Case 1:22-cv-00101 Document 1 Filed 01/06/22 Page 1 of 29 PageID #: 1
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`
`VICTORINO MARQUEZ, Individually and
`On Behalf of All Others Similarly Situated,
`
`
`Plaintiff,
`
`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF NEW YORK
`
`
`Case No.
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`
`CLASS ACTION COMPLAINT
`
`
`JURY TRIAL DEMANDED
`
`
`
`v.
`
`
`BRIGHT HEALTH GROUP, INC., G.
`MIKE MIKAN, CATHERINE R. SMITH,
`JEFFREY J. SCHERMAN, ROBERT J.
`SHEEHY, KEDRICK D. ADKINS JR.,
`NAOMI ALLEN, JEFFREY FOLICK,
`LINDA GOODEN, JEFFERY R. IMMELT,
`MANUEL KADRE, STEPHEN KRAUS,
`MOHAMAD MAKHZOUMI, and ADAIR
`NEWHALL,
`
`
`Defendants.
`
`
`
`
`
`Plaintiff Victorino Marquez (“Plaintiff”), individually and on behalf of all others similarly
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`situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s complaint against Defendants, alleges
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`the following based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, and
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`information and belief as to all other matters, based upon, inter alia, the investigation conducted
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`by and through Plaintiff’s attorneys, which included, among other things, a review of the
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`Defendants’ public documents, conference calls and announcements made by Defendants, United
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`States (“U.S.”) Securities and Exchange Commission (“SEC”) filings, wire and press releases
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`published by and regarding Bright Health Group, Inc. (“Bright Health” or the “Company”),
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`analysts’ reports and advisories about the Company, and information readily obtainable on the
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`Internet. Plaintiff believes that substantial additional evidentiary support will exist for the
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`allegations set forth herein after a reasonable opportunity for discovery.
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`NATURE OF THE ACTION
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`1.
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`This is a federal securities class action on behalf of a class consisting of all persons
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`and entities other than Defendants that purchased or otherwise acquired: (a) Bright Health common
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`stock pursuant and/or traceable to the Offering Documents (defined below) issued in connection
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`with the Company’s initial public offering conducted on or about June 24, 2021 (the “IPO” or
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`“Offering”); and/or (b) Bright Health securities between June 24, 2021 and November 10, 2021,
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`both dates inclusive (the “Class Period”). Plaintiff pursues claims against the Defendants under
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`the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the
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`“Exchange Act”).
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`2.
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`Bright Health is an integrated care delivery company that engages in the delivery
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`and financing of health insurance plans in the U.S. The Company operates in two segments—
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`NeueHealth and Bright HealthCare. Bright Health offers individual and family, Medicare, and
`
`employers insurance plans. The Company also operates 28 managed and affiliated risk-bearing
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`primary care clinics.
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`3.
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`On May 19, 2021, Bright Health filed a registration statement on Form S-1 with the
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`SEC in connection with the IPO, which, after several amendments, was declared effective by the
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`SEC on June 23, 2021 (the “Registration Statement”).
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`4.
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`On or about June 24, 2021, pursuant to the Registration Statement, Bright Health’s
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`common stock began trading on the New York Stock Exchange (“NYSE”) under the trading
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`symbol “BHG”.
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`5.
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`On June 25, 2021, Bright Health filed a prospectus on Form 424B4 with the SEC
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`in connection with the IPO, which incorporated and formed part of the Registration Statement (the
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`“Prospectus” and, together with the Registration Statement, the “Offering Documents”).
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`6.
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`Pursuant to the Offering Documents, Bright Health conducted the IPO, selling
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`approximately 51 million shares of its common stock to the public at the Offering price of $18.00
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`per share, for approximate proceeds of $887 million to the Company after applicable underwriting
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`discounts and commissions, and before expenses.
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`7.
