When companies make drastic changes to the language in their securities filings without explanation, investors should take notice. For example, in December 2016 Teladoc quietly amended its former CFO's employment agreement. Two years later, the market discovered these subtle amendments were likely tied to his improper workplace conduct. The latest change in Teladoc's financial disclosures that has gone unnoticed - and that could have even more draconian consequences for Teladoc - pertains to the company's NCQA credential - a status that has significant reputational significance to Teladoc.
Notably missing from Teladoc's most recent 10-K was a bullet point on page 6 of the prior year 10-K under Our Competitive Strengths, titled "High Quality Provider Network". In fact, you will not even find that term if you search through the FY18 Teladoc 10-K. The NCQA is a non-profit that is a well-established and regarded body that provides quality assessments for healthcare related organizations. According to NCQA (p8), plans certified by their organization cover ~70% of Americans enrolled in healthcare plans.
We believe retail shareholders have been left completely in the dark relating to Teladoc's prolonged delay re-upping its NCQA credential. Securities counsel rarely tweak SEC filings unless there is a good reason to do so, so investors should take note of what is happening at Teladoc. We believe the disclosure changes portend potential behind the scenes reputational issues that Teladoc is currently facing - which could not come at a worse time given that the company's Aetna contract is currently up for rebid.
For context, using the WayBack machine we discovered that as of the company's 10-K filing (filed Feb 2019), the company was supposed to have its NCQA credential re-upped by March 27, 2019. As of April 1, 2019, that date had shifted to April 14, 2019. The NCQA's current website now states the expiration has shifted back to April 29, 2019. Given that Teladoc first received its NCQA credential in June 2013, the unexplained assessment delays and changes to securities filings are obvious red flags. Given Teladoc has had this credential dating all the way back to June 2013, it is unusual that the company keeps getting short term extensions of two weeks rather than getting fully accredited.
The former CFO's surreptitious departure last year may now be forgotten but is likely still haunting Teladoc. We mention his departure because it is highly relevant to the company's NCQA credential. Something the market seems to have missed is that SIRF claimed that between 20-30% of the division that reported to the Clinical Director resigned in protest at some point in late 2017. The Clinical Director role at Teladoc oversaw credentialing. In light of the unexplained 10-K language pull, investors, therefore, deserve to know whether the former CFO's prior workplace conduct has had any impact on the company's credentialing division. In case there is any uncertainty as to whether the individuals mentioned in the SIRF story touched on NCQA credentialing, we point investors to this document that makes it clear Teladoc NCQA certification fell within the division run by the manager referenced in both the SIRF story and the aforementioned document.
See below our analysis for the number of mentions in NCQA in various key SEC filings.
Source: We a search for the term NCQA in various TDOC filings
We believe that many investors are not yet familiar with NCQA. NCQA is non-profit a body that vets healthcare plans and their adherence to certain vetting standards. Here is the description that Teladoc provided of the NCQA in its 2017 (prior year) 10-K:
We are the first telehealth company to have received certification by the National Committee for Quality Assurance, or the NCQA, an independent, not for profit, healthcare oriented organization founded in 1990 dedicated to improving healthcare quality and verifying adherence to national standards of excellence in the provision of healthcare for our physician credentialing processes. We have implemented the highest credentialing requirements resolutions and implemented ongoing quality review processes, ensuring quality interactions and outcomes."
Don't take our word for the importance of NCQA to Teladoc. In its FY17 10K, the company viewed its NCQA certification as important enough that it listed it as one of the company's competitive advantages within the first few pages of the 10-K.
We were the first to deliver nationwide access to board certified physicians 24 hours a day, seven days a week, 365 days a year and establish over 100 proprietary Evidence Based clinical guidelines specifically designed for the virtual delivery of care. In addition, we are the first telehealth company to have received certification by the National Committee for Quality Assurance, or the NCQA, an independent, not for profit, healthcare oriented organization founded in 1990 dedicated to improving healthcare quality and verifying adherence to national standards of excellence in the provision of healthcare for our physician credentialing processes. We have implemented the highest credentialing requirements resolutions and implemented ongoing quality review processes, ensuring quality interactions and outcomes."
