Wellcare Settles Again, but Wait, There is More...

We posted several times, most recently in 2009 (here and here), about misbehavior by the health insurance company/ managed care organization Wellcare.  That year, the company settled criminal charges that it defrauded the Florida state Medicaid program by paying a fine and accepting a deferred prosecution agreement.  Previously, the state of Connecticut had canceled its arrangement with Wellcare to run a Medicaid program in that state after the company refused to provide the state with requested data.  Then the company signed a consent order with the Florida Elections Commission in which it admitted making "questionable" political contributions.

Then this year, it was announced that the company would settle additional civil charges, as per the St. Petersburg (FL) Times,

Tampa-based WellCare Health Plans Inc. has agreed to pay $137.5 million to the U.S. Department of Justice and other federal agencies to settle civil lawsuits accusing the company of overcharging for its Medicaid and Medicare programs.

Also,

Under the tentative deal, which must be approved in court, WellCare would have three years to make payments to the Justice Department's civil division, the U.S. Attorney's Office for the Middle District of Florida and the U.S. Attorney's Office for Connecticut.

WellCare said the payments will include the approximately $23 million owed to the Florida Agency for Health Care Administration for overpayments received by the company in 2005.

The civil settlement is separate from a deal struck last year on the criminal front. In that case, WellCare agreed to pay $80 million to settle a charge of conspiracy to defraud the Florida Medicaid program and the Florida Healthy Kids Corp.

It also previously agreed to a $10 million civil penalty settling an informal inquiry by the Securities and Exchange Commission that regulatory filings reflected more than $40 million in profits that WellCare failed to return to the Florida agencies from 2003 to 2007.

WellCare, which is Florida's largest Medicaid plan operator, has acknowledged that it overcharged Florida and Illinois health programs by about $46.5 million.

But wait, there is more. No sooner than this settlement been announced than it was challenged. While considering the settlement, the judge involved unsealed a set of complaints by whistle-blowers about Wellcare. First, as reported by the Miami Herald,

The complaint, filed by former WellCare financial analyst Sean J. Hellein, portrays a company so ethically challenged that it rewarded employees who dumped hundreds of sick newborns and terminally ill patients from the membership rolls, thereby pumping up profits by millions of dollars.

It describes a company that embraced fraudulent accounting as a business model, eventually stealing between $400 million and $600 million from Medicare and Medicaid programs in several states, perhaps most of it from Florida.

See these specifics:

Hellein, who wore a wire for more than a year to gather evidence for federal agents, says in the complaint that:

- WellCare moved money between accounts to make it appear that patients' treatment cost much more than it actually did. In some cases, the company made payments years in advance to jack up the apparent cost of care to fool states into increasing Medicaid premiums. It worked, he said.

- When states made overpayment errors, WellCare didn't pay the money back, as its contract requires. Florida Medicaid made a series of overpayment blunders that fattened WellCare's bottom line by many millions; those who made the errors included both state officials and contractors.

- Sometimes hospitals and physician groups helped WellCare hide its true spending from Medicaid programs by accepting payments through one account for expenses incurred by another. Sometimes they allowed WellCare to pay for future years' expenses to make it appear spending for the current year was higher than it actually was.

Hellein named two hospital systems - one in Illinois and one in Florida - that he said participated in the sham arrangement, but he said it was common.

WellCare pushed expenses into certain programs - behavioral health programs in Florida and Illinois and the Healthy Kids program in Florida, a program for uninsured children of families with modest incomes - because they required repayment if the cost of treatment fell below a certain threshold.

Florida public officials were repeatedly duped by WellCare. The director of the Florida Medicaid program from 2004 to 2007, while much of the alleged fraud was going on, was Tom Arnold. He currently is Secretary of the Agency for Health Care Administration.

Another agency that fell for WellCare's line was the Office of Insurance Regulation, where an actuary found nothing wrong with a WellCare subsidiary in the Cayman Islands acting as the company's reinsurer.

The reinsurance arrangement enabled WellCare to bank $5 for each insured while making it appear that the cost was just 11 cents, the complaint says.

After Wall Street analysts raised questions about the legality of the reinsurance arrangement in 2007, some thought it might be reviewed by Chief Financial Officer Alex Sink. But nothing ever came of it.

WellCare conducted a study to figure out which Medicaid recipients were profitable and which were not so that it could engage in "cherry-picking," a term for enrolling only the profitable members. The study found that disenrolling a baby born with health problems saved the company an average of $20,000; each terminally ill patient saved $11,500.