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`The Offering Documents were negligently prepared and, as a result, contained
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`untrue statements of material fact or omitted to state other facts necessary to make the statements
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`made not misleading and were not prepared in accordance with the rules and regulations governing
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`their preparation. Additionally, throughout the Class Period, Defendants made materially false
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`and misleading statements regarding the Company’s business, operations, and compliance
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`policies. Specifically, the Offering Documents and Defendants made false and/or misleading
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`statements and/or failed to disclose that: (i) Bright Health had overstated its post-IPO business and
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`financial prospects; (ii) the Company was ill-equipped to handle the impact of COVID-19-related
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`costs; (iii) the Company was experiencing a decline in premium revenue because of a failure to
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`capture risk adjustment on newly added lives; (iv) all the foregoing was reasonably likely to have
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`a material negative impact on Bright Health’s business and financial condition; and (v) as a result,
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`the Offering Documents and Defendants’ public statements throughout the Class Period were
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`materially false and/or misleading and failed to state information required to be stated therein.
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`8.
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`On November 11, 2021, Bright Health reported its third quarter 2021
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`results. Among other results, Bright Health reported earnings per share (“EPS”) of -$0.48 as
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`calculated under U.S. generally accepted accounting principles (“GAAP”), missing consensus
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`estimates by $0.31. Bright Health also reported a sharp rise in in the Company’s medical cost ratio
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`(“MCR”), advising investors that its MCR “for the third quarter of 2021 was 103.0%, which
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`includes a 540 basis point unfavorable impact from COVID-19 related costs and a 900 basis point
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`unfavorable impact primarily from a cumulative reduction in premium revenue due to an inability
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`to capture risk adjustment on newly added lives.”
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`9.
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`On this news, Bright Health’s stock price fell $2.36 per share, or 32.33%, to close
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`at $4.94 per share on November 11, 2021.
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`10.
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`As of the time this Complaint was filed, the price of Bright Health common stock
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`continues to trade below the $18.00 per share Offering price, damaging investors.
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`11.
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`As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
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`in the market value of the Company’s securities, Plaintiff and other Class members have suffered
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`significant losses and damages.
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`JURISDICTION AND VENUE
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`12.
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`The claims asserted herein arise under and pursuant to Sections 11 and 15 of the
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`Securities Act (15 U.S.C. §§ 77k and 77o), and Sections 10(b) and 20(a) of the Exchange Act (15
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`U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17 C.F.R. §
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`240.10b-5).
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`13.
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`This Court has jurisdiction over the subject matter of this action pursuant to 28
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`U.S.C. § 1331, Section 22 of the Securities Act (15 U.S.C. § 77v), and Section 27 of the Exchange
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`Act (15 U.S.C. § 78aa).
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`14.
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`Venue is proper in this Judicial District pursuant to Section 28 U.S.C. § 1391(b)
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`and Section 27 of the Exchange Act (15 U.S.C. § 78aa(c)). Pursuant to the Company’s most recent
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`quarterly report filed with the SEC, as of November 4, 2021, there were 628,315,180 shares of the
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`Company’s common stock outstanding. Bright Health securities trade on the NYSE. Accordingly,
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`there are presumably hundreds, if not thousands, of investors in Bright Health securities, some of
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`whom undoubtedly reside in this Judicial District.
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`15.
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`In connection with the acts alleged in this Complaint, Defendants, directly or
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`indirectly, used the means and instrumentalities of interstate commerce, including, but not limited
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`to, the mails, interstate telephone communications, and the facilities of the national securities
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`markets.
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`PARTIES
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`16.
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`Plaintiff, as set forth in the attached Certification, purchased or otherwise acquired
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`Bright Health common stock pursuant and/or traceable to the Offering Documents issued in
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`connection with the IPO, and/or Bright Health securities during the Class Period, and suffered
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`damages as a result of the federal securities law violations and false and/or misleading statements
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`and/or material omissions alleged herein.
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`17.
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`Defendant Bright Health is a Delaware corporation with principal executive offices
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`located at 8000 Norman Center Drive, Suite 1200, Minneapolis, Minnesota 55437. The
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`Company’s common stock trades in an efficient market on the NYSE under the trading symbol
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`“BHG”.
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`18.
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`Defendant G. Mike Mikan (“Mikan”) has served as Bright Health’s President, Chief
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`Executive Officer, and a Director of the Company at all relevant times. Mikan is also Vice
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`Chairman of the Company. Mikan signed or authorized the signing of the Registration Statement
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`filed with the SEC.
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`19.