Source: FY17 10-K
On numerous occasions, including in the instance below, the company also very proudly touted its status as the "first telehealth company to achieve NCQA certification in any category".
Source: Teladoc Health
After years of touting NCQA and its standing with NCQA, Teladoc suddenly dropped all mentions of NCQA in its FY18 10-K filed February 2019. Nothing has materially changed in Teladoc's business in that time period. NCQA is a US-centric credential but Teladoc revenues from US sources remains over 80% as of FY18 so it is not as if the company's international expansion could possibly explain the shift in language.
The decision to change language in a securities filing - after it had appeared for years - is significant. In our experience, companies tend to remove this type of language in anticipation of potential shareholder litigation. All claims that a company makes in its securities filings are subject to potential future shareholder litigation. With Teladoc already facing a class action suit pertaining to its handling of the former CFO's workplace conduct - conduct that we have already established touched the division handling NCQA issues - we are not surprised by the company's decision to more carefully position its securities filings.
While Teladoc has not provided us with any color relating to its delayed NCQA credential, the company did address the issue with Credit Suisse according to a note from Credit Suisse dated March 20, 2019, in which Credit Suisse published the following;
Source: Credit Suisse TDOC Note dated March 20, 2019
Teladoc's international revenues are still only 18% (p17) of overall revenues per its latest 10K and were 8% in FY17 (p19). In other words, while international is growing quickly, the company still generated over 80% of revenues from the United States. The company's explanation that it is now global hence stopped ALL mentions of NCQA, therefore, does not make any sense to us.
In light of the language changes around the NCQA, and the allegation from SIRF that there were significant late 2017 turnover problems in the division that touched credentialing, we believe investors should question Teladoc as to why the company abruptly changed its disclosures.
Given the prolonged assessment relating to NCQA, and the history of issues with the company's division that touched credentialing, we decided to conduct our own analysis of Teladoc's doctor credentialing program. We found some glaring red flags.
The Curious Case of Dr. Monika Roots
Dr. Monika Roots and her husband Kyle Roots together sold a company to Teladoc in 2016. Both of them went on to work at Teladoc, with Dr. Roots holding the title of VP of Health Services and Senior Medical Director of Behavior Health. Per her LinkedIn profile, Dr. Monika Roots left Teladoc in June 2018.
We reviewed Dr. Roots' LinkedIn in which she claims to have left Teladoc in June 2018. However, as one can plainly see below, Dr. Monika Roots signed off as President of an entity directly tied to Teladoc (with a listed address of Teladoc's Lewisville, Texas office) as recently as March 6, 2019:
Relevant Excerpts from MA Filings
Below we have provided an excerpt of our exchange with Teladoc regarding Dr. Roots.
The following is an excerpt of a broader line of questioning that we sent to Teladoc in a request for comment:
Teladoc removed all language relating to its NCQA credential from its recent 10-K filing. NCQA records state that the company's NCQA credential is up for re-assessment on April 14, 2019.
Given the company's historical references to NCQA in securities filings, I understand that Teladoc's credentialing status is likely material.
As recently as 3/6/2019, Dr. Roots signed off as President of a Variable Interest Entity named Teladoc Behavioral Health Massachusetts, PC. Her name appears in numerous VIEs tied to Teladoc. The VIEs in question appear to be consolidated on Teladoc's balance sheet (can you please confirm this?). Dr. Roots is also presently married to a current executive at Teladoc."
In response, Teladoc provided the following statement:
Dr. Roots departed from Teladoc Health in June 2018. The professional corporations for which she served as an officer have been defunct since prior to her departure; these are all in the process of being statutorily dissolved.
Dr. Roots' spouse continues to be employed by Teladoc Health at a reporting level that is several layers down from the nearest executive officer in his reporting chain."
We also sent a similar request for comment to Dr. Roots asking why her signature was on entities tied to Teladoc months after she left the company but received no reply.
Teladoc claimed in their written response to us that the professional corporations for which Dr. Rots served as an office "have been defunct prior to her departure" and that they are in the process of dissolution.
