WellCare to Cut 9% of Workforce; Pay $10 Million Penalty to End Informal SEC Probe

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May 27, 2009 Wednesday 12:32 PM EST

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WellCare to Cut 9% of Workforce; Pay $10 Million Penalty to End Informal SEC Probe

Fran Lysiak

TAMPA, Fla.

WellCare Health Plans Inc. is eliminating about 360 positions, or 9% of its work force, as part of a restructuring to cut costs and remain competitive. Separately, the Florida-based health insurer said it will pay a $10 million civil penalty to resolve an informal investigation by the U.S. Securities and Exchange Commission over some filings that allegedly violated some federal securities laws.

The realignment is in response to changing business conditions and is related to its recent decision to withdraw from Medicare Advantage private-fee-for-service plans for seniors next year, WellCare said in a statement.

WellCare (NYSE: WCG), with about 2.5 million members in the United States, provides managed-care services exclusively for government-sponsored health insurance programs such as Medicare and Medicaid.

"Our objective remains building a stronger company that can efficiently and effectively provide important health care options to the millions of beneficiaries we serve and the government clients have entrusted us to do so," said Heath Schiesser, WellCare's president and chief executive officer, in a statement.

The affected employees will receive severance pay, outplacement support and can apply for one of the company's 150 open positions, the health insurer said.

WellCare also said it will pay the SEC a $10 million civil penalty involving some previously issued financial statements.

Last July, WellCare said it would restate financial statements for 2004, 2005, 2006 and its unaudited financial statements for the first six months of 2007 because it recorded inadequate liabilities for some premium refunds under contracts with government health programs in Florida and Illinois. It owed a refund of up to $42 million as of Dec. 31, 2006, and expected to owe another refund of up to $4.5 million for 2007 (BestWire, July 23, 2008).

WellCare, which didn't admit or deny the SEC's allegations, said it established a $50 million accrual for potential liability associated with resolving some government investigations, including the SEC's.

Earlier this month, WellCare agreed to pay $80 million to settle an investigation by federal and state authorities alleging it defrauded the Florida Medicaid and Florida Healthy Kids programs by $40 million between mid-2002 through 2006 by falsely inflating what it spent on medical services (BestWire, May 6, 2009).

WellCare swung to a first-quarter net loss of $36.9 million as earnings got hit with higher medical benefit expenses in its private fee-for-service plans and on lower investment income (BestWire, May 11, 2009). The health insurer said it's now current in its filings with the SEC.

On the morning of May 27, WellCare's stock was trading at $18.90 a share, down 2.43% from the previous close.

WellCare of Florida Inc. currently has a Best Financial Strength Rating of C++ (Marginal), based on public data.

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

May 28, 2009