The company, which plans to liquidate, has $1.3 million in assets and nearly $257 million in liabilities owed to lenders, investors and vendors, according to court filings.
By Katie Jennings, Forbes Staff
On December 8, 2022, after raising more than $200 million in equity and convertible debt from the likes of Andreessen Horowitz, startup Health IQ started laying off hundreds of employees and contractors.
Just five days after the layoffs, the company’s cofounders Munjal Shah and Gaurav Suri each received a $42,000 “vacation accrual” payout. “I am very sorry that I lost your money,” Shah wrote in an email updating investors on Health IQ’s financials that same month. Since writing the email, Shah collected over $170,000 from the company, according to a Forbes analysis of court filings, despite stepping back from Health IQ operations in early January and resigning as CEO shortly after.
On August 30, Health IQ filed for Chapter 7 bankruptcy in federal court in Delaware stating that it owes $256.7 million in liabilities to lenders, investors and vendors. The total assets listed in the filings? Just $1.3 million.
In an email to Forbes, Suri wrote that the vacation accrual payments were “made to all employees.” In February, Shah began drawing a Health IQ salary as “special adviser to the CEO,” receiving payments of approximately $3,200 every two weeks, while he was working on his next venture, a new company called Hippocratic AI. Andreessen Horowitz backed Shah for a second time, co-leading the new startup’s $50 million seed round with General Catalyst, which was announced earlier this year. Suri, who took over as Health IQ CEO in February, has received more than $480,000 in salary, expense reimbursements and vacation accrual, which also includes a $105,500 “retention bonus” paid out this year.
Suri wrote in the email that the retention bonus was authorized in February and “made to all employees using the same formula.” The bonuses, Suri wrote, “were authorized and made at a time when the company still expected to be able to reorganize and continue its business.” He said Shah’s appointment as “special advisor” was “reviewed by counsel and approved by the board,” though Suri declined to name the outside directors. Shah did not respond to multiple requests for comment. Alex Rampell, who led Andreessen Horowitz’s investment in Health IQ, Julie Yoo and Justin Larkin, who led the firm’s investment in Hippocratic AI, and Sue Hager, chief marketing officer for bio and health, did not respond to requests for comment.
Health IQ is one of a number of digital health companies that have declared bankruptcy in recent months, following Babylon and Pear Therapeutics. Healthcare is one of three industries, along with retail and real estate, that have seen a significant increase in bankruptcy filings this year, says Rob Lemons, a partner at Goodwin who specializes in financial restructuring law and is not involved in Health IQ’s bankruptcy. “High interest rates and limits on borrowing availability is huge,” he says. And it won’t be abating anytime soon. Lemons predicts there will continue to be an increase in bankruptcy filings for healthcare-related companies through 2024.
Health IQ was originally founded in 2013 as a life insurance broker pitching lower rates for “health conscious individuals.” In 2019, the company pivoted to selling Medicare Advantage plans, the program where private companies administer the government-funded health insurance for seniors aged 65 and over. As a broker, Health IQ would make a commission on each Medicare Advantage plan it sold and estimated each plan was worth more than $1,300 in commissions that were typically paid out over the course of three years, according to estimates reviewed by Forbes. However, the company wouldn’t get the full amount if the customer decided to switch plans.
That commission revenue is routed through a Health IQ subsidiary. As part of the bankruptcy, creditor Leadenhall is planning an “extended runoff” of that business, which served as collateral for the financing it provided, according to a filing. There is no mention in the bankruptcy filings of how much money Health IQ borrowed from Leadenhall, but a filing does show that between May 2021 and August 2023, Health IQ transferred more than $100 million to that subsidiary. Both Leadenhall and Suri declined to comment on the companies’ relationship.
The bankruptcy filings show Health IQ owes $67.5 million in secured debt backed by collateral and $189.2 million in unsecured claims. Over the past few months, Health IQ has been paying back a loan from Silicon Valley Bank. According to the filings, Silicon Valley Bank additionally received $4.5 million from the sale of the intellectual property behind Health IQ’s artificial intelligence-powered “precision Medicare” software. Health IQ had previously advertised that if seniors authorized access to seven years of their health record data, its software would “forecast” their health needs, search through 3,000 plans, and find the “best fit,” according to archived versions of the website. Silicon Valley Bank declined to comment. “The sale of the Precision Medicare technology did not involve the transfer of any patient data,” Suri wrote in an email. He says the sale was to a third party, which he declined to name.