We plainly disagree. It can be plainly seen below - and we retrieved this information on April 6, 2019 - that the Teladoc Behavioral Health Massachusetts entity is still ACTIVE. When we went to the MA website as recently as 4/6/19, it is clear as rain that there is no filing of an Article of Voluntary Dissolution.
Plus - if this entity was in fact dissolved, why did Dr. Roots sign off as the President of the entity in an effort to file a formal annual report on behalf of the entity as recently as 3/6/2019?
Source: Go here then click "View Filings"
In response to Teladoc's comment, we specifically asked Teladoc IR the following:
I am confused as to why Dr. Roots signed off on re-registering the Massachusetts corporation on March 6, 2019 (apparently approximately 9 months after she left Teladoc) if the entity was slated for dissolution. I also note that there are no signs that a Certificate of Dissolution was filed on the MA entity or any other entity signed by Dr. Roots. The documentation showing this is publicly available. Can you please point me in the direction of public filings that show that these professional entities were slated for dissolution. Is there any reason that Dr. Roots signed off on the VIE even 9 months after she was allegedly no longer employed by Teladoc?"
In response to that question, Teladoc IR provided the following statement:
The information we already shared with you is accurate."
We could simply find no record of the entity being dissolved or defunct. We pressed Teladoc to provide us with evidence of their claim and Teladoc did not respond.
This begs the question of why a former Teladoc employee / medical doctor who had a hand in credentialing activities per her own online admissions was still signing off on entities directly tied to the company almost nine months later.
We have not been able to get a clear answer as to why this happened - but we think this is a clear sign of internal control problems at Teladoc. Why would a former employee who had departed so many months earlier still be showing up as signing off on Teladoc entities almost one year after her departure from the company?
We reviewed Teladoc's terms of service and note that the Terms of Service (retrieved 4/8/2019) that made the following statement:
Source: Teladoc TOS from an actual telemedicine visit
We note that no such entity under the name Teladoc Behavioral Health, P.A. actually exists in Massachusetts. The only entity tied to Teladoc with Behavioral in its name is the entity that we found tied to Dr. Monika Roots that has a slightly different name. See below:
We have more questions than answers on this topic and Teladoc stopped replying to us for comment after an extended back and forth. Unfortunately, both we and the investing public have to figure out what is going on above on our own. We think it is a sign of significant internal control problems when a former employee - ~9 months removed - is still signing off on entities tied to her former employer. Given the changes to the company's 10-K, we find this fact pattern disturbing at best and think Teladoc needs to provide more color to the market on what is going on with this entity.
NPI Phone Number Goes Nowhere
After discovering the above inconsistency, we started scouring various healthcare databases to figure out where else Teladoc may have control issues. We noticed a phone number across all Teladoc entries in the NPI database. The phone number is: 214-302-5205.
You can see the phone number listed for numerous Teladoc NPI entities below:
Source: NPI Registry
As a reminder, per CMS, The National Provider Identifier (NPI) is a Health Insurance Portability and Accountability Act (HIPAA) Administrative Simplification Standard. The NPI is a unique identification number for covered health care providers. Covered health care providers and all health plans and health care clearinghouses must use the NPIs in the administrative and financial transactions adopted under HIPAA.
We called the phone number. It reached the voicemail box of the former Clinical Director of Teladoc who, according to SIRF left the company in October 2017! The phone immediately rings out to a dead voicemail box. The same phone number above is listed in this dated presentation (p18) alongside the former Clinical Director's name.
We're now sitting in April 2019 and this phone number still has not been updated.
Sure, we expect bulls and defenders of the company to say that an incorrect phone number in a CMS database is no big deal. In isolation, we agree. In light of everything the disclosure changes we highlighted at the company, as well as the company's prior material weakness over internal control disclosures (see p34), we find the entire fact pattern highly troubling. But what is pretty clear here is that the company has likely not done a rigorous assessment of these entries dating back to at least October 2017 as evidenced by its failure to update the contact phone number to one that is current. We think this lack of reassessment is very pertinent in context of the NCQA language change.