Those who were persuaded to resign from WellCare went into the general Medicaid or Medicare fee-for-service programs.

WellCare also restructured its benefit package to discourage the least-profitable Medicaid recipients from enrolling and encouraging those who were more profitable to sign up.

Low-income mothers and children yielded a net of only about 10 percent, while the physically and mentally disabled paid for by Medicare yielded a net of 30 percent, the complaint says.

The complaint names about 20 employees of WellCare who knew about the fraudulent activities. Only one, Gregory West, has been charged. He pleaded guilty in December 2007 but sentencing has been postponed several times.

No charges have been brought against three former executives of the company named in the complaint as orchestrating the fraud: President, CEO and Chairman Todd Farha, CFO Paul Behrens and General Counsel Thaddeus Bereday.

They all resigned in January of 2008, three months after the FBI and other law-enforcement agents raided the Tampa campus of WellCare and carted off computers and files.

The the St. Petersburg Times reported about two more complaints that were unsealed:

Clark J. Bolton, a former supervisor of special investigations at WellCare, said the insurer encouraged overbilling and refused to audit claims for fraud in order to curry favor with doctors and hospitals and build market share. The result was millions in excessive and illegal expenses passed through to federal Medicare and state Medicaid programs, Bolton said.

Eugene Gonzalez, a referral coordinator for seven years, claimed WellCare met government customer service standards only because it had employees create backdated documents and make bogus calls to the company's phone lines. Failure to meet these standards would have resulted in the loss of billions of dollars worth of Medicare and Medicaid contracts.

As we have before, we see a striking contrast between the scope of the allegations and the response by the government agencies that are supposed to regulate insurers, insure that public money is spent wisely, and investigate and seek punishment for illegal activities. As the latter St. Petersburg Times article noted,

U.S. Rep. Kathy Castor criticized the proposed settlement as wholly inadequate in a letter this week to Attorney General Eric Holder. 'Where is the penalty and punishment for such egregious actions?' she wrote. 'It appears that companies such as these simply build such payments into the 'cost of doing business.' We cannot allow this to continue.'

This notion should be familiar to readers of Health Care Renewal. The Wellcare case fits right into the parade of legal settlements we have discussed. As we have said again and again, the usual sorts of legal settlements we have described do not seem to be an effective way to deter future unethical behavior by health care organizations. Even large fines can be regarded just as a cost of doing business. Furthermore, the fine's impact may be diffused over the whole company, and ultimately comes out of the pockets of stockholders, employees, and customers alike. It provides no negative incentives for those who authorized, directed, or implemented the behavior in question. My refrain has been: we will not deter unethical behavior by health care organizations until the people who authorize, direct or implement bad behavior fear some meaningfully negative consequences. Real health care reform needs to make health care leaders accountable, and especially accountable for the bad behavior that helped make them rich.

Also note that the case of Wellcare remains relatively anechoic. Despite the severity of allegations, and the national scope of the company, the case has only been mentioned in news stories, mainly in Florida where the company has its headquarters, and in a few health care trade publications. It, like many of the cases we discuss on Health Care Renewal, has not been mentioned in the medical/ health care research/ health care policy literature.

If we cannot even speak about the sort of very bad management that afflicted Wellcare as a cause of many of the ills of our health care system, how do we really expect to constructively reform that system?

Board Member Blows Whistle on Health Insurance Company's Accounting

We previously posted about some of the travails of for-profit health insurance company/ managed care organization Wellcare.  In August, 2009, we posted about Wellcare's "admission" that it had made numerous questionable campaign contributions.  In May, 2009 we posted about WellCare's submission to a deferred prosecution agreemeent based on charges that it defrauded state programs by inflating its expenses. In 2007, we posted about how the state of Connecticut stopped WellCare from running a plan for poor children after the company refused to reveal what it was paying physicians, and why it was failing to pay for particular services. So WellCare has been cited for three different kinds of unethical behavior in 2007-09.

Here's a story about Wellcare with a new twist in the Wall Street Journal:

A prominent director at WellCare Health Plans Inc. resigned Wednesday and raised questions about accounting practices at the Medicare and Medicaid company.

Regina Herzlinger, the head of the board's audit committee and a professor of business administration at Harvard Business School, said internal audits found WellCare overbilled the Illinois Medicaid program by $1 million in 2009 and potentially overcharged states for almost $500,000 worth of maternity care. Additionally, the Tampa, Fla., company ran afoul of Georgia's requirements that it account for each patient visit for which it paid providers, resulting in a $610,000 fine, she said.

