10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32209
WELLCARE HEALTH PLANS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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47-0937650
(I.R.S. Employer
Identification No.) |
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8725 Henderson Road, Renaissance One |
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Tampa, Florida
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33634 |
(Address of principal executive offices)
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(Zip Code) |
(813) 290-6200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company.
See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ |
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Accelerated filer o |
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Non-accelerated filer o
(Do not check if a smaller reporting company) |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
As of May 7, 2009, there were 42,221,851 shares of the registrants common stock, par value $.01
per share, outstanding.
WELLCARE HEALTH PLANS, INC.
TABLE OF CONTENTS
2
Part I FINANCIAL INFORMATION
Item 1. Financial Statements.
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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March 31, |
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December 31, |
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2009 |
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2008 |
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(Unaudited) |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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$ |
1,134,580 |
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$ |
1,181,922 |
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Short-term investments |
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73,778 |
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70,112 |
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Premium and other receivables, net |
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285,401 |
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215,525 |
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Other receivables from government partners, net |
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51,514 |
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825 |
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Funds receivable for the benefit of members |
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43,754 |
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86,542 |
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Prepaid expenses and other current assets, net |
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124,583 |
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129,490 |
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Deferred income taxes |
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23,921 |
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20,154 |
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Total current assets |
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1,737,531 |
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1,704,570 |
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Property, equipment and capitalized software, net |
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66,373 |
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66,588 |
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Goodwill |
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111,131 |
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111,131 |
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Other intangible assets, net |
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14,110 |
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14,493 |
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Long-term investments |
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48,404 |
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54,972 |
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Restricted investment assets |
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176,869 |
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199,339 |
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Deferred tax asset |
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19,814 |
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23,263 |
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Other assets |
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27,317 |
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29,105 |
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Total Assets |
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$ |
2,201,549 |
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$ |
2,203,461 |
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Liabilities and Stockholders Equity |
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Current Liabilities: |
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Medical benefits payable |
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$ |
879,801 |
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$ |
766,179 |
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Unearned premiums |
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18,643 |
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81,197 |
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Accounts payable |
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14,359 |
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5,138 |
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Other accrued expenses |
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286,891 |
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338,340 |
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Other payables to government partners |
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31,012 |
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8,100 |
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Taxes payable |
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13,047 |
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12,187 |
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Debt |
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152,381 |
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152,741 |
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Other current liabilities |
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674 |
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674 |
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Total current liabilities |
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1,396,808 |
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1,364,556 |
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Other liabilities |
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30,440 |
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33,076 |
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Total liabilities |
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1,427,248 |
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1,397,632 |
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Commitments and contingencies (see Note 6) |
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Stockholders Equity: |
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Preferred stock, $0.01 par value (20,000,000
authorized, no shares issued or outstanding) |
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Common stock, $0.01 par value (100,000,000
authorized, 42,221,355 and 42,261,345 shares
issued and outstanding at March 31, 2009
and December 31, 2008, respectively) |
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422 |
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423 |
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Paid-in capital |
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398,707 |
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390,526 |
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Retained earnings |
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381,708 |
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418,641 |
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Accumulated other comprehensive expense |
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(6,536 |
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(3,761 |
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Total stockholders equity |
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774,301 |
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805,829 |
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Total Liabilities and Stockholders Equity |
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$ |
2,201,549 |
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$ |
2,203,461 |
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See notes to unaudited condensed consolidated financial statements.
3
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
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Three Months Ended March 31, |
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2009 |
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2008 |
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Revenues: |
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Premium |
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$ |
1,791,927 |
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$ |
1,621,374 |
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Investment and other income |
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3,334 |
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15,547 |
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Total revenues |
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1,795,261 |
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1,636,921 |
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Expenses: |
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Medical benefits |
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1,552,998 |
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1,397,572 |
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Selling, general and administrative |
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271,521 |
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227,736 |
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Depreciation and amortization |
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5,739 |
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5,151 |
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Interest |
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2,286 |
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3,304 |
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Total expenses |
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1,832,544 |
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1,633,763 |
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(Loss) income before income taxes |
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(37,283 |
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3,158 |
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Income tax (benefit) expense |
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(350 |
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1,838 |
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Net (loss) income |
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$ |
(36,933 |
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$ |
1,320 |
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Net (loss) income per common share (see Note 1): |
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Net (loss) income per common share basic |
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$ |
(0.89 |
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$ |
0.03 |
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Net (loss) income per common share diluted |
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$ |
(0.89 |
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$ |
0.03 |
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See notes to unaudited condensed consolidated financial statements.
4
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Three Months Ended March 31, |
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2009 |
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2008 |
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Cash from (used in) operating activities: |
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Net (loss) income |
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$ |
(36,933 |
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$ |
1,320 |
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Adjustments to reconcile net (loss) income to net cash
provided by operating activities: |
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Depreciation and amortization expense |
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5,739 |
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5,151 |
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Equity-based compensation expense |
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9,612 |
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7,607 |
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Deferred taxes, net |
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(318 |
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3,563 |
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Changes in operating accounts: |
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Premium and other receivables, net |
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(69,876 |
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81,748 |
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Other receivables from government partners, net |
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(50,689 |
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(6,018 |
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Prepaid expenses and other, net |
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4,907 |
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(32,652 |
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Medical benefits payable |
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113,622 |
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123,638 |
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Unearned premiums |
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(62,554 |
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(17,769 |
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Accounts payable |
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9,221 |
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14,475 |
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Other accrued expenses |
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(51,449 |
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(20,851 |
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Other payables to government partners |
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22,912 |
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(74,140 |
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Taxes |
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2,288 |
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20,048 |
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Other |
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(2,236 |
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(39,341 |
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Net cash (used in) provided by operations |
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(105,754 |
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66,779 |
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Cash from (used in) investing activities: |
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Purchases of investments |
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(18,756 |
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(105,999 |
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Proceeds from sale and maturities of investments |
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19,051 |
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175,803 |
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Purchases of restricted investments |
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(17,088 |
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(9,317 |
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Proceeds
from maturities of restricted investments |
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39,390 |
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738 |
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Additions to property and capitalized software equipment, net |
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(5,141 |
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(3,876 |
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Net cash provided by investing activities |
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17,456 |
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57,349 |
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Cash from (used in) financing activities: |
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Purchase of treasury stock and other |
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(1,432 |
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(1,530 |
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Repayments on debt |
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(400 |
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(800 |
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Funds received for the benefit of members, net of disbursements |
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42,788 |
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104,039 |
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Net cash provided by financing activities |
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40,956 |
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101,709 |
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Cash and cash equivalents: |
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(Decrease) increase during the period |
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(47,342 |
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225,837 |
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Balance at beginning of year |
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1,181,922 |
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1,008,409 |
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Balance at end of period |
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$ |
1,134,580 |
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$ |
1,234,246 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash paid for taxes |
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$ |
903 |
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$ |
15,772 |
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Cash paid for interest |
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$ |
1,790 |
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$ |
2,971 |
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See notes to unaudited condensed consolidated financial statements.
5
WELLCARE HEALTH PLANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
1. ORGANIZATION AND BASIS OF PRESENTATION
WellCare Health Plans, Inc., a Delaware corporation (the Company), provides managed care
services exclusively to government-sponsored health care programs, focusing on Medicaid and
Medicare, including health plans for families, children, the aged, blind and disabled and
prescription drug plans, serving approximately 2,456,000 members nationwide as of March 31, 2009.
The Companys Medicaid plans include plans for recipients of the Temporary Assistance for Needy Families (TANF) programs,
Supplemental Security Income (SSI) programs, State Childrens Health Insurance Programs
(S-CHIP) and the Family Health Plus (FHP) programs. Through its licensed subsidiaries, as of
March 31, 2009 the Company operated its Medicaid health plans in Florida, Georgia, Hawaii,
Illinois, Missouri, New York and Ohio. The Companys Medicare plans include stand-alone
prescription drug plans (PDP) and Medicare Advantage (MA) plans, which include both Medicare
coordinated care plans (CCP) and Medicare private fee-for-service (PFFS) plans. As of March
31, 2009, the Company offered its CCP plans in Connecticut, Florida, Georgia, Hawaii, Illinois,
Indiana, Louisiana, Missouri, New Jersey, New York, Ohio and Texas, its PDP plans in 50 states and
the District of Columbia and its PFFS plans in 40 states and the District of Columbia.
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements should be read
in conjunction with the consolidated financial statements and notes thereto for the fiscal year
ended December 31, 2008 included in the Companys Annual Report on Form 10-K (the 2008 10-K),
filed with the U.S. Securities and Exchange Commission (the SEC) in March 2009. In the opinion
of the Companys management, the interim financial statements reflect all normal recurring
adjustments that the Company considers necessary for the fair presentation of its financial
position and results of operations and cash flows for the interim periods presented. The interim
financial statements included herein have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP) and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with GAAP have been condensed or
omitted. Results for the interim periods presented are not necessarily indicative of results that
may be expected for the entire year or any other interim period.
Net (Loss) Income per Share
The Company computes basic net (loss) income per common share on the basis of the
weighted-average number of unrestricted common shares outstanding. Diluted net (loss) income per
common share is computed on the basis of the weighted-average number of unrestricted common shares
outstanding plus the dilutive effect of outstanding restricted shares and restricted stock units,
and stock options using the treasury stock method. The following table presents the calculation of
net (loss) income per common share basic and diluted:
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Three Months Ended March 31, |
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2009 |
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2008 |
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Numerator: |
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Net (loss) income basic and diluted |
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$ |
(36,933 |
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$ |
1,320 |
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Denominator: |
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Weighted average common shares outstanding basic |
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41,680,319 |
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41,126,580 |
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Dilutive effect as determined by the treasury stock method: |
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Unvested restricted common shares |
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386,286 |
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Stock options |
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431,189 |
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Weighted average common shares outstanding diluted |
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41,680,319 |
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41,944,055 |
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Net (loss) income per common share: |
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Net (loss) income per common share basic |
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$ |
(0.89 |
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$ |
0.03 |
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Net (loss) income per common share diluted |
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$ |
(0.89 |
) |
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$ |
0.03 |
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6
Certain options to purchase common stock were not included in the calculation of diluted net
(loss) income per common
share because their exercise prices were greater than the average market price of the
Companys common stock for the period and, therefore, the effect would be anti-dilutive. Due to
the net loss for the three-month period ended March 31, 2009, the assumed exercise of 5,115,297
equity awards had an anti-dilutive effect and was therefore excluded from the computation of
diluted loss per share. For the three months ended March 31, 2008, approximately 1,021,336 options
with an exercise price ranging from $46.36 to $105.37 per share were excluded from diluted weighted
average common shares outstanding.
Recently Issued Accounting Standards
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position
(FSP) No. 115-2 (FSP 115-2) and Statement of Financial Accounting Standards (FAS) No. 124-2
(FAS 124-2), Recognition and Presentation of Other-Than-Temporary Impairments. FSP 115-2 and FAS
124-2 modify the other-than-temporary impairment guidance for debt securities through increased
consistency in the timing of impairment recognition and enhanced disclosures related to the credit
and noncredit components of impaired debt securities that are not expected to be sold. In
addition, increased disclosures are required for both debt and equity securities regarding expected
cash flows, credit losses, and an aging of securities with unrealized losses. FSP 115-2 and FAS
124-2 will be effective for interim and annual reporting periods that end after June 15, 2009,
which would be the Companys 2009 second quarter. Early adoption is permitted for periods ending
after March 15, 2009.
In April 2009, the FASB issued FAS 107-1 and APB Opinion No. 28-1, Interim Disclosures about
Fair Value of Financial Instruments (FSP 107-1 and APB 28-1). FSP 107-1 and APB 28-1 require
fair value disclosures for financial instruments that are not reflected in the Condensed
Consolidated Balance Sheets at fair value. Prior to the issuance of FSP 107-1 and APB 28-1, the
fair values of those assets and liabilities were disclosed only once each year. With the issuance
of FSP 107-1 and APB 28-1, the Company will now be required to disclose this information on a
quarterly basis, providing quantitative and qualitative information about fair value estimates for
all financial instruments not measured in the Condensed Consolidated Balance Sheets at fair value.
FSP 107-1 and APB 28-1 will be effective for interim reporting periods that end after June 15,
2009, which would be the Companys 2009 second quarter. Early adoption is permitted for periods
ending after March 15, 2009.
In April 2009, the FASB issued FSP 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly (FSP 157-4). FSP 157-4 clarifies the methodology used to determine fair value
when there is no active market or where the price inputs being used represent distressed sales.
FSP 157-4 also reaffirms the objective of fair value measurement, as stated in FAS 157, Fair Value
Measurements (FAS 157), which is to reflect how much an asset would be sold for in an orderly
transaction. It also reaffirms the need to use judgment to determine if a formerly active market
has become inactive, as well as to determine fair values when markets have become inactive. FSP
157-4 will be applied prospectively and will be effective for interim and annual reporting periods
ending after June 15, 2009, which, for the Company, would be the 2009 second quarter.
Recently Adopted Accounting Standards
In February 2008, the FASB issued a FSP on FAS 157-2, Effective Date of FASB Statement No. 157
(FSP 157-2). FSP 157-2 delayed the effective date of FAS 157 for all non-financial assets and
liabilities for one year, except those that are measured at fair value in the financial statements
on at least an annual basis, which applies primarily to goodwill and other intangible assets for
annual impairment testing purposes. The Company intends to adopt the new standard during the
second quarter of 2009 as required. In accordance with FSP 157-2, the Company adopted the
provisions of FAS 157 to non-financial assets and non-financial liabilities in the first quarter of
2009. See Note 4, Fair Value Measurements, for additional information. The adoption did not
have a material impact on the Companys financial statements.
