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WellCare's hire made in a gray ethics area

The managed care company hired a Medicare insider as a board member.

By KRIS HUNDLEY
Published November 19, 2005

As WellCare Health Plans Inc. of Tampa laid the groundwork over the past two years for a major expansion into Medicare, it benefited from unusually close ties to the government health program for seniors and the disabled.

Just months after leaving the No. 2 position at the federal agency overseeing Medicare, Ruben King-Shaw joined WellCare's board and was a paid consultant as the company aggressively pursued more Medicare contracts.

King-Shaw left his job as deputy administrator with the Centers for Medicare and Medicaid Services in April 2003, joined WellCare's board soon after and agreed to oversee "certain governmental and regulatory issues" for the company the following November.

Federal law bans government workers from lobbying their former employer for a year after they leave public service. But King-Shaw said his contract with WellCare, which came seven months after he left CMS, was approved by the ethics officer at the Department of Health and Human Services.

"I was very disciplined about getting an ethics interpretation of what I could and could not do (after government service)," King-Shaw said Thursday. "Health care is what I know, and I couldn't afford to sit out for a year. But I knew someone would ask the question."

Craig Holman of Public Citizen, a public-interest group in Washington, D.C., said King-Shaw's case highlights the laxity and loopholes in a law meant to keep government officials from turning inside contacts into contracts, at least for a year.

"If the government gave him clearance, that takes him off the hook," Holman said. "But for the life of me, I cannot understand a legitimate rationale for such a clearance. That would be ridiculous."

Given King-Shaw's prior responsibilities overseeing Medicare, Holman said it appeared to be a clear violation of the law for him to go to work for a Medicare managed care company during the yearlong "cooling off" period.

"The government can provide clearance as long as it doesn't contradict the law itself," Holman said. "But the government's just not very zealous about enforcing this law."

Jeff Tucker, a spokesman for WellCare, said the company made sure King-Shaw's contract had been approved by his former superiors at HHS. Tucker also said King-Shaw had no role in getting Medicare contracts for the company.

"When he came on as director, the company was still setting up its governmental affairs team and regulatory affairs function," Tucker said. "He helped them make introductions, mostly in Florida."

WellCare was started by Tampa's Dr. Kiran Patel in 1985, sold to a New York investor group headed by George Soros in July 2002 and went public in July 2004. Today it is one of the fastest-growing managed care companies in the nation. From a half-million members at the time of its public offering, the company has grown to more than 900,000 Medicaid and Medicare HMO members in seven states.

And thanks to Medicare's new drug program, which will be provided through private companies, WellCare expects to nearly double its membership next year.

In addition to offering Medicare HMOs in six states and standalone drug plans nationwide, WellCare is one of just a half-dozen companies that will be automatically assigned people who are on Medicare and Medicaid. The company expects the license to result in about 500,000 new members by mid 2006. Medicare will reimburse WellCare and other private drug plans about $60 per member per month for the coverage.

WellCare has said it expects new Medicare plans to generate up to $600-million in revenues next year, yielding pretax income of between $20-million to $24-million. In 2004, the company reported net income of $49.2-million, or $1.56 a share, on revenues of $1.4-billion.

In a filing with the Securities and Exchange Commission this week, WellCare said its consulting contract with King-Shaw had been terminated in April. The company and King-Shaw, who remains on WellCare's board, said the delay in filing the termination notice was merely a housekeeping matter.

"I wasn't doing much outside my board role," said King-Shaw, who sits on the board of the Scripps Florida Funding Corp. and is a partner in a Nashville health care investment firm. "And since the contract was just sitting there unused, it seemed better to clean up the books."

WellCare reported paying King-Shaw $35,000 last year for consulting services. In addition, he was awarded options to buy 8,131 shares of the company's stock at a price of $6.47. The options were fully vested in November.

As a board member, King-Shaw received 57,331 shares in the company when it went public in July 2004 at $17 a share. In the past year, he has sold 15,000 shares for a total of about $475,000. WellCare shares closed Friday at $37.65, down 85 cents.

King-Shaw, who ran Florida's Agency for Health Care Administration before going to CMS, downplayed the role of his government contacts in WellCare's meteoric rise.

"The quality of management there is solid through and through," he said. "It was a collective effort that produced outstanding results."

Kris Hundley can be reached at hundley@sptimes.com or 727 892-2996.

[Last modified November 19, 2005, 01:07:13]