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The Doctor Is In Health Plans Again

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By MICHAEL SASSO

msasso@tampatrib.com

Published: October 26, 2008

TAMPA - These days, one might not guess that Kiran Patel was ever involved in health insurance.

Patel is one of the area's best-known philanthropists. His name or that of his wife, Pallavi, adorns the Patel Conservatory in downtown Tampa, the USF/Patel Charter School and the Patel Research Institute at Pepin Heart Hospital.

He's also known for showy real estate projects, such as the 32,000-square-foot house he's building for his family in Tampa (downsized from an initial 39,000-square-foot plan).

But Patel, a cardiologist, says that health care is where he belongs. And it's to those roots he has returned.

"Health care is where I have a comfort; not that past success guarantees future success," Patel said in a recent interview.

Patel, 59, co-founded, built and then sold his stake in WellCare HMO Inc., which went on to become industry giant WellCare Health Plans, for an estimated $250 million. Six years after the sale, Patel is re-emerging in the health care business.

In March, Patel got regulatory approval to purchase two small Medicare insurance companies and is hoping to duplicate the success he had with building WellCare into a major company. Patel is humble about another big hit and downplays his chances.

"All aspects of the economy are painful," Patel said last week. "The government will most likely cut back and pay less. There's plenty of challenges ahead."

Medicare health maintenance organizations, known as Medicare Advantage plans, have seen enrollment soar in recent years as seniors look to trim or eliminate their Medicare premiums and prescription co-payments. Although the market has grown, so has the number of competitors.

Patel has a reputation as a worldwide financier and philanthropist - as likely to finance charitable works in the Tampa Bay area and India as condo projects in Pinellas County. He was forced to exit the HMO business when he signed a five-year noncompete agreement as part of his sale of WellCare.

Dabbling In Development

That gave him time to invest in other pursuits.

Among them was designing a massive home and office complex on White Trout Lake off Tampa's Busch Boulevard. Patel and his wife made headlines after proposing to build a 17-acre family compound including a main residence of more than 39,000 square feet, as well as multiple guest and family homes and a helipad. He and his wife have since trimmed the main residence back to about 32,000 square feet and scrapped the helipad.

Patel also dabbles in the real estate business. He had planned a $150 million condo project on Clearwater Beach called Kiran Grand Resort & Spa, but the project was stalled in the real estate downturn and is still seeking financing. The project has been renamed Clearwater Beach Resort and Hotel, said Eric Fordin, an executive of development firm The Related Group, a partner in the project.

Patel is investing in at least one other beach project, a 24-unit luxury condo complex on Indian Rocks Beach called Bella Capri.

These days, he's no longer bullish on his profit prospects in real estate.

Real estate "unfortunately was not a success story that I would have dreamed about," Patel said.

The noncompete agreement expired last year, and that opened the door for Patel to get back in the health insurance business, and with good reason perhaps. It made him a multimillionaire the first time around. How much Patel earned from the sale of WellCare, and the size of Patel's fortune, isn't completely clear.

The investment firm that bought WellCare is affiliated with billionaire financier George Soros. It paid Patel and his partners $50 million in cash, a promissory note for $53 million and 8 percent of the stock of the succeeding company, according to Securities and Exchange Commission documents. The firm paid roughly $12 million more for a WellCare affiliate that insured Medicaid and Medicare recipients in New York and Connecticut.

Past reports have pegged the total value of the deal at about $250 million, with Patel's stake at about $150 million. When asked about his share of the deal, he said that it was somewhere between $50 million and $200 million.

With some of this wealth, Patel purchased two small Tampa-based HMOs, Freedom Health and Optimum Healthcare. The price on the deal for the two: $12 million in cash, a $5 million capital contribution and 25 million shares of his new health care holding company, America's 1st Choice Holdings of Florida. Patel's major partner in Freedom Health and Optimum Healthcare are the companies' founders, the Pagidipati family, physicians based in Ocala.

Patel's vision is to create health insurance companies controlled solely by physicians and other investors, which would give doctors a chance to control their own futures instead of watching from the sidelines as insurance executives make decisions.

Despite criticism that HMOs are devoted to the bottom line at the expense of patient care, Patel argues that the quality of care depends on the physicians, not just on how the HMO manages spending. So far, he has allowed 50 physicians to buy stakes in Freedom Health and Optimum Healthcare. Combined, they control less than 20 percent of the companies. Patel has not allowed outsiders to invest in his new companies.

Losses, Stiff Competition

Patel faces challenges if he hopes to duplicate the size and scope of WellCare, which benefited from an explosion of growth in the Medicare and Medicaid HMO business. He faced relatively little competition at the time he was building up WellCare.

For one, Patel's new HMOs lost a combined $12 million last year, according to state regulatory documents. Patel dismisses the losses, saying that any young, small company is going to have financial trouble until it gets big enough to enjoy economies of scale.

Freedom Health has about 22,000 customers enrolled in Medicare and Medicaid plans. Optimum Healthcare has about 3,500 customers enrolled in Medicare plans, all of whom are in Florida. (By comparison, WellCare had about 220,000 policyholders at the time Patel sold it in 2002.)

Another challenge is the huge wave of new competitors in the industry. Last year, there were 605 Medicare HMO plans in the United States, or more than double the 240 plans that existed in 2002, according to the Centers for Medicare and Medicaid Services. To compete, most charge Medicare HMO policyholders a low monthly premium or no premium, said Brian Weible, president of Clearwater-based insurance consulting firm Wakely Consulting Group.

"I think Florida probably has more plans with zero premiums than other states," said Weible, who has done work for Patel in the past. Even so, he says, "The market consensus is that there's still opportunity out there."

For now, Patel is keeping a low profile as he tries to build his new businesses, based just off West Hillsborough Avenue near Dale Mabry Highway.

Freedom Health and Optimum Healthcare are based in humble quarters - a plain building tucked behind a Microtel Inn. There isn't even a marquee sign out front. Patel's own office is a dull beige with sparse decor.

"I'll grow the company first, and then worry about the walls," Patel said.

Reporter Michael Sasso can be reached at (813) 259-7865.

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