What’s with WellCare?
By Carol Gentry
5/4/2009 Health News Florida
WellCare Health Plans Inc., the only Florida-based health company in the Fortune 500, did something Monday that left analysts scratching their heads: It announced it will drop a line of business that accounts for 40 percent of its Medicare health plan customers.
Not only that, the line of business in question -- private fee-for-service -- is profitable, accounting for nearly $1 billion in revenue and $20 million in pretax income last year, according to SEC filings.
"It isn't all that often you see a plan walk away from a profitable business," said Carl McDonald of Oppenheimer & Co.
One theory, put forward by analysts at Goldman Sachs, is that WellCare may want to free up capital, an estimated $110 million, in preparation for a sale of the company. Or it may need the money to settle an investigation by state and federal authorities that has been pending since fall of 2007. However, a release from the company said there is no connection.
The change will affect about 110,000 WellCare customers. None is in Florida; the largest group is in Arizona.
To be sure, the company would have had to end its PFFS line anyway at the end of 2011 and fold those members into health plans that have defined networks of doctors and hospitals, under new Medicare rules. Congress took that action after audits showed PFFS were wasting taxpayers' money.
While some companies are folding PFFS members into their HMOs and PPOs, that would have been terribly difficult and expensive -- maybe $50 million, McDonald estimated -- for WellCare because its PFFS members are so scattered.
The decision could be related to the recent call letter from the Centers for Medicare and Medicaid Services saying it intends to increase scrutiny of plans that force members who get sick to spend a lot of money out of pocket. As Oppenheimer's McDonald notes, WellCare has PFFS products that limit seniors to 90 days in a hospital and provide no drug coverage in the gap.
"WellCare's PFFS products are designed primarily for seniors in excellent health," he writes. "Seniors in a deteriorating condition will generally find WellCare's products to be a poor value, while those in great shape will likely view the product as compelling."
It's not clear whether WellCare's decision has anything to do with the company's current problems with CMS, which ordered WellCare to stop enrolling Medicare beneficiaries in early March because of a sky-high level of complaints.
Analysts have speculated that a settlement of the fraud investigation is near because the company has scheduled an earnings call for next week. WellCare has been quiet since the beginning of the investigation.
It became public knowledge when FBI agents raided the Tampa campus in late October 2007, carting away computers and boxes of files. About two months later, the board -- which includes former Florida Gov. Bob Graham -- ousted the top three executives of the company.
--Carol Gentry can be reached at 727-410-3266 or by e-mail.