The Deceased Doctor
Using HHS's NPI directory, we received 25 hits for the search term "Teladoc". The NPI Registry is a free directory of all National Provider Records. In the case of Teladoc, because physicians cannot be members of publicly traded companies due to legal liability issues, Teladoc must contract with off balance sheet entities that actually provide the telemedicine services.
Two of the 25 hits we recovered caught our attention, namely NPI #1629352182 and NPI #1033454780. In both of these records, Dr. Glenn Kerr is recorded as the "Authorized Official" on these NPI entries. Note the hyperlink tied to Glenn Kerr's name above specifically links to a Dr. Glenn Kerr who works on Teladoc and who is based in South Dakota. Using a background checking service we found only one instance of a "Dr. Glenn Kerr" in South Dakota.
Source: NPPES NPI Registry
This caught our attention because our background check into Dr. Glenn Kerr indicates that he passed away almost one month ago. Given Teladoc operates in a heavily regulated industry and is clearly facing some sort of delay relating to NCQA, we found it surprising that this issue appears to have slipped through the cracks. Again, this calls into question how tight Teladoc's internal controls really are. We confirmed on the NPI website that an authorized official from Teladoc needs to make tweaks to the registry entry. Why have no tweaks to this NPI entry been made?
Some readers may say that it is no big deal that Dr. Glenn Kerr is still the authorized official on a Teladoc entity. Again, in isolation, this seems fine. But with the NPI database still listing a phone number tied to a former employee who departed ~18 months ago, and a former employee still signing off on Teladoc related documents 9 months after she left the company, we think this Dr. Kerr NPI entry should be viewed in context of a broader pattern of documents in disarray.
We have been negative on Teladoc for months and our negativity only grows. Better Help, a company owned by Teladoc, had an individual indicted on rape charges on its platform long after his indictment. The therapist in question was found guilty in March 2019. We provided Teladoc with numerous opportunities to shoot down this claim and they have not provided any evidence to the contrary. Better Help also engaged in what we view as unsavory business practices in order to recruit vulnerable patients through the use of social media influencers. This was all profiled in our first story about Teladoc.
The company covered up its former CFO's improper workplace conduct through a small employment agreement change, but was ultimately exposed through a SIRF story and parted ways with him. Even after parting ways with him, the company packed him off with 100% of his discretionary bonus (a fact revealed in this filing buried in the TDOC 10-K). Given what happened to the stock after his departure, and given the shareholder litigation the company is now facing, we are surprised that Teladoc's BOD found it appropriate to pack the former CFO off with his entire discretionary bonus.
The company then mysteriously pulled all references to its NCQA credential at the same time that the NCQA continues to prolong the company's assessment period. The company's credentialing division just so happens to have been directly impacted by the former CFO's improper conduct.
We have also found numerous examples of questionable doctor related filings on behalf of Teladoc entities - including paperwork signed by former employees long departed, an entity tied to a deceased doctor, and a phone number registered for CMS purposes that forwards to a dead voicemail box of an employee who left the company around October 2017. We think there are clear signs here of an organization in disarray. Teladoc is running on fumes and after its lackluster FY19 guidance and continued cash burn, we think the company could unravel in the near-term.
Disclosure: I am/we are short TDOC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am/we are short TDOC. All information for this article was derived from publicly available information. Investors are encouraged to conduct their own due diligence into these factors. This article represents the opinion of the author as of the date of this article. The information set forth in this article does not constitute a recommendation to buy or sell any security. This article contains certain "forward-looking statements," which may be identified by the use of such words as "believe," "expect," "anticipate," "should," "planned," "estimated," "potential," "outlook," "forecast," "plan" and other similar terms. All are subject to various factors, any or all of which could cause actual events to differ materially from projected events. This article is based upon information reasonably available to the author and obtained from sources the author believes to be reliable; however, such information and sources cannot be guaranteed as to their accuracy or completeness. This article reflects the author's opinion at the time of publication. The author makes no representation as to the accuracy or completeness of the information set forth in this article and undertakes no duty to update its contents. The author may also cover his/her short position at any point in time without providing notice. The author encourages all readers to do their own due diligence.