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`Defendant Catherine R. Smith (“Smith”) has served as Bright Health’s Chief
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`Financial and Administrative Officer at all relevant times. Smith signed or authorized the signing
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`of the Registration Statement filed with the SEC.
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`20.
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`Defendants Mikan and Smith are sometimes referred to herein collectively as the
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`“Exchange Act Individual Defendants.”
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`21.
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`The Exchange Act Individual Defendants possessed the power and authority to
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`control the contents of Bright Health’s SEC filings, press releases, and other market
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`communications. The Exchange Act Individual Defendants were provided with copies of Bright
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`Health’s SEC filings and press releases alleged herein to be misleading prior to or shortly after
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`their issuance and had the ability and opportunity to prevent their issuance or to cause them to be
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`corrected. Because of their positions with Bright Health, and their access to material information
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`available to them but not to the public, the Exchange Act Individual Defendants knew that the
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`adverse facts specified herein had not been disclosed to and were being concealed from the public,
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`and that the positive representations being made were then materially false and misleading. The
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`Exchange Act Individual Defendants are liable for the false statements and omissions pleaded
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`herein.
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`22.
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`Bright Health and the Exchange Act Individual Defendants are sometimes referred
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`to herein collectively as the “Exchange Act Defendants.”
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`23.
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`Defendant Jeffrey J. Scherman (“Scherman”) served as Bright Health’s Chief
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`Accounting Officer at the time of the IPO. Scherman signed or authorized the signing of the
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`Registration Statement filed with the SEC.
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`24.
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`Defendant Robert J. Sheehy (“Sheehy”) has served as Bright Health’s Chairman at
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`all relevant times. Sheehy signed or authorized the signing of the Registration Statement filed
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`with the SEC.
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`25.
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`Defendant Kedrick D. Adkins Jr. (“Adkins”) has served as a Director of Bright
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`Health at all relevant times. Adkins signed or authorized the signing of the Registration Statement
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`filed with the SEC.
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`26.
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`Defendant Naomi Allen (“Allen”) has served as a Director of Bright Health at all
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`relevant times. Allen signed or authorized the signing of the Registration Statement filed with the
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`SEC.
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`27.
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`Defendant Jeffrey Folick (“Folick”) served as a Director of Bright Health at the
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`time of the IPO. Folick signed or authorized the signing of the Registration Statement filed with
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`the SEC.
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`28.
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`Defendant Linda Gooden (“Gooden”) has served as a Director of Bright Health at
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`all relevant times. Gooden signed or authorized the signing of the Registration Statement filed
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`with the SEC.
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`29.
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`Defendant Jeffery R. Immelt (“Immelt”) has served as a Director of Bright Health
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`at all relevant times. Immelt signed or authorized the signing of the Registration Statement filed
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`with the SEC.
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`30.
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`Defendant Manuel Kadre (“Kadre”) has served as a Director of Bright Health at all
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`relevant times. Kadre signed or authorized the signing of the Registration Statement filed with the
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`SEC.
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`31.
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`Defendant Stephen Kraus (“Kraus”) has served as a Director of Bright Health at all
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`relevant times. Kraus signed or authorized the signing of the Registration Statement filed with the
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`SEC.
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`32.
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`Defendant Mohamad Makhzoumi (“Makhzoumi”) has served as a Director of
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`Bright Health at all relevant times. Makhzoumi signed or authorized the signing of the Registration
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`Statement filed with the SEC.
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`33.
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`Defendant Adair Newhall (“Newhall”) served as a Director of Bright Health at the
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`time of the IPO. Newhall signed or authorized the signing of the Registration Statement filed with
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`the SEC.
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`34.
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`The Exchange Act Individual Defendants and Defendants Scherman, Sheehy,
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`Adkins, Allen, Folick, Gooden, Immelt, Kadre, Kraus, Makhzoumi, and Newhall are sometimes
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`referred to herein collectively as the “Securities Act Individual Defendants.”
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`35.
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`As directors, executive officers, and/or major shareholders of the Company, the
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`Securities Act Individual Defendants participated in the solicitation and sale of Bright Health
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`common stock in the IPO for their own benefit and the benefit of the Company. The Securities
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`Act Individual Defendants were key members of the IPO working group and executives of the
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`Company who pitched investors to purchase the shares sold in the IPO.
