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WellCare sues 2 more; profits up

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By Mike Wells
11/4/2010 © Health News Florida

WellCare Health Plans has left its cloud behind and come out into the sunshine, announcing better-than-expected earnings and filing suit against two more former executives.

During a broadcast of its third quarter results this morning, WellCare announced a strong performance, with profits up -- even after adjusting for costs of government investigations and lawsuits associated with accusations of Medicaid fraud that were filed last year.

"It seems like they've got their house back in order now," said Roy Moore, senior market analyst for HealthLeaders-Interstudy. 

A new study by HealthLeaders, which analyzes the managed care market, said WellCare's strong Medicaid HMO position in multiple states will enable it to grow with the upcoming Medicaid expansion that is part of the new health law passed earlier this year. The Patient Protection and Affordable Care Act could bring WellCare 16 million new Medicaid beneficiaries by 2019, growing its Medicaid business by 46 percent, the study said. 

While Republicans have threatened to repeal the health-care law, they can't as long as the Senate and White House are in Democrats' hands. Moore said the newly elected Republican governors -- including Florida's Rick Scott -- will likely push for the outsourcing of Medicaid services to HMOs like WellCare. (See related article).

"The states are essentially broke," Moore said. "They don't want Medicaid expanded, but they do want [those patients] to be in the HMOs. The overall 'pie' won't get bigger but the percentage of the pie going to companies like WellCare will get bigger."

Moore said the company's leaders are now able to focus on running the business, now that three years of scandal appear to be ending.

On Oct. 22, WellCare filed suit in Hillsborough Circuit Court against former CFO Paul Behrens and former general counsel Thaddeus Bereday; the claims are similar to those the company already filed against former CEO Todd Farha.

The company accuses them of deliberately withholding funds from state Medicaid programs and concealing their alleged wrongdoing from WellCare’s own board of directors. 

The withheld funds came to light in the fall of 2007, when 200 state and federal agents raided WellCare's Tampa headquarters and carted off computers and boxes of files. The company ousted its top executives three months later, blaming them for its woes, and restated years of earnings.

Last year, federal prosecutors charged WellCare with Medicaid fraud but deferred prosecution for payment of $80 million in fines. The company settled a $200 million class action suit with its investors and paid $10 million to settle with the Securities and Exchange Commission.

The company is in the process of settling related whistleblower suits arising out of WellCare's underpayments to the Agency for Health Care Administration and Florida Healthy Kids for behavioral health care. The proposed preliminary settlement of $137.5 million with federal civil prosecutors is being challenged by the former senior financial analyst who filed the suit in 2006, Sean Hellein.

Negotiations to arrive at the proposed settlement have taken 18 months, CFO Tom Tran said during this morning's broadcast.

"We are unable to determine when it will be approved and executed," Tran said. "The [case] is complex. It is not surprising that significant time is required."

The third-quarter earnings report showed net income of $42.9 million, or $1.00 per diluted share, compared with net income of $28.7 million, or $0.68 per diluted share, for the prior year period. Costs associated with government investigations and lawsuits resulted in an adjusted net income for the third quarter of $37.9 million, or $0.89 per diluted share, as compared with $34.7 million, or $0.82 per diluted share, for the same period last year.

WellCare provides managed care services exclusively for government-sponsored health care programs, focusing on Medicaid and Medicare. The company serves approximately 2.2 million members nationwide.

CEO Alec Cunningham said the third quarter results were driven by progress in improving health care quality and access, ensuring a competitive cost structure, and re-establishing prudent, profitable growth.

"We will sustain our focus on these objectives in 2011 to continue to strengthen our performance in meeting the needs of our members, government customers, and business partners," he said.

WellCare's Medicaid growth has occurred at a time when its Medicare footprint has narrowed. The company spent much of last year under marketing sanctions from the federal government because of complaints from Medicare enrollees. That kept the company from expanding its network-based health plans beyond a handful of states, including Florida.

However, WellCare's stand-alone Part D drug benefit has allowed it to retain a national brand.

-- Mike Wells is an independent journalist in Tampa. Questions or comments may be sent to Carol Gentry, Editor.