In April 2008, the FASB issued a FSP on FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors to be considered in developing
renewal and extension assumptions used to determine the useful life of a recognized intangible
asset accounted for under FAS No. 142, Goodwill and Other Intangible Assets. FSP 142-3 is
effective for the Companys fiscal year 2009 and must be applied prospectively to intangible assets
acquired after January 1, 2009. Early adoption is not permitted. The Company adopted FSP 142-3 in
the first quarter of 2009 as required. The adoption had no impact on the Companys financial
statements.
In December 2007, the FASB issued FAS 141 (revised 2007), Business Combinations (FAS 141R).
FAS 141R replaces current guidance in FAS 141 to better represent the economic value of a business
combination transaction. FAS 141 establishes principles and requirements for how an acquiring
entity recognizes and measures all identifiable assets acquired, liabilities assumed, any
non-controlling interest in the acquired entity and the goodwill acquired. The changes to be
effected with FAS 141R from the current guidance include, but are not limited to, treatment of
certain specific items such as
7
expensing transaction and restructuring costs and adjusting earnings in periods subsequent to
the acquisition for changes in deferred tax asset valuation allowances and income tax uncertainties
as well as changes in the fair value of acquired contingent liabilities. FAS 141R also includes a
substantial number of new disclosure requirements that will enable users of financial statements to
evaluate the nature and financial effect of business combination. The Company adopted FAS 141R in
the first quarter of 2009 as required. The adoption had no impact on the Companys financial
statements; however, any future acquisitions will be accounted for under this guidance.
In December 2007, the FASB issued FAS 160, Noncontrolling Interests in Consolidated Financial
Statements An Amendment of ARB No. 51 (FAS 160). FAS 160 requires that accounting and
reporting for minority interests be recharacterized as noncontrolling interests and classified as a
component of equity. The standard is effective for fiscal year 2009 and must be applied
prospectively. The Company adopted FAS 160 in the first quarter of 2009 as required. The adoption
had no impact on the Companys financial statements.
The Company adopted Emerging Issues Task Force 08-6, Equity Method Investment Accounting
Considerations (EITG 08-6) on January 1, 2009, concurrently with the adoption of FAS 141R and FAS
160. The intent of EITF 08-6 is to clarify the accounting for certain transactions and impairment
considerations related to equity method investments as modified by the provisions of FAS 141R and
FAS 160. The adoption had no impact on the Companys financial statements.
2. SEGMENT REPORTING
The Company has two reportable segments: Medicaid and Medicare. The segments were determined
based upon the type of governmental administration and funding of the health plans.
The Companys Medicaid segment includes plans for beneficiaries of TANF, SSI, S-CHIP and FHP.
TANF generally provides assistance to low-income families with children and SSI generally provides
assistance to low-income aged, blind or disabled individuals. The Companys Medicaid segment also
includes other programs which are not part of the Medicaid program, such as S-CHIP and FHP for
qualifying families who are not eligible for Medicaid because they exceed the applicable income
thresholds.
The Companys Medicare segment includes stand-alone PDP and MA plans, which include CCP and
PFFS plans.
Balance sheet, investment and other income, and other expense details by segment have not been
disclosed, as they are not reported internally by the Company.
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
|
|
Ended March 31, |
|
|
|
2009 |
|
|
2008 |
|
Medicaid premium revenues |
|
$ |
809,178 |
|
|
$ |
733,635 |
|
Medicare premium revenues |
|
|
982,749 |
|
|
|
887,739 |
|
|
|
|
|
|
|
|
Total premium revenues |
|
|
1,791,927 |
|
|
|
1,621,374 |
|
Other income |
|
|
3,334 |
|
|
|
15,547 |
|
|
|
|
|
|
|
|
Total revenues |
|
|
1,795,261 |
|
|
|
1,636,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid medical benefits expenses |
|
|
689,782 |
|
|
|
610,805 |
|
Medicare medical benefits expenses |
|
|
863,216 |
|
|
|
786,767 |
|
|
|
|
|
|
|
|
Total medical benefits expenses |
|
|
1,552,998 |
|
|
|
1,397,572 |
|
Other expenses |
|
|
279,546 |
|
|
|
236,191 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,832,544 |
|
|
|
1,633,763 |
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
$ |
(37,283 |
) |
|
$ |
3,158 |
|
|
|
|
|
|
|
|
8
3. EQUITY-BASED COMPENSATION
During the three months ended March 31, 2009 and 2008, the Company recorded $9,612 and $7,607,
respectively, in compensation expense related to its equity-based compensation awards. During the
three months ended March 31, 2009, the Company granted options for the purchase of 43,000 shares of
common stock at a weighted-average exercise price of $14.25 per share and a weighted-average
Black-Scholes fair value of $6.12 per share. At March 31, 2009, options for 4,097,466 shares were
outstanding with a weighted-average exercise price of $42.41 per share. There were 509 options
exercised during the three months ended March 31, 2009 at a weighted-average price of $3.69 and
there were no options exercised during the three months ended March 31, 2008. During the three
months ended March 31, 2009, the Company also granted 14,354 restricted shares at a
weighted-average grant-date fair value of $10.45. At March 31, 2009, 1,017,851 restricted share
awards remained unvested. The total fair value of restricted shares vested during the three months
ended March 31, 2009 and 2008 was $4,963 and $5,129, respectively.
As of March 31, 2009, there was $66,192 of unrecognized compensation costs related to
non-vested equity-based compensation arrangements that is expected to be recognized over a
weighted-average period of 2.5 years.
4. FAIR VALUE MEASUREMENTS
FAS 157 applies to all financial assets and financial liabilities that are being measured and
reported on a fair value basis. FAS 157 requires that fair value measurements be classified and
disclosed in one of the following three categories: Level 1, defined as observable inputs such as
quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active
markets that are either directly or indirectly observable; and Level 3, defined as unobservable
inputs in which little or no market data exists, therefore requiring an entity to develop its own
assumptions.
The Companys Condensed Consolidated Balance Sheets include the following financial
instruments: cash and cash equivalents, receivables, investments, accounts payable, medical
benefits payable and notes payable. The carrying amounts of current assets and liabilities
approximate their fair value because of the relatively short period of time between the origination
of these instruments and their expected realization. The carrying amount of the term loan approximates its fair value due to the
relatively short period of time between March 31, 2009 and the expiration of the term loan
agreement, May 13, 2009.
As of March 31, 2009, $57,000 of the Companys par value investments were comprised of
municipal note investments with an auction reset feature (auction rate securities). These
auction rate securities had auctions that failed during the three months ended March 31, 2009. As
a result, the Companys ability to liquidate and fully recover the carrying value of its remaining
auction rate securities in the near term may be limited or non-existent. The Company does not
believe its auction rate securities are impaired, primarily due to government guarantees or
municipal bond insurance securities and, as a result, the Company did not record any impairment
losses for its auction rate securities for the three months ended March 31, 2009. The Company has
the ability and the present intent to hold the securities until market stability is restored.
The Companys assets measured at fair value on a recurring basis subject to the disclosure
requirements of FAS 157 were as follows:
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2009 Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
Description |
|
March 31, 2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
$ |
69,853 |
|
|
$ |
69,853 |
|
|
$ |
|
|
|
$ |
|
|
Auction rate securities |
|
|
48,404 |
|
|
|
|
|
|
|
|
|
|
|
48,404 |
|
Other municipal variable rate bonds |
|
|
3,925 |
|
|
|
3,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
122,182 |
|
|
$ |
73,778 |
|
|
$ |
|
|
|
$ |
48,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
5,109 |
|
|
$ |
5,109 |
|
|
$ |
|
|
|
$ |
|
|
Certificates of deposit |
|
|
1,718 |
|
|
|
1,718 |
|
|
|
|
|
|
|
|
|
U.S. Government securities |
|
|
19,328 |
|
|
|
19,328 |
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
150,714 |
|
|
|
150,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted investments |
|
$ |
176,869 |
|
|
$ |
176,869 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys auction rate securities measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) as defined in FAS 157:
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
|
Using Significant |
|
|
|
Unobservable Inputs |
|
|
|
(Level 3) |
|
Beginning balance at January 1, 2009 |
|
$ |
54,972 |
|
Total gains
or losses (realized or unrealized): |
|
|
|
|
Included in earnings (or changes in net assets) |
|
|
|
|
Included in other comprehensive income |
|
|
(2,168 |
) |
Purchases, issuances and settlements |
|
|
|
|
Transfers in and/or out of Level 3 |
|
|
(4,400 |
) |
|
|
|
|
Ending balance at March 31, 2009 |
|
$ |
48,404 |
|
|
|
|
|
5. DEBT
Credit Agreement
The Company and certain of its subsidiaries are parties to a credit agreement, dated as of
May 13, 2004, which was subsequently amended in September 2005, September 2006 and January 2008 (as
amended, the Credit Agreement). As of March 31, 2009, the credit facilities under the Credit
Agreement consist of a senior secured term loan facility in the outstanding principal amount of
approximately $152,400, which matures on May 13, 2009. The term loan is secured by a pledge of
substantially all of the assets of the Companys non-regulated entities, which includes the stock
of its operating subsidiaries directly held by its non-regulated entities. Interest is payable
quarterly, currently at a rate equal to the sum of a rate based upon the Prime rate plus a rate
equal to 1.50%. The Company is a party to the Credit Agreement for the purpose of guaranteeing the
indebtedness of its subsidiaries that are parties to the Credit Agreement.
The Credit Agreement contains various restrictive covenants which limit, among other things,
the Companys ability to incur indebtedness and liens, enter into business combination transactions
and cause its regulated subsidiaries to declare and pay dividends to the Company or its
non-regulated subsidiaries. As a result of the ongoing investigations discussed in Note 6,
Commitments and Contingencies, the Company was unable to satisfy a number of its obligations
under the Credit Agreement, which included providing audited financial statements, annual financial
plans, and other information sought by the lenders under the Credit Agreement. Consequently, since
November 2007 the Company has been in default under the terms of the Credit Agreement. In
addition, as of March 31, 2009, the Company was in default of certain covenants set forth
10
in the
Credit Agreement requiring the Company to maintain certain leverage ratios. The Company continues
to make payments as required, and there has been no payment default under the terms of the Credit
Agreement. As of the date of this Quarterly Report on Form 10-Q, the Companys direct financial
obligations under the Credit Agreement have not been accelerated or increased as a result of the
existing defaults. The Company has the ability, and currently intends, to pay off the term loan on
its due date.
6. COMMITMENTS AND CONTINGENCIES
Government Investigations
As previously disclosed, on May 5, 2009 (the Effective Date), the Company and its
subsidiaries entered into a Deferred Prosecution Agreement (the DPA) with the United States
Attorneys Office for the Middle District of Florida (the USAO) and the Florida Attorney
Generals Office. The DPA has resolved previously disclosed investigations by the USAO and the
Florida Attorney Generals Office.
Pursuant to the DPA, the USAO filed a one-count criminal information (the Information) in
the United States District Court for the Middle District of Florida, Tampa Division (the Court),
charging the Company with conspiracy to commit health care fraud against the Florida Medicaid
Program in connection with reporting of expenditures under certain community behavioral health
contracts, and against the Florida Healthy Kids programs, under certain contracts, in violation of
18 U.S.C. Section 1349. The USAO will recommend to the Court that the prosecution of the Company
be deferred during the duration of the DPA. If the Company has complied with the DPA, within
five days of its expiration, the USAO will seek dismissal with prejudice of the Information.
In accordance with the DPA, the USAO has filed a statement of facts relating to this matter
and the Company has agreed to retain, at its expense, an outside independent monitor (the
Monitor) to be selected by the USAO after consultation with the Company. In addition, the
Company agreed to continue undertaking remedial measures to ensure full compliance with all federal
and state health care laws. The Monitor will serve for a period of
eighteen months and, among
other things, the Monitor will review the Companys compliance with the DPA and all applicable
federal and state health care laws, regulations and programs. The Monitor also will review,
evaluate and, as necessary, make written recommendations concerning certain of the Companys
policies and procedures. The DPA provides that the Monitor will
undertake to avoid the disruption of the Companys ordinary
business operations or the imposition of unnecessary costs or expenses.
The DPA does not, nor should it be construed to, operate as a settlement or release of any
civil or administrative claims for monetary, injunctive or other relief against the Company,
whether under federal, state or local statutes, regulations or common law. Furthermore, the DPA
does not, nor should it be construed to, operate as a concession that the Company is entitled to any
limitation of its potential federal, state or local civil or administrative liability.
The term of the DPA is thirty-six months, but after eighteen months have elapsed from the
Effective Date, such term may be reduced by the USAO to twenty-four months upon consideration of
certain factors set forth in the DPA, including the Companys continued remedial actions and
compliance with all federal and state health care laws and regulations.
Pursuant to the terms of the DPA, the Company agreed to pay to the USAO a total of $80,000,
comprised of (a) $35,200 that the Company paid in August 2008, (b) a payment of $25,000 to be paid on May 12, 2009 and (c) a payment of $19,800 with accumulated interest at an annual rate
of 0.40% (interest to accrue from the Effective Date until payment in full has been made) 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 months ended March 31, 2009.
The Company also is engaged in resolution discussions as to matters under review with the SEC,
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 in the range of $50,000 to $70,000.
