WellCare: The Medical Costs That Stayed Inside the Company

The WellCare Medicaid fraud settlement required the company to pay $137.5 million to resolve allegations that included inflated medical spending and retained Medicaid overpayments. The Florida behavioral-health scheme also produced a separate criminal case against executives: the government proved that false expense reports let WellCare’s plans keep money they owed back. For someone working in finance, medical economics or compliance, the revealing part is how the numbers were made. Money moved to a subsidiary, became reported medical spending, and helped protect profits still inside WellCare.

WellCare Health Plans, based in Tampa, provided managed healthcare through government programs. The Justice Department’s April 3, 2012 announcement covered Medicare and Medicaid allegations and resolved four whistleblower lawsuits. A former financial analyst’s complaint started the government’s investigation. The federal government joined the civil litigation. The Justice Department identified the FBI and the Department of Health and Human Services’ Office of Inspector General among the joint investigators.

Florida Paid for Members, Then Asked What Went to Care

Florida paid WellCare’s Staywell and HealthEase plans a flat monthly amount for each covered Medicaid member. That capitation payment did not rise or fall with the member’s actual medical costs. Spending less could leave the plan with a profit. Spending more could produce a loss.

The court’s account of the criminal trial explains the particular spending restriction behind this case. Florida’s rule, enacted in 2002, required the plans to spend at least 80% of the designated premium on covered behavioral-health services and return the shortfall. Their contracts applied that requirement to community mental health and targeted case management services. The latter included intensive support for high-risk patients with severe emotional or mental conditions.

The state was paying for care that people depended on. Its refund requirement limited how much of that designated money could remain available for administration, overhead and profit.

The annual reporting machinery was simple. Florida’s Agency for Health Care Administration supplied a worksheet with the premium already entered. The plan entered its qualifying expenses, and the remaining calculations produced the refund. The chief executive or president certified the spending information.

That is the point of medical loss ratio reporting: how much of the premium went to health care. In this case, the expense entered on the worksheet determined how much money the plan could keep. The trial evidence followed the people who selected that expense number.

Harmony Made an Internal Payment Look Like Medical Spending

The criminal opinion describes how WellCare created a wholly owned subsidiary, initially called WellCare Behavioral Health and later renamed Harmony Behavioral Health. Staywell and HealthEase transferred their provider contracts to it. The new company stood between the plans receiving Medicaid premiums and the providers delivering care.

Under the arrangement described by the court, the plans would pay the subsidiary 85% of the relevant premium while it continued paying only 45% or less directly to providers. The larger internal payment supplied the reported expense. The smaller provider payment reflected what reached the people delivering the services.

A company allocation slide made the result explicit: WellCare entities would retain 55% of the behavioral-health premium for administration, overhead and profit, against the permitted 20%. We find the premise extraordinary: a limit on money kept inside the business answered by moving that money to another company inside the business.

The court also recounted the chief executive’s instruction to distance the subsidiary’s name from WellCare. Harmony supplied that distance on paper. It remained wholly owned by the company whose plans were reporting the expense.

The Refund Came Before the Calculation

According to the criminal opinion, WellCare’s Medical Economics team, part of its Finance Department, calculated the reported expenses under the chief financial officer’s oversight. Trial testimony described work moving through that team to executive approval and the decision to submit the worksheets.

For the earlier reporting periods, the team added costs outside the qualifying services. One example was a primary-care claim for a broken arm that also carried a secondary diagnosis of depression. The court described pharmacy costs and other nonqualifying claims entering the calculation as staff sought to reduce the refund.

The next reporting cycle showed the process working backward. For the 2004 reports, an analyst received instructions to prepare different refund scenarios. The internal contracts and journal entries did not separate inpatient and outpatient payments to Harmony. He manipulated that split to produce the requested results, without using the actual amounts paid to providers for the qualifying outpatient services.

The requested refund drove the expenses. Accounting in reverse.

The Encounter File Told a Different Story

Encounter data exposed a discrepancy that the annual expense totals concealed. In the criminal case, the court explained that Florida used encounter reports to track the services Medicaid patients received and help set future capitation rates. Those reports could reveal individual services and their costs, allowing the agency to compare them with the plans’ aggregate spending claims.

The comparison raised questions. A Medical Economics manager drafted a response explaining the difference: the agency was counting payments to providers, while the plans were counting payments to Harmony. The court recounted how executives edited that explanation out of the letters ultimately sent to the state.

By 2007, the plans had shifted from pricing encounters using Harmony’s provider costs to using what Staywell and HealthEase paid Harmony. At an internal meeting described in the opinion, the director of Medicaid policy analytics argued that the figures should reflect actual provider payments. Harmony’s overhead and profit remained inside WellCare. Other participants acknowledged that Harmony’s own work was administrative.

