The WellCare Debacle

Some people are shocked about what is happening to WellCare in Florida. FBI agents raided the national head offices of WellCare during the Board of Directors meeting. Employees, managers and directors were questioned.

Some innocents commenting on the WSJ blog are wondering if the FBI would raid someone's office without cause. Others suggest the FBI would do anything if it could improve their image.

Investor lawsuits are already flying, the stock is down nearly 75% and a lot of people at WellCare are asking themselves why they took the job in the first place.

Several years ago, Medicaid fraud investigations were reorganized under state control. It has become a lucrative business, not just for government. Instances of Medicaid fraud typically do not revolve around billing for a made up patient or non-existent procedure, but rather, systems which support consistent error. Fraud and error are one and the same, except that error becomes fraud once it is built in to how you do business.

Many physicians have mis-coded their visits. The difference between a 99213 and a 99214 in outpatient care is miniscule, but reimbursement is 20 - 30% different in most out-patient settings. One physician who went to jail for fraud had an office so messy he couldn't even find charts to prove he had rendered any services. Half of his charts were under a couch at home, where he had brought them to finish his documentation.

A medical supply company that got into trouble supplied wheelchairs and other equipment for patients and billed Medicare. However, there were occasions they tried to help the patients out and supplied the equipment (and billed) before getting a physicians' authorization. I can't remember if anyone went to jail, but it sure blew up on those guys.

Insurance companies of all stripes, in health care or otherwise, have a simple natural incentive: attract clients and find a way not to pay claims. Of course, they cannot do this overtly because no one would trust them to do business. The long-term integrity of their $2.2 trillion business trades off with short-term financial considerations.

All physicians know how health insurers play at the edge of the law. They take so long credential some of my docs, that they later told us the signatures no longer carried legal weight because it was too old. They tell us it was our fault, even when the application was clean. Same with charges. I am aware of a hospital that had a charge go back and forth for so long, once it all got sorted out, someone at the insurance company stepped in and said it was their policy not to pay for claims made more than a year ago. It seems like a game and the insurers typically have the information and power to squeeze the providers.

I do not have any inside knowledge of what is happening at WellCare, but have enough understanding of the wiggle room and gray zones that can be abused, I would guess WellCare tripped over something really simple. Their Medicaid profits went from below average to 200 basis points above average between 2004 and 2006 according to a Lehman analysis released to brokerage clients this morning. WellCare's overall margins are well above peers. Performance in a mundane industry like insurance does not improve so dramatically unless something fundamental happened. No, it's not that they run their business so efficiently.

I hope WellCare's not in your retirement fund.