WellCare Health Plans, Inc. saw its stock price plunge more than 20 percent at one point on Friday after announcing its second-quarter net loss of $7.5 million, due mainly to high medical expenses in connection with the expensive rollout of Florida Medicaid's statewide managed care program.
In a statement released about the second quarter ending June 30, the company said it will adjust net income per diluted share between $2.20 and $2.50. Previous guidance set the range between $4.40 and $4.75 per diluted share.
In an early-morning call with analysts, WellCare executives laid out the problems, with Florida Medicaid’s new Managed Medical Assistance (MMA) Program playing a starring role.
The negative impact on WellCare earnings for the year from that program is estimated to be $75 million, much of it from prescription-drug expense, said Chief Financial Officer Tom Tran.
He said medical expenses are eating up nearly all of the premium for the new participants, in the high 90 percent range, leaving nothing for the considerable administrative ramp-up costs for expansion. Overall, WellCare's government managed-care programs have medical expenses in the more manageable high 80 percent range, he said.
WellCare has been Florida's largest Medicaid HMO contractor for more than a decade, and was a participant in the five-county pilot program that preceded the current rollout. But the statewide expansion to enroll virtually all 3.5 million Medicaid beneficiaries has come in a compressed time frame and includes areas of the state where managed care feared to tread.
WellCare executives said they are engaged in talks with Medicaid officials in Tallahassee about the financial problems. The state is required to provide an actuarially sound financing system.
It is not uncommon for new Medicaid programs to encounter this sort of problem, analysts say. Tom Carroll of Stifel called it “very routine heartburn” and said every time it has happened in the past decade it has been resolved within a year.
In particular, the executives mentioned:
- Florida Medicaid’s requirement that plans participating in MMA use an “open formulary,” or the list of drugs that plans must cover, rather than letting plans maintain their own, narrower set of covered drugs as in the past. New Medicaid members have been much more attached to expensive name-brand drugs than the long-time Medicaid members, officials said.
- The influx of new Medicaid members from the Florida Panhandle and other rural regions, where neither the patients nor doctors have much experience with managed care. Tran named Regions 2 and 3 as sore spots. They encompass more than two dozen counties that stretch along Florida’s northern border from Holmes County on the west, to Columbia County on the east, and southward through Gainesville and The Villages to Hernando, Sumter and Lake counties.
Tran and President/Chief Operating Officer Ken Burdick said they have sent out pharmacists and other experienced hands to teach doctors newer to the plans to manage the care of these new members in a more cost-effective way.
WellCare has experience dealing with such problems in Kentucky and Hawaii, they said.
The Legislature created the law in 2011 that requires virtually all Medicaid beneficiaries -- including those in long-term care -- to enroll in a managed-care plan. Those who cost the most, the long-term-care patients, were enrolled region by region beginning last fall.
Enrollment of other beneficiaries, mostly low-income women and children, began May 1 and has proceeded month by month. The rollout will conclude in August.
The law does away with "fee-for-service" Medicaid payments, in which doctors, hospitals and other providers directly billed the state. Amid the gush of claims, the state found it difficult to prevent fraud and abuse. By privatizing the program -- turning management of treatment and payment over to managed-care plans -- Medicaid becomes a regulator, rather than a direct payer.
In the earnings statement released Thursday, WellCare reported a second quarter of 2014 net loss of $7.5 million, or $0.17 per diluted share, compared with net income of $46.9 million, or $1.07 per diluted share, for the second quarter of 2013. The adjusted net loss for the second quarter of 2014 was $3.1 million, or $.07 per diluted share, compared to adjusted net income of $59.2 million, or $1.35 per diluted share, for the same period a year ago.
WellCare's stock was selling at $76.85 a share at the end of Thursday, but started Friday at $60.80. It had recovered less than $1 a share as of mid-afternoon.