Munjal Shah when he was CEO of Health IQ in 2017. At the time, the company promised it could broker better life insurance rates for the “health conscious.”
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The venture firm made a repeat investment in Munjal Shah, but his previous company Health IQ is facing allegations of millions in unpaid invoices, tens of millions in debt — and one lawsuit is alleging fraud.
InMay, Andreessen Horowitz general partner Julie Yoo told Forbes the firm was being “very rigorous about choosing how to pick our bets” in the generative AI space. That’s why Yoo and fellow partner Justin Larkin decided to lead a $50 million seed investment along with General Catalyst in the digital health startup Hippocratic AI. It was a new company but a repeat founder for Andreessen: Munjal Shah.
Her firm decided to back Shah again, Yoo said, because Shah knew how to operate in the highly regulated healthcare space, deal with sensitive patient data and land contracts with major insurance companies. All this stemmed from his experience as the cofounder and CEO of the Medicare brokerage Health IQ, which Andreessen had previously invested in. Shah, Yoo said, was “literally hanging out in our offices when he was first ideating his next adventure.”
But a raft of litigation filed from December 2022 to May 2023 against the company where Shah seemingly earned those plaudits raises questions about its operations and treatment of vendors — and why Andreessen Horowitz would throw more money at a founder who is accused in one lawsuit of intentional misrepresentation and fraud.
As cofounder and CEO of Mountain View, California-based Health IQ, Shah presided over a company with mounting cash flow issues and debt obligations resulting in hundreds of layoffs and millions in unpaid invoices at the end of last year, according to lawsuits, interviews and documents obtained by Forbes. More than a dozen lawsuits allege Health IQ owes vendors over $17 million combined. One lawsuit alleges that Shah and other executives knew Health IQ wasn’t going to be able to pay its bills — but kept racking them up anyway. A declaration from Health IQ’s current CEO opposing a vendor’s attempt to seize some assets revealed the company is on the hook for much larger amounts, owing at least $75 million in loans pledged against its existing and future assets. Health IQ’s lawyers have denied the allegations in responses they’ve filed so far in the ongoing litigation. Two of the cases are scheduled to go to trial in 2024.
Yoo, Larkin and Alex Rampell, who led Andreessen’s investment in Health IQ, did not respond to multiple requests for comment, nor did Sue Hager, the firm’s chief marketing officer for bio and health. Shah did not respond to emails, calls and texts for comment. In an email, Brett Weiner, a partner at PR firm LaunchSquad, wrote that Shah had “stepped back from day-to-day operations at Health IQ in early January and formally resigned as CEO shortly thereafter.”
Andreessen Horowitz partner Alex Rampell led the firm’s investment in Health IQ.
Ethan Pines for forbes
Health IQ cofounder and current CEO Gaurav Suri, who took over when Shah left, responded via an email sent by Lee Pacchia, a managing director at communications firm ICR. In a statement, Pacchia acknowledged that Health IQ “faces a challenging financial situation” and was “working diligently to develop a path forward.” As for the lawsuits, Pacchia said the company was “unable to comment on the specific allegations, other than to note that the company vigorously disputes them.”
The vendors who claim they are owed millions of dollars – some of them small business owners – say it was infuriating to see Shah walk away from Health IQ and raise more venture capital. Dave Maman, the CEO of North Carolina-based WeCall, told Forbes that Health IQ owes his 16-person company some $2 million in unpaid invoices. He’s filed suit in California to get it back but he says the response from Health IQ’s lawyers so far has been to deny the claims with no explanation for why he hasn’t been paid: “We got steamrolled by Silicon Valley pros.”
In 2013, Shah cofounded Health IQ as a life insurance broker, selling plans to “health conscious individuals.” The idea was that people who were runners or vegetarians should be able to command lower life insurance rates. “They’re addressing a fundamental unfairness of underwriting,” Rampell told Forbes in 2017. “Why is it that people who work out maniacally, eat well and have lower cancer rates are paying the same rates as people who don’t?”