Based on the current status of the resolution discussions, the Company has accrued $50,000 in
accordance with guidance outlined in FAS 5, Accounting for Contingencies. Approximately $5,200 of
this amount was previously recorded in the financial statements for the year ended December 31,
2007. Accordingly, an incremental expense of $44,800 was recorded to Selling, general and
administrative expense for the three months ended March 31, 2009. As a result, the Companys
Condensed Consolidated Balance Sheet includes an accrual of $94,800 within the Other accrued
expenses line item as of March 31, 2009. The Company is currently pursuing resolution terms
that would allow for payment of any resolution amounts over an extended
period of time. However, the Company cannot provide any assurances regarding the timing, terms and
conditions of any final resolution of these matters.
11
In addition, the Company is responding to subpoenas issued by the State of Connecticut
Attorney Generals Office involving transactions between the Company and its affiliates and their
potential impact on the costs of Connecticuts Medicaid program. The Company has communicated with
regulators in states in which the Companys health maintenance organization and insurance
operating subsidiaries are domiciled regarding the investigations. The Company is cooperating with
federal and state regulators and enforcement officials in all of these matters. It does not know
whether, or the extent to which, any pending investigations might lead to the payment of fines or
penalties, the imposition of injunctive relief and/or operating restrictions.
In addition, in a letter dated October 15, 2008, the Civil Division informed the Company that
as part of the pending civil inquiry, the Civil Division is investigating a number of qui tam
complaints filed by relators against the Company under the whistleblower provisions of the False
Claims Act, 31 U.S.C. sections 3729-3733. The seal in those cases has been partially lifted for
the purpose of authorizing the Civil Division to disclose to the Company the existence of the qui
tam complaints. The complaints otherwise remain under seal as required by 31 U.S.C. section
3730(b)(3). In connection with the ongoing resolution discussions with the Civil Division, the
Company is undertaking to address the allegations by the qui tam relators.
The Company also learned from a docket search that a former employee filed a qui tam action on
October 25, 2007 in state court for Leon County, Florida against several defendants, including the
Company and one of its subsidiaries. Because qui tam actions brought under federal and state false
claims acts are sealed by the court at the time of filing, the Company is unable to determine the
nature of the allegations and, therefore, the Company does not know at this time whether this
action relates to the subject matter of the federal investigations. In addition, it is possible
that additional qui tam actions have been filed against the Company and are under seal. Thus, it
is possible that the Company is subject to liability exposure under the
False Claims Act, or similar state statutes, based on qui tam actions other than those
discussed in this Quarterly Report on Form 10-Q.
Class Action and Derivative Lawsuits
Putative class action complaints were filed on October 26, 2007 and on November 2, 2007.
These putative class actions, entitled Eastwood Enterprises, L.L.C. v. Farha, et al. and Hutton v.
WellCare Health Plans, Inc. et al., respectively, were filed in the United States District Court
for the Middle District of Florida against the Company, Todd Farha, the Companys former chairman
and chief executive officer, and Paul Behrens, the Companys former senior vice president and chief
financial officer. Messrs. Farha and Behrens were also officers of various subsidiaries of the
Company. The Eastwood Enterprises complaint alleges that the defendants materially misstated the
Companys reported financial condition by, among other things, purportedly overstating revenue and
understating expenses in amounts unspecified in the pleading in violation of the Securities
Exchange Act of 1934 (Exchange Act), as amended. The Hutton complaint alleges that various
public statements supposedly issued by defendants were materially misleading because they failed to
disclose that the Company was purportedly operating its business in a potentially illegal and
improper manner in violation of applicable federal guidelines and regulations. The complaint
asserts claims under the Exchange Act, as amended. Both complaints seek, among other things,
certification as a class action and damages. The two actions were consolidated, and various
parties and law firms filed motions seeking to be designated as Lead Plaintiff and Lead Counsel.
In an Order issued on March 11, 2008, the Court appointed a group of five public pension funds from
New Mexico, Louisiana and Chicago (the Public Pension Fund Group) as Lead Plaintiffs. On
October 31, 2008, an amended consolidated complaint was filed in this class action against the
Company, Messrs. Farha and Behrens, and adding Thaddeus Bereday, the Companys former senior vice
president and general counsel, as a defendant. On January 23, 2009, the Company and certain other
defendants filed a joint motion to dismiss the amended consolidated complaint, arguing, among other
things, that the complaint failed to allege a material misstatement by defendants with respect to
the Companys compliance with marketing and other health care regulations and failed to plead facts
raising a strong inference of scienter with respect to all aspects of the purported fraud claim.
Briefing on this motion was completed on April 24, 2009, and the motion remains pending. The
Company intends to defend itself vigorously against these claims. At this time, neither the
Company nor any of its subsidiaries can predict the probable outcome of these claims. Accordingly,
no amounts have been accrued in the Companys consolidated financial statements.
Five putative shareholder derivative actions were filed between October 29, 2007 and
November 15, 2007. The first two of these putative shareholder derivative actions, entitled Rosky
v. Farha, et al. and Rooney v. Farha, et al., respectively, are supposedly brought on behalf of the
Company and were filed in the United States District Court for the Middle District of Florida. Two
additional actions, entitled Intermountain Ironworkers Trust Fund v. Farha, et al., and Myra Kahn
Trust v. Farha, et al., were filed in Circuit Court for Hillsborough County, Florida. All four of
these actions are asserted against all Company directors (and former director Todd Farha) except
for David Gallitano, D. Robert Graham, Heath Schiesser and Charles Berg and also name the Company
as a nominal defendant. A fifth action, entitled Irvin v. Behrens, et al., was filed in the United
States District Court for the Middle District of Florida and asserts claims against all Company
directors (and former director Todd Farha) except Heath Schiesser, David Gallitano and Charles Berg
and against two former Company
12
officers, Paul Behrens and Thaddeus Bereday. All five actions
contend, among other things, that the defendants allegedly allowed or caused the Company to
misrepresent its reported financial results, in amounts unspecified in the pleadings, and seek
damages and equitable relief for, among other things, the defendants supposed breach of fiduciary
duty, waste and unjust enrichment. The three actions in federal court have been consolidated.
Subsequent to that consolidation, an additional derivative complaint entitled City of Philadelphia
Board of Pensions and Retirement Fund v. Farha, et al. was filed in the same federal court, but
thereafter was consolidated with the existing consolidated action. A motion to consolidate the two
state court actions, to which all parties consented, was granted, and plaintiffs filed a
consolidated complaint on April 7, 2008. On October 31, 2008, amended complaints were filed in the
federal court and the state court derivative actions. On December 30, 2008, the Company filed
substantially similar motions to dismiss both actions, contesting, among other things, the standing
of the plaintiffs in each of these derivative actions to prosecute the purported claims in the
Companys name. In an Order entered on March 30, 2009 in the consolidated federal action, the
court denied the motions to dismiss the Second Amended Consolidated Complaint. On April 28, 2009,
in the consolidated state action, the court denied the motions to dismiss the Second Amended
Consolidated Complaint. On April 29, 2009, upon the recommendation of the Nominating and Corporate
Governance Committee of the Companys Board of Directors, the Board adopted a resolution forming a
Special Litigation Committee, comprised of a newly-appointed independent director to investigate
the facts and circumstances underlying the claims asserted in the federal and state derivative
cases and to take such action with respect to such claims as the Special Litigation Committee
determines to be in the best interests of the Company. On May 1, 2009, the Special Litigation
Committee filed in the consolidated federal action a motion to stay the matter, until November
2009, to allow the Special Litigation Committee to complete its investigation. The Company
understands that the Special Litigation Committee will soon file a similar motion in the
consolidated state action. At this time, neither the Company nor any of its subsidiaries can predict the probable outcome
of these claims.
In addition, derivative actions, by their nature, do not seek to recover damages
from the companies on whose behalf the plaintiff shareholders are purporting to act. Accordingly,
no amounts have been accrued in the Companys consolidated financial statements for these claims.
Other Lawsuits and Claims
Separate and apart from the legal matters described above, the Company is also involved in
other legal actions that are in the normal course of its business, some of which seek monetary
damages, including claims for punitive damages, which are not covered by insurance. The Company
currently believes that none of these actions, when finally concluded and determined, will have a
material adverse effect on its financial position, results of operations or cash flows.
13
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
Statements contained in this Quarterly Report on Form 10-Q which are not historical fact may
be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of
1934 (Exchange Act). We intend such statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 21E of the Exchange Act. Such statements, which
may address, among other things, market acceptance of our products and services, expansion into new
targeted markets, product development, our ability to finance growth opportunities, our ability to
respond to changes in government regulations, sales and marketing strategies, projected capital
expenditures, liquidity and the availability of additional funding sources may be found in the
sections of this Quarterly Report on Form 10-Q entitled Business, Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this
Quarterly Report on Form 10-Q generally. In some cases, you can identify forward-looking statements
by terminology such as may, will, should, expects, plans, anticipates, believes,
estimates, predicts, potential, continues or the negative of such terms or other comparable
terminology. You are cautioned that matters subject to forward-looking statements involve risks
and uncertainties, including economic, regulatory, competitive and other factors that may affect
our business. These forward-looking statements are inherently susceptible to uncertainty and
changes in circumstances, as they are based on managements current expectations and beliefs about
future events and circumstances. We undertake no obligation beyond that required by law to update
publicly any forward-looking statements for any reason, even if new information becomes available
or other events occur in the future.
Our actual results may differ materially from those indicated by forward-looking statements as
a result of various important factors including the expiration, cancellation or suspension of our
state and federal contracts. In addition, our results of operations and projections of future
earnings depend, in large part, on accurately predicting and effectively managing health benefits
and other operating expenses. A variety of factors, including competition, changes in health care
practices, changes in federal or state laws and regulations or their interpretations, inflation,
provider contract changes, changes in or terminations of our contracts with government agencies,
new technologies, government-imposed surcharges, taxes or assessments, reduction in provider
payments by governmental payors, major epidemics, disasters and numerous other factors affecting
the delivery and cost of health care, such as major health care providers inability to maintain
their
operations, may in the future affect our ability to control our medical costs and other
operating expenses. Governmental action or business conditions could result in premium revenues
not increasing to offset any increase in medical costs and other operating expenses. Once set,
premiums are generally fixed for one-year periods and, accordingly, unanticipated costs during such
periods cannot be recovered through higher premiums. Furthermore, if we are unable to accurately
estimate incurred but not reported (IBNR) medical costs in the current period, our future
profitability may be affected. Due to these factors and risks, we cannot provide any assurance
regarding our future premium levels or our ability to control our future medical costs.
From time to time, at the federal and state government levels, legislative and regulatory
proposals have been made related to, or potentially affecting, the health care industry, including
but not limited to limitations on managed care organizations, including benefit mandates, and
reform of the Medicaid and Medicare programs. Any such legislative and regulatory action,
including benefit mandates and reform of the Medicaid and Medicare programs, could have the effect
of reducing the premiums paid to us by governmental programs, increasing our medical or
administrative costs or requiring us to materially alter the manner in which we operate. We are
unable to predict the specific content of any future legislation, action or regulation that may be
enacted or when any such future legislation or regulation will be adopted. Therefore, we cannot
predict accurately the effect or ramifications of such future legislation, action or regulation on
our business.
Overview
Current Financial Condition
Anticipated Repayment in Full of Outstanding Amounts Under Credit Facility
Our senior secured credit facility with Wachovia Bank, as Administrative Agent, and a
syndicate of lenders, which has a term loan facility with an outstanding balance of approximately
$152.4 million as of March 31, 2009, is currently in default. We currently intend to repay in full
the outstanding amount under the credit facility on its due date, May 13, 2009.
Financial Impact of the DPA
As
previously disclosed and explained in Part
II Item 1. Legal Proceedings, on May 5,
2009 we entered into the Deferred Prosecution Agreement (the
DPA). As part
of the the DPA, we agreed, among other things, to pay the United
States Attorneys Office for the Middle District of Florida (the USAO) a total of $80.0 million,
of which (a) $35.2 million was paid in August 2008, (b)
$25.0 million is required to be paid on May
12, 2009 and (c) $19.8 million with accumulated interest at an annual rate of 0.40% (with interest
to accrue from the date we enter into the DPA until payment in full has been made) is required to
be paid no later than December 31, 2009. We currently intend to make the required
payment of $25.0 million on May 12, 2009.
14
As part of the DPA, we also agreed to retain an outside independent monitor (the Monitor),
for a period of 18 months at our expense, to be selected by the USAO after consultation with the
Company. At this time, we cannot estimate the costs that we will incur in connection with
retaining the Monitor, including any costs related to implementing remedial measures recommended by
the Monitor, and such costs could be significant.
Financial Uncertainty Associated with Ongoing Resolution Discussions with the Civil Division,
the OIG and the SEC
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),
the Office of Inspector General of the U.S. Department of Health and Human Services (the OIG) and the U.S.
Securities and Exchange Commission (the SEC). We estimate that the remaining liability
associated with these matters to be in the range of $50.0 million to $70.0 million. Based on the
current status of the resolution discussions, we have accrued $50.0 million in accordance with
guidance outlined in FAS 5, Accounting for Contingencies. Approximately $5.2 million of this amount was previously recorded in
our financial statements for the year ended December 31, 2007. Accordingly, an incremental expense
of $44.8 million was recorded to Selling, general and administrative (SG&A) expense for the three
months ended March 31, 2009. As a result, our Condensed Consolidated Balance Sheet
includes an accrual of $94.8 million within the Other accrued expenses line item as of March 31, 2009. We
are currently pursuing resolution terms that would allow for payment of
any resolution amounts over an extended period of time. However, we cannot provide any assurances
regarding the timing, terms and conditions of any final resolutions of these matters.
