by KHI News Service

A company that is among the five bidding on the state’s Medicaid managed care contract has agreed to pay $137.5 million to settle claims it defrauded Medicaid programs in nine states.

The U.S. Department of Justice announced the settlement with WellCare Health Plans Inc. last week.

It was the second settlement the company agreed to after federal prosecutors in 2006 launched criminal and civil investigations stemming from complaints filed by whistleblowers.

In 2009, the company entered a deferred prosecution agreement and paid $40 million in restitution and forfeited another $40 million. WellCare’s former chief executive, Todd Farha, is scheduled to go to trial in January.

The settlement announced last week will be divided among the federal government and the Medicaid programs in Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Missouri, New York and Ohio.

Sean Hellein, a former financial analyst with WellCare, will collect more than $20 million, federal officials said. He filed the initial whistleblower claim that prompted the investigation.

WellCare officials said the settlement wiped the slate clean for the company.

“The company acted swiftly upon learning of the wrongdoing in 2007, took action to separate the individuals involved, and cooperated fully with state and federal authorities in their investigations. These matters are now resolved and a new leadership team has been put into place,” WellCare spokeswoman Denise Malecki told KHI News Service.

She said the company would bring high standards to its Kansas operations if it wins a contract to help implement KanCare, Gov. Sam Brownback’s Medicaid makeover plan.

“Today, WellCare's commitment to transparency and ethical behavior will be unparalleled in providing quality, cost-effective health care to the members of the KanCare program,” she wrote in an email.

As part of the settlement with the Justice Department, WellCare agreed to enter a corporate integrity agreement that allows the U.S. Department of Health and Human Services' Office of the Inspector General to oversee its “rehabilitation” for three years.

Sherriene Jones-Sontag, a Brownback spokesperson, said the qualifications of WellCare and other KanCare bidders would be thoroughly reviewed by the administration.

“The state conducts thorough evaluations to ensure the selection of qualified bidders who meet the requirements of the KanCare program, including financial sustainability,” she wrote in an email. “The contracts for the KanCare program will include mechanisms such as performance bonds and parent corporation guarantees as well as significant reporting requirements and ongoing reviews of the financial conditions of KanCare contractors.”

WellCare isn’t the only KanCare bidder that has been ensnared in a federal whistleblower lawsuit.

Amerigroup paid $144 million in damages and $190 milllion in fines after losing a whistleblower case in Illinois in 2008.

Wall Street analysts remained bullish on WellCare after last week’s announcement.

“It's conceivable that the company could double its revenues in the next couple of years," Tom Carroll, an analyst at Stifel Nicolaus, told Florida Health News, a partner of KHI News Service.

According to financial analysts, the company had $6.1 billion in revenue last year and has more than $300 million in cash on hand.

But the claims raised against WellCare in the lawsuit were alarming to some in Kansas who already have concerns about the governor’s Medicaid plans.

“I am deeply troubled and shocked by the contents of this settlement agreement, and I believe it underscores the need to slow down the process of implementing KanCare,” Shannon Cotsoradis, chief executive of the advocacy group Kansas Action for Children, wrote in an email to KHI News Service. “Thoroughly vetting potential contractors is a critical component of the implementation process and it must happen to protect the children and families in our state. I don't think this is the kind of Medicaid ‘reform’ we are looking for.”

Among the things cited in the case, WellCare:

• Created a wholly owned reinsurance subsidiary that inflated the company’s premiums in a way that made profits look like expenses;

• Hid information that would have caused the company to send money back to the Illinois Medicaid and Florida Healthy Kids programs;

• Falsified encounter and performance data;

• Rewarded physicians and clinics for referring healthy, low-cost patients to WellCare and sending sick, high-cost patients to competing health plans;

• Engaged in marketing and enrollment practices that discriminated against patients with chronic illnesses;

• Collected premiums on patients who were dead; and

• Operated a “sham” special investigations unit that allowed the company to “seek excessive reimbursement from the providers.”

The fraudulent activity was alleged to have occurred between 2002 and 2007.

→ Find the latest coverage of KanCare, including Brownback's agency reorganization announcement today, at khi.org.