By 2019, Health IQ had raised nearly $140 million in venture funding from firms including Greenspring Associates and Aquiline Technology Growth, bringing its valuation to around $450 million, according to The Wall Street Journal. That same year, the company began to shift to a growing and potentially more lucrative insurance market: Medicare Advantage. Those are health insurance plans where private companies administer the government-funded health insurance for seniors aged 65 and over.
Medicare plan sales are a seasonal business that is make-or-break for brokers during the annual open enrollment period from October 15 to December 7, when seniors pick their plans. Brokers like Health IQ depend on a network of vendors known as lead generators, who identify seniors who might be interested in signing up for a new plan and get their contact information. Once they’ve acquired a potential customer’s phone number, the lead generators send the info — and an invoice — along to Health IQ.
The lead is passed to a call center and army of sales agents. And for every plan Health IQ sold, the company expected more than $1,300 in commission revenue, according to estimates reviewed by Forbes, which would typically be paid out over the course of three years.
Interviews with six former vendors – including several who haven’t filed lawsuits – describe Health IQ employees pushing them for more and more calls throughout the open enrollment period in 2022, racking up millions of dollars in invoices. “We were obeying their orders to send as many leads with a false impression that they would pay because of the size of their company,” says Peter Day, the CEO of New Hampshire-based Optimize to Convert, which has 20 employees. On the last day of open enrollment, he got a text at 11:44pm from a Health IQ employee asking for more leads, according to a screenshot. Day says he’s now owed $335,850 and has sent the bill to a collections agency.
“I’ve been in the industry over 15 years, this has never happened to me.”
In total, Forbes identified 15 lawsuits filed by vendors, which also included companies that provided call center support services and contract workers. The alleged unpaid balances in the lawsuits range from $29,000 to nearly $7 million and combined total more than $17 million. When the vendors sought to collect, all claim Health IQ failed to pay. In lawsuits where Health IQ’s lawyers have filed answers to the complaints so far, the response has been a general denial of all allegations. Two lawsuits in California Superior Court — one in San Diego County and another in Los Angeles County — are scheduled to go to trial in 2024.
While the cases wind their way through the court system, vendors say Health IQ’s failure to pay its bills caused huge disruptions to their businesses. “We weren’t even sure if we were going to make it,” says Maman of WeCall. He says there were times he didn’t draw a paycheck to make sure all of his employees were paid. Another CEO, who requested anonymity due to pending litigation, says Health IQ’s unpaid bills directly affected employees’ compensation. “All our year-end bonuses went out the window,” the CEO said.
Some vendors say they’ve implemented changes as a result of the experience, including new limits on how much customers can bill before requiring payment. Andre Humber, CEO of Innovation Direct Group, which has 11 employees, says Health IQ owes his company $81,700. He took out an insurance policy to cover accounts receivable so he can recoup the losses in the event a customer fails to pay tens of thousands of dollars again. “I’ve been in the industry over 15 years, this has never happened to me,” he says.
An amended complaint filed by Quote Velocity in California Superior Court in Santa Clara County on May 1 alleges Health IQ owes nearly $7 million, and accuses the company of intentional misrepresentation and fraud. Shah, Suri and Vishal Parikh, who’s also a cofounder of Health IQ and Hippocratic AI, are listed as defendants. The complaint alleges that during a meeting of Health IQ executives in late November 2022, Shah said Health IQ should buy as many leads as possible from vendors “because Health IQ would ‘not be here’ by the time invoices were due anyway or, at a minimum, would not be paying any of its vendors,” according to the complaint. The phrase “not be here” is attributed to Shah, while the rest of the sentence is paraphrased. Quote Velocity’s CEO Manny Zuccarelli declined to comment. Shah, Suri and Parikh did not respond to requests for comment about the allegations. They have not yet filed an answer to the amended complaint in court, according to the docket.
