UPDATE: WellCare Suspends Medicare Enrollments; Shares Fall
February 20 2009 - 1:17PM
Dow Jones News
WellCare Health Plans Inc. (WCG), already burdened with a
Medicaid fraud probe, said Friday that it would suspend new
enrollments in its Medicare health plans after the government sent
a sharply worded letter imposing sanctions on the managed-care
concern.
The news sent WellCare shares down as much as 24%, reversing the
stock's recent recovery, as the company's Medicare business
represents about half its premium revenue. However, the
suspension's ultimate impact is unclear because the 2009
open-enrollment season has passed and the next such period doesn't
start until November, giving WellCare time to address its
problems.
According to the U.S. Centers for Medicare & Medicaid
Services, which ordered WellCare to suspend by March 7 the
enrollment of, and marketing to, Medicare participants, WellCare's
problems include noncompliance and deficiencies in the company's
Medicare prescription-drug contracts, as well as alleged misleading
of beneficiaries.
"WellCare has demonstrated a longstanding and persistent failure
to comply" with government requirements for proper administration
of its Medicare prescription-drug contracts, including those linked
to Medicare Advantage health plans, CMS said in a letter dated
Thursday.
"CMS has afforded WellCare numerous opportunities" to bring its
Medicare drug contracts into compliance, and has discussed the
issues with management many times, including an occasion earlier
this month, "none of which have resulted in sufficient improvement
in WellCare's operations or correction of the underlying
deficiencies," said the agency, which is part of the Department of
Health and Human Services.
WellCare has the highest number of beneficiary marketing
complaints among large Medicare Advantage plans, with many
beneficiaries alleging marketing misrepresentations, CMS said. The
agency accused WellCare of misleading and confusing WellCare
beneficiaries, among other alleged violations, and said CMS' own
secret shoppers found evidence of such activity at December sales
events. CMS also accused WellCare of failing to discover forged
applications.
WellCare said in a release that it is working with CMS to
address issues the agency raised, and Chief Executive and President
Heath Schiesser said the company takes CMS's concerns "very
seriously." Existing WellCare Medicare plan members, as well as its
Medicaid and state children's health insurance plan, or Schip,
enrollees, aren't affected by the actions, the Tampa company
said.
"We are committed to complying fully with CMS requirements and
serving the needs of our members," Schiesser said.
The move by CMS comes more than a year after federal and state
agents raided WellCare's headquarters as part of a separate
Medicaid fraud investigation. That probe has led the company to
delay financial filings, which caused it to default on debt
covenants, and made it even more difficult for WellCare to raise
capital in a rough credit market.
WellCare shares, which were as low as $10.71 Friday, recently
were down 22% to $10.94. Before Friday, the stock had more than
doubled from its November lows as the company took steps to
increase cash balances, started to catch up on filings and
continued to talk with authorities to resolve the Medicaid fraud
probe.
Deutsche Bank analyst Scott Fidel noted that Medicare is a core
business for WellCare, generating about half of its premium
revenue.
"This is thus the latest body blow for troubled WellCare, which
is already facing both federal and state investigations into its
Medicaid business, which accounts for the other half of the
company's revenue," Fidel said in a note.
While CMS recently took similar action against WellPoint Inc.
(WLP), Medicare is only a token earnings contributor to the massive
managed-care company, the analyst said.
"Moreover, it appears that CMS is now taking a much more
vigorous approach to oversight of Medicare health plans, which
increases regulatory risk in that market segment," Fidel said.
While the open-enrollment season has passed for Medicare
Advantage and Medicare "Part D" prescription-drug plans for 2009,
some movement can still occur. Existing beneficiaries enrolling in
a Medicare plan may change plans until March 31, and those eligible
for low-income subsidies can switch plans at any time, Credit
Suisse analyst Gregory Nersessian said.
As a result, Nersessian called WellCare's suspension an
"unfavorable development" but said the financial impact could be
"relatively benign if addressed quickly."
Oppenheimer analyst Carl McDonald said the major risk for
WellCare is that the suspension isn't lifted by the start of the
next open-enrollment season on Nov. 15.
In the worst-case scenario, McDonald said, WellCare's Medicare
enrollment wouldn't grow next year, but even more important, the
company's medical cost ratio would get worse because "WellCare
wouldn't have the opportunity to refresh its Medicare book with
younger, healthier members."
-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-656-8285;
dinah.brin@dowjones.com