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Criminal probe of execs confirmed


By Jim Saunders
7/1/2010 © Health News Florida

Atty. Gen. Bill McCollum's office confirmed Wednesday that a criminal investigation into former executives accused of committing fraud at WellCare Health Plans is still going on. Meanwhile, Wall Street analysts tried to reassure investors about new management at the embattled HMO.

Also Wednesday, state Insurance Commissioner Kevin McCarty criticized  "misleading'' news reports about how his office handled business dealings between WellCare and a Cayman Islands subsidiary.

McCollum's office confirmed the criminal investigation after Agency for Health Care Administration Secretary Tom Arnold and former AHCA Secretary Alan Levine called for the attorney general to pursue prosecution of former WellCare officials who might have defrauded the Medicaid program.

The investigation involves the U.S. Justice Department and the attorney general's Medicaid fraud control unit, according to McCollum's Communications Director Sandi Copes said in an e-mail. When asked for details, she referred to a May 2009 Justice Department news release that primarily focused on an agreement requiring WellCare to pay $80 million to defer criminal prosecution for fraud, but which also mentioned a continuing investigation of former WellCare officials.

"The criminal investigation into WellCare is ongoing, and our office is actively participating in that criminal investigation,'' Copes wrote.

The 2009 press release does not name the former WellCare executives who are under investigation. But a whistleblower complaint unsealed last week alleged wrongdoing by more than a dozen former WellCare employees, including its top three executives: Chief Executive Officer Todd Farha, Chief Financial Officer Paul Behrens and General Counsel Thaddeus Bereday.

WellCare, which is Florida's largest Medicaid HMO, announced last week that it had agreed to pay another $137.5 million in a settlement with the Justice Department. That announcement led to unsealing the whistleblower's explosive allegations about WellCare officials bilking taxpayers.

As an example, the 2006 whistleblower complaint by former WellCare financial analyst Sean Hellein accused company officials of  "cherry picking,'' trying to enroll only healthy Medicaid recipients. Hellein said employees were rewarded for getting hundreds of sick infants and terminally ill people off the membership rolls to reduce expenses and boost profits.

Also, Hellein accused the company of scheming to get around a requirement that it spend 80 percent of the money it got for mental-health programs on serving patients.

The allegations, along with the release of two other whistleblower complaints, have helped cause WellCare's stock price to drop more than 16 percent this week, according to a Goldman Sachs analysis released Wednesday.

But analysts remained positive about WellCare, which has replaced the top managers who ran the HMO at the time of the fraud. The Goldman Sachs analysis noted that WellCare has been investigated for more than three years and said the market reaction to the whistleblower complaints and news reports is "overdone in our opinion.''

Analysts at Stifel, Nicolaus & Co. also said they view the WellCare "story as unchanged.''

"Despite recent headlines --- which are likely to continue --- our current operational opinion of (WellCare) remains positive,'' the analysts wrote. "New management, retrenched Medicare operations, ample cash, no debt, conservative guidance and increasing outreach to investors implies a story of a reborn company pleased with its outlook.''

In a letter Wednesday to Health News Florida, insurance commissioner McCarty said there was "no question'' that some of WellCare's dealings under former management were illegal. But he said the whistleblower complaint also includes unfounded allegations.

McCarty criticized part of the complaint --- and reporting by Health News Florida --- about reinsurance that WellCare bought from a Cayman Islands subsidiary. Reinsurance is backup coverage that insurers buy to help pay major claims and limit their financial risks.

The complaint alleged that WellCare paid premiums to its subsidiary that were nearly five times higher than what it paid to unrelated reinsurers. It suggested that the practice allowed WellCare to under-report its profit margin and misrepresent costs.

Also, a Health News Florida story this week said a state actuary "found nothing wrong" with WellCare buying reinsurance from its subsidiary. McCarty took issue with the implication that his office did not adequately do its job.

"Florida law places no prohibition against health insurance companies having affiliated reinsurers, or even off-shore reinsurers,'' McCarty wrote. "Regulators were not deceived, and actuaries carefully reviewed WellCare and its reinsurance agreements that affected Florida consumers. Operating with affiliated reinsurers is part of the normal business practices employed by other health insurers operating in Florida to control risk.'' 

Three years ago, Matthew Borsch of Goldman Sachs and Carl McDonald, a prominent analyst at another firm, questioned whether WellCare was giving a false impression of its profits to government regulators by shifting money to the reinsurance subsidiary. The Goldman Sachs analysis released Wednesday mentions that the whistleblower complaint "appears consistent with our ... research into WellCare's captive Cayman Islands reinsurance.''

Levine, the former AHCA secretary, credited Goldman Sachs' 2007 report as helping expose deception by WellCare.

When he read the analyst’s report, Levine said, "I remember thinking, ‘Aha!’"

--Capital Bureau Chief Jim Saunders can be reached at 850-228-0963 or by e-mail at