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`36.
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`Bright Health and the Securities Act Individual Defendants are sometimes referred
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`to herein collectively as the “Securities Act Defendants.”
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`37.
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`The Exchange Act Defendants and the Securities Act Defendants are sometimes
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`collectively, in whole or in part, referred to herein as “Defendants.”
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`SUBSTANTIVE ALLEGATIONS
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`Background
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`38.
`
`Bright Health is an integrated care delivery company that engages in the delivery
`
`and financing of health insurance plans in the U.S. The Company operates in two segments—
`
`NeueHealth and Bright HealthCare. Bright Health offers individual and family, Medicare, and
`
`employers insurance plans. The Company also operates 28 managed and affiliated risk-bearing
`
`primary care clinics.
`
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`39.
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`On May 19, 2021, Bright Health filed the Registration Statement on Form S-1 with
`
`the SEC in connection with the IPO, which, after several amendments, was declared effective by
`
`the SEC on June 23, 2021.
`
`40.
`
`On or about June 24, 2021, pursuant to the Registration Statement, Bright Health’s
`
`common stock began trading on the NYSE under the trading symbol “BHG”.
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`41.
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`On June 25, 2021, Bright Health filed the Prospectus on Form 424B4 with the SEC
`
`in connection with the IPO, which incorporated and formed part of the Registration Statement.
`
`42.
`
`Pursuant to the Offering Documents, Bright Health conducted the IPO, selling
`
`approximately 51 million shares of its common stock to the public at the Offering price of $18.00
`
`per share, for approximate proceeds of $887 million to the Company after applicable underwriting
`
`discounts and commissions, and before expenses.
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`Materially False and Misleading Statements Issued in the Offering Documents
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`43.
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`The Offering Documents widely touted Bright Health’s historical operating and
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`financial results following the onset of the COVID-19 pandemic, stating, inter alia:
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`Since its inception, Bright Health has proven, expanded, and enhanced our aligned
`enablement model. As of April 2021, the 28 managed and affiliated risk-bearing
`primary care clinics in our NeueHealth business care for nearly 75,000 unique
`patients, approximately 30,000 of which are served through value-based
`arrangements, with a strong Net Promoter Score (NPS) of 78. In addition to our
`directly managed and affiliated clinics, NeueHealth manages care for an additional
`33 clinics through its Value Services Organization. From serving 10,765 consumers
`in a single state and product line just five years ago, our Bright HealthCare business
`now serves approximately 623,000 consumers, including approximately 515,000
`commercial consumers and approximately 108,000 Medicare Advantage
`consumers, with a national presence in 14 states and 99 core-based statistical areas,
`which we define as markets. We generated over $1.2 billion in total revenue in
`2020, as well as $874.6 million in total revenue for the three months ended March
`31, 2021, and we are well-positioned to continue achieving significant growth
`across our diversified enterprise. Led by a seasoned management team built for
`scale — with senior leaders previously holding executive leadership positions at
`Fortune 100 companies across multiple sectors, including healthcare, consumer
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`retail, and technology — Bright Health is building the national, integrated
`healthcare system of the future.
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`
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`44.
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`In addition, the Offering Documents stated that Bright Health was “built on
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`alignment,” touting, in relevant part:
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`Bright Health has created a new alignment model built upon three core principles
`applied consistently but flexed accordingly to “meet our Care Partners where they
`are”:
`
`
` Clinical Alignment — We believe that alignment in healthcare starts with
`those responsible for delivering care locally. As each of our Care Partners
`has a unique set of clinical tools and capabilities to manage population
`health risk, our adaptable model lends them the support necessary to
`enhance local healthcare delivery and strengthen existing provider-
`consumer relationships. As Bright Health enters into each Care Partner
`relationship, we endeavor to understand that Care Partner’s existing clinical
`needs, tools, and capabilities. We then collaborate to develop a Joint Model
`of Health. This robust playbook outlines the division of accountability and
`supports Care Partners with evidence-based best practices to enhance
`outcomes, lower costs, and drive a consistent experience for consumers.
