Medicaid Whistleblower Leads to $137.5 Million Settlement

Tampa-based managed care company WellCare Health Plans, Inc. recently agreed to pay $137.5 million to settle allegations of fraud and other abuses, the Justice Department announced. The federal government will share the proceeds of the settlement with nine states: Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Missouri, New York and Ohio. The for-profit company served about 2.6 million Medicaid beneficiaries as of August 2011. The four relators who brought whistleblower suits against the company will receive about $25 million.

The alleged fraud, which the company has not admitted, included:

  • inflated reports of the amounts spent on medical care to avoid returning funds to state agencies
  • retention of overpayments
  • operation of a sham special investigation unit
  • cooperating with providers who overbilled for services
  • falsification of records of patients’ medical condition and treatments provided and
  • manipulation of grades of service in reports on the performance of its call center

The company also allegedly violated federal marketing requirements for Medicaid managed care organizations by “cherrypicking” potential members to keep costs down. It was reported that WellCare performed a study of its costs for certain patients and then encouraged patients to disenroll to shift the cost of their care to state Medicaid agencies. A relator who worked undercover to assist in the federal investigation alleged that the company dropped premature infants and terminally ill patients. Arguing that the company’s actions cost the government between $400 and $600 million, the relator initially objected to the settlement; he disbelieved the company’s claim that it could not possibly afford more than $137.5 million.

In 2009, the company paid $80 million—$40 million in restitution and forfeiture of another $40 million—and entered into a Deferred Prosecution Agreement for fraud against the Florida Medicaid program. Thus, according to DOJ, its total recovery against WellCare will exceed $200 million. And if the company is acquired or there is a change of control in the next three years, the company will have to pay an additional $35 million. In April, 2011, the company entered into a corporate integrity agreement with the HHS Office of Inspector General to come into compliance with the law.

In 2009, in a related enforcement action by the Securities and Exchange Commission (SEC), WellCare agreed to pay $10 million to the SEC and return another $1 million in profits. Top-level executives, including the former general counsel, were prosecuted for fraud. One pleaded guilty in 2007; three others are scheduled for trial in 2013. SEC brought a civil suit against the three in January 2012.

In 2011, the company also settled a class action brought by investors alleging misrepresentations in violation of federal securities laws. The $200 million settlement is to be paid with $87.5 million in cash and $112.5 million in bonds. As with the DOJ settlement, if the company is acquired or experiences a change in control within three years of the agreement, it must pay another $25 million.

Florida Health News reports that resolution of its legal difficulties makes WellCare an attractive target for a buyout. Because many states are moving toward mandatory managed care, there are many opportunities to grow its business. One analyst says that the company’s revenue could double. If the Supreme Court upholds the Affordable Care Act, the expansion of Medicaid eligibility will make contracts with Medicaid agencies even more valuable.

Even while the settlement was on hold, the company picked up a contract with the Kentucky Medicaid agency, which began in the fall of 2011. Problems with the roll-out of Kentucky’s managed care program were discussed in an earlier post.

Competition for those Medicaid managed care contracts is fierce. States usually must use competitive bidding. Bidders and their affiliates make large campaign contributions to state officials. In Missouri, Centene donated $50,000 to the governor’s campaign in the two years preceding the contract award and $175,000 to the Democratic governors Association. Centene is based in Missouri but did not have a Medicaid contract previously; Molina, which lost despite 16 years of managed care contracts with the state, sued and asked the court to enjoin the state’s open enrollment, set for April 19, 2012. The case is being litigated at this writing.

According to the Chicago Tribune, in November, 2005, WellCare and its affiliates contributed a total of $100,000 to the reelection campaign of then-Governor Rod Blagojevich. The local affiliate had given him $25,000 earlier in the year.

 According to the Orlando Sentinel, three Medicaid HMOs— Humana, United and WellCare—were among the top 100 spenders for lobbying the Florida legislature in 2011. Humana spent more than $300,000. United and WellCare each spent an amount in the mid-210’s. In addition, the Florida Association of Health Plans, which seeks to influence Medicaid policy, among other issues, spent more than $300,000 on lobbying. Blue Cross Blue Shield, which isn’t a Florida Medicaid contractor but plans to bid, spent just under $300,000.

All the money that any plan spends on fines, unlawful remuneration, campaign contributions or lobbying isn’t going to pay for health care. It’s not paying for quality review, patient education, or even upgrading electronic health record systems. Could these facts be related to the findings of the study described in an earlier post, showing poorer health outcomes for beneficiaries in publicly traded Medicaid managed care organizations?