business

Fraud allegations to cost WellCare $427 million

The health plan's legal tab increases by $194 million after a preliminary settlement is reached in a federal lawsuit brought by shareholders.

By Emily Berry — Posted Aug. 20, 2010

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Allegations of Medicaid fraud and accompanying accusations of securities fraud are now expected to cost Tampa-based health plan WellCare about $427 million.

The company's legal bill rose by $194 million with the announcement Aug. 9 that the company had reached a preliminary settlement in a federal class-action securities lawsuit brought by the company's shareholders.

WellCare announced its second-quarter earnings the same day, reporting a loss of $128.9 million, or $3.05 per share for the quarter, mostly due to the litigation costs.

During a conference call with investment analysts to review second-quarter earnings, WellCare CEO Alec Cunningham referred to the company's various legal settlements: "Our objective has been to resolve these matters in a way that allows the company to continue our transformation and focus on our work toward a successful future. ... We have not sought to justify or to downplay the past or to minimize our responsibilities."

The class-action settlement, which awaits approval by a federal court after class members are notified, comes in addition to separate, previously disclosed agreements with the U.S. Securities and Exchange Commission and federal and state prosecutors, who investigated allegations that WellCare overbilled Florida's Medicaid program for years to boost the company's profits.

Prosecutors alleged that WellCare took about $40 million it was not entitled to, intentionally failing to give back rebates owed to the state by inflating medical expenditures.

In July, WellCare announced that it would pursue claims against former executives accused of scheming to defraud the state.

In June, the company released details of a tentative $137.5 million settlement with state and federal authorities prosecuting a whistle-blower complaint against WellCare under the False Claims Act. WellCare did not officially admit any wrongdoing.

In May 2009, WellCare entered into a deferred prosecution agreement that requires the company to forfeit $40 million and pay another $40 million to the Florida Medicaid and Healthy Kids program. As part of the agreement, the company did not dispute the state's allegations that it boosted its pay by improperly accounting for care, and that its employees sought to cover up the fraud.

The Florida state chief financial officer announced in July that an independent audit of payments to WellCare by Florida's Medicaid program concluded that the company overcharged the state for children's health care by $2.1 million above and beyond alleged overpayments identified by previous investigations.

It's unclear whether that amount will be added to WellCare's agreed-upon payment to the state.

"I have asked that Healthy Kids bring these findings to the attention of the Dept. of Justice and the monitor under the WellCare Deferred Prosecution Agreement to make sure that Florida Healthy Kids receives the payments it deserves and the scope of the scheme is fully understood," Florida Chief Financial Officer Alex Sink said in a statement announcing the audit's findings.

WellCare spokeswoman Amy Knapp said: "We are pleased that this final report brings closure to yet another matter of the past. WellCare welcomes the report's recommendation to more clearly identify what should be included in medical expense calculations. As a company that is very aware of the opportunities and challenges of the current reporting system, we stand ready to help our state customers design systems that prevent unintentional mischaracterizations and fraud."

Also in May 2009, WellCare reached a separate $10 million settlement with the Securities and Exchange Commission regarding related allegations of securities fraud. It also agreed not to dispute those allegations publicly.

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