Investigation Related Costs
As previously disclosed, we have expended significant financial resources in connection with
the investigations and related matters. Since the inception of the investigations through March
31, 2009, we had spent a total of approximately $135.6 million for administrative expenses
associated with, or consequential to, the previously disclosed investigations and the investigation
by the Special Committee of our Board of Directors, including legal fees, accounting fees,
consulting fees, employee recruitment and retention costs and other similar expenses.
Approximately $11.5 million were incurred in the three months ended March 31, 2009.
We expect to continue incurring significant additional costs in connection with the
investigations, resolution terms, and related matters during the remainder of 2009. These include, among others,
anticipated costs associated with the retention of the Monitor, as discussed above, as well as
anticipated costs related to the efforts of the recently formed Special Litigation Committee in
connection with the ongoing shareholder derivative actions.
Current Cash Outlook
On May 1, 2009, we received $29.4 million in dividends from three of our regulated
subsidiaries, which resulted in our unregulated cash balance to be approximately $240.0 million
at that date. After making payments related to the DPA and the anticipated repayment in full of
the outstanding amount under the credit facility, we currently believe that we will be able to meet
our known near-term monetary obligations and maintain sufficient liquidity to operate our business.
However, we cannot provide any assurances that adverse developments will not impede our ability to
do so, including potential payments that may be required in connection with the resolution of the
investigations being conducted by the Civil Division, the OIG and the SEC and other
matters.
We continue to consider, and have requested, additional dividends from certain of our
regulated subsidiaries to increase our unregulated cash balance. However, we cannot provide any
assurances that the applicable state regulatory authorities will approve, to the extent such
approvals are required, the payment of dividends to our non-regulated subsidiaries by our regulated
subsidiaries.
Business and Financial Outlook
Medicare Outlook
The federal Centers for Medicare & Medicaid Services (CMS) recently announced final 2010
Medicare Advantage (MA) payment rates which are 4% to 5% below 2009 rates. Although the new
rates include a 21.5% physician rate cut, historically, the physician rate cut implicit in the
Medicare Advantage rates have not been implemented. Thus, margins or benefits are potentially
compressed due to assumptions of cost reductions that are not implemented due to legislation being
reversed. We are continuing to evaluate whether the rate impact will result in increased member
premiums, reduced member benefits and/or declines in margin.
15
Beginning in 2010, CMS has changed its process, known as the Medicare Secondary Payer process,
for requiring MA organizations to administer members with secondary health care coverage and
coordination of benefits. The new process will demand a high level of focus and coordination by
managed care organizations. Overall, these changes may result in a reduction in CMS revenues to MA
health plans that are not entirely offset by reductions in medical expense. Administrative costs
and efficiencies will be challenged as MA health plans will need to enhance other party liability
processes, data collection upon initial enrollment, enrollment reconciliation, customer service,
claims payment, provider relations, and other activities to preserve revenue and not pay claims out
of turn where another carrier is primary. We are continuing to evaluate the impact of this new
process on our operations.
In February 2009, CMS notified us that, effective March 7, 2009, we have been sanctioned
through a suspension of marketing of, and enrollment into, all lines of our Medicare business.
This suspension will remain in effect until CMS determines that it should be lifted. Among other
areas, CMSs determination was based on findings of deficiencies in our enrollment and
disenrollment operations, appeals and grievances, timely and proper responses to beneficiary
complaints and requests for assistance and marketing and agent/broker oversight activities. We are
working with CMS to address its concerns. In response to the CMS suspension, we made certain
changes to our Medicare marketing sales force and launched a company-wide initiative, with the assistance of independent third-party consultants, to deconstruct
the processes and procedures for each of the issues identified by CMS and to ensure that we comply
fully with CMS requirements going forward.
We are continuing to assess the impact of the CMS suspension and the resulting loss of
membership to determine what effect this action will have on our continued staffing needs and other
operational capabilities to effectively and efficiently
meet the needs of the members we serve. At this time, we cannot estimate the duration of the
suspension or the ultimate impact it will have on our results of operations and our business.
Nonetheless, we anticipate that our inability to enroll new Medicare members will have a material
negative effect on our results of operations and business in 2009, 2010 and potentially beyond.
Given several factors, including the fact that we are currently subject to CMS sanctions, we will
focus our Medicare-related resources on our existing markets and plans, as well as the implementation of remedial
measures. Further, we cannot provide any assurances that we will be able to take appropriate
corrective action or that, despite any corrective measures taken on our part, that we will not
incur additional penalties, fines or other operating restrictions which could have an additional
material adverse effect on our results of operations.
We
recently announced that we have notified CMS that we do not expect to renew
our contracts to continue participating in the MA private fee-for-service (PFFS) program in 2010
or beyond. Our PFFS business represents approximately 30% of our Medicare segment revenue;
accordingly, our exit from this line of business would cause our Medicare segment revenue to materially decline in 2010. We will provide CMS with our final decision regarding continued
participation in this program by June 1, 2009.
We are continuing to experience increased competition in our Medicare segment. As previously
announced, approximately 252,000 auto-assigned dual-eligible members were assigned away from our
plans and approximately 28,000 low income subsidized members disenrolled from our plans in
January 2009 as the result of the Medicare Part D bidding process for plan year 2009. We continue
to expect that, based on these factors as well as new enrollment prior to the imposition of the
above-described sanctions and other factors, our revenues generated from our stand-alone
prescription drug plans (PDP) will decrease significantly for 2009.
Currently, the Obama Administration and the U.S. Congress are debating various alternatives
for reforming the American health care system, including the reduction of payments under MA. As
part of this debate they are reviewing alternative structures for MA payments for implementation in
2012. The Administration has indicated a preference for utilizing competitive bidding as a
mechanism as outlined by the Congressional Budget Office. Additionally, the Senate Finance
sub-committee proposed several alternatives which range from modifying the current benchmark rates
to a phase-in of competitive bidding with bonus payments for the implementation of an evidence-based
chronic care management program. While it is still early in the legislative and regulatory
process, we expect any revisions to the current system to put pressure on margins, decrease
benefits and/or increase member premiums. We continue to evaluate the impact proposed alternatives
could have on our business and take actions as appropriate.
General Economic, Political and Financial Market Conditions
As previously disclosed, government funding continues to be a significant challenge to our
business, particularly in light of the current economic conditions. We have experienced continued
pressure on Medicaid and Medicare rates in the quarter ended March 31, 2009 and anticipate that
this pressure will continue in the foreseeable future.
16
Business Rationalization
We
strive to provide our members with efficient and effective access to
health care to promote their long-term health and well-being, while maintaining a sustainable rate
of return. We are continuing to evaluate various strategic alternatives to address the ongoing
challenges to, and changes in, our business and regulatory environment, competitive position and
financial resources, including reducing enrollment levels, exiting existing lines of business,
service areas, or markets and/or disposing of assets. For example, in early 2009 we notified the
State of Florida that we were withdrawing from the Medicaid reform programs effective July 1, 2009.
In addition, as discussed above, we recently announced that we have made a preliminary decision to
not renew our contracts with CMS to offer PFFS plans in 2010 or thereafter. We are continuing to
evaluate and rationalize all aspects of our business, including our Medicare product lines. These
decisions and any other similar decisions to exit certain markets, reduce or eliminate expansion
initiatives or cease or reduce offering of certain products could cause our revenues to materially decrease.
Further, we are undertaking a corporate-wide effort to evaluate each part of our business,
including our costs and organizational structure, to identify opportunities to operate more
efficiently. We have taken certain steps to reduce our administrative costs by implementing
certain cost-cutting measures, including a freeze on merit-based salary increases, management bonus
reductions and the suspension of the 401(k) retirement plan Company matching contributions. We
have also consolidated our divisional structure from five divisions
into four to increase
efficiencies. We are continuing to evaluate and rationalize our operations, management structure
and staffing needs which may result in further consolidations in our operations, exits of business
and reductions in our workforce.
Encounter Data
Encounter data refers to administrative, claim and clinical data elements from fee-for-service
or capitated service claims that are submitted to applicable state regulators. To the extent that
our encounter data is inaccurate or incomplete, we may expend additional effort to collect or
correct this data and we are exposed to regulatory risk for noncompliance. The accurate and timely
reporting of encounter data is crucial to the success of our programs because more states are using
encounter data to determine compliance with performance standards, which are partly used by states
to set premium rates. As states increase their reliance on encounter data, our inability to obtain
complete and accurate encounter data could significantly affect the premium rates we receive and
how membership is assigned to us, which could have a material adverse effect on our results of
operations, cash flows and our ability to bid for, and continue to participate in, certain
programs. For further discussion of risks associated with our encounter data, see Item 1A. Risk
Factors in this Form 10-Q.
Basis of Presentation
Our Segments
We have two reportable business segments: Medicaid and Medicare.
Medicaid
Medicaid was established to provide medical assistance to low income and disabled persons. It
is state operated and implemented, although it is funded and regulated by both the state and
federal governments. Our Medicaid segment includes plans for beneficiaries of the Temporary
Assistance for Needy Families (TANF) programs, Supplemental Security Income (SSI) programs,
State Childrens Health Insurance Programs (S-CHIP) and Family Health Plus (FHP) programs.
TANF generally provides assistance to low-income families with children and SSI generally provides
assistance to low-income aged, blind or disabled individuals. Our Medicaid segment also includes
other programs that are not part of the Medicaid program, such as S-CHIP and FHP, for qualifying
families who are not eligible for Medicaid because they exceed the applicable income thresholds.
Medicare
Medicare is a federal program that provides eligible persons age 65 and over and some disabled
persons a variety of hospital, medical insurance and prescription drug benefits. Medicare is
administered and funded by CMS. Our Medicare segment includes stand-alone PDP and MA plans, which
includes coordinated care plans (CCP) and PFFS. MA is Medicares managed care alternative to
original Medicare fee-for-service (Original Medicare), which provides individuals standard
Medicare benefits directly through CMS. CCPs are administered through a health maintenance
organization (HMO) and generally require members to seek health care services from a network of
health care providers. PFFS plans are offered by insurance companies and are open-access plans
that allow members to be seen by any physician or facility that
17
participates in the Original
Medicare program and agrees to bill, and otherwise accepts the terms and conditions of, the
sponsoring insurance company.
Membership
The following table summarizes our membership by segment and line of business.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, |
|
|
|
2009 |
|
|
2008 |
|
Medicaid |
|
|
|
|
|
|
|
|
TANF |
|
|
1,080,000 |
|
|
|
947,000 |
|
S-CHIP |
|
|
164,000 |
|
|
|
187,000 |
|
SSI |
|
|
92,000 |
|
|
|
71,000 |
|
FHP |
|
|
19,000 |
|
|
|
28,000 |
|
|
|
|
|
|
|
|
|
|
|
1,355,000 |
|
|
|
1,233,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare |
|
|
|
|
|
|
|
|
MA |
|
|
270,000 |
|
|
|
204,000 |
|
PDP |
|
|
831,000 |
|
|
|
1,009,000 |
|
|
|
|
|
|
|
|
|
|
|
1,101,000 |
|
|
|
1,213,000 |
|
|
|
|
|
|
|
|
|
Total |
|
|
2,456,000 |
|
|
|
2,446,000 |
|
|
|
|
|
|
|
|
We enter into contracts with government agencies that administer health benefits
programs. These contracts generally are subject to renewal every one to four years. We receive
premiums from state and federal agencies for the members that are assigned to or have selected us
to provide health care services under each benefit program. The amount of premiums we receive for
each member varies according to demographics, including the government program, and the members
geographic location, age and gender, and the premiums are subject to periodic adjustments.
Medical Benefits Expense
Our largest expense is the cost of medical benefits that we provide, which is based primarily
on our arrangements with health care providers and utilization of health care services by our
members. Our profitability depends on our ability to predict and effectively manage medical
benefits expense relative to the primarily fixed premiums we receive. Our arrangements with
providers primarily fall into three broad categories: capitation arrangements, pursuant to which we
pay the capitated providers a fixed fee per member, risk-based arrangements, pursuant to which we
assume a portion of the risk for the cost of health care provided and fee-for-service,
where we pay the provider for medical services performed. Other components of medical benefits expense are
variable and require estimation and ongoing cost management.
Estimation of medical benefits payable is our most significant critical accounting estimate.
See Critical Accounting Policies below.
We use a variety of techniques to manage our medical benefits expense, including payment
methods to providers, referral requirements, quality and disease management programs, reinsurance
and member co-payments and premiums for some of our Medicare plans. National health care costs
have been increasing at a higher rate than the general inflation rate; however, relatively small
changes in our medical benefits expense relative to premiums that we receive can create significant
changes in our financial results. Changes in health care laws, regulations and practices, levels
of use of health care services, competitive pressures, hospital costs, major epidemics, terrorism
or bio-terrorism, new medical technologies and other external factors could reduce our ability to
manage our medical benefits expense effectively.
One of our primary tools for measuring profitability is our medical benefits ratio (MBR),
the ratio of our medical benefits expense to the premiums we receive. Changes in the MBR from
period to period result from, among other things, changes in Medicaid and Medicare funding, changes
in the mix of Medicaid and Medicare membership, our ability to manage medical costs and changes in
accounting estimates related to IBNR claims. We use MBRs both to monitor our management of medical
benefits expense and to make various business decisions, including what health care plans to offer,
what geographic areas to enter or exit and the selection of health care providers. Although MBRs
play an important role in our business strategy, we may, for example, be willing to enter into new
geographical markets and/or enter into provider arrangements that might produce a less favorable
MBR if those arrangements, such as capitation or risk-sharing, would likely lower our exposure to
variability in medical costs or for other reasons.
