WellCare Aims To Clear Clouds With Legal, Strategic Moves
May 05 2009 - 5:12PM
Dow Jones News
WellCare Health Plans Inc. (WCG), a day after announcing the
planned exit from a key business, agreed to pay $80 million to
settle Medicaid-fraud probes, partly resolving a significant issue
that had been weighing over the managed-care company.
The settlement and WellCare's decision to drop its Medicare
Advantage private-fee-for-service contracts in 2010 are not related
but signal that the Tampa, Fla., health insurer, burdened by the
fraud allegations and Medicare sanctions, is moving to clear its
slate and refocus.
WellCare shares closed up 18.25% to $18.47, although they remain
far below the high of $128.42 reached the day before the government
officials raided company headquarters in October 2007.
Under a three-year deferred prosecution agreement in the
Medicaid fraud case, WellCare will pay $80 million, nearly half of
which it paid last year, and retain an independent monitor selected
by the U.S. attorney's office.
The U.S. attorney's office filed a one-count criminal
information charging the company with conspiracy to commit
health-care fraud against the Florida Medicaid and Health Kids
programs under certain contracts, and agreed to recommend to the
court that prosecution be deferred, with charges dismissed if
WellCare complies with the agreement.
The settlement doesn't completely put the matter behind
WellCare, which said it is engaged in resolution discussions with
the civil division of the U.S. Justice Department, the Securities
and Exchange Commission and the Department of Health and Human
Services' inspector general's office.
"The resolution of this investigation removes a significant
overhang for the company and could allow the company to reduce its
ongoing legal expenses. ... However, other issues remain in
additional investigations," Wachovia Capital Markets analyst Matt
Perry said in a note.
WellCare's separate plan to drop its Medicare Advantage private
fee-for-service contracts in 2010 will affect some 110,000
individuals, or more than 40% of members of the company's Medicare
Advantage health plans, slice revenue and likely pressure earnings
next year.
In doing so it will exit a business that generates some $1
billion of the company's $6.5 billion in revenue.
WellCare's Medicare Advantage PFFS program operates at a thin
profit margin, analysts said, cropping their per-share earnings
estimates for 2010. At least one firm boosted its 2011 view,
however.
While the company called the move unrelated to previously
disclosed probes, WellCare said through a spokeswoman that focusing
on its other Medicare products, including its Medicare Advantage
HMO plans, will help the company address issues raised earlier this
year in a government sanction over Medicare marketing
activities.
Medicare, the government health program for senior citizens, had
ordered WellCare to suspend new enrollment in its private Medicare
health plans, citing noncompliance and deficiencies in
prescription-drug contracts and the alleged misleading of Medicare
Advantage health plan beneficiaries.
Credit Suisse analyst Gregory Nersessian called the PFFS exit a
negative surprise. "It appears that (WellCare) is in retrenchment
mode with regard to its Medicare business" and the decision could
be an early indication the company will bid very conservatively for
other Medicare business next year, he said in a note.
Medicare Advantage PFFS plans, which often have few frills and
allow beneficiaries to use most any doctor or hospital
participating in the traditional Medicare program, are largely
going by the wayside in 2011 anyway under a Medicare law passed
last year. The law requires companies to form provider networks for
the plans in most areas.
"Investing to build the provider networks which will be required
for 2011 would be unwise given the geographic dispersion of our
membership and the uncertainty of Medicare rates in rural markets,"
said WellCare spokeswoman Amy Knapp on Tuesday.
Another managed-care company, Coventry Health Care Inc. (CVH),
indicated last week it likely will make a similar move next year
regarding its Medicare Advantage PFFS plans, citing Medicare plans
to cut reimbursement rates in 2010 and rising medical costs. Health
Net Inc. (HNT) said Tuesday it plans to do the same.
Several hundred thousand beneficiaries in the PFFS plans being
dropped next year can use other types of Medicare Advantage plans
with their insurers or competitors, or can use the government's
traditional Medicare program. Companies like Humana Inc. (HUM),
Universal American Corp. (UAM) and UnitedHealth Group Inc. (UNH)
may pick up new business.
Those moves may presage what Stifel Nicolaus analyst Thomas
Carroll predicted may be "another land grab coming in Medicare
Advantage" as most of the PFFS plans disappear in 2011 and
beneficiaries switch to traditional Medicare or other types of
private plans.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;
dinah.brin@dowjones.com