The vice president of Medical Economics explained the business concern in words the court quoted from the recorded meeting:

The group decided to spread the sub-capitation payments across the encounters. The court said the resulting prices exceeded Harmony’s actual patient-service costs.

That decision connected the refund to the next rate negotiation. The same internal margin that the expense reports protected could appear in the encounter file as a cost of delivering care. An employee who knew why the pricing method changed could explain something the final file alone would hide.

The Civil Allegations Reached Beyond Behavioral Health

The civil settlement agreement covered a broader set of allegations than the Florida expense-report prosecution. The United States alleged that WellCare inflated spending through Harmony, submitted false encounter data and manipulated other financial and operational reports.

WellCare allegedly counted reinsurance profit as medical expense and manipulated IBNR reserves, the estimates of claims not yet reported or paid. The government also alleged that it kept newborn premiums, payments tied to overstated membership and money received through data or programming errors.

The allegations reached patient care, too: selecting healthier enrollees, improperly disenrolling Medicaid patients and paying providers to encourage upcoding, denial of services or the movement of sick patients to other plans. The government also alleged that WellCare operated a sham special investigations unit and failed to notify agencies and remit funds from provider settlements.

The last allegation reaches the function meant to find fraud. It is a particularly sharp example of the distinction a 1999 Harvard University report, Controlling Fraud and Abuse in Medicaid: Innovations and Obstacles, said state agencies were missing: fraud against a managed-care organization and fraud by that organization require different scrutiny. The report identified sham management contracts and related-party transactions among the practices officials had encountered. Its point about relying on the plan to expose its own conduct was blunt:

The civil settlement required payments to the federal government and nine states: Connecticut, Florida, Georgia, Hawaii, Illinois, Indiana, Missouri, New York and Ohio. It also provided for an additional $35 million if a qualifying change of control occurred within three years.

The False Costs Reached the Financial Statements

The expense reports also affected the company’s reported earnings. In the criminal trial, the government’s forensic accountant compared the claims database with the reported behavioral-health expenses and found a $29,920,705 overstatement across 2002 through 2006. The court described how the company’s audited financial restatement corroborated his analysis of overstated expenses and underpaid refunds.

WellCare agreed to a $10 million civil penalty in the Securities and Exchange Commission’s separate May 18, 2009 civil action. The commission alleged that retained refunds materially inflated reported net income and earnings per share.

That action also addressed Florida Healthy Kids, which provided health care services to uninsured children. The commission alleged that WellCare inflated reimbursement rates for its Healthy Kids plan in exchange for lower Medicaid and Medicare rates at two Florida hospitals.

For a finance employee, the connection runs from the expense worksheet to the refund owed, then into the earnings the company reports. An internal number can travel a long way.

Other Plans, Other Ways to Keep the Money

The relationship between reported care and retained money also appears in other Medicaid False Claims Act cases. In Ohio, CareSource agreed to a settlement over alleged failures to provide screening, assessment and case management. The government alleged that false data made the services appear delivered, allowing the plan to retain incentives and avoid penalties.

The CareSource whistleblowers’ complaint alleged a concrete substitution for the clinical assessment:

In California, the Gold Coast Health Plan settlement concerned allegations that predetermined or duplicative additional-service payments inflated allowed medical expenses and helped avoid returning adult-expansion funds. The recurring question is what the plan’s reported spending or service entry represented, and how that representation let it retain government money.

What Evidence Is Needed to Prove Fraud?

We work with you to understand what the plan reported, what it paid providers and who chose the calculation. The evidence depends on the payment arrangement and what you know about it. WellCare’s criminal case made those connections through contracts, worksheets, claims data, internal communications and testimony.

The original calculation and the approved submission can tell different stories. Here, refund scenarios showed a target chosen before the expense calculation. Draft correspondence explained the gap between provider costs and payments to Harmony. The final letters omitted that explanation. Meeting discussions showed why the encounter-pricing method mattered to management.

These are records finance, actuarial, medical-economics and compliance employees may recognize from their work. The employee who understands the allocation method brings a different view from the person who reviews the state submission or pays the provider. We work with that knowledge to connect the report, the money and the decision behind both. That is also how we identify the Medicaid managed-care whistleblower lawyers suited to the case.

Can You Get Paid for Reporting Medicaid Fraud?

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The whistleblower reward follows the recovery in the case.

In its WellCare civil settlement announcement, the Justice Department said the former financial analyst whose complaint initiated the investigation would receive approximately $20.75 million. The other three whistleblowers would split about $4.66 million and share in any contingent payment.

You Know Why the Number Changed

If you saw a refund target drive a medical-expense report or an internal payment replace the cost of patient care, talk with our whistleblower experts about what happened inside the plan. We build your strongest case around the accounting and the people who directed it, bring in Medicaid managed-care whistleblower lawyers, and stay beside you through the case. You can start with the part you understand, and we work with you to connect it to the rest.