WellCare Health Plans Inc. (WCG) plans to drop its Medicare
Advantage private fee-for-service contracts in 2010, a move that
will affect more than 40% of members of the troubled managed-care
company's Medicare Advantage health plans, slice revenue and likely
pressure earnings next year.
A WellCare spokeswoman had no immediate comment on the reason
for the move, which follows the Tampa company's broad expansion of
its Medicare Advantage PFFS offering last year and a recent
government decision to cut payments to private insurers' Medicare
Advantage plans in 2010. It also sets the stage for competitors to
pick up affected WellCare customers.
Another managed-care company, Coventry Health Care Inc. (CVH),
indicated last week it likely will make a similar move regarding
its Medicare Advantage PFFS plans, citing the Medicare rate cuts
and rising medical costs.
WellCare said in a release that its decision is not related to
previously disclosed investigations of the company being conducted
by government agencies and a special board committee.
WellCare, which provides Medicare and Medicaid managed-care
programs as well as Medicare prescription-drug plans, said the move
not to renew the Medicare Advantage private-fee-for-service
contracts affects about 110,000 of its 2.5 million members overall.
The decision, however, affects at least 40% of its Medicare
Advantage members; they will have access to their benefits until
Jan. 1, 2010.
Medicare Advantage health plans overall generated some $2.46
billion of WellCare's nearly $6.5 billion in premium revenue in
2008, according to the company's annual report. Members of
WellCare's Medicare Advantage health maintenance organizations,
Medicare prescription drug plans and Medicaid plans are not
affected by the company's decision, WellCare said.
"Our intention to withdraw from Medicare Advantage PFFS was a
difficult decision, and we regret that in 2010 we will no longer be
able to offer these plans," Heath Schiesser, WellCare president and
chief executive, said in a statement.
Stifel Nicolaus analyst Thomas Carroll said the decision, not
that surprising given that most Medicare Advantage PFFS plans are
essentially being legislated away as of 2011, will probably lop off
at least $1 billion of WellCare's revenue next year. The question,
he said, is whether WellCare can reduce overhead costs associated
with that business just as quickly as it loses the revenue next
year.
"My guess is probably not," he said in an interview. He also
wondered if there would be a material change in WellCare's company
wide medical costs as a percentage of premium revenue, or medical
cost ratio, as a result of dropping the plans.
"At first glance, 2010 earnings, it's going to be hard to show
growth," Carroll said, predicting that Wall Street estimates for
WellCare's 2010 earnings will be reduced.
WellCare reports first-quarter financial results next Monday and
may shed more light on the decision.
Carroll noted that Coventry Health Care Chairman and Chief
Executive Allen Wise indicated on a conference call last week that
Coventry was unlikely to pursue significant Medicare Advantage PFFS
business next year. Wise, citing Medicare's rate reduction and
rising medical costs, said that "the result is that any product
offered would likely not be competitive or profitable."
WellCare in its 2008 annual report filed in March noted market
pressures. "Some of our competitors may be better positioned than
us to withstand rate compression," it said.
These moves by WellCare and Coventry could leave 500,000
Medicare beneficiaries up for grabs come open enrollment season in
the fall, Carroll said. Affected WellCare members may enroll with
the government's traditional Medicare program, with another
Medicare Advantage provider or with a WellCare Medicare Advantage
HMO plan.
Insurers' Medicare Advantage private-fee-for-service plans offer
senior citizens access to any physician or hospital served by the
traditional Medicare health program and that agree to bill the
companies.
A new law, while not officially eliminating the PFFS plans, will
largely do so as of 2011, Carroll said. That will likely set up
competition for even more beneficiaries.
"I feel like there's another land grab coming in Medicare
Advantage," the analyst said.
In 2008, WellCare expanded the number of counties in which it
offered Medicare Advantage PFFS plans from 793 to 1,590 in 43
states and Washington, D.C., although it withdrew from three states
in 2009.
In February of this year, the company, already burdened by a
Medicaid-fraud probe, said it was suspending new enrollment in its
Medicare health plans after the government had ordered it to do so.
The Centers for Medicare & Medicaid Services cited
noncompliance, deficiencies in Medicare prescription-drug contracts
and misleading beneficiaries.
WellCare shares closed Monday at $15.62. After a slip in
after-hours trading, it recently hit that level again.
-By Dinah Wisenberg Brin, Dow Jones Newswires
215-656-8285; dinah.brin@dowjones.com