“This is a lot of cash to have had people put in to basically get zeroed out.”
Given how few assets Health IQ has, it’s likely some of the other secured creditors may end up with nothing, says Lemons. According to the filings, the first priority creditor is DASIR LLC, which is owed $6.5 million, but the value of collateral is listed as “undetermined.” The second priority lender TriplePoint Venture Growth is owed $50 million, but the value of collateral is listed as $0. This is also the case for the third priority creditors Quote Velocity, which alleges it is owed nearly $7 million, and Innovative Employee Solutions, which alleges it is owed $3.7 million. Even though those two companies secured what’s known as a prejudgment writ of attachment, meaning the court seized some of Health IQ’s assets, the value of collateral is listed as $0. Lemons says that’s likely because “there won’t be anything left for the secured creditors” after DASIR, the first priority lender, is repaid.
TriplePoint and Drive Train LLC, which is listed as the contact for DASIR, did not respond to requests for comment. In the bankruptcy filings, Health IQ lists the Quote Velocity and Innovative Employee Solutions claims as “disputed.”
Lemons says it’s “pretty unusual” for the priority secured lenders to walk away with nothing. “My best guess is that the company was able to persuade investors and lenders that it was going to have this great product that was going to crush everybody else in this space,” he says. “This is a lot of cash to have had people put in to basically get zeroed out.”
The U.S. Securities and Exchange Commission appears in a filing titled “list of creditors” on the court docket; however, none of the other filings specify an amount or explain why the agency is on the list. An SEC spokesperson declined to comment. In an email to Forbes, Suri wrote that “the SEC is not a creditor of Hi.Q” and was identified because the local rules of the bankruptcy court require the agency “get notice of certain filings.”
Shah is also listed as a Health IQ creditor, since he invested $250,000 in a convertible note in February 2022. Andreessen Horowitz, which led Health IQ’s $34.6 million Series C round in 2017, invested $1.9 million in a convertible note in February 2022 as well.
The bankruptcy filings also show that two employees have filed claims alleging discrimination and one employee has filed a claim alleging sexual harassment and retaliation before the Equal Employment Opportunity Commission. The agency declined to comment on these complaints. Suri declined to comment on the EEOC claims. Shah did not respond to requests for comment.
Health IQ depended on a network of vendors to identify seniors who might be interested in signing up for a plan. Forbes previously reported on more than a dozen lawsuits alleging Health IQ owed its vendors over $17 million combined as Health IQ racked up invoices during the annual open enrollment period from October to December, the busiest time of the year for Medicare Advantage plan sales. One lawsuit alleged that Shah encouraged Health IQ employees to keep soliciting more leads from vendors even though he knew Health IQ wouldn’t be able to pay. Health IQ’s lawyers have denied the allegations in responses filed in court. On June 22, Health IQ’s lawyers wrote of the company’s “inability” to comply with discovery requests related to the case due to Health IQ’s “current financial condition and lack of resources.” Health IQ listed seventeen breach of contract lawsuits as “pending” in an August 30 bankruptcy-related filing.
Michael Ohlrogge, an associate professor at New York University School of Law, who was not involved in the case, says that generally “there is a good chance that the bankruptcy judge will decide on the outcome of those lawsuits. Allowing the state court proceedings to continue “would risk holding up the bankruptcy case,” he wrote in an email.
Dave Maman, the CEO of WeCall, which filed a lawsuit in California alleging Health IQ owes $2 million in unpaid invoices, believes his lawsuit and any hopes of recovery will die with the bankruptcy proceedings. Health IQ does not dispute WeCall’s $2 million claim in the bankruptcy filings. “They played the legal system to their benefit,” Maman says of Health IQ. “We got taken advantage of. There’s no justice, evil won.”
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