The company blames the inquiry on former workers. The FBI isn't talking.
By KRIS HUNDLEY
Published September 4, 2003
Federal agents hauled boxes of documents out of WebMD Corp. offices Wednesday in Tampa and Alachua, as well as its headquarters in New Jersey, in what the company said was an investigation into Medical Manager, its physician software division based in Tampa.
Jennifer Meyer, spokeswoman for the Elmwood Park, N.J., company, said the search warrants authorizing the federal raid were based on "misleading information from two terminated employees."
"We have not violated any laws and we are cooperating fully with authorities," she said.
Meyer declined to identify the former employees, whom she said the company had sued before it became aware of the Justice Department inquiry Wednesday morning. WebMD has accused the two of taking improper kickbacks.
Meyer said the government's investigation focuses on Medical Manager's acquisition of formerly independent software dealers as well as the company's 1999 $5.5-million financial restatement.
She was unable to say what documents were being taken by government officials. Sarah Oates, FBI spokeswoman in Tampa, offered little information. "Agents of the FBI and the Internal Revenue Service's criminal investigations unit executed the federal search warrants this morning," Oates said. "The affidavits in support of the warrants are filed under seal so I will not be able to provide any more information at this time."
Medical Manager's software, which helps doctors minimize the paperwork in their practices, was developed by Michael Singer, a University of Florida graduate, in 1982. The software was initially sold through an independent network of dealers but in 1996, Singer and three of the largest distributors combined to form Medical Manager.
Under the leadership of John Kang, Medical Manager's president at the time, the company began acquiring dealers. Medical Manager went public in January 1997 to raise capital to fund these acquisitions. It is this dealer acquisition program that WebMD says is now under government scrutiny.
WebMD, then known as Healtheon/WebMd, acquired Medical Manager in September 2000 in a $1.9-billion stock deal. It retained the software company's office in Tampa and research and development facility in Alachua.
Meyer declined to say how many employees are at each location, saying only that WebMD has a total of 5,500 workers.
Calls to the Tampa Medical Manager office Wednesday afternoon went unanswered. An answering service at the Alachua location said the office was closed for a corporate meeting.
The company's shares rose 3 cents to $10.20 before trading was halted Wednesday morning. WebMD's shares have risen 19 percent in value this year.
Analyst David Francis, who follows WebMD for Jefferies & Co. in Nashville, said: "If the 1999 financial restatement is, in fact, what this is all about, then it really is making a mountain out of a molehill. But at the same time, you never like the feds to be poking around your business."
Francis, who had a hold rating on the company's stock before Wednesday's news, said Medical Manager represents 35 to 40 percent of WebMD's revenues.
"It's not been a major contributor to earnings of late," he said. "But strategically it's a very important business. It gives WebMD access to more than 180,000 physician practices, and that's critical for them going forward."
-Times staff writer Graham Brink contributed to this report. Kris Hundley can be reached at hundley@sptimes.com or 727 892-2996.