Ms. Herzlinger said those problems, which the company corrected last year and this year after an internal auditor discovered them, are evidence of weak accounting practices. Ms. Herzlinger said she had hoped to provide oversight, as chairwoman of the audit committee, but that the board didn't renominate her for re-election at this year's annual meeting of shareholders. Ms. Herzlinger alleges that the board forced her out for asking questions about accounting problems and corporate-governance practices.

Wellcare offered the response one might expect:

WellCare said good corporate-governance practices require it to bring in new board members periodically to provide a fresh perspective. The company said the accounting errors Ms. Herzlinger identified were relatively small and the company's own internal controls identified them, indicating that its processes are working well. The company said the board chose not to renominate Ms. Herzlinger.

'At any company, you are always going to have these kinds of immaterial amounts pop up,' said Thomas Tran, WellCare's chief financial officer, who added that it is important to 'address them and document them and learn from them to change your processes.'

That might have been more convincing were Wellcare not to have the track-record discussed above.

Every now and then we have discussed cases of whistle-blowers from within health care organizations, but I cannot remember another instance in which the whistle-blower was on the board of directors.  In our post of August, 2009, we noted Prof Herzlinger's position on the Wellcare board, and urged her, as a main stream health policy expert, "to acknowledge that health care leadership may be unaccountable, opaque, dishonest, and sometimes flagrantly corrupt."  We also urged her to "pay a bit more attention to the mischief being committed by those who answer to her."  From this new story, it looked like she did just that, and hopefully made a contribution to more transparent and honest governance of health care organizations.  Good for her!

It is time for the often well-paid and not over-worked members of the board of directors of health care corporations to take some responsibility for the actions of the corporations over which they are supposed to exercise stewardship.

Pay for Hypocrisy for Health Insurance Executives

A few weeks ago, we discussed the cognitive dissonance produced by huge salary boosts for top executives of health care companies with miserable ethical track records.  One of our examples contrasted a long list of ethical violations by US giant health insurance company/ managed care organization WellPoint and the huge raises given its CEO and top executives.  Now more ethical questions are being raised about WellPoint.

Rate Hikes Retrospectively for Golden Parachutes

An op-ed published in several California newspapers (here via the Sonoma Index-Tribune) claimed that the huge rate hike that WellPoint's California subsidiary proposed earlier this year, an action that helped to revitalize the US legislative health care reform process, was meant to recoup costs of a previous merger that the company had agreed not impose on its policy-holders:

Nobody at Anthem Blue Cross, the firm that's now a poster boy for out-of-control health insurance premiums, likes remembering the company's days of high anxiety back in 2004, when California's then-Insurance Commissioner John Garamendi was holding up its $18 billion deal to take over Thousand Oaks-based WellPoint and its California Blue Cross subsidiary.

A frequent resister of insurance rate increases, he at least wanted to make sure Anthem didn't pass along the inflated price it paid for WellPoint to Blue Cross customers.

So he refused for months to sign off on the merger, a form of passive resistance that threatened to hold up the entire deal, which also involved WellPoint insurance subsidiaries in other states.

...in the process, he achieved some things for California consumers: Anthem formally agreed to forego any rate increases for Blue Cross customers to cover the costs of the merger, which increased more than $2 billion during the delay as WellPoint shares rose from $91 to $113 between the day the deal was announced and the day it went through. The company also promised to invest $200 million over 10 years in under-served communities through California's Healthy Families program, plus another $15 million on children's insurance programs and $50 million for training nurses and operating clinics in California.

It wasn't as good as keeping California Blue Cross a California company, but at least it was something.

'Was' now appears likely to be the operative word, because there is no way the cost of medical tests, doctor and hospital fees and medical supplies has risen 39 percent in one year, a claim made by Anthem executives while testifying before Congress and state legislative committees.

Nope, it's now clear that, even if Anthem doesn't admit it, a good part of its rate increase would go to replenish corporate cash spent on the WellPoint takeover.

It's been just over five years since that deal was completed, with Anthem adopting the WellPoint name for its parent company, much as North Carolina-based NationsBank renamed itself Bank of America after taking over the B of A. The Anthem tag was then hung on California Blue Cross.

That's enough time so the corporation can conveniently maintain it has lived up to its written commitment not to make customers pay for its high-priced acquisition - while in reality making them do just that.

