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WellCare stock on mend

Amid strong earnings, a whistle-blower suit provides hints about the Oct. 24 raid.

By KRIS HUNDLEY, Times Staff Writer
Published November 6, 2007

WellCare's stock, which had been driven down more than $100 per share in the week following the raid, closed Monday at $33.30, up $5.93.
	[Ken Helle | Times (2006)]

ADVERTISEMENT [Chris Zuppa | Times] FBI agents executed their search warrant at WellCare's Henderson Road campus on Oct 24.

WellCare Health Plans' stock price rebounded 22 percent Monday, following a strong earnings report and the first hints of allegations that may have triggered a federal and state raid on the company's Tampa headquarters last month.

WellCare, which provides managed-care plans for 2.3-million Medicare and Medicaid recipients, said the company and a subsidiary were named as defendants in a whistle-blower lawsuit filed in Tallahassee on Oct. 25, the day after authorities executed their search warrant at WellCare's Henderson Road campus.

The complaint was filed by Clark J. Bolton of Safety Harbor. Bolton, 43, had been a supervisor in WellCare's special investigations unit, which reviews Medicare and Medicaid claims for fraud.

Because the complaint is under seal in Leon County Court while it is being reviewed by government attorneys, the specific nature of Bolton's allegations are not known.

Bolton, who has nine years of experience in health care fraud investigations, did not return calls seeking comment.

Though the company said he was terminated Oct. 1, in mid October, Bolton and another WellCare executive presented a session on health care fraud to the Florida West Coast Chapter of the Institute of Internal Auditors. In PowerPoint slides accompanying that talk, they touted WellCare's corporate ethics, saying at WellCare, "Compliance is driven from the top."

Also named as defendants in Bolton's lawsuit were After Hours Pediatrics, an urgent-care provider in WellCare's Medicaid network, and TMG Health Inc., a Pennsylvania company that handles claims and enrollment for WellCare's Medicare plans.

Todd Farha, WellCare's chief executive, said the company became aware of the lawsuit through a docket search of Leon County records. A spokesman for TMG Health said it was unaware of the complaint. A spokeswoman for After Hours Pediatrics, which has four locations in the Tampa Bay area, did not return a phone call seeking comment.

In a conference call Monday morning, Farha said he did not know if the Leon County lawsuit is related to a whistle-blower complaint reported over the weekend in the Wall Street Journal. Citing unnamed sources, the newspaper said a former financial department employee of WellCare's Harmony Behavioral Health subsidiary had sued the company, alleging it had inflated its mental health bills to Florida Medicaid by $35-million over five years.

In addition, the Journal said, investigators were examining WellCare's reinsurance subsidiary in the Cayman Islands. Several analysts have suggested that WellCare overpays itself for reinsurance, thereby inflating expenses for the state Medicaid program.

Investors and analysts seized on any detail, however scarce, about the ongoing WellCare investigation to reassess the company's share price. The stock, which had been driven down more than $100 per share in the week following the raid, closed Monday at $33.30, up $5.93.

Brian Wright, with Jeffries & Co. in New York City, said it looks increasingly likely that WellCare will be slapped with a fine, rather than the loss of its government contracts. Raising his target price on WellCare to $50 a share, he wrote, "We believe that the company has enough financial flexibility to fund likely liabilities."

Thomas Carroll, an analyst with Stifel Nicolaus in Baltimore, upgraded WellCare to a hold, but cautioned about drawing conclusions about the scope of the investigation so early in the game.

"We're operating in a vacuum of information," he said. "I keep going back to the coordination and magnitude of the raid that implies a much broader investigation than just one or two areas of interest. But the stock was due for a correction."

For the three months ended Sept. 30, WellCare said earnings from its Medicaid and Medicare managed-care plans rose 67 percent to $72.4-million, or $1.71 a share, compared with $43.3-million, or $1.06 a share, for the third quarter of 2006. Total revenue, all from government reimbursements, rose 41.7 percent to $1.4-billion, compared with $1-billion a year ago.

WellCare said its financial data was preliminary and had not been reviewed by outside auditors. The company also will not file a quarterly report with the Securities and Exchange Commission until the completion of its special committee's investigation into matters raised by government proceedings. The committee is made up of three outside directors: Ruben King-Shaw, Neal Moszkowski and Christian Michalik.

During Monday's conference call in which no questions were taken, the company said it was "unable to predict how long the special committee's investigation will take."

Times researcher Angie Holan contributed to this report. Kris Hundley can be reached at hundley@sptimes.com or (727) 892-2996.

[Last modified November 5, 2007, 22:30:51]