`
` Financial Alignment — We have developed value-based payment
`structures that enable us to take a staged approach to financial alignment
`with our Care Partners. We first carefully consider each Care Partner’s
`ability and interest to take varying levels of population health risk. Whether
`through shared savings contracts, capitated arrangements, or other
`contractual incentives, we work collaboratively with our Care Partners to
`determine and structure the best financial alignment model for each local
`market and individual organization. Once aligned, we then work with our
`Care Partners over time to optimize the relationship and prepare them for
`success under more advanced models of value-based care.
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`***
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`[. . .] Bright Health’s alignment model can adapt to the nuances of local markets
`while continuing to deliver MCR improvement as our markets mature. As shown
`below, our MCR performance in states with IFP product offerings, as grouped by
`cohort based upon number of years operating in a given state, demonstrates a
`declining average MCR from 92.1% in the first year to 66.4% in our most mature
`markets by the fourth year.
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`45.
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`Further, in discussing the Company’s competitive advantages, the Offering
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`Documents stated, in relevant part:
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`We have a number of critical competitive advantages that we believe will propel
`Bright Health’s success:
`
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` We have a differentiated business model that integrates the delivery and
`financing of healthcare.
` We have a national, diversified service model.
` We have a purpose-built consumer and provider technology platform.
` We have a flexible, differentiated model able to meet the needs of any
`market.
` We have a seasoned management team built for scale.
` We have a multi-pronged organic and inorganic growth strategy.
`
`
`46.
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`Next, in discussing the Company’s market opportunity, the Offering Document
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`stated, in relevant part:
`
`We have a tremendous addressable market opportunity, which we estimate will
`reach approximately $4.2 trillion in 2021, and we expect our addressable market
`opportunity to continue to expand.
`
`
` Growing Retail Market Segments (Medicare, IFP, etc.). We believe the
`Medicare Advantage market is the most dynamic segment of U.S. health
`insurance today. It is estimated that the 5-year CAGR from 2019 to 2024
`will be 10% and that the market will grow by $170 billion over that time.
`CMS estimates that the total overall Medicare market will exceed $1 trillion
`by 2023. The IFP market has also significantly stabilized, maintaining
`between 11 million and 12 million covered lives since 2015. Furthermore,
`with tailwinds from recent political developments, we believe the IFP
`market is well-positioned to grow.
`
`
`47.
`
`relevant part:
`
`Finally, in discussing Bright HealthCare, the Offering Documents stated, in
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`Bright HealthCare began serving consumers in 2017 through IFP products. Since
`then, our business has evolved to serve higher acuity populations, adding traditional
`MAPD in 2018 and expanding further to serve a special needs population in 2019.
`Bright HealthCare has been able to generate consistent MCR performance despite
`the accelerating pace of our new market expansion and an increasing share of
`Medicare Advantage business, which is priced to a higher MCR.
`
`48.
`
`The statements referenced in ¶¶ 43-47 were materially false and misleading because
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`the Offering Documents were negligently prepared and, as a result, contained untrue statements of
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`material fact or omitted to state other facts necessary to make the statements made not misleading
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`and were not prepared in accordance with the rules and regulations governing their preparation.
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`Specifically, the Offering Documents made false and/or misleading statements and/or failed to
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`disclose that: (i) Bright Health had overstated its post-IPO business and financial prospects; (ii)
`
`the Company was ill-equipped to handle the impact of COVID-19-related costs; (iii) the Company
`
`was experiencing a decline in premium revenue because of a failure to capture risk adjustment on
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`newly added lives; (iv) all the foregoing was reasonably likely to have a material negative impact
`
`on Bright Health’s business and financial condition; and (v) as a result, the Offering Documents
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`were materially false and/or misleading and failed to state information required to be stated therein.
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`Materially False and Misleading Statements Issued During the Class Period
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`49.
`
`The Class Period begins on June 24, 2021, when Bright Health’s common stock
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`began publicly trading on the NYSE pursuant to the materially false and misleading statements or
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`omissions contained in the Offering Documents.
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`50.
