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'Strong' Earnings Boost WellCare

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By CAROL GENTRY, The Tampa Tribune

Published: November 6, 2007

Updated: 11/05/2007 09:55 pm

TAMPA - After a favorable earnings report Monday and analysts' forecasts that it will suffer little damage from the health-fraud investigation that became public last month, WellCare Health Plans saw its share price rebound 22 percent Monday in heavy trading.

In an early morning Webcast on Monday, the company's executives reported $1.4 billion in third-quarter revenue, up 41.7 percent over the same period last year because of gains in enrollment. WellCare has 2.3 million members, almost evenly split between Medicare and Medicaid.

Net income bounced to $72.4 million for the quarter, which ended Sept. 30. That's up from $43.3 million the prior year.

Monday's burst of interest in WellCare signaled a dramatic turnaround from the past two weeks, during which the Tampa company's stock lost 80 percent of its value.

Forbes.com called Monday's reported results "strong," and TheStreet.com called them "spectacular," even while noting they were preliminary. WellCare executives said Friday they could not file the official quarterly report with the Securities and Exchange Commission until the completion of an investigation by independent members of its board.

Complaint Is Against Florida Subsidiary

Part of the reason investors showed renewed interest in WellCare was their relief that the investigation of the company may be confined to one subsidiary in one state - Florida. A weekend article on wsj.com, the online version of The Wall Street Journal, said the current investigation arose from a whistleblower complaint that said a WellCare subsidiary understated profit by $35 million over five years to hide them from Florida's Medicaid program.

The article, which cited an unnamed source close to the investigation, said the subsidiary, Harmony Behavioral Health, owed the money to the state because it spent too little of the premium money on health services for enrollees. Florida law requires at least 80 percent of Medicaid money for behavioral health, which includes mental health and substance abuse treatment, be spent for services, and no more than 20 percent on marketing, administration and profit. There is no such requirement for spending on medical care.

It was unclear Monday if the whistleblower suit cited by wsj.com was the only complaint. The wsj.com story said the whistleblower was a former employee in the financial department of Harmony. Meanwhile, the company disclosed Monday it faces a whistleblower suit filed by a former employee of WellCare's internal investigations unit.

Executives said the company has no details on the case, filed Oct. 25 in Leon County Circuit Court. The Tampa Tribune could not obtain information because the case is sealed.

The whistleblower's suit was filed one day after about 200 agents from the FBI and health-fraud investigators from Medicare and state Medicaid served a search warrant on the company's Tampa headquarters. No information has been released on the nature of the search.

According to the wsj.com account mentioned in WellCare's Webcast and cited by several Wall Street analysts in reports Monday, Harmony understated its profit in reports to Florida Medicaid authorities by more than $35 million over five years. If that turns out to be true, the company could be forced to pay triple damages, or $105 million.

Extra Profit Investigated

Investigators were exploring whether WellCare hid the extra profit by inflating the reinsurance payments to a Cayman Islands subsidiary, wsj.com said. The Tribune reported last spring that some analysts had raised questions about WellCare's use of an offshore subsidiary for reinsurance, which is the coverage that insurance companies buy to cover their high-cost cases.

After the article's publication, Florida's Department of Financial Services and Office of Insurance Regulation officials said they found no reason to suspect WellCare's Cayman Islands reinsurance arrangement was inappropriate. Even if WellCare is forced to pay triple damages of up to $105 million, the parent company had more than that in unrestricted cash as of the end of June, according to a report issued Monday by Brian Wright of Jefferies & Co.

He said $105 million represents less than 1 percent of the premiums and just 4 percent of the gross profit WellCare will receive this year from Florida Medicaid.

The Medicaid department for Florida, the Agency for Health Care Administration, has said it knows nothing about the investigation. On Monday, the agency again turned away questions.

"Our priority is to ensure that there is no disruption of services to the citizens who are served by these companies," agency spokesman Fernando Senra said in an e-mail.

The U.S. Justice Department has said the investigation should not affect customers. WellCare CEO and Chairman Todd Farha said Monday the company has maintained its rapid turnaround on payments to health care providers. Neither WellCare nor its executives have been charged with wrongdoing.

Reporter Carol Gentry can be reached at cgentry@tampatrib.com or (813) 259-7624.

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