18
Critical Accounting Policies
In the ordinary course of business, we make a number of estimates and assumptions relating to
the reporting of our results of operations and financial condition in conformity with accounting
principles generally accepted in the United States. We base our estimates on historical experience
and on various other assumptions that we believe to be reasonable under the circumstances. Actual
results could differ significantly from those estimates under different assumptions and conditions.
We believe that the accounting policies discussed below are those that are most important to the
portrayal of our financial condition and results and require managements most difficult,
subjective and complex judgments, often as a result of the need to make estimates about the effect
of matters that are inherently uncertain.
Revenue recognition. Our Medicaid contracts with state governments are generally multi-year
contracts subject to annual renewal provisions. Our MA and PDP contracts with CMS generally have
terms of one year. We recognize premium revenues in the period in which we are obligated to
provide services to our members. We estimate, on an ongoing basis, the amount of member billings
that may not be fully collectible or that will be returned based on historical trends, anticipated
or actual MBRs, and other factors. An allowance is established for the estimated amount that may
not be collectible and a liability for premium expected to be returned. The allowance has not been
significant to premium revenue. The payment we receive monthly from CMS for our PDP program
generally represents our bid amount for providing prescription drug insurance coverage. We
recognize premium revenue for providing this insurance coverage ratably over the term of our annual
contract. Premiums collected in advance are deferred and reported as unearned premiums in the
accompanying condensed consolidated balance sheets and amounts that have not been received by the
end of the period remain on the
balance sheet classified as premium receivables.
Premium payments that we receive are based upon eligibility lists produced by our customers.
From time to time, the states or CMS may require us to reimburse them for premiums that we received
based on an eligibility list that a state or CMS later discovers contains individuals who were not
eligible for any government-sponsored program or are eligible for a different premium category,
different program, or belong to a different plan other than ours. These adjustments reflect
changes in the number and eligibility status of enrollees subsequent to when revenue was received.
We estimate the amount of outstanding retroactivity each period and adjust premium revenue
accordingly; if appropriate, the estimates of retroactive adjustments are based on historical
trends, premiums billed, the volume of member and contract renewal activity and other information.
Our government contracts establish monthly rates per member, but may have additional amounts due to
us based on items such as age, working status or medical history. For example, CMS employs a
risk-adjustment model that apportions premiums paid to all Medicare plans according to the health
status of each beneficiary enrolled. Historically, we have not experienced significant differences
between the amounts that we have recorded and the revenues that we actually received.
The CMS risk-adjustment model pays more for Medicare members with predictably higher costs.
Under this risk-adjustment methodology, diagnosis data from inpatient and ambulatory treatment
settings are used to calculate the risk-adjusted premium payment to us. We collect claims and
encounter data and submit the necessary diagnosis data to CMS within prescribed deadlines. We
continually estimate risk-adjusted revenues based upon membership claim activity and the diagnosis
data submitted to, and that which is ultimately accepted by, CMS and record such adjustments in our
results of operations. However, due to the variability of the assumptions that we use in our
estimates, our actual results may differ from the amounts that we have estimated. If our estimates
are materially incorrect, there may be an adverse effect on our results of operations in future
periods. Historically, we have not experienced significant differences between the amounts that we
have recorded and the revenues that we actually received.
Other amounts included in this balance as a reduction of premium revenue represent the return
of premium associated with certain of our Medicaid contracts. These contracts require the Company
to expend a minimum percentage of premiums on eligible medical expense, and to the extent that we
expend less than the minimum percentage of the premiums on eligible medical expense, we are
required to refund all or some portion of the difference between the minimum and our actual
allowable medical expense. The Company estimates the amounts due to the state as a return of
premium each period based on the terms of the Companys contract with the applicable state agency.
Estimating medical benefits expense and medical benefits payable. The cost of medical
benefits is recognized in the period in which services are provided and includes an estimate of the
cost of IBNR medical benefits. We contract with various health care providers for the provision of
certain medical care services to our members and generally compensate those providers on a
fee-for-service or capitated basis or pursuant to certain risk-sharing arrangements. Capitation
represents fixed payments generally on a per-member-per-month (PMPM) basis to participating
physicians and other medical
19
specialists as compensation for providing comprehensive health care
services. Generally, by the terms of most of our capitation agreements, capitation payments we
make to capitated providers obviate any further obligation we have to pay the capitated provider
for the actual medical expenses of the member.
Medical benefits expense has two main components: direct medical expenses and
medically-related administrative costs. Direct medical expenses include amounts paid to hospitals,
physicians and providers of ancillary services, such as laboratory and pharmacy. Medically-related
administrative costs include items such as case and disease management, utilization review
services, quality assurance and on-call nurses. Medical benefits payable represents amounts for
claims fully adjudicated awaiting payment disbursement and IBNR estimates.
The medical benefits payable estimate has been, and continues to be, the most significant
estimate included in our financial statements. We historically have used, and continue to use, a
consistent methodology for estimating our medical benefits expense and medical benefits payable.
Our policy is to record managements best estimate of medical benefits payable based on the
experience and information available to us at the time. This estimate is determined utilizing
standard actuarial methodologies based upon historical experience and key assumptions consisting of
trend factors and completion factors using an assumption of moderately adverse conditions, which
vary by business segment. These standard actuarial methodologies include using, among other
factors, contractual requirements, historic utilization trends, the interval between the date
services are rendered and the date claims are paid, denied claims activity, disputed claims
activity, benefits changes, expected health care cost inflation, seasonality patterns, maturity of
lines of business and changes in membership.
The factors and assumptions described above that are used to develop our estimate of medical
benefits expense and medical benefits payable inherently are subject to greater variability when
there is more limited experience or information
available to us. For example, from 2004 to 2007, we grew at a rapid pace, through the
expansion of existing products and introduction of new products, such as Part D and PFFS, and entry
into new geographic areas, such as Georgia. The ultimate claims payment amounts, patterns and
trends for new products and geographic areas cannot be precisely predicted at their onset, since
we, the providers and the members do not have experience in these products or geographic areas.
Standard accepted actuarial methodologies require the use of key assumptions consisting of trend
and completion factors using an assumption of moderately adverse conditions that would allow for
this inherent variability. This can result in larger differences between the originally estimated
medical benefits payable and the actual claims amounts paid. Conversely, during periods where our
products and geographies are more stable and mature, we have more reliable claims payment patterns
and trend experience. With more reliable data, we should be able to estimate more closely the
ultimate claims payment amounts; therefore, we may experience smaller differences between our
original estimate of medical benefits payable and the actual claim amounts paid.
Medical cost trends can be volatile and management is required to use considerable judgment in
the selection of medical benefits expense trends and other actuarial model inputs. In developing
the estimate, we also apply different estimation methods depending on the month for which incurred
claims are being estimated. For the more recent months, which constitute the majority of the
amount of the medical benefits payable, we estimate claims incurred by applying observed trend
factors to the PMPM costs for prior months, which costs have been estimated using completion
factors, in order to estimate the PMPM costs for the most recent months. We validate the estimates
of the most recent PMPM costs by comparing the most recent months utilization levels to the
utilization levels in older months and actuarial techniques that incorporate a historical analysis
of claim payments, including trends in cost of care provided and timeliness of submission and
processing of claims.
Many aspects of the managed care business are not predictable. These aspects include the
incidences of illness or disease state (such as cardiac heart failure cases, cases of upper
respiratory illness, the length and severity of the flu season, diabetes, the number of full-term
versus premature births and the number of neonatal intensive care babies). Therefore, we must rely
upon historical experience, as continually monitored, to reflect the ever-changing mix, needs and
growth of our membership in our trend assumptions. Among the factors considered by management are
changes in the level of benefits provided to members, seasonal variations in utilization,
identified industry trends and changes in provider reimbursement arrangements, including changes in
the percentage of reimbursements made on a capitation as opposed to a fee-for-service basis. These
considerations are aggregated in the trend in medical benefits expense. Other external factors
such as government-mandated benefits or other regulatory changes, catastrophes and epidemics may
affect medical cost trends. Other internal factors such as system conversions and claims
processing interruptions may affect our ability to predict accurately estimates of historical
completion factors or medical cost trends. Medical cost trends potentially are more volatile than
other segments of the economy. Management is required to use considerable judgment in the
selection of medical benefits expense trends and other actuarial model inputs.
20
Also included in medical benefits payable are estimates for provider settlements due to
clarification of contract terms, out-of-network reimbursement, claims payment differences as well
as amounts due to contracted providers under risk-sharing arrangements. We record reserves for
estimated referral claims related to health care providers under contract with us who are
financially troubled or insolvent and who may not be able to honor their obligations for the costs
of medical services provided by other providers. In these instances, we may be required to honor
these obligations for legal or business reasons. Based on our current assessment of providers
under contract with us, such losses have not been and are not expected to be significant.
Changes in medical benefits payable estimates are primarily the result of obtaining more
complete claims information and medical expense trend data over time. Volatility in members needs
for medical services, provider claims submissions and our payment processes result in identifiable
patterns emerging several months after the causes of deviations from assumed trends occur. Since
our estimates are based upon PMPM claims experience, changes cannot typically be explained by any
single factor, but are the result of a number of interrelated variables, all influencing the
resulting experienced medical cost trend. Differences, or prior period developments, included in
our financial statements, whether positive or negative, between actual experience and estimates
used to establish the liability are recorded in the period when such differences become known, and
have the effect of increasing or decreasing the reported medical benefits expense and resulting MBR
in such periods.
Goodwill and intangible assets. We obtained goodwill and intangible assets as a result of the
acquisitions of our subsidiaries. Goodwill represents the excess of the cost over the fair market
value of net assets acquired. Intangible assets include provider networks, membership contracts,
trademarks, non-compete agreements, government contracts, licenses and permits. Our intangible
assets are amortized over their estimated useful lives ranging from one to 26 years.
We evaluate whether events or circumstances have occurred that may affect the estimated useful
life or the recoverability of the remaining balance of goodwill and other identifiable intangible
assets. We must make assumptions and estimates, such as the discount factor, in determining the
estimated fair values. While we believe these assumptions and estimates are appropriate, other
assumptions and estimates could be applied and might produce significantly different results.
We review goodwill and intangible assets for impairment at least annually, or more frequently
if events or changes in circumstances occur that may affect the estimated useful life or the
recoverability of the remaining balance of goodwill or intangible assets. Events or changes in
circumstances would include significant changes in membership, state funding, medical contracts and
provider networks. We have selected the second quarter of each year for our annual impairment
test, which generally coincides with the finalization of state and federal contract negotiations
and our initial budgeting process. We have assessed the book value of goodwill and other
intangible assets and believe that such assets have not been impaired as of March 31, 2009.
Results of Operations
The following table sets forth the condensed consolidated statements of income data, expressed
as a percentage of total revenues for each period indicated. The historical results are not
necessarily indicative of results to be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, |
|
|
|
2009 |
|
|
2008 |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
Premium |
|
|
99.8 |
% |
|
|
99.1 |
% |
Investment and other income |
|
|
0.2 |
% |
|
|
0.9 |
% |
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Medical benefits |
|
|
86.5 |
% |
|
|
85.4 |
% |
Selling, general and administrative |
|
|
15.1 |
% |
|
|
13.9 |
% |
Depreciation and amortization |
|
|
0.3 |
% |
|
|
0.3 |
% |
Interest |
|
|
0.1 |
% |
|
|
0.2 |
% |
|
|
|
|
|
|
|
Total expenses |
|
|
102.0 |
% |
|
|
99.8 |
% |
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(2.0) |
% |
|
|
0.2 |
% |
Income tax (benefit) expense |
|
|
(0.0) |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
Net (loss) income |
|
|
(2.0) |
% |
|
|
0.1 |
% |
|
|
|
|
|
|
|
21
One of our primary management tools for measuring profitability is our MBR. Changes in our
MBR from period to period result from, among other things, changes in Medicaid and Medicare
funding, changes in the mix of Medicaid and Medicare membership, our ability to manage medical
costs and changes in accounting estimates related to IBNR claims. We use our MBR both to monitor
our management of medical benefits expense and to make various business decisions, including what
health care plans to offer, what geographic areas to enter or exit and the selection of health care
providers. Although our MBR plays an important role in our business strategy, we may be willing to
enter into provider arrangements that might produce a less favorable MBR if those arrangements,
such as capitation or risk-sharing, would likely lower our exposure to variability in medical
costs.
Three-Month Period Ended March 31, 2009 Compared to the Three-Month Period Ended March 31, 2008
Premium revenue. Premium revenues for the three months ended March 31, 2009 increased $170.5
million, or 10.5%, to $1,791.9 million from $1,621.4 million for the same period in the prior year.
The increase is primarily attributable to membership growth in our Medicaid segment and our member
mix in our Medicare segment. Total membership grew by approximately 10,000 members from 2,446,000
as of March 31, 2008 to 2,456,000 as of March 31, 2009.
The Medicaid segment premium revenue for the three months ended March 31, 2009 increased $75.6
million, or 10.3%, to $809.2 million from $733.6 million for the same period in the prior year.
The increase in Medicaid segment revenue is primarily due to overall growth in membership.