For certain, the huge price increases Anthem may now assess violate the spirit of its agreement with Garamendi, even if they might not violate the letter of that deal.

Note that this article did not make explicit what  "costs of the merger" Mr Garamendi did not want policy-holders to pay for.  As contemporaneous coverage of the negotiations by USAToday made clear, these included golden parachutes for some of the executives involved.

Commissioner John Garamendi was the last major stumbling block to the $16.4 billion deal, delaying the merger of a piece of the company, Blue Cross Life & Health, over which he had jurisdiction. His main concerns were costs to policyholders and the size of executives' golden parachutes, estimated at $200 million to $600 million.

WellPoint CEO Leonard Schaeffer alone is expected to get a package worth $53.5 million in cash, stock options and pension payments when the deal is completed.

Now, of course, it appears that the policy-holders are being called upon to retrospectively reimburse the company for the outrageous amounts it gave to executives back then, who may turn out to have been the biggest beneficiaries of the merger.

Turning Administrative into Patient Care Costs

Then, an article in the Washington Post reported how WellPoint was reclassifying administrative costs as patient care costs to fulfill an upcoming requiement of health care reform to spend at least 80 percent of premiums on health care.

The idea was simple enough: Make sure that health insurers spend the vast majority of their revenue on patient care, instead of using it for things such as advertising, profits and executive pay.

To that end, the new health-care law says an insurer must give money back to consumers if it devotes less than 80 percent of premiums to paying medical claims and improving care. For insurers serving large groups, the target is 85 percent.

But even before the health-care overhaul was signed into law last month, one of the nation's largest insurance companies reclassified certain expenses in a way that increased its so-called medical-loss ratio. In January, WellPoint began including under medical benefits such costs as nurse hotlines, 'medical management,' and 'clinical health policy,' a WellPoint executive said in a March briefing for investors.

To be clear, while it may be that "nurse hotlines" actually involve care for patients, it is hard to fathom what "medical management" by an insurance company means.  Certainly, "clinical health policy" is not direct patient care.

Targeting Breast Cancer Patients for Insurance Policy Cancellation

At least the above two cases were only about money. The third case affects patient care.

A Reuters report showed how WellPoint deliberately targeted every patient who developed breast cancer for a fraud investigation, often resulting in findings of minor irregularities in insurance applications that the company used as pretexts to retroactively cancel the patients' policies. Many of these patients then could not get needed cancer care.

...WellPoint was using a computer algorithm that automatically targeted them and every other policyholder recently diagnosed with breast cancer. The software triggered an immediate fraud investigation, as the company searched for some pretext to drop their policies, according to government regulators and investigators.

Once the women were singled out, they say, the insurer then canceled their policies based on either erroneous or flimsy information. WellPoint declined to comment on the women's specific cases without a signed waiver from them, citing privacy laws.

That tens of thousands of Americans lost their health insurance shortly after being diagnosed with life-threatening, expensive medical conditions has been well documented by law enforcement agencies, state regulators and a congressional committee. Insurance companies have used the practice, known as 'rescission,' for years. And a congressional committee last year said WellPoint was one of the worst offenders.

But WellPoint also has specifically targeted women with breast cancer for aggressive investigation with the intent to cancel their policies, federal investigators told Reuters.

Not only did this seem heartless and unethical, it demonstrated the hypocrisy of WellPoint's leadership.

The revelation is especially striking for a company whose CEO and president, Angela Braly, has earned plaudits for how her company improved the medical care and treatment of other policyholders with breast cancer.

Specifically,

Singling out women with breast cancer for aggressive investigation with the intent of canceling their insurance stands in stark contrast not only to the public image WellPoint cultivates for itself but also to the good work it does for many other policyholders with breast cancer.

WellPoint CEO Braly has taken a strong personal interest in women's health issues. Foremost among them is how to increase services to people with breast cancer.

The company prides itself on being one of the United States' largest corporations with women at the helm. Besides Braly, two high-powered, politically connected women sit on WellPoint's board: Susan Bayh, the wife of retiring Democratic Sen. Evan Bayh of Indiana, and Sheila Burke, who was chief of staff to former Senate Republican leader Bob Dole.

On Braly's initiative, WellPoint has funded groundbreaking studies about the disparities in quality of health care to minority women -- including women with breast cancer.

