WellCare revises past financial statements to include refunds owed to Florida, Illinois Medicaid programs

Jul 23 2008

WellCare officials on Monday announced that the health insurer has revised financial statements from 2004 through mid-2007 to include refunds owed to the Florida and Illinois Medicaid programs, the St. Petersburg Times reports (Hundley, St. Petersburg Times, 7/21).

During the affected time period, WellCare officials said the company overstated earnings by a total of $28 million, or about 9%, and understated liabilities by about $46 million (Francis, Wall Street Journal, 7/22).

WellCare has not filed audited financial statements since the middle of last year. After the FBI in October 2007 raided WellCare headquarters in Tampa, Fla., the company formed a special internal committee that found accounting errors related to refunds owed to the Florida and Illinois Medicaid programs and the Florida Healthy Kids program.

The Florida and Illinois Medicaid programs pay WellCare a fixed amount per beneficiary, with the requirement that the company spend a minimum percentage of premiums on medical and mental health benefits. WellCare must pay refunds to the states in the event that the company does not meet the requirement. According to the internal committee, WellPoint "included certain ineligible medical expenses in our premium refund calculations, which understated the amount of the refunds." As a result of the accounting errors, WellCare owes the Florida and Illinois Medicaid programs additional refunds of $46.5 million through the first half of 2007, according to the company (St. Petersburg Times, 7/21). The internal committee said that the accounting errors resulted because "former senior management set an inappropriate tone in connection with the company's efforts to comply" with the requirements of the Florida and Illinois Medicaid programs.

WellCare officials also said that the restated financial statements do not include the cost of any settlement with regulators and prosecutors. WellCare has not released audited financial statements for 2007, and company officials remain uncertain about a date for their release (Francis, Wall Street Journal, 7/22).

WellCare Leadership

Two months after the federal investigation became public, WellCare Chair, CEO and President Todd Farha; CFO Paul Behrens and general counsel Thaddeus Bereday resigned, and the company implemented a new leadership structure. Since late January, WellCare has appointed a new executive chair, CEO, general counsel and CFO and has established a regulatory compliance committee comprised of company board members.

WellCare "continues to cooperate with the ongoing federal investigation but cannot estimate the impact or size of any fines it might incur," and the company "faces a number of shareholder lawsuits, as well as a whistle-blower claim from a former employee," the Times reports (St. Petersburg Times, 7/21). In addition, WellCare faces investigations by several states and the Securities and Exchange Commission (Francis, Wall Street Journal, 7/22).