Aggregate membership in our Medicaid segment grew by approximately 122,000 members, or 9.9%, from
1,233,000 as of March 31, 2008 to 1,355,000 as of March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Medicaid Revenues and Membership |
|
|
Three Months Ended March 31, |
|
|
(Dollars in millions) |
|
|
2009 |
|
2008 |
Revenues |
|
$ |
809.2 |
|
|
$ |
733.6 |
|
% of Total Premium Revenues |
|
|
45.2 |
% |
|
|
45.2 |
% |
|
|
|
|
|
|
|
|
|
Membership |
|
|
1,355,000 |
|
|
|
1,233,000 |
|
% of Total Membership |
|
|
55.2 |
% |
|
|
50.4 |
% |
The Medicare segment premium revenue for the three months ended March 31, 2009 increased $95.0
million, or 10.7%, to $982.7 million from $887.7 million for the same period in the prior year.
The increase in Medicare segment revenue is primarily due to the demographic mix of our members.
Membership within the Medicare segment decreased by approximately 112,000 members, or 9.2%, from
1,213,000 as of March 31, 2008 to 1,101,000 as of March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Medicare Revenues and Membership |
|
|
Three Months Ended March 31, |
|
|
(Dollars in millions) |
|
|
2009 |
|
2008 |
Revenues |
|
$ |
982.7 |
|
|
$ |
887.7 |
|
% of Total Premium Revenues |
|
|
54.8 |
% |
|
|
54.8 |
% |
|
|
|
|
|
|
|
|
|
Membership |
|
|
1,101,000 |
|
|
|
1,213,000 |
|
% of Total Membership |
|
|
44.8 |
% |
|
|
49.6 |
% |
Investment and other income. Investment and other income for the three months ended March 31,
2009 decreased $12.2 million, or 78.6 %, to $3.3 million from $15.5 million for the same period in
the prior year. The decrease was primarily due to reduced market rates on lower average investment
and cash balances.
Medical benefits expense. Medical benefits expense for the three months ended March 31, 2009
increased $155.4 million, or 11.1%, to $1,553.0 million from $1,397.6 million for the same period
in the prior year. The increase in medical benefits expense was due to the demographic mix of our
members. The MBR was 86.7% and 86.2% for the three months ended March 31, 2009 and 2008,
respectively. The current period MBR was favorably impacted by 1.7% due to the adjustment of
previously established medical benefits payable based on actual claim submissions and other
estimate changes.
The Medicaid segment medical benefits expense for the three months ended March 31, 2009
increased $79.0 million, or 12.9%, to $689.8 million from $610.8 million for the same period in the
prior year. The increase was primarily due to the
22
demographic mix of our members. The Medicaid
MBR for the three months ended March 31, 2009 was 85.2% compared to 83.3% for the same period in
the prior year. The increase in MBR is primarily a result of medical benefits expenses growing at
a faster pace than premium revenues during the three-month period ended March 31, 2009. The
current period MBR related to the Medicaid segment was favorably impacted by 3.2% due to the
adjustment of previously established medical benefits payable based on actual claim submissions and
other estimate changes.
|
|
|
|
|
|
|
|
|
|
|
Medicaid Medical Benefits Expense |
|
|
and Membership |
|
|
Three Months Ended March 31, |
|
|
(Dollars in millions) |
|
|
2009 |
|
2008 |
Medical benefits expense |
|
$ |
689.8 |
|
|
$ |
610.8 |
|
MBR |
|
|
85.2 |
% |
|
|
83.3 |
% |
|
|
|
|
|
|
|
|
|
Membership |
|
|
1,355,000 |
|
|
|
1,233,000 |
|
% of Total Membership |
|
|
55.2 |
% |
|
|
50.4 |
% |
The Medicare segment medical benefits expense for the three months ended March 31, 2009
increased $76.4 million, or 9.7%, to $863.2 million, from $786.8 million for the same period in the
prior year. The Medicare MBR for the three months ended March 31, 2009 was 87.8% compared to 88.6%
for the same period in the prior year. This decrease was primarily due to the utilization pattern
of our products and the demographic mix of our members. The current period MBR related to the
Medicare segment was favorably impacted by 0.5% due to the adjustment of previously
established medical benefits payable based on actual claim submissions and other estimate changes.
|
|
|
|
|
|
|
|
|
|
|
Medicare Medical Benefits Expense |
|
|
and Membership |
|
|
Three Months Ended March 31, |
|
|
(Dollars in millions) |
|
|
2009 |
|
2008 |
Medical benefits expense |
|
$ |
863.2 |
|
|
$ |
786.8 |
|
MBR |
|
|
87.8 |
% |
|
|
88.6 |
% |
|
|
|
|
|
|
|
|
|
Membership |
|
|
1,101,000 |
|
|
|
1,213,000 |
|
% of Total Membership |
|
|
44.8 |
% |
|
|
49.6 |
% |
Selling, general and administrative expense. SG&A expense for the three months ended March
31, 2009 increased $43.8 million, or 19.2%, to $271.5 million from $227.7 million for the same
period in the prior year. Our SG&A expense to revenue ratio (SG&A ratio) was 15.1% for the three
months ended March 31, 2009 compared to 13.9% for the same period in the prior year. The higher
SG&A ratio is the result of recording a $44.8 million accrual during the three month period ended
March 31, 2009 in connection with the resolution of investigation related matters
discussed in Note 6, Commitments and Contingencies, of our Notes to the Condensed Consolidated
Financial Statements, partially offset by a decrease in investigation related expenses, which were
approximately $11.5 million and $32.0 million in the three-month periods ended March 31, 2009 and
2008, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2009 |
|
2008 |
|
% Change |
|
|
(Dollars in millions) |
Selling, general and administrative expenses (SG&A) |
|
|
|
|
|
|
|
|
|
|
|
|
SG&A |
|
$ |
271.5 |
|
|
$ |
227.7 |
|
|
|
19.2 |
% |
SG&A expense to total revenue ratio |
|
|
15.1 |
% |
|
|
13.9 |
% |
|
|
|
|
Depreciation and amortization expense. Depreciation and amortization expense for the
three-month period ended March 31, 2009 increased $0.5 million, or 11.4%, to $5.7 million from $5.2
million for the same period in the prior year.
23
Interest expense. Interest expense was $2.3 million and $3.3 million for the three months
ended March 31, 2009 and 2008, respectively. The decrease is the result of reduced market interest
rates.
Income tax (benefit) expense. Income tax benefit for the three months ended March 31, 2009
was $0.4 million compared to $1.8 million of income tax expense for the same period in the prior
year, with an effective tax rate of 0.9% and 58.2% at March 31, 2009 and 2008, respectively. The
decrease in the effective tax rate was attributed to non-deductible SG&A expenses associated with,
or consequential to, the government and Special Committee investigations in the amount of $44.8
million accrued in this period which resulted in a pre-tax book loss for the three months ended
March 31, 2009. The decrease in the effective tax rate was also attributed to the
non-deductibility of certain compensation costs related to the hiring of new executive officers and
state taxes that was incurred in the three-months ended March 31, 2008 that was not incurred in the
three-months ended March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2009 |
|
2008 |
|
% Change |
|
|
(Dollars in millions) |
Income tax (benefit) expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
|
$ |
(0.4 |
) |
|
$ |
1.8 |
|
|
|
n/m |
|
Effective tax rate |
|
|
0.9 |
% |
|
|
58.2 |
% |
|
|
|
|
|
|
|
n/m |
|
Indicates percentage change between these years is considered either not measurable or not
meaningful. |
Net (loss) income. Net loss for the three months ended March 31, 2009 was $36.9 million,
compared to $1.3 million of net income for the same period in the prior year. The decrease in net
income when comparing the three month periods ended March 31, 2009 and 2008 is primarily due to
$44.8 million of SG&A expense recorded in connection with the ultimate resolution of investigation
related matters discussed in Note 6, Commitments and Contingencies, of our Notes to the Condensed
Consolidated Financial Statements as well as the period-over-period increase in MBR, as medical
benefits expense grew at a faster pace than premium revenues during the three-month period ended
March 31, 2009. These negative impacts were partially offset by a decrease in investigation
related costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2009 |
|
2008 |
|
% Change |
|
|
(Dollars in millions, except for share data) |
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(36.9 |
) |
|
$ |
1.3 |
|
|
|
n/m |
|
Net (loss) income per diluted share |
|
$ |
(0.89 |
) |
|
$ |
0.03 |
|
|
|
|
|
|
|
|
n/m |
|
Indicates percentage change between these years is considered either not measurable or not
meaningful. |
24
Liquidity and Capital Resources
Cash Generating Activities
Our business consists of operations conducted by our regulated subsidiaries, including HMOs
and insurance subsidiaries, and our non-regulated subsidiaries. The primary sources of cash for
our regulated subsidiaries include premium revenue, investment income and capital contributions
made by us to our regulated subsidiaries. Our regulated subsidiaries are each subject to
applicable state regulations that, among other things, require the maintenance of minimum levels of
capital and surplus. Our regulated subsidiaries primary uses of cash include payment of medical
expenses, management fees to our non-regulated third-party administrator subsidiary (the TPA) and
direct administrative costs, which are not covered by the agreement with the TPA, such as selling
expenses and legal costs. We refer collectively to the cash and investment balances maintained by
our regulated subsidiaries as regulated cash and regulated investments, respectively.
The primary sources of cash for our non-regulated subsidiaries are management fees received
from our regulated subsidiaries, investment income and cash received from debt or equity
offerings. Our non-regulated subsidiaries primary uses of cash include payment of administrative
costs not charged to our regulated subsidiaries for corporate functions, including administrative
services related to claims payment, member and provider services and information technology. Other
primary uses include capital contributions made by our non-regulated subsidiaries to our regulated
subsidiaries and repayment of debt. We refer collectively to the cash and investment balances
available in our non-regulated subsidiaries as unregulated cash and unregulated investments,
respectively.
Cash Positions and Credit Facility
On May 1, 2009, we received $29.4 million in dividends from three of our regulated
subsidiaries, which resulted in an unregulated cash balance of approximately $240.0 million at
that date. At March 31, 2009, we had an unregulated cash balance
of approximately $213.0 million. After making payments related to the DPA and the anticipated repayment in full of the
outstanding amount under the credit facility, we currently believe that we will be able to meet our
known near-term monetary obligations and maintain sufficient liquidity to operate our business. However, we
cannot provide any assurance that adverse developments will not arise that could impede our ability
to do so. In particular, the timing of payments related to any potential resolutions of matters
under review by the Civil Division, the OIG and the SEC is uncertain and could materially and
adversely affect our ability to meet our near-term obligations. We are currently pursuing resolution terms that would allow for payment of any resolution
amounts over an extended period of time. Our available cash would also be
reduced materially if Florida regulators were to require certain of our intercompany loan
arrangements which total approximately $50.0 million, to be terminated. Additionally, one or more
of our regulators could require one or more of our subsidiaries to maintain minimum levels of
statutory net worth in excess of the amount required under the applicable state laws if the
regulators were to determine that such a requirement were in the interest of our members. In
addition, there may be other potential adverse developments that could impede our ability to meet
our obligations.
25
We continue to consider, and have requested, additional dividends from certain of our
regulated subsidiaries to the extent that we are able to access available excess capital. Refer to
our Annual Report on Form 10-K for the fiscal year ended December 31, 2008 (the 2008 10-K) for
further discussion of, among other things, our Regulatory Capital and Restrictions on our Dividends
and Management Fees. On May 1, 2009, three of our Florida regulated subsidiaries
paid dividends to one of our non-regulated subsidiaries in the aggregate amount of $29.4 million.
Our ability to obtain financing has been, and continues to be, materially and negatively
affected by a number of factors. The recent turmoil in the credit markets, market volatility, the
deterioration in the soundness of certain financial institutions and general adverse economic
conditions have caused the cost of prospective debt financings to increase considerably. These
circumstances have materially adversely affected liquidity in the financial markets, making terms
for certain financings unattractive, and in some cases have resulted in the unavailability of
financing. We also believe the uncertainty created by the ongoing state and federal investigations
is affecting our ability to obtain financing. In light of the current and evolving credit market
crisis and the uncertainty created by the ongoing investigations, we may not be able to obtain
financing. Even if we are able to obtain financing under these circumstances, the cost to us
likely will be high and the terms and conditions likely will be onerous.
Auction Rate Securities
As of March 31, 2009, all of the Companys long-term investments were comprised of municipal
notes investments with an auction reset feature (auction rate securities). These notes are
issued by various state and local municipal entities for the purpose of financing student loans,
public projects and other activities; they carry investment grade credit rating.
Each of our existing and anticipated sources of cash is impacted by operational and financial
risks that influence the overall amount of cash generated and the capital available to us. For a
further discussion of risks that can affect our liquidity, see the risk factor discussion included
in our 2008 10-K.
Overview of Cash Flow Activities
Cash and cash equivalents decreased to $1,134.6 million at March 31, 2009
from $1,234.2 million at March 31, 2008. For the three-month periods ended March 31, 2009 and 2008 our cash flows are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2009 |
|
|
|
|
|
2008 |
|
|
(In millions) |
Net cash (used in) provided by operations |
|
$ |
(105.8 |
) |
|
|
|
|
|
$ |
66.8 |
|
Net cash provided by investing activities |
|
|
17.5 |
|
|
|
|
|
|
|
57.3 |
|
Net cash provided by financing activities |
|
|
41.0 |
|
|
|
|
|
|
|
101.7 |
|
Cash (used in) provided by Operations: Because we generally receive premiums in advance of
payments of claims for health care services, we maintain balances of cash and cash equivalents
pending payment of claims. Our net loss during the three-month period ended March 31, 2009 was
$36.9 million. Cash used in operations primarily consisted of an increase in Premiums and other
receivables of $69.9 million, an increase in Other receivables from government partners of $50.7
million, and a decrease in Unearned premiums of $62.6 million and decrease in Other accrued
expenses of $51.4 million. Cash provided from operations
primarily consisted of an increase in
medical benefits payable of $113.6 million.
