involves a high degree of risk. You should carefully consider all information in this Annual Report, including our financial statements and the related notes included elsewhere in this report prior to investing in our securities. The following is only a summary of the principal risks that may materially adversely affect our business, financial condition, results of operations and cash flows. The following should be read in conjunction with the more complete discussion of the risk factors we face, which are discussed more fully in Item 1A – Risk Factors.
Risks Related to Our Business
•The ongoing COVID-19 pandemic has adversely affected, and may continue to adversely affect, our business and results of operations;
•If our business model is not accepted or is slow to be adopted by the healthcare industry, our growth could be impacted and our business and results of operations could be adversely affected;
•We have incurred net losses each year since our inception, and we may not be able to achieve or maintain profitability in the future;
•Failure to appropriately set premiums or effectively manage our costs could negatively affect our profitability, results of operations and cash flows;
•If we are unable to retain existing consumers, expand consumer enrollment, diversify and expand our portfolio of products and services, or manage such growth effectively, our business and results of operations may be adversely affected;
•Our membership is concentrated in certain geographic areas and amongst certain populations, exposing us to unfavorable changes in local benefit costs, reimbursement rates, competition and economic conditions in those areas or affecting those populations;
•We operate in competitive markets within a highly competitive industry;
•Despite recent improvements to our claims processing operations and procedures, our technology platform may not operate properly or as we expect it to operate. We must continue to develop and maintain our technology platform to grow our business;
•We may not be able to maintain the accuracy, integrity or availability of our data. Security incidents or breaches, loss of data and other disruptions to our or our third-party service providers’ systems, information technology infrastructure, and networks could compromise sensitive or legally protected information related to our business or consumers, disrupt our business operations, and expose us to liability, which could adversely affect our business and our reputation;
•We rely on various third-party service providers to support the operation of our business. If these service providers fail to meet their contractual obligations to us or comply with applicable laws or regulations, or if we are unable to renew our contracts with them, our business may be adversely affected;
•If we are required to maintain higher statutory capital levels or if we are subject to additional capital reserve requirements as we pursue new business opportunities, our balance sheet may be adversely affected;
•If we fail to offer high-quality customer support in our business, our reputation and our ability to maintain or expand membership or attract Care Partners and third-party payors could suffer, which could adversely affect our results of operations;
•Medical liability claims made against us in the future could cause us to incur significant expenses and pay significant damages if not covered by insurance;
•We compete for physicians and other healthcare personnel for our business, and shortages of qualified personnel or other factors could increase our labor costs and adversely affect our revenue, profitability and cash flows;
•Our executive officers, directors and holders of 5% or more of our common stock have substantial control over us, which may limit your ability to influence the outcome of important transactions;
•Our level of indebtedness, including the restrictions included in the Credit Agreement (as defined below), may reduce our financial flexibility, affect our ability to operate our business, and divert cash flow from operations for debt service;
Risks Related to Legal Proceedings and Governmental Regulations
•Modifications or changes to the U.S. health insurance markets, including as a result of legislation, could adversely affect our business and operating results;
•The ongoing challenges and changes to the ACA (as defined below) and related laws and regulations, as well as our inability to predict the ultimate impact of the CARES Act (as defined below) and other stimulus legislation, or the effect that such legislation and other governmental responses intended to assist providers in responding to COVID-19, may adversely affect our business, cash flows, financial condition and results of operations;
•Our use and disclosure of PII and PHI (as defined below) is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm and, in turn, a material adverse effect on our client base and revenue;
•We are subject to a pending putative securities class action lawsuit and have received a shareholder demand to inspect books and records;
Risks Related to Our Financial Statements
•We identified material weaknesses in our internal controls over financial reporting and may identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, which may result in material misstatements of our consolidated financial statements or cause us to fail to meet our periodic reporting obligations;
•Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant portion of these assets would negatively affect our results of operations;
Risks Related to Ownership of Our Common Stock
•Our quarterly operating results fluctuate and may fall short of prior periods, our projections or the expectations of securities analysts or investors, which could materially adversely affect our stock price; and
•Issuance of shares of our common stock in connection with the conversion of our outstanding Preferred Stock would cause substantial dilution, which could materially affect the trading price of our common stock and earnings per share. Holders of our Preferred Stock own a significant percentage of our capital stock and may be able to influence certain corporate matters.
ITEM 1. BUSINESS
Bright Health Group, Inc. (“Bright Health,” “we,” “our,” “us,” or the “Company”) was founded in 2015 to transform healthcare. Our mission of Making Healthcare Right. Together. is built upon the belief that by connecting and aligning the best local resources in healthcare delivery with the financing of care, we can drive a superior consumer experience, reduce systemic waste, lower costs, and optimize clinical outcomes. We believe that for too long, U.S. healthcare, primarily designed to cater to employers and large institutions, has failed the consumer through unnecessary complexity, a lack of transparency, and rising costs. We are making healthcare simple, personal, and affordable.