`
`On August 3, 2021, Bright Health issued a press release reporting its second quarter
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`2021 results. That press release stated the following regarding the Company’s MCR:
`
`Bright Health Group’s medical cost ratio (“MCR”) for the second quarter of 2021
`was 86.8% on a reported basis and 82.0% on an adjusted basis. This is an
`improvement over last year’s second quarter adjusted MCR of 82.7%. “As we step
`back and look at year-to-date 2021 compared to the first half of 2020, our growth
`and ability to demonstrate performance is truly remarkable. Our first half revenue
`has more than quadrupled since last year, all while maintaining a consistent
`adjusted MCR below 80%,” said Cathy Smith, Chief Financial and Administrative
`Officer. In addition, the Company continues to leverage operating costs as the
`business scales with an operating cost ratio of 23.4% for the second quarter, an
`improvement of 6.5 percentage points over the same period last year.
`
`
`
`51.
`
`That same day, Bright Health hosted an earnings call with investors and analysts to
`
`discuss the Company’s Q2 2021 results (the “Q2 2021 Earnings Call”). During the scripted portion
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`of the Q2 2021 Earnings Call, Defendant Mikan stated, in relevant part:
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`***
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`Bright Health Group is well on its way to building the national integrated system
`of care needed to change healthcare in the United States. Both Bright Health Care
`and NeueHealth are demonstrating significant growth and diversification. And at a
`Bright Health Group level, we are forecasting 2021 revenue of greater than $4
`billion.
`
`
`
`[. . .] [W]e have delivered consistent performance. Critical to our model is our
`ability to price to our underlying capabilities and cost structure in each market.
`Even with our explosive growth, we have been able to demonstrate in an adjusted
`medical cost ratio below 80% across our enterprise during the first half of 2021.
`Critical to this measure is our model's ability to drive in-network utilization within
`our integrated systems of care.
`
`
`
`Our consistent performance starts with effective pricing that is built on both our
`unit cost advantage gained through our care partner networks and our integrated
`systems of care that allow us to effectively manage medical costs by driving
`improved in-network utilization and accurately capturing membership risk.
`
`52.
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`***
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`In addition, during the scripted portion of the Q2 2021 Earnings Call, Defendant
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`Smith stated, in relevant part:
`
`We are pleased with our second quarter results and the momentum we are seeing
`across the business. At the Bright Health Group level after adjusting for
`intercompany eliminations, revenue increased 275% year-over-year to $1.1 billion
`in Q2.
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`
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`Managing medical costs as efficiently and effectively as possible for the members
`we serve is critical. Internally, we look at our underlying operational performance
`without prior period adjustments and unusual items like the impact of COVID-
`related expenses.
`
`
`
`In Q2, our adjusted medical cost ratio at the enterprise level was 82%, in line with
`the prior year. On a reported basis, our Q2 '21 MCR was 86.8%, with the
`adjustments primarily driven by COVID impact and prior period development.
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`***
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`***
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`***
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`***
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`***
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`For reference, the appendix of our earnings release and investor presentation all
`concludes a detailed bridge. The 4.4 percentage point difference between our
`reported and adjusted MCR for the first half of 2021 is comprised of direct COVID
`cost impact to our MCR of 360 basis points and non-COVID prior-period
`development, representing an unfavorable impact to MCR of 90 basis points.
`
`
`
`[. . .] [T]his healthier-than-expected population resulted in an offsetting unfavorable
`risk adjustment impact to revenue of $22.3 million. We expect the impact of MCR
`adjustments to decline in the future as our contribution from existing membership
`increases as a percentage of our overall book-of-business.
`
`
`
`While there are a variety of items that can impact MCR both positively and
`negatively, we have demonstrated we can manage within a reasonable range of
`outcomes, considering the maturity of our business and of our membership
`population.
`
`53.
`
`On August 11, 2021 Bright Health filed a quarterly report on Form 10-Q with the
`
`SEC, reporting the Company’s financial and operating results for the quarter ended June 30, 2021
`
`(the “Q2 2021 10-Q”). The Q2 2021 10-Q stated, in relevant part:
`
`Our MCR of 86.8% for the three months ended June 30, 2021 increased 670 basis
`points compared to the same period in 2020. Our MCR for the three months ended
`June 30, 2021 included a 320 basis point unfavorable impact from COVID-19
`related costs and a 160 basis point unfavorable impact from non-COVID prior
`period developments (“PPD”), and MCR for the three months ended June 30, 2020
`included a 220 basis point unfavorable impact from COVID-19 costs and a 30 basis
`point favorable impact from non-COVID PPD. We also estimate that the three
`months ended June 30, 2020 included a favorable impact of 440 basis points due to
`eliminated or deferred care driven by reduced demand for services during the
`COVID-19 pandemic.