Cash provided by Investing Activities: During the three-month period ended March 31, 2009,
investing activities primarily consisted of the net proceeds from the maturity of restricted
investments totaling approximately $22.5 million, partially offset by the purchases of property and equipment totaling approximately $5.1 million.
Cash provided by Financing Activities: Included in financing activities are funds held for
the benefit of others, which increased approximately $42.8 million as of March 31, 2009. These PDP
member subsidies represent pass-through payments from government partners and are not accounted for
in our results of operations since they represent payments to fund deductibles, co-payments and other member benefits for certain of our members.
As discussed above, our senior secured credit facility is currently in default and will become
due and payable on May 13, 2009. We currently have the ability and intend to repay in full the outstanding amount under the credit facility, on its due date. The term loan and credit facilities are secured by a pledge of
substantially all of the assets or our non-regulated entities, which includes the stock of our
operating subsidiaries directly held by our non-regulated entities. Interest is payable quarterly,
currently at a rate equal to the sum of a rate based upon the applicable six month Prime rate plus
a rate equal to 1.50%. If we fail to pay any of our indebtedness when due, or if we breach any of
the other covenants in the instruments governing our indebtedness, it may result in one or more
additional events of default.
As of March 31, 2009, our senior debt was rated B- by Standard & Poors and Ba2 by Moodys.
26
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As of March 31, 2009, we had cash and cash equivalents of $1,134.6 million, investments
classified as current assets of $73.8 million, long-term investments of $48.4 million and
restricted investments on deposit for licensure of $176.9 million. The short-term investments
classified as current assets consist of highly liquid securities with maturities between three and
twelve months and longer term bonds with floating interest rates that are considered available for
sale. Long-term restricted assets consist of cash and cash equivalents deposited or pledged to
state agencies in accordance with state rules and regulations. These restricted assets are
classified as long term regardless of the contractual maturity date due to the long-term nature of
the states requirements. The restricted investments classified as long-term are subject to
interest rate risk and will decrease in value if market rates increase. Because of their
short-term pricing nature, however, we would not expect the value of these investments to decline
significantly as a result of a sudden change in market interest rates. Assuming a hypothetical and
immediate 1.0% increase in market interest rates at March 31, 2009 the fair value of our fixed
income short term investments would decrease by less than $0.1 million. Similarly, a 1.0% decrease
in market interest rates at March 31, 2009 would result in an increase of the fair value of our
short term investments of less than $0.8 million.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation required by Rule 13a-15 under the Exchange Act, under
the leadership and with the participation of our President and Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures as
defined in Rule 13a-15 under the Exchange Act (Disclosure Controls). Based on the evaluation,
our CEO and CFO concluded that, as of March 31, 2009, our Disclosure Controls were effective in
timely alerting them to material information required to be included in our reports filed with the
SEC.
Changes in Internal Control Over Financial Reporting
There has not been any change in our internal control over financial reporting (as defined in
Rule 13a-15(f) of the Exchange Act) identified in connection with the evaluation required by Rule
13a-15(d) under the Exchange Act during the quarter ended March 31, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our Disclosure Controls and
internal controls will prevent all errors and fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by management override of the controls.
The design of any system of control also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time, a control may become
inadequate because of changes in conditions or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
27
Part II OTHER INFORMATION
Item 1. Legal Proceedings.
Set forth below is information relating to pending legal proceedings, including a description
of the current status of the ongoing investigations, actions and lawsuits arising from or
consequential to these investigations:
Government Investigations
As previously disclosed, on May 5, 2009 (the Effective Date), the Company and its
subsidiaries entered into a DPA with the USAO and the Florida Attorney
Generals Office. The DPA has resolved previously disclosed investigations by the USAO and the
Florida Attorney Generals Office.
Pursuant to the DPA, the USAO filed a one-count criminal information (the Information) in
the United States District Court for the Middle District of Florida, Tampa Division (the Court),
charging us with conspiracy to commit health care fraud against the Florida Medicaid Program in
connection with reporting of expenditures under certain community behavioral health contracts, and
against the Florida Healthy Kids programs, under certain contracts, in violation of 18 U.S.C.
Section 1349. The USAO will recommend to the Court that the prosecution of us be deferred during
the duration of the DPA. If we have complied with the DPA, within five days of its expiration, the
USAO will seek dismissal with prejudice of the Information.
In accordance with the DPA, the USAO has filed a statement of facts relating to this matter,
and we have agreed to retain, at our expense, an outside independent monitor (the Monitor) to be
selected by the USAO after consultation with the Company. In
addition, we have agreed to
continue undertaking remedial measures to ensure full compliance with all federal and state health
care laws. The Monitor will serve for a period of eighteen months, and among other things, the
Monitor will review the our compliance with the DPA and all applicable federal and state health
care laws, regulations and programs. The Monitor also will review, evaluate and, as necessary,
make written recommendations concerning certain of the our policies
and procedures. The DPA provides that the Monitor will undertake to
avoid the disruption of our ordinary business operations or the
imposition of unnecessary costs or expenses.
The DPA does not, nor should it be construed to, operate as a settlement or release of any
civil or administrative claims for monetary, injunctive or other relief against the us, whether
under federal, state or local statutes, regulations or common law. Furthermore, the DPA does not
operate, nor should it be construed, as a concession that we are entitled to any limitation of its
potential federal, state or local civil or administrative liability.
The term of the DPA is thirty-six months, but after eighteen months have elapsed from the
Effective Date, such term may be reduced by the USAO to twenty-four months upon consideration of
certain factors set forth in the DPA, including our continued remedial actions and compliance
with all federal and state health care laws and regulations.
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 to
be paid on May 12, 2009 and (c) a payment of $19.8 million with accumulated interest at
an annual rate of 0.40% (interest to accrue from the Effective Date until payment in full has been
made) 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 months ended March 31, 2009.
We also are engaged in resolution discussions as to matters under review with the SEC, the
Civil Division and the OIG. Management currently estimates
that the remaining liability associated with these matters is in the range of $50.0 million to
$70.0 million. Based on the current status of the resolution discussions, we have accrued $50.0
million in accordance with guidance outlined in FAS 5, Accounting for Contingencies. Approximately $5.2 million of this amount
was previously recorded in our financial statements for the year ended December 31, 2007.
Accordingly, an incremental expense of $44.8 million was recorded to Selling, general and
administrative expense for the three months ended March 31, 2009. As a result, our Condensed
Consolidated Balance Sheet includes an accrual of $94.8 million within the Other accrued expenses
line item as of March 31, 2009. We are currently pursuing resolution terms that would allow for
payment of any resolution amounts over an extended period of time. However, we cannot provide any
assurances regarding the timing, terms and conditions of any final resolutions of these matters.
28
In addition, we are responding to subpoenas issued by the State of Connecticut Attorney
Generals Office involving transactions between us and our affiliates and their potential impact on
the costs of Connecticuts Medicaid program. We have communicated with regulators in states in
which our HMO and insurance operating subsidiaries are
domiciled regarding the investigations. We are cooperating with federal and state regulators and
enforcement officials in all of these matters. We do not know whether, or the extent to which,
any pending investigations might lead to the payment of fines or penalties, the imposition of
injunctive relief and/or operating restrictions.
In addition, in a letter dated October 15, 2008, the Civil Division informed us that as part
of the pending civil inquiry, the Civil Division is investigating a number of qui tam complaints
filed by relators against us under the whistleblower provisions of the False Claims Act, 31 U.S.C.
sections 3729-3733. The seal in those cases has been partially lifted for the purpose of
authorizing the Civil Division to disclose to us the existence of the qui tam complaints. The
complaints otherwise remain under seal as required by 31 U.S.C. section 3730(b)(3). In connection
with the ongoing resolution discussions with the Civil Division, we are undertaking to address the
allegations by the qui tam relators.
We also learned from a docket search that a former employee filed a qui tam action on
October 25, 2007 in state court for Leon County, Florida against several defendants, including us
and one of our subsidiaries. Because qui tam actions brought under federal and state false claims
acts are sealed by the court at the time of filing, we are unable to determine the nature of the
allegations and, therefore, we do not know at this time whether this action relates to the subject
matter of the federal investigations. In addition, it is possible that additional qui tam actions
have been filed against us and are under seal. Thus, it is possible that we are subject to
liability exposure under the False Claims Act, or similar state statutes, based on qui tam actions
other than those discussed in this Quarterly Report on Form 10-Q.
Class Action and Derivative Lawsuits
Putative class action complaints were filed on October 26, 2007 and on November 2, 2007.
These putative class actions, entitled Eastwood Enterprises, L.L.C. v. Farha, et al. and Hutton v.
WellCare Health Plans, Inc. et al., respectively, were filed in the United States District Court
for the Middle District of Florida against the Company, Todd Farha, the Companys former chairman
and chief executive officer, and Paul Behrens, the Companys former senior vice president and chief
financial officer. Messrs. Farha and Behrens were also officers of various subsidiaries of the
Company. The Eastwood Enterprises complaint alleges that the defendants materially misstated the
Companys reported financial condition by, among other things, purportedly overstating revenue and
understating expenses in amounts unspecified in the pleading in violation of the Securities
Exchange Act of 1934 (Exchange Act), as amended. The Hutton complaint alleges that various
public statements supposedly issued by defendants were materially misleading because they failed to
disclose that the Company was purportedly operating its business in a potentially illegal and
improper manner in violation of applicable federal guidelines and regulations. The complaint
asserts claims under the Exchange Act, as amended. Both complaints seek, among other things,
certification as a class action and damages. The two actions were consolidated, and various
parties and law firms filed motions seeking to be designated as Lead Plaintiff and Lead Counsel.
In an Order issued on March 11, 2008, the Court appointed a group of five public pension funds from
New Mexico, Louisiana and Chicago (the Public Pension Fund Group) as Lead Plaintiffs. On
October 31, 2008, an amended consolidated complaint was filed in this class action against the
Company, Messrs. Farha and Behrens, and adding Thaddeus Bereday, the Companys former senior vice
president and general counsel, as a defendant. On January 23, 2009, the Company and certain other
defendants filed a joint motion to dismiss the amended consolidated complaint, arguing, among other
things, that the complaint failed to allege a material misstatement by defendants with respect to
the Companys compliance with marketing and other health care regulations and failed to plead facts
raising a strong inference of scienter with respect to all aspects of the purported fraud claim.
Briefing on this motion was completed on April 24, 2009, and the motion remains pending. The
Company intends to defend itself vigorously against these claims. At this time, neither the
Company nor any of its subsidiaries can predict the probable outcome of these claims. Accordingly,
no amounts have been accrued in the Companys consolidated financial statements.
Five putative shareholder derivative actions were filed between October 29, 2007 and
November 15, 2007. The first two of these putative shareholder derivative actions, entitled Rosky
v. Farha, et al. and Rooney v. Farha, et al., respectively, are supposedly brought on behalf of the
Company and were filed in the United States District Court for the Middle District of Florida. Two
additional actions, entitled Intermountain Ironworkers Trust Fund v. Farha, et al., and Myra Kahn
Trust v. Farha, et al., were filed in Circuit Court for Hillsborough County, Florida. All four of
these actions are asserted against all Company directors (and former director Todd Farha) except
for David Gallitano, D. Robert Graham, Heath Schiesser and Charles Berg and also name the Company
as a nominal defendant. A fifth action, entitled Irvin v. Behrens, et al., was filed in the United
States District Court for the Middle District of Florida and asserts claims against all Company
directors (and former director Todd Farha) except Heath Schiesser, David Gallitano and Charles Berg
and against two former Company officers, Paul Behrens and Thaddeus Bereday. All five actions
contend, among other things, that the defendants allegedly allowed or caused the Company to
misrepresent its reported financial results, in amounts unspecified in the pleadings, and
29
seek damages and equitable relief for, among other things, the defendants supposed breach of
fiduciary duty, waste and unjust enrichment. The three actions in federal court have been
consolidated. Subsequent to that consolidation, an additional derivative complaint entitled City
of Philadelphia Board of Pensions and Retirement Fund v. Farha, et al. was filed in the same
federal court, but thereafter was consolidated with the existing consolidated action. A motion to
consolidate the two state court actions, to which all parties consented, was granted, and
plaintiffs filed a consolidated complaint on April 7, 2008. On October 31, 2008, amended
complaints were filed in the federal court and the state court derivative actions. On December 30,
2008, the Company filed substantially similar motions to dismiss both actions, contesting, among
other things, the standing of the plaintiffs in each of these derivative actions to prosecute the
purported claims in the Companys name. In an Order entered on March 30, 2009 in the consolidated
federal action, the court denied the motions to dismiss the Second Amended Consolidated Complaint.
