Wellcare Settles Again, but Wait, There is More...

We posted several times, most recently in 2009 (here and here), about misbehavior by the health insurance company/ managed care organization Wellcare.  That year, the company settled criminal charges that it defrauded the Florida state Medicaid program by paying a fine and accepting a deferred prosecution agreement.  Previously, the state of Connecticut had canceled its arrangement with Wellcare to run a Medicaid program in that state after the company refused to provide the state with requested data.  Then the company signed a consent order with the Florida Elections Commission in which it admitted making "questionable" political contributions.

Then this year, it was announced that the company would settle additional civil charges, as per the St. Petersburg (FL) Times,

Tampa-based WellCare Health Plans Inc. has agreed to pay $137.5 million to the U.S. Department of Justice and other federal agencies to settle civil lawsuits accusing the company of overcharging for its Medicaid and Medicare programs.

Also,

Under the tentative deal, which must be approved in court, WellCare would have three years to make payments to the Justice Department's civil division, the U.S. Attorney's Office for the Middle District of Florida and the U.S. Attorney's Office for Connecticut.

WellCare said the payments will include the approximately $23 million owed to the Florida Agency for Health Care Administration for overpayments received by the company in 2005.

The civil settlement is separate from a deal struck last year on the criminal front. In that case, WellCare agreed to pay $80 million to settle a charge of conspiracy to defraud the Florida Medicaid program and the Florida Healthy Kids Corp.

It also previously agreed to a $10 million civil penalty settling an informal inquiry by the Securities and Exchange Commission that regulatory filings reflected more than $40 million in profits that WellCare failed to return to the Florida agencies from 2003 to 2007.

WellCare, which is Florida's largest Medicaid plan operator, has acknowledged that it overcharged Florida and Illinois health programs by about $46.5 million.

But wait, there is more. No sooner than this settlement been announced than it was challenged. While considering the settlement, the judge involved unsealed a set of complaints by whistle-blowers about Wellcare. First, as reported by the Miami Herald,

The complaint, filed by former WellCare financial analyst Sean J. Hellein, portrays a company so ethically challenged that it rewarded employees who dumped hundreds of sick newborns and terminally ill patients from the membership rolls, thereby pumping up profits by millions of dollars.

It describes a company that embraced fraudulent accounting as a business model, eventually stealing between $400 million and $600 million from Medicare and Medicaid programs in several states, perhaps most of it from Florida.

See these specifics:

Hellein, who wore a wire for more than a year to gather evidence for federal agents, says in the complaint that:

- WellCare moved money between accounts to make it appear that patients' treatment cost much more than it actually did. In some cases, the company made payments years in advance to jack up the apparent cost of care to fool states into increasing Medicaid premiums. It worked, he said.

- When states made overpayment errors, WellCare didn't pay the money back, as its contract requires. Florida Medicaid made a series of overpayment blunders that fattened WellCare's bottom line by many millions; those who made the errors included both state officials and contractors.

- Sometimes hospitals and physician groups helped WellCare hide its true spending from Medicaid programs by accepting payments through one account for expenses incurred by another. Sometimes they allowed WellCare to pay for future years' expenses to make it appear spending for the current year was higher than it actually was.

Hellein named two hospital systems - one in Illinois and one in Florida - that he said participated in the sham arrangement, but he said it was common.

WellCare pushed expenses into certain programs - behavioral health programs in Florida and Illinois and the Healthy Kids program in Florida, a program for uninsured children of families with modest incomes - because they required repayment if the cost of treatment fell below a certain threshold.

Florida public officials were repeatedly duped by WellCare. The director of the Florida Medicaid program from 2004 to 2007, while much of the alleged fraud was going on, was Tom Arnold. He currently is Secretary of the Agency for Health Care Administration.

Another agency that fell for WellCare's line was the Office of Insurance Regulation, where an actuary found nothing wrong with a WellCare subsidiary in the Cayman Islands acting as the company's reinsurer.

The reinsurance arrangement enabled WellCare to bank $5 for each insured while making it appear that the cost was just 11 cents, the complaint says.

After Wall Street analysts raised questions about the legality of the reinsurance arrangement in 2007, some thought it might be reviewed by Chief Financial Officer Alex Sink. But nothing ever came of it.

WellCare conducted a study to figure out which Medicaid recipients were profitable and which were not so that it could engage in "cherry-picking," a term for enrolling only the profitable members. The study found that disenrolling a baby born with health problems saved the company an average of $20,000; each terminally ill patient saved $11,500.

Those who were persuaded to resign from WellCare went into the general Medicaid or Medicare fee-for-service programs.

WellCare also restructured its benefit package to discourage the least-profitable Medicaid recipients from enrolling and encouraging those who were more profitable to sign up.

Low-income mothers and children yielded a net of only about 10 percent, while the physically and mentally disabled paid for by Medicare yielded a net of 30 percent, the complaint says.

The complaint names about 20 employees of WellCare who knew about the fraudulent activities. Only one, Gregory West, has been charged. He pleaded guilty in December 2007 but sentencing has been postponed several times.

No charges have been brought against three former executives of the company named in the complaint as orchestrating the fraud: President, CEO and Chairman Todd Farha, CFO Paul Behrens and General Counsel Thaddeus Bereday.

They all resigned in January of 2008, three months after the FBI and other law-enforcement agents raided the Tampa campus of WellCare and carted off computers and files.

The the St. Petersburg Times reported about two more complaints that were unsealed:

Clark J. Bolton, a former supervisor of special investigations at WellCare, said the insurer encouraged overbilling and refused to audit claims for fraud in order to curry favor with doctors and hospitals and build market share. The result was millions in excessive and illegal expenses passed through to federal Medicare and state Medicaid programs, Bolton said.

Eugene Gonzalez, a referral coordinator for seven years, claimed WellCare met government customer service standards only because it had employees create backdated documents and make bogus calls to the company's phone lines. Failure to meet these standards would have resulted in the loss of billions of dollars worth of Medicare and Medicaid contracts.

As we have before, we see a striking contrast between the scope of the allegations and the response by the government agencies that are supposed to regulate insurers, insure that public money is spent wisely, and investigate and seek punishment for illegal activities. As the latter St. Petersburg Times article noted,

U.S. Rep. Kathy Castor criticized the proposed settlement as wholly inadequate in a letter this week to Attorney General Eric Holder. 'Where is the penalty and punishment for such egregious actions?' she wrote. 'It appears that companies such as these simply build such payments into the 'cost of doing business.' We cannot allow this to continue.'

This notion should be familiar to readers of Health Care Renewal. The Wellcare case fits right into the parade of legal settlements we have discussed. As we have said again and again, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Also note that the case of Wellcare remains relatively anechoic. Despite the severity of allegations, and the national scope of the company, the case has only been mentioned in news stories, mainly in Florida where the company has its headquarters, and in a few health care trade publications. It, like many of the cases we discuss on Health Care Renewal, has not been mentioned in the medical/ health care research/ health care policy literature.

If we cannot even speak about the sort of very bad management that afflicted Wellcare as a cause of many of the ills of our health care system, how do we really expect to constructively reform that system?