WellCare Health Plans Inc. Reports Operating Results (10-Q)
WellCare Health Plans Inc. provides managed care services targeted exclusively to government-sponsored healthcare programs focusing on Medicaid and Medicare. WellCare provides high-quality affordable healthcare services to members in Florida New York Connecticut Illinois and Indiana. Wellcare Health Plans Inc. has a market cap of $1.11 billion; its shares were traded at around $26.32 with and P/S ratio of 0.2. Highlight of Business Operations:We refer collectively to the cash and investment balances available in our non-regulated subsidiaries as “unregulated cash” and “unregulated investments,” respectively; and to cash and investment balances available in our regulated subsidiaries as “regulated cash” and “regulated investments,” respectively. On September 30, 2009, our total cash and investment balance was $1,171.2 million as compared to a total cash and investment balance of $1,181.9 million as of December 31, 2008. Of these amounts, $92.7 million and $152.6 million were unregulated cash and investments as of September 30, 2009 and December 31, 2008, respectively, with the balance being comprised of regulated cash and investments. The primary reasons for the changes in our unregulated cash and investment position from December 31, 2008 to September 30, 2009 was the repayment in full of amounts outstanding under our credit facility, as well as the payment of resolution amounts to the United States Attorney s Office for the Middle District of Florida (the “USAO”) and the U.S. Securities and Exchange Commission (the “SEC”), partially offset by dividends received from three of our regulated subsidiaries.
As previously disclosed, on May 5, 2009, we entered into a Deferred Prosecution Agreement (the “DPA”) with USAO and the Florida Attorney General s Office. The DPA has resolved previously disclosed investigations by the USAO and the Florida Attorney General s Office. Pursuant to the terms of the DPA, we agreed to pay to the USAO a total of $80.0 million, comprised of (a) $35.2 million that we paid in August 2008, (b) a payment of $25.0 million that we paid in May 2009 and (c) a payment of $19.8 million to be made no later than December 31, 2009. These amounts were previously accrued in our financial statements for the year ended December 31, 2007; accordingly, there was no incremental expense recorded in association with these matters during the three or nine months ended September 30, 2009. Therefore, $19.8 million remains accrued within the Current portion of amounts accrued related to investigation resolution line item in our Condensed Consolidated Balance Sheet as of September 30, 2009 for amounts payable under the DPA.
On May 18, 2009, we resolved the previously disclosed investigation by the SEC. Under the terms of the Consent and Final Judgment, without admitting or denying the allegations in the complaint filed by the SEC, we consented to the entry of a permanent injunction against any future violations of certain specified provisions of the federal securities laws. In addition, we agreed to pay, in four quarterly installments, a civil penalty in the aggregate amount of $10.0 million and disgorgement in the amount of one dollar plus post-judgment interest, of which the first two installments have been made. If we fail to pay timely, in full, any amount due under the Consent and Final Judgment, all outstanding amounts (including post-judgment interest), minus any payments already made, will immediately become due and payable. These amounts were previously included in the range of probable losses determined by management s best estimate and recorded in our March 31, 2009 financial statements. Accordingly, there was no incremental expense recorded in our Condensed Consolidated Statement of Operation for the three months ended September 30, 2009. As of September 30, 2009, $5.0 million remains accrued within the Current portion of amounts accrued related to investigation resolution line item in our Condensed Consolidated Balance Sheet related to the Consent and Final Judgment.
As previously disclosed, we remain engaged in resolution discussions as to matters under review with the Civil Division of the United States Department of Justice (“the “Civil Division”) and the Office of Inspector General of the U.S. Department of Health and Human Services (the “OIG”). Management currently estimates that the remaining liability associated with these matters is approximately $60.0 million, plus interest. We anticipate these amounts will be payable in installments over a 54-month period. In accordance with fair value accounting guidance, we discounted the liability and recorded it at its fair value of approximately $55.4 million. This amount remains accrued in our Condensed Consolidated Balance Sheet as of September 30, 2009 within the short and long term portions of Amounts accrued related to investigation resolution line items.
As previously disclosed, we have expended significant financial resources in connection with the investigations and related matters. Since the inception of these investigations through September 30, 2009, we have spent a total of approximately $157.0 million for administrative expenses associated with, or consequential to, these governmental and Company investigations for legal fees, accounting fees, consulting fees, employee recruitment and retention costs and other similar expenses. Approximately $9.0 million and $32.9 million were incurred in the three months and nine months ended September 30, 2009, respectively.
On June 1, 2009, we notified CMS that we do not intend to renew our contracts to participate in the MA private fee-for-service (“PFFS”) program in 2010 or beyond. Our PFFS business represents approximately 31% of our Medicare segment revenue for the nine months ended September 30, 2009; accordingly our exit of this line of business will cause our Medicare revenue to decline in 2010. We anticipate that the withdrawal from the PFFS business may provide approximately $40.0 million to $60.0 million in unregulated cash from the dividend of surplus capital that we currently believe we will benefit from no sooner than 2011. The dividend of surplus capital by the applicable insurance entities, including the timing and amount, is subject to a variety of factors. Those factors include the ultimate financial performance of the PFFS business as well as the financial performance of other lines of business that operate in those insurance entities, approval from regulatory agencies and potential changes in regulatory capital requirements. For example, our current estimate of $40.0 million to $60.0 million has declined from previous estimates because the financial performance of the insurance entities that underwrite the PFFS business has worsened during the year.
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