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Report Boosts WellCare Shares

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By JEROME R. STOCKFISCH, The Tampa Tribune

Published: January 4, 2008

TAMPA - Shares in WellCare Health Plans rose nearly 10 percent Thursday after an analyst with CIBC World Markets wrote in a report to clients Wednesday that a federal investigation into the Tampa-based insurer is narrowly focused on Florida subsidiaries and doesn't suggest widespread fraud.

CIBC analyst Carl McDonald speculated in a report to investors that WellCare ultimately will settle the case and pay a fine. He said he expects the company, which administers government health care programs nationwide, to remain in business and projected that its stock will climb.

Thursday, shares rose $4.17, or 9.9 percent, to close at $46.16. WellCare stock had traded as high as $128 before plunging below $21 after an Oct. 24 raid.

The U.S. attorney's office in Tampa has not divulged why it sent FBI and other agents to WellCare's Henderson Road headquarters that day to remove computers and documents. WellCare has not commented on the case except to say it does not know the exact focus of the investigation.

A company spokeswoman said Thursday that that position had not changed and the company would not comment on the CIBC report or the subpoenas.

CIBC said it obtained five subpoenas from the Department of Social Services of the state of Connecticut, which contacted WellCare in the wake of the Tampa raid. WellCare administered that state's Healthcare for Uninsured Kids and Youth, or "HUSKY" program.

Responding to Connecticut's concerns, WellCare Chairman and CEO Todd Farha wrote to a state official there that it was "extremely frustrating" that WellCare has not been provided information on the focus of the investigation. In his Oct. 29 letter. Farha then offered his assessment of the case, based on the subpoenas served in Tampa.

Farha's letter and the attached subpoenas served as the basis for analyst McDonald's report for CIBC clients.

The subpoenas and McDonald's report suggest that the investigation is focused on:

•WellCare's behavioral health subsidiary, Harmony Behavioral Health, and its relationships with WellCare of Florida and HealthEase of Florida. McDonald reported that the government may be looking into whether WellCare did not spend 80 percent of its Medicaid dollars on actual treatment, which is required.

•Medicaid's recoupment of payments made to WellCare members initially thought to be dual-eligible for Medicare and Medicaid, but later found to be Medicare enrollees.

•The relationship between WellCare's corporate-owned reinsurer, which provides a type of backstop insurance for high claims, and the company's various insurance entities.

The U.S. attorney has not made its specific concerns public, and a spokesman said Thursday that the office would not comment on the CIBC report.

McDonald wrote, however, that the investigation appears to be focused solely on the Florida Medicaid business. The company's Medicare and non-Florida Medicaid contracts "received barely a mention," he said.

"Although the investigation will be drawn out, we think a settlement and fine is the most likely outcome; if this is the case, we believe the stock will eventually be worth more than its $42 current price," McDonald wrote.

Reporter Jerome R. Stockfisch can be reached at jstockfisch@tampatrib.com or (813) 259-8402.

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