`
`The increased MCR of 83.5% for the six months ended June 30, 2021 increased
`800 basis points compared to the same period in 2020. Our MCR for the six months
`ended June 30, 2021 included a 360 basis point unfavorable impact from COVID-
`19 related costs and a 90 basis point unfavorable impact from non-COVID PPD,
`and our MCR for the six months ended June 30, 2020 included a 130 basis point
`unfavorable impact from COVID-19 costs, a 30 basis point favorable impact from
`non-COVID PPD and a 260 basis point favorable impact due to deferred utilization.
`The MCR in both 2021 periods was also impacted by increased medical costs from
`
`14
`
`

`

`Case 1:22-cv-00101 Document 1 Filed 01/06/22 Page 15 of 29 PageID #: 15
`
`MA product mix as a result of the Brand New Day and CHP acquisitions, which
`were partially offset by favorable market mix and rate in IFP.
`
`
`
`54.
`
`Appended to the Q2 2021 10-Q as exhibits were signed certifications pursuant to
`
`the Sarbanes-Oxley Act of 2002 by Defendants Mikan and Smith, attesting that, “[t]he information
`
`contained in the [Q2 2021 10-Q] fairly presents, in all material respects, the financial condition
`
`and results of operations of the Company.”
`
`55.
`
`The statements referenced in ¶¶ 49-54 were materially false and misleading because
`
`Defendants made false and/or misleading statements, as well as failed to disclose material adverse
`
`facts about the Company’s business, operations, and compliance policies. Specifically, the
`
`Exchange Act Defendants made false and/or misleading statements and/or failed to disclose that:
`
`(i) Bright Health had overstated its post-IPO business and financial prospects; (ii) the Company
`
`was ill-equipped to handle the impact of COVID-19-related costs; (iii) the Company was
`
`experiencing a decline in premium revenue because of a failure to capture risk adjustment on newly
`
`added lives; (iv) all the foregoing was reasonably likely to have a material negative impact on
`
`Bright Health’s business and financial condition; and (v) as a result, the Company’s public
`
`statements were materially false and misleading at all relevant times.
`
`The Truth Emerges
`
`56.
`
`On November 11, 2021, Bright Health issued a press release reporting its third
`
`quarter 2021 results. The press release stated, in relevant part:
`
`Third Quarter 2021 Financial Highlights
`
`Bright Health Group’s total revenue of $1,079 million in the third quarter of
`2021 increased by $727 million, or 206.3%, compared to the prior-year period.
`Revenue was primarily driven by organic membership growth in Bright HealthCare
`during the 2020 Open Enrollment Period and the 2021 Special Enrollment Period
`for our Commercial business that began on February 15, 2021, and NeueHealth
`organic and inorganic growth. The Company also experienced an increase in
`investment income due to a $46 million unrealized gain on equity securities.
`
`15
`
`

`

`Case 1:22-cv-00101 Document 1 Filed 01/06/22 Page 16 of 29 PageID #: 16
`
`Bright Health Group’s medical cost ratio (“MCR”) for the third quarter of
`2021 was 103.0%, which includes a 540 basis point unfavorable impact from
`COVID-19 related costs and a 900 basis point unfavorable impact primarily from
`a cumulative reduction in premium revenue due to an inability to capture risk
`adjustment on newly added lives. Our MCR in the third quarter of 2020 was 90.1%,
`which included a 390 basis point unfavorable impact from COVID-19 costs and a
`530 basis point favorable impact from non-COVID prior period developments.
`
`The Company’s GAAP net loss was $296.7 million in the third quarter of 2021,
`an increase of $237.5 million compared to the prior-year period. The Company’s
`non-GAAP Adjusted EBITDA was a loss of $245.9 million in the third quarter of
`2021, an increase of $191.8 million compared to the prior-year period.
`
`“Our year-to-date 2021 MCR of 90.3% represents solid performance, especially
`given the remarkable growth and unique factors we have ex