WellCare in the red for Q2, pays off $334 million in fraud settlements

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WellCare Health Plans posted a net loss of $128.9 million for the second quarter of 2010, which ended June 30, compared with a net income of $37 million for the second quarter of 2009, partly due to a combined $334 million in settlement payments related to a $40 million pattern of reimbursement fraud in contracts for federal-funded healthcare programs from 2002-2007.

According to the U.S. Attorney’s Office’s deferred prosecution agreement, WellCare “knowingly and willingly conspired, confederated and agreed with others to execute and attempt to execute a scheme and artifice to defraud two healthcare benefit programs: the Florida Medicaid program and the Florida Healthy Kids program.”

WellCare was allowed to retain 20 percent of the related premiums received from the Agency for HealthCare Administration (AHCA) to cover entities’ administrative expenses and overhead. As to the remaining 80 percent, the AHCA contracts and Florida law required that any funds not expended or paid directly or indirectly to community behavioral health services providers solely for the provision of the services had to be returned to the state, according to the U.S. Attorney’s Office’s deferred prosecution agreement.

According to the deferred prosecution agreement, WellCare, through former officers and employees, falsely inflated medical expenditure information reported to AHCA and to the Florida Healthy Kids program to reduce contractual payback obligations. Without admitting or denying the allegations, WellCare has agreed to the entry of a final judgment.

According to the Tampa, Fla.-based WellCare, the second quarter net loss arose principally due to two charges associated with the government investigations and related litigation. One of the charges resulted from a preliminary agreement with the Civil Division of the U.S. Department of Justice and certain other government agencies to settle their pending inquiries for the total principal amount of $137.5 million. The estimated fair value of the settlement is $134 million, the health plan stated.

Separately, WellCare reached agreement on the material terms of a settlement to resolve the claims asserted against the company in a securities class action consolidated complaint. Total principal payments under the agreement amount to $200 million. The terms of the settlement will be documented in an agreement which will require approval by the United States District Court for the Middle District of Florida following notice to all class members. There can be no assurance that the settlement will be finalized and approved, and the actual outcome of this matter may differ materially from the terms of the settlement, WellCare stated.

The company said it will be able to meet its known near-term monetary obligations, including the terms of these settlement agreements, and maintain sufficient liquidity to operate its business.