8mm
Posted on 10/25/2007 7:52:37 AM PDT by wagglebee
For the past two years, analysts have been asking how fast-growing WellCare Health Plans of Tampa has been able to make so much money running government health plans for the poor and elderly. Now government investigators may be asking the same thing.
On a rainy Wednesday morning, more than 200 federal and state agents swarmed WellCare's campus on Henderson Road in Tampa, forcing employees onto the sidewalk and into their cars.
Steven Meitzen, 51, who arrived at WellCare about 9:40 a.m. for a job interview, said he was initially told it was a bomb scare. "Later on, I talked to someone who said the FBI had a subpoena and were looking for records," he said.
By midday, the complex's parking garages were half-empty, but federal agents remained busy. They were still milling around WellCare's buildings in the early evening; a Ryder truck was backed up to a loading dock.
The U.S. Attorney's Office in Tampa said little about the search, which involved personnel from the Federal Bureau of Investigation, U.S. Department of Health and Human Services and the Florida attorney general's Medicaid Fraud Control Unit. The search warrant is sealed.
Both federal and state officials, however, said that the investigation should have no impact on delivery of health care to the more than 2.3-million members of WellCare's managed care plans.
The company's customers are about evenly divided between Medicare and Medicaid plans. WellCare is the largest Medicaid provider in Florida, with more than 350,000 members. The company also offers Medicare Advantage plans to seniors in seven states and a stand-alone drug plan nationwide.
The timing of the raid could be detrimental as WellCare is in the midst of convincing seniors to sign up for its 2008 plans.
WellCare issued a release saying that it was cooperating with authorities and that essential services to members would remain uninterrupted. Though its customer service number was working Wednesday, WellCare's Web site was replaced with a notice saying, "We're sorry, but something went wrong. We've been notified about this issue and we'll take a look at it shortly."
The company, which went public in July 2004 at $17 a share, has had a meteoric rise, with its stock more than doubling in the past 12 months. On Wednesday, WellCare's shares dropped $6.77 or 5.5 percent, to $115.50 before trading was halted about 11 a.m. It ended the day down $7.10 at $115.17.
FTN Midwest analyst Peter Costa downgraded his rating on WellCare stock to "sell" from "neutral" on Wednesday, citing the search. Costa said the investigation appeared to be a criminal one.
"Criminal investigations are harder to prove, likely to be more company specific and carry stiffer penalties, including being barred from doing business with the government if it is for fraud, which it most likely is given the departments involved," Costa said in a research note.
Thomas Carroll, analyst with Stifel Nicolaus in Baltimore, called the raid "ominous" and downgraded WellCare shares to "sell" from "hold" in a note to clients. Contacts within the company said BlackBerries, computers and files were seized from corporate, marketing and human resources offices, according to Carroll.
Carroll suspects the raid is potentially the result of a lawsuit in which an employee brought a matter to the attention of authorities.
"When the FBI and HHS raid a health care company, the outlook on earnings, legal proceedings and the entire operations of the company can be questioned," Carroll said.
WellCare's business practices have come under increased criticism over the past several months. Last spring, the company said independent sales agents in Georgia enrolled dead people in Medicare plans. In May and June, WellCare representatives appeared along with other insurance executives at hearings in the Senate and House into aggressive Medicare marketing practices. WellCare and six other insurers subsequently agreed to a temporary halt in marketing one type of Medicare plan, while promising to initiate consumer safeguards. In August, however, Medicare cited WellCare once again for violating several provisions of its Medicare contract, including sales practices.
WellCare, which had earnings of $139.2-million in 2006, gets all of its nearly $4-billion in revenues from state or federal governments. Profits come from the difference between the amount received from the government and the amount spent on overhead and medical care for its members.
The company routinely has outperformed its competition; for the quarter ending in June, the company said just 80.8 percent of its revenue was spent on medical claims, down from 82.7 percent a year ago.
WellCare's high margins have had analysts scratching their heads. In April, two Wall Street analysts said Florida in particular was too generous in its Medicaid reimbursement to WellCare. The analysts, with CIBC World Markets and Goldman Sachs & Co., were particularly critical of WellCare's use of a subsidiary in the Cayman Islands for reinsurance, saying it allowed the company to shift money in the form of reinsurance premiums.
WellCare said its reinsurance arrangement had been approved by stateregulators and rejected claims it was overpaid.
Florida Medicaid payments were raised 7.5 percent in July, to an average of $215 per member per month. Cuts of about 1.5 percent could be on the way in January, however, if Gov. Charlie Crist approves recommendations made during the recent special legislative session.
Medicare reimbursements average about $800 per member per month and will increase 3.5 percent next year. Because the federal government wanted to encourage private insurers to offer Medicare plans, it pays about 12 percent more for seniors on private plans than it does for traditional Medicare.
WellCare was a slow-growing Florida company until 1992 when its owner, Dr. Kiran Patel, sold it to a New York investment group led by financier George Soros. The bankers hired Todd Farha, an aggressive Harvard MBA, to transform the company. Under his leadership, WellCare's earnings have increased eight-fold and the company's investors and executives like Farha have profited handsomely from appreciation in its stock.
In an interview last year, Farha credited WellCare's success with hard work, attractive member benefits and close attention to the basics. But he has also nurtured the kinds of relationships invaluable to a company dependent on government funding.
WellCare and its affiliates have given the Republican Party of Florida some $105,000 in contributions this year, according to state election records. They've also given the Florida Democratic Party $5,000 this year. In 2006, WellCare's PAC gave $66,000 to federal candidates, all Republicans.
And the company's board has included the head of the Florida agency that oversees Medicaid, Dr. Andrew Agwunobi. Agwunobi was a director for six months before being picked to head the Agency for Health Care Administration. For his six months service on WellCare's board, Agwunobi received stock, which he sold for more than $1-million.
Current WellCare board members include former Florida Sen. Bob Graham and Ruben King-Shaw, former head of Florida's health agency and an ex-deputy chief at Medicare.
A nice setting but a primitive ideology. Al Gore: Be afraid, be very afraid.
Anyway, excellent site.
http://www.floridahealthnews.org/
send to glenn beck.
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