In March 2021, Oscar conducted its IPO, selling 36,391,946 shares of Class A common stock at a price of $39.00 per share. The Company received net proceeds of approximately $1.3 billion from the Offering. The proceeds from the IPO were purportedly to be used to repay in full outstanding borrowings, including fees and expenses, under Oscar’s Term Loan Facility ($167 million), and the remainder proceeds were to be used for general corporate purposes.
On August 12, 2021, Oscar disclosed that the Company’s Medical Loss Ratio (“MLR”) for the second quarter of 2021 was 82.4%, an increase of 2170 basis points year-over year. The Company claimed that “[t]he MLR increased to 82.4% in 2Q21 from 60.7% in 2Q20, primarily driven by meaningfully lower utilization in 2Q20 as a result of COVID-19, as well as higher COVID-19 testing and treatment costs and a return to more normalized utilization in 2Q21.” The Company also disclosed that its net loss for the quarter was $73.1 million, an increase of $32.1 million year-over-year.
Then, on November 10, 2021, Oscar disclosed that its third quarter 2021 MLR increased 920 basis points year-over-year, to 99.7%. The Company claimed that the MLR increase was “primarily driven by higher net COVID costs as compared to the net benefit in 3Q20, an unfavorable prior year Risk Adjustment Data Validation (RADV) result, and the impact of significant SEP membership growth.” The Company also disclosed that its net loss for the quarter was $212.7 million, an increase of $133.6 million year-over-year.
During a conference call held the same day, Scott Blackley, the Company’s Chief Financial Officer, stated: “We recognized approximately $20 million of risk adjustment expense this quarter related to our risk adjustment data validation audit or RADV results. The RADV exercise is atypical this year due to COVID. It spans two years, 2019 and 2020. The majority of the RADV headwinds relate to the 2019 audit results, which were recently completed.”
On this news, Oscar’s share price fell $4.05 per share, or 24.5%, to close at 12.47 per share on November 11, 2021.
By the commencement of this action, Oscar stock has traded as low as $5.76 per share, a more than 85% decline from the $39.00 per share IPO price.
The complaint filed in this class action alleges that the Registration Statement was materially false and misleading and omitted to state: (1) that Oscar was experiencing growing COVID-19 testing and treatment costs; (2) that Oscar was experiencing growing net COVID costs; (3) that Oscar would be negatively impacted by an unfavorable prior year Risk Adjustment Data Validation (RADV) result relating to 2019 and 2020; (4) that Oscar was on track to be negatively impacted by significant SEP membership growth; and (5) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.