WellPoint has worked to encourage mammography for at-risk women. Personalized letters -- followed up by phone calls -- are sent to more than 80,000 women between the ages of 52 and 69 if they have not had a mammogram in the past year. The company conducts automated calls for women ages 40 to 69 to make sure they are getting mammograms.

Once diagnosed, WellPoint has set up an 'Breast Cancer Resource Center' for its policyholders to help them 'navigate the complex health care system.'

And in May 2009, WellPoint's charitable foundation, the WellPoint Foundation LLC, provided a grant for the American Cancer Society for its 'Hope Lodges,' which allow cancer patients and family members free lodging and support while receiving care far from home.

The only explanation provided in the article for this behavior was that politically correct concerns about womens' health issues only go so far, money is more important.

Why would WellPoint on the one hand work to improve health care for women with breast cancer while automatically investigating every single woman diagnosed with breast cancer for possible cancellation of their policies?

Karen L. Pollitz, a research professor at the Health Policy Institute at Georgetown University, offers one possible explanation: 'It is important for these companies' profit margins that they get rid of policyholders with expensive diseases,' she said.

I would add also that these profit margins provide the excuses for baronial compensation for the company's top executives. 

Parenthetically, the article also noted that WellPoint had lobbied against provisions in the health care reform bill that might have threatened its ability to retrospectively cancel insurance policies after their holders got sick:

Many critics worry the new law will not lead to an end of these practices. Some state and federal regulators -- as well as investigators, congressional staffers and academic experts -- say the health care legislation lacks teeth, at least in terms of enforcement or regulatory powers to either stop or even substantially reduce rescission.

'People have this idea that someone is going to flip a switch and rescission and other bad insurance practices are going to end,' says Peter Harbage, a former health care adviser to the Clinton administration. 'Insurers will find ways to undermine the protections in the new law, just as they did with the old law. Enforcement is the key.'

During the recent legislative process for the reform law, however, lobbyists for WellPoint and other top insurance companies successfully fought proposed provisions of the legislation. In particular, they complained about rules that would have made it more difficult for the companies to fairly -- or unfairly -- cancel policyholders.

For example, an early version of the health care bill passed by the House of Representatives would have created a Federal Office of Health Insurance Oversight to monitor and regulate insurance practices like rescission. WellPoint lobbyists pressed for the proposed agency to not be included in the final bill signed into law by the president.

They also helped quash proposed provisions that would have required a third party review of its or any other insurance company's decision to cancel a customer's policy.

Furthermore, an article on the Huffington Post noted that a former WellPoint executive seems to have written a good part of the health care reform legislation:

As Marcy Wheeler reported last year, the Senate Finance Committee bill was written by former WellPoint VP Liz Fowler, who left her position at the insurance company in February 2009 expressly for the purpose of helping the committee to draft the health care bill.

And when Max Baucus did a 'victory lap' after the health care bil passed, he expressly thanked Fowler for her work:

'I wish to single out one person, and that one person is sitting next to me. Her name is Liz Fowler. Liz Fowler is my chief health counsel. Liz Fowler has put my health care team together. Liz Fowler worked for me many years ago, left for the private sector, and then came back when she realized she could be there at the creation of health care reform because she wanted that to be, in a certain sense, her profession lifetime goal. She put together the White Paper last November-2008-the 87-page document which became the basis, the foundation, the blueprint from which almost all health care measures in all bills on both sides of the aisle came.'

Summary

To make this more personal than these posts usually are, I wonder how WellPoint CEO Angela Braly sleeps in whatever luxurious accomodations her eight-figure compensation affords her?  I wonder how all the other current and former WellPoint leaders who styled themselves great proponents of "womens' health issues" can live with putting profits ahead of the care of breast cancer patients?

Adding this latest list of ethical offenses to those we discussed earlier, WellPoint is beating out the heavy corporate competition as an example of the hypocrisy produced by putting imperial CEOs and their trusty hench-people ahead of every other consideration.  It has also become a premier example of how self-interested leadership can raise costs, decrease access, and degrade clinical care.  It further shows how compensating health care leaders to the point where they become imperial also grants them the power to fend off most threats to their power.  (Consider what health care reform might have become if it were orchestrated by people really interested in improving care, controlling costs, and increasing access, rather than by imperial CEOs who just wanted to become more imperial.) 

If we truly want health care that is accessible, of high quality, at a fair price, and more importantly, if we want health care that is honest and focused on patients, we need to provide health care leaders with clear, rational incentives in these directions, and make them fully accountable for their actions, and the courses of their organizations under their leadership.