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WellCare Settlement Tally Tops $427 Million

 |  By John Commins  
   August 09, 2010

WellCare Health Plans. Inc. announced Monday that it will pay about $194 million to settle a class-action securities law suit that arose from a 2007 fraud investigation.

The Tampa-based insurer said Monday's class-action settlement resolves all litigation stemming from the four-year-old investigation and—combined with other state and federal lawsuits and fines—bumps the total settlement costs in the last 15 months to about $427.5 million.

Under the agreement, which awaits approval by a U.S. District Court judge in Middle Florida, WellCare will make cash payments of $52.5 million within 30 days of approval, and $35 million by July 31, 2011. WellCare will give the plaintiffs tradable unsecured bonds at a face value of $112.5 million, with a fixed coupon of 6%, and a principal maturity date of Dec. 31, 2016.

If WellCare is sold within the next three years at a share price of $30 or more, the insurer will make an additional $25 million payment. WellCare said the settlement has been accrued in the second quarter of 2010 at approximately $194 million.

On June 24, WellCare agreed to pay $137.5 million to settle fraud allegations with the U.S. Attorney's Office in Tampa, the U.S. Department of Justice, and the state of Connecticut.

"Upon final approval of these two matters, WellCare will have addressed the financial aspects of the legal proceedings that began in late 2007," said WellCare Executive Chairman Chuck Berg said in a media release. "These resolutions will enable us to focus on our mission of serving some of the country's most vulnerable populations and to invest in our priority areas: healthcare quality and access, compliance, infrastructure and growth."

The insurer reported losses of $128.9 million, or $3.05 a share, for the second quarter of 2010, which it attributed to the settlement costs.

On May 19, 2009, WellCare paid a $10 million civil fine to the Securities and Exchange Commission to settle an investigation related to earnings statements irregularities. On May 5, 2009 the insurer paid $80 million to Florida and federal prosecutors to resolve fraud allegations stemming from its contracts with Florida Medicaid and Florida Health Kids Corp.

"We believe we will be able to meet our known near-term monetary obligations, including the terms of this settlement agreement, and maintain sufficient liquidity to operate our business," said WellCare CFO Tom Tran.

WellCare has been the subject of widespread speculation and litigation for the past four years, after federal investigators raided the insurer's Tampa headquarters, carted off boxes of documents, and grilled executives.

In 2007, WellCare stockholders filed federal and state lawsuits against former Chairman/President/CEO Todd Farha, former CFO Paul Behrens, former General Counsel Thad Bereday, and other current and former WellCare directors. On July 7, a federal court gave permission for WellCare to sue the former executives.

In late June, a federal judge unsealed a whistleblower complaint that accused WellCare of egregious conduct, including dumping hundreds of sick newborns and terminally ill patients from the membership rolls to bolster profits. Florida Attorney General Bill McCollum told Health News Florida in July that former executives at WellCare are the subject of state and federal criminal investigations.

Also Monday, WellCare announced a "strategic and organizational restructuring" that will result in layoffs for fewer than 100 employees, and the elimination of a "significant number" of open positions.

"Changes of this nature are difficult, and we are sensitive to the potential impacts to our associates, members, government customers, and business partners," said WellCare CEO Alec Cunningham. "Nevertheless, we believe these steps will strengthen our position for future opportunities and new requirements in government-sponsored healthcare programs."

WellCare provides Medicare and Medicaid managed care services for approximately 2.2 million people nationwide.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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