Health Net Inc. Brings on WellPoint’s Fired CFO as Consultant

Copyright 2009 A.M. Best Company, Inc.All Rights Reserved BestWire

May 8, 2009 Friday 04:49 PM EST

510 words

Health Net Inc. Brings on WellPoint's Fired CFO as Consultant

Fran Lysiak

LOS ANGELES

Health Net Inc. has brought on as a consultant the former chief financial officer of health insurance giant WellPoint Inc., who was fired from WellPoint two years ago.

Jay Gellert, Health Net's president and chief executive officer, said in a recent earnings conference call the company is working with David Colby, the former CFO of WellPoint, "on a consulting basis."

Colby is assisting in the company's strategic review and in streamlining the company's operations, Carl McDonald, an equity analyst with Oppenheimer & Co., wrote in a research note. "The fit here is excellent."

In May 2007, WellPoint (NYSE: WLP) fired Colby for undisclosed conduct violations and replaced him with Senior Vice President and Chief Accounting Officer Wayne S. DeVeydt. External legal counsel conducted an investigation and concluded that Colby violated the company's "code of conduct," WellPoint said. But the health insurer said the probe didn't show any illegal conduct, and the policy violations were unrelated to its business (BestWire, May 31, 2007).

Back in August 2007, when Health Net was looking for a CFO, McDonald wrote that he thought Colby would be a good fit for the company, but for several reasons, that didn't pan out, and Health Net hired Joe Capezza, former CFO of Harvard Pilgrim Health Plan in Massachusetts.

And in November 2008, following some of the management changes at Health Net, McDonald made another reference to Colby, noting, "An injection of new management talent into the company probably wouldn't be a bad idea, either. We can easily think of one ex-CFO from the industry that is probably playing a lot of golf these days, has an intimate understanding of the California insurance market, and has a history of turning around troubled companies."

Around that time, BestWire reported that Health Net (NYSE: HNT) shifted the responsibilities of top management when it reported its third-quarter earnings results were impacted by higher-than-expected medical costs, particularly from hospitals, amounting to $55 million pretax (BestWire, Nov. 4, 2008).

Effective immediately, Health Net's board of directors changed the responsibilities of key senior management. Gellert was to start focusing on the company's strategy, while Chief Operating Officer James Woys became responsible for all of Health Net's operations, including commercial, Medicare and Medicaid plans, its government and specialty division and all administrative functions (BestWire, Nov. 4, 2008).

In the first quarter, Health Net swung to $22 million profit from a net loss of $35.7 million the same period a year ago, when it recorded $82.4 million in pretax charges for legal and severance and operations-related expenses.

The majority of Health Net's subsidiaries have current Best's Financial Strength Ratings of B+ (Good).

Shares of Health Net closed on May 8 at $17.29 a share, up 1.83% from the previous close, while shares of WellPoint closed at $48.86 a share, up 2.91% from the previous close.

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])

May 9, 2009