NEW YORK, Feb. 18, 2022 (GLOBE NEWSWIRE) — Bragar Eagel & Squire, P.C., a nationally recognized shareholder rights law firm, reminds investors that class actions have been commenced on behalf of stockholders of eHealth, Inc. (NASDAQ:EHTH), Oak Street Health, Inc. (NYSE:OSH), FirstCash Holdings, Inc. (NASDAQ:FCFS), and NRx Pharmaceuticals, Inc. (NASDAQ:NRXP, NRXPW)). Stockholders have until the deadlines below to petition the court to serve as lead plaintiff. Additional information about each case can be found at the link provided.
eHealth, Inc. (NASDAQ:EHTH)
Class Period: April 26, 2018 – July 23, 2020
Lead Plaintiff Deadline: March 18, 2022
eHealth is a health insurance broker that focuses on selling Medicare-related policies on behalf of private insurers. Its main source of revenue is commissions from selling Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug policies. On January 1, 2018, eHealth adopted and implemented a new accounting standard for recognizing revenue. This standard, referred to herein as Accounting Standard Codification 606 or ASC 606, allowed eHealth to recognize immediately the entirety of the commissions it expected to receive over the expected life of the policies. Although eHealth sold annual policies that could be cancelled at any time by the consumer, it assumed that its policies would be renewed for several years. Consequently, for many of eHealth’s Medicare-related policies, it recognized between three and five years of commissions immediately upon the sale of the policy.
The Complaint in the Class Action alleges that the assumption that eHealth’s customers would renew its policies was unrealistic and contrary to eHealth’s recent experience of both cancellations and renewals. Beginning in 2017, eHealth started soliciting Medicare customers with television advertising. Late-night commercials boasting $0 monthly plan premiums effectively generated a surge in customers in a short period of time. Between 2017 and 2018, the number of Medicare-related insurance applications submitted to eHealth by applicants grew by 39%. These customers, however, were notorious for cancelling their policies in short periods of time, causing eHealth to experience sky-rocketing “member churn” ratios, i.e., the percentage of customers who cancel their policies within the first year. Notwithstanding, eHealth was able to provide analysts and investors with record-setting earnings due to the fact that it was able to recognize three- to five-years of commission revenue for these policies upfront and immediately.
The Complaint further alleges that Class members were materially harmed by eHealth’s false and misleading statements. As a direct result of Defendants’ materially false and misleading statements, eHealth’s stock price artificially increased from a relative steady price of around $15.32 per share of common stock on March 19, 2018 to $136.32 prior to April 8, 2020. It was on that day that Muddy Waters Capital, a well-known and highly respected research firm, published a report revealing eHealth’s accounting misconduct. The report disclosed, among other things, that eHealth’s “highly aggressive accounting masks [] a significantly unprofitable business,” “that the key driver of growth since 2018 has been EHTH’s reliance on Direct Response television advertising, which attracts an unprofitable, high churn enrollee,” “that EHTH’s persistence assumptions in its LTV model [under ASC 606] seem highly aggressive when compared to reality.” Muddy Waters report also disclosed that eHealth’s financial statements for 2019: (a) overstated revenue by $128 million; (b) overstated operating profit by $263 million; and (c) understated an operating loss of -$181 million. The Muddy Waters report resulted in a sharp decline in the price of eHealth’s stock, plummeting to $103.20 per …