In 2022, Health IQ started advertising what it called “Precision Medicare.” The company asked seniors to authorize access to seven years of their health record data and, in exchange, claimed its artificial intelligence software would “forecast” their health needs and search through 3,000 Medicare Advantage plans to find the “best fit” for them, according to archived versions of the website.
But even the algorithms could not save the company from a mounting cash crunch at the end of 2022, according to an email Shah sent to investors obtained by Forbes. Health IQ was projecting more than $120 million in revenue on paper but would collect significantly less cash due to a quirk in the accounting rules around how brokers recognize revenue. Health IQ was recording the full commission in the first year for each policy, even though the amount is paid out over a three year period – and only if the customer doesn’t decide to switch their health plan. That mismatch between revenue and cash flow meant Health IQ had to take on increasing amounts of debt in order to pay its bills, according to the email. The company had $150 million in total debt, including venture debt and loans pledged against its accounts receivable. “I am very sorry that I lost your money,” Shah wrote in the email, “and for that you have my deepest apologies.”
After the frenzied open enrollment period in 2022, which ended on December 7, Health IQ informed employees and contractors of layoffs the following day, according to documents reviewed by Forbes. One class action lawsuit filed by a former employee alleged between 700 and 1,000 employees were terminated, while another lawsuit claimed more than 500 layoffs. (Both lawsuits were stayed pending arbitration, since the employees’ contracts had provisions requiring they enter into arbitration.) Innovative Employee Solutions, a company that processed payroll for Health IQ contractors, claims it is owed $3.7 million in a lawsuit. Sara Jensen, senior vice president of growth and strategy at Innovative Employee Solutions declined to comment. Shah and Suri did not respond to requests for comment about how many employees and contractors were laid off.
In January 2023, Shah and Health IQ cofounder Alex Miller, started working as cofounders at Hippocratic AI, according to their LinkedIn profiles. Another Health IQ cofounder Vishal Parikh and former Health IQ vice president Kim Parikh joined as Hippocratic AI cofounders in March, according to their LinkedIn profiles. In May, Hippocratic AI launched out of stealth with backing from Andreessen Horowitz and General Catalyst. Miller, Vishal Parikh and Kim Parikh did not respond to requests for comment.
“I am very sorry that I lost your money, and for that you have my deepest apologies.”
In a blog post announcing their investment in Hippocratic AI, General Catalyst CEO and managing director Hemant Taneja and partner Alexandre Momeni described Shah as “a partner who recognized trust as the running currency in the industry.” The pair and the firm’s vice president of marketing and communications Sue Kwon did not respond to requests for comment about whether Shah had disclosed the issues at Health IQ and if they still consider him trustworthy.
With Hippocratic AI, Shah and cofounders are seizing on the hype caused by the viral chatbot ChatGPT and its underlying AI engine, known as a large language model. The startup is building a model that will power chatbots that can generate answers tied to specific healthcare roles, like a dietician, genetics counselor or health insurance billing specialist.
Large language models are trained on huge amounts of data. Shah had declined to comment on the specific datasets Hippocratic AI was trained on when Forbes asked him in May. In response to questions, PR firm LaunchSquad said that no data from Health IQ had been used for any purpose at Hippocratic AI, nor had Health IQ or any of its affiliates sold or licensed any assets to Hippocratic AI.
With more than $75 million in outstanding loans pledged against “existing and future-acquired assets” – $25 million to Silicon Valley Bank and $50 million to TriplePoint Capital – it appears a sale is in Health IQ’s future, according to a declaration by Suri filed in a lawsuit in California opposing a vendor’s attempt to try and seize some of Health IQ’s assets. On April 24, Suri stated Health IQ was “in the process of negotiating (with the support of its lenders) a sale of certain assets to a third party.”
Emily Baker-White contributed reporting. Sue Radlauer contributed research.
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