How WellCare got so rich
Solid management helped, but generous Medicare payments were key.
By KRIS HUNDLEY
Published January 7, 2007
Since going public in July 2004, WellCare Health Plans Inc. has boosted membership in its Medicaid and Medicare managed care plans by nearly 400 percent. It earns almost twice as much in a quarter as it used to net in a year. And its share price has zoomed to more than $70 in late December from an IPO price of $17.
Todd Farha, WellCare’s high-energy president and chief executive, credits the Tampa company’s extraordinary growth to luck, hard work, attractive benefits and close attention to the basics, like answering customer calls quickly and paying doctors and hospitals without delay.
But it also doesn’t hurt that Farha is leading WellCare at a time when Congress has added a generous drug benefit and is pumping record funds into Medicare reimbursements to private insurers.
And it can’t be a bad thing to have a blue-ribbon board like WellCare’s, which includes the former No. 2 official at the federal Medicare agency, an ex-governor of Massachusetts and a Harvard professor who has been called one of the most powerful people in health care.
Farha, who engineered the acquisition of WellCare by a New York investment group four years ago, doesn’t dispute that substantial government funding — about $800 per Medicare member per month — has been critical to his company’s success. He’s also confident that seniors, who are enjoying such goodies as zero premiums and free gym memberships, will lobby politicians aggressively to keep the money flowing.
As for his board, which just had a member depart to become head of Florida’s Medicaid agency, Farha scoffed at the suggestion that he needs their contacts to win new contracts.
“Connections are not what you leverage a board for,’’ said Farha, who was raised on a ranch in Wichita, Kan., and went on to earn a Harvard MBA. “A CEO can open doors without a board.’’
Farha, 38, has been pretty much kicking down doors since he took control of WellCare in July 2002. Of the top 20 executives who had been with the company when it was owned by Tampa cardiologist Dr. Kiran Patel, only one is left. Of 300 director-level posts, more than 80 percent are new hires, most recruited from out of state.
“That was a major driver of our success,’’ said Farha, who early on pulled all the new executives together in a ballroom at the Tampa Marriott. “We said 'This is where we’re headed and this is where you fit in.’’’
WellCare’s success — it was the Tampa Bay area’s best-performing stock last year — was far from a slam dunk, Farha said.
Although the company had about $800-million in revenue when Farha’s team acquired it, its businesses in New York and Connecticut were losing money and there were regulatory and customer-service problems. Medicaid accounted for most of its membership and some advisers were telling Farha to jettison the Medicare business because it was a money-loser.
Even the company’s headquarters, in a strip center on N Dale Mabry Highway, were problematic, with limited parking, unreliable plumbing and an erratic power supply.
“We should have moved out of there sooner,’’ said Farha, whose company relocated in mid 2004 to the spacious campus on Henderson Road that formerly housed Capital One. “But until we knew we were on sound financial footing, we didn’t want to make the investment.’’
One of Farha’s early priorities was to pour money into WellCare’s IT and customer service. Today the company’s high-tech phone command center handles 40,000 calls a day, routing them to operators at seven locations while giant screens track call volumes and wait times.
“We work so hard to get enrollees, we don’t want to lose them on the phone,’’ Farha said. “Keeping our phone-answering teams overstaffed is one of the cheapest investments we can make.’’
Though Farha thought he knew what he was getting into when he took over at WellCare, even he was surprised by the business potential of Medicare’s drug plan, which was approved by Congress in late 2003 and became effective in 2006.
“We didn’t fully digest the importance of it until a month or two after it passed,’’ he said of the legislation that called for private insurers to compete for Medicare beneficiaries’ business.
Last year, WellCare was approved to offer Medicare Advantage plans, which cover seniors’ medical as well as drug costs, in six states. It also was selected as one of 10 companies to offer a nationwide drug-only plan, called a PDP, for Medicare beneficiaries. The success of WellCare’s PDP — it attracted 910,000 members in the first year — caught even Farha unaware, especially because the company did little nationwide marketing.
“One-third of the people who enrolled in the PDP found it through the Medicare Web site,’’ he said of the plan that provides drugs to seniors who have medical coverage through another source. “Seniors are pretty savvy shoppers and we had a product they want.’’
WellCare’s PDP was also boosted by about 450,000 members on both Medicare and Medicaid who were automatically enrolled in the plan by the government.
WellCare’s second surprise last year was the popularity of its new Medicaid plan in Georgia, which turned out to the most popular of three private HMOs offered there. “We’ve really been playing catch-up here this year,’’ Farha said.
Farha, whose company expects to report $3.7-billion in revenue for 2006, said companies like WellCare save the government money by more efficiently providing care to the poor and elderly.
But a recent study by the Commonwealth Fund in Washington, D.C., found that generous reimbursements to private Medicare HMOs cost taxpayers $5.2-billion more than traditional Medicare in 2005.
Though much of the additional money went toward providing member benefits not available to people on traditional Medicare — like free eyeglasses or personal trainers — critics say the extra dollars raise questions about whether private insurers can really be more efficient than Medicare.
“I’ll be unimpressed with private HMOs until they’re competing with the government on a level playing field,’’ said Marilyn Moon, senior fellow with the Urban Institute in Washington, D.C.
Recalling that private insurers abandoned the Medicare market when government reimbursements were slashed in the late 1990s, she predicted a repeat should payments decline.
“Right now, Medicare HMOs are a good deal for seniors if the federal government is dumb enough to overpay for them,’’ she said. “But it’s not good public policy.’’
Kris Hundley can be reached at email@example.com or (727) 892-2996.
[Last modified January 7, 2007, 08:15:57]
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