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Last obstacle cleared in WellCare fraud settlement

After holding out for years, the chief whistleblower in the long-running case against WellCare Health Plans has removed his objection to a settlement of civil fraud charges with the federal government and nine states.

In a filing in Tampa federal court on Thursday, Sean Hellein said he intends to sign the agreement that WellCare announced last May it had negotiated with the Civil Division of the US Justice Department. In filings with the Securities and Exchange Commission, WellCare has said the settlement amount is $137.5 million.

WellCare will pay an additional $35 million if there is a "change in control" of the company within three years of the settlement signing, the U.S. Attorney's Office in Tampa said Friday.

Of the total, Florida would receive about $23 million, according to previous filings. Florida Medicaid's major HMO contractors were WellCare subsidiaries during the time of the alleged fraud, 2005 to 2007.

How much money Hellein stands to get remains unclear, although as the primary whistleblower in the case -- the one who wore a wire for the FBI to collect incriminating evidence -- he would likely get 15 percent or more.

As soon as Hellein signs the settlement, the Tampa company will be free of the cloud that has hung over it since the FBI and other agencies raided its headquarters in October 2007 and carted off computers and boxes of files.

Shareholders, who have already seen the stock price double in the past year, now can entertain the dazzling notion that the company may be acquired by a larger national insurer.

"This puts WellCare in a better position to be acquired," Stifel analyst Tom Carroll told Health News Florida this morning shortly before sending out a "buy" notice on the company to investors.

Since WellCare's only clients are government agencies -- Medicare and state Medicaid programs -- it would be a juicy target for takeover by a company that has relied on commercial accounts, since future growth looks to be in the government sector, Carroll explained.

"Wellcare is an absolutely perfect turnkey organization for a company that wants a foothold" in Medicare and Medicaid,  he said.

Company spokeswoman Denise Malecki called it "exciting news," then sent an official statement via e-mail: “We are very pleased with this development, and we look forward to final resolution of this matter.”

Hellein's attorneys had argued that $137.5 million was far less than the amount WellCare stole from state and federal taxpayers by lying about the amount it spent on medical and mental-health care for poor people enrolled in Medicaid programs.  And they noted that in cases of fraud against the government, companies can be forced to pay three times as much as they stole, as a penalty.

When WellCare said it couldn't afford to pay more than the proposed settlement amount, as Health News Floridareported last June, the company asked a federal judge to order the company to turn over documents and submit an executive to depositions. The judge granted the request, and postponed the criminal trials of former WellCare executives accused of fraud.

The former executives -- President and CEO Todd Farha, CFO Paul Behrens and General Counsel Thaddeus Bereday -- have entered pleas of not guilty. They are now scheduled to be tried in early 2013, according to the DOJ office in Tampa.

The SEC has also charged them with insider trading, saying that by pumping up the stock price through fraudulent accounting they pocketed $91 million.

The company itself settled criminal charges in 2009 by agreeing to pay $80 million. Last year it agreed to settle a class-action suit by shareholders with a payment of $200 million.

When the Hellein lawsuit was unsealed in June 2010, it described financial corruption that went far beyond the top executives. It alleged:

--WellCare conducted a study to figure out which Medicaid recipients were profitable and which were not so that it could engage in ``cherry-picking,'' a term for enrolling only the profitable members. The study found that disenrolling a baby born with health problems saved the company an average of $20,000; each terminally ill patient saved $11,500.

Those who were persuaded to resign from WellCare went into the general Medicaid or Medicare fee-for-service programs. The employees who pulled that off got bonuses, according to Hellein.

--WellCare moved money between accounts to make it appear that patients' treatment cost much more than it actually did. In some cases, the company made payments years in advance to jack up the apparent cost of care to fool states into increasing Medicaid premiums. .

-- When states made overpayment errors, WellCare didn't pay the money back, as its contract requires. Florida Medicaid made a series of overpayment blunders that fattened WellCare's bottom line by many millions; those who made the errors included both state officials and contractors.

--Sometimes hospitals and physician groups helped WellCare hide its true spending from Medicaid programs by accepting payments through one account for expenses incurred by another. Sometimes they allowed WellCare to pay for future years' expenses to make it appear spending for the current year was higher than it actually was.

Dr. Kiran Patel, the Tampa cardiologist and entrepreneur who built WellCare into a national Medicaid HMO before selling to a New York investment firm in 2002, said today that he's glad to hear its legal troubles may be ending. "Anything that gives stability to the company ...will be beneficial," he said.

---Health News Florida is an independent online publication dedicated to public-service journalism. Editor Carol Gentry can be reached at 727-410-3266 or by e-mail.


Carol Gentry, founder and special correspondent of Health News Florida, has four decades of experience covering health finance and policy, with an emphasis on consumer education and protection.