On April 28, 2009, in the consolidated state action, the court denied the motions to dismiss the
Second Amended Consolidated Complaint. On April 29, 2009, upon the recommendation of the
Nominating and Corporate Governance Committee of the Companys Board of Directors, the Board
adopted a resolution forming a Special Litigation Committee, comprised of a newly-appointed
independent director, David J. Gallitano, to investigate the facts and circumstances underlying the claims asserted in
the federal and state derivative cases and to take such action with respect to such claims as the
Special Litigation Committee determines to be in the best interests of the Company. On May 1,
2009, the Special Litigation Committee filed in the consolidated federal action a motion to stay
the matter until November 2009 to allow the Special Litigation Committee to complete its
investigation. The Company understands that the Special Litigation Committee will soon file a
similar motion in the consolidated state action. At this time, neither the Company nor any of its subsidiaries can predict the probable outcome
of these claims.
In addition, derivative actions, by their nature, do not seek to recover damages
from the companies on whose behalf the plaintiff shareholders are purporting to act. Accordingly,
no amounts have been accrued in the Companys consolidated financial statements for these claims.
Other Lawsuits and Claims
Separate and apart from the legal matters described above, the Company is also involved in
other legal actions that are in the normal course of its business, some of which seek monetary
damages, including claims for punitive damages, which are not covered by insurance. The Company
currently believes that none of these actions, when finally concluded and determined, will have a
material adverse effect on its financial position, results of operations or cash flows.
Item 1A. Risk Factors.
Set forth below are material changes to the risk factors disclosed in Part I Item 1A Risk
Factors of our 2008 10-K. We have noted below for each material change whether the material
change represents (i) a new risk factor or (ii) an update to a risk factor that was included in our
2008 10-K.
New Risk Factors
The DPA requires us to retain an independent monitor at our expense for a period of 18 months which
could divert managements time from the operation of our business and which could materially
adversely affect our results of operations.
The DPA requires us to retain an independent monitor for a period of 18 months, at our
expense, to be selected by the USAO after consultation with us. Operating under the oversight of the
Monitor may result in substantial burdens on our management, hinder our ability to attract and
retain qualified associates and cause us to incur significant costs. We currently cannot estimate
the costs that we are likely to incur in connection with the retention of the Monitor, including
costs related to implementing any remedial measures recommended by the Monitor. In addition, the
Monitor may recommend significant changes to our policies and procedures, the consequences of which
we are unable to predict. Our business and results of operations could be materially adversely
affected by any such costs, remedial measures and/or changes to our policies and procedures.
If we commit a material breach of the DPA, we will likely be convicted of one or more criminal
offenses, including health care fraud, which would cause us to be excluded from certain programs
and would result in the revocation or termination of contracts and/or
licenses potentially having a material adverse affect on our results
of operations.
In the event of a knowing and willful material breach of a provision of the DPA, the USAO has
broad discretion to prosecute us through the filed Information or otherwise. We could also be
prosecuted by the Florida Attorney Generals
30
Office
under such circumstances. In light of the provisions of the DPA, any such proceeding
would likely result in one or more criminal convictions, including for health care fraud, which, in
turn, would cause us to be excluded from certain programs and could result in the revocation or
termination of contracts and/or licenses potentially having a
material adverse affect on our results of operations.
We could incur significant costs in connection with the Special Litigation Committee.
On April 29, 2009, upon the recommendation of the Nominating and Corporate Governance
Committee of our Board of Directors, the Board adopted a resolution forming a Special Litigation
Committee, comprised of a newly-appointed independent director, David J. Gallitano, to investigate the facts and
circumstances underlying the claims asserted in the pending federal and state derivative actions
and to take such action with respect to such claims as the Special Litigation Committee determines
to be in our best interests. We may incur significant costs in connection
with the Special Litigation Committee.
Our unregulated cash balances have been, and are expected to continue to be, significantly reduced
in connection with, among other things, the payments and obligations required by the DPA; our
anticipated repayment in full of the outstanding balance under our credit facility on May 13, 2009;
potential payments or obligations associated with resolutions with the Civil Division, the OIG and
the SEC; and any payments we are required to make in connection with the other pending litigation
related to the government investigations, which could have a material adverse effect on our
liquidity position and financial condition.
As noted, the DPA requires us, among other things, to pay the USAO a total of $80 million, of
which (a) $35.2 million was paid in August 2008, (b)
$25.0 million is to be paid on May 12,
2009 and (c) $19.8 million with accumulated interest at an annual rate of 0.40% (with interest to
accrue from the date we enter into the DPA until payment in full has been made) will be paid no later than December 31, 2009. We also expect to incur costs associated with the Monitor.
In addition, our senior secured credit facility with Wachovia Bank, as Administrative Agent, and a
syndicate of lenders, which has a term loan facility with an outstanding balance of approximately
$152.4 million as of March 31, 2009, is currently in default. We currently intend to repay in full
the outstanding amount under the credit facility on its due date, May 13, 2009. Further, we remain engaged in
resolution discussions as to matters under review with the Civil Division, the OIG and the SEC.
Based on the current status of these matters and information known to us to date, we have estimated
that the remaining liability associated with these matters is in the range of $50.0 million to
$70.0 million. Based on the current status of the resolution discussions, we have accrued $50.0
million in accordance with guidance outlined in FAS 5. We are currently pursuing
resolution terms that would allow for payment of any resolution amounts over an extended period of
time. However, we cannot provide any assurances regarding the timing, terms and
conditions of any final resolutions of these matters. We may also be required to pay significant
amounts in connection with the pending litigation related to the government investigations
described in Part II Item I Legal Proceedings. The significant amounts of cash that we have
recently paid, as well as the amounts that we will or could be required to pay in the near term,
have reduced, and will continue to reduce, our unregulated cash balances, which could have a
material adverse effect on our liquidity position and financial condition.
Updated Risk Factors
Our encounter data may be inaccurate or incomplete, which could have a material adverse effect on
our results of operations, cash flows and ability to bid for, and continue to participate in,
certain programs.
To the extent that our encounter data is inaccurate or incomplete, we may incur significant
additional costs to collect or correct this data and could be exposed to regulatory risk for
noncompliance. The accurate and timely reporting of encounter data is crucial to the success of
our programs because more states are using encounter data to determine compliance with performance
standards which are partly used by such states to set premium rates. For example, the Georgia
Department of Community Health (DCH) requires all plans to satisfy specific requirements
regarding the quality and volume of encounter data, including a requirement that all plans submit
at least 95% of their encounters based on volume of claims paid. Failure to satisfy these
requirements could result in the imposition of fines, penalties or other operating restrictions
until such time as all requirements have been met. We are analyzing the sufficiency of our
encounter data and DCH has engaged a third party to conduct an audit and reconciliation of our
encounter submissions to determine our level of compliance with contractual encounter submission
requirements.
As states increase their reliance on encounter data, our inability to obtain complete and
accurate encounter data could affect the premium rates we receive and how membership is assigned to
us, which could have a material adverse effect on our results of operations, cash flows and our
ability to bid for, and continue to participate in, certain programs.
31
We are required to comply with laws governing the transmission, security and privacy of health
information, and we have not yet determined what our total compliance costs will be; however, such
costs, when determined, could be more than anticipated, which could have a material adverse effect
on our results of operations.
Enacted into law in February 2009, the American Recovery and Reinvestment Act of 2009, or
ARRA, expanded and strengthened privacy and security requirements under the Health Insurance
Portability and Accountability Act of 1996 and its implementing regulations, or HIPAA, which
applies to us.
ARRA imposes many HIPAA security and privacy requirements directly on business associates that
were previously only directly applicable to health plans, certain providers and healthcare
clearinghouses. In addition, ARRA further limits our use and disclosure of protected health
information, or PHI. Among other things, these limitations include prohibitions on exchanging
protected health information (PHI) for remuneration, restrictions on marketing to individuals,
and the promise of new standards for the de-identification of data. ARRA also imposed new
obligations on us to provide individuals with electronic copies of their health information, to
agree to certain restrictions requested by individuals and eventually to provide individuals an
accounting of virtually all disclosures of their health information. Most of these provisions will
become effective in February 2010 and many will be further clarified by regulations promulgated by
the Department of Health and Human Services (HHS). The earliest compliance date for limitations
on exchanging PHI for remuneration and providing expanded accounting to individuals is in 2011.
Civil penalty amounts for violations by either covered entities or business associates are
increased up to an annual maximum of $1.5 million for uncorrected violations based on willful
neglect. Imposition of these penalties is more likely because ARRA strengthens enforcement. For
example, beginning in February 2010, HHS is required to conduct periodic audits to confirm
compliance. Investigations of violations that indicate willful neglect, for which penalties are
mandatory beginning in February 2011, are statutorily required. In addition, state attorneys
general are authorized to bring civil actions seeking either injunctions or damages in responses to
violations of HIPAA privacy and security regulations that threaten the privacy of state residents.
Initially monies collected will be transferred to a division of HHS for further enforcement, and
within three years, a methodology will be adopted for distributing a percentage of those monies to
affected individuals to fund enforcement and provide incentive for individuals to report
violations.
In addition, beginning around September 2009, ARRA will require us to report any unauthorized
use or disclosure of PHI to the affected individuals, HHS, and, depending on the scope of any
breach, the media for the affected market.
ARRA also contains a number of provisions that incent states to initiate certain programs
related to health care and health care technology, such as electronic health records. While
provisions such as these do not apply to us directly, states wishing to apply for grants under
ARRA, or otherwise participating in such programs, may impose new health care technology
requirements on us through our contracts with state Medicaid agencies. ARRA is too recent for us
to be able to predict what such requirements may entail or what their effect on our business may
be.
We are currently evaluating ARRA for its specific impact on the Company and its customers. We
will continue to assess our compliance obligations as regulations under ARRA are promulgated and
more information becomes available from HHS and other federal agencies. The new privacy and
security requirements, however, may require substantial operational and systems changes, employee
education and resources and there is no guarantee that we be able to implement them adequately or
prior to their compliance date. Given HIPAAs complexity and the anticipated new regulations,
which may be subject to changing and perhaps conflicting interpretation, our ongoing ability to
comply with any of the HIPAA requirement is uncertain, which may expose us to the criminal and
increased civil penalties provided under ARRA.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
We did not sell any securities in the three months ended March 31, 2009 that were not
registered under the Securities Act of 1933, as amended.
32
Issuer Purchases of Equity Securities
We do not have a stock repurchase program. However, during the quarter ended March 31, 2009,
certain of our employees were deemed to have surrendered shares of our common stock to satisfy
their withholding tax obligations associated with the vesting of shares of restricted common stock.
The following table summarizes these repurchases:
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|
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|
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|
|
|
|
|
|
|
|
|
Total Number |
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Maximum |
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|
|
|
|
|
|
|
|
|
of Shares |
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Number of |
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|
|
|
|
|
|
|
|
|
Purchased as |
|
Shares that |
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|
|
|
|
|
|
|
|
|
Part of |
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May Yet Be |
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|
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|
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|
|
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Publicly |
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Purchased |
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Total Number |
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Average |
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Announced |
|
Under the |
|
|
of Shares |
|
Price Paid |
|
Plans or |
|
Plans or |
Period |
|
Purchased(1) |
|
Per Share(1) |
|
Programs |
|
Programs |
January 1, 2009 through January 31, 2009 |
|
|
10,519 |
|
|
|
13.18 |
(2) |
|
|
N/A |
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|
|
N/A |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2009 through February 28, 2009 |
|
|
587 |
|
|
|
11.99 |
(3) |
|
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N/A |
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|
|
N/A |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2009 through March 31, 2009 |
|
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12,958 |
|
|
|
8.40 |
(4) |
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N/A |
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|
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N/A |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total during quarter ended March 31, 2009 |
|
|
24,064 |
|
|
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8.76 |
(5) |
|
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N/A |
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|
|
N/A |
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|
|
|
(1) |
|
The number of shares purchased represents the number of shares of our
common stock deemed surrendered by our employees to satisfy their
withholding tax obligations due to the vesting of shares of restricted
common stock. For the purposes of this table, we determined the
average price paid per share based on the closing price of our common
stock as of the date of the determination of the withholding tax
amounts (i.e., the date that the shares of restricted stock vested).
We do not currently have a stock repurchase program. We did not pay
any cash consideration to repurchase these shares. |
|
(2) |
|
The weighted average price paid per share during the period was $13.26. |
|
(3) |
|
The weighted average price paid per share during the period was $10.87. |
|
(4) |
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The weighted average price paid per share during the period was $8.38. |
|
(5) |
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The weighted average price paid per share during the period was $10.54. |
Item 3. Defaults upon Senior Securities.
As previously disclosed and described in our 2008 10-K, our senior secured credit facility
with Wachovia Bank, as Administrative Agent, and a syndicate of lenders, which has a term loan
facility with an outstanding balance of approximately $152.4 million as of March 31, 2009, is
currently in default and subject to acceleration by the lenders. The credit facility will become
due and payable on May 13, 2009. Although we are not in payment
default, we are in default of a number of covenants contained in the
Credit Agreement. We currently intend to repay in full the outstanding amount under
the credit facility on its due date, May 13, 2009.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
33
Item 6. Exhibits.
Exhibit List
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incorporated by reference |
Exhibit |
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Filing Date |
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Exhibit |
Number |
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Description |
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Form |
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with SEC |
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Number |
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2.1
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Agreement and Plan of Merger, dated as of February 12,
2004, between WellCare Holdings, LLC and WellCare Group,
Inc.
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S-1/A
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June 8, 2004
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2.1 |
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3.1
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Amended and Restated Certificate of Incorporation
|
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10-Q
|
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August 13, 2004
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3.1 |
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3.2
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Amended and Restated Bylaws of WellCare Health Plans, Inc.
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10-Q
|
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August 13, 2004
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3.2 |
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3.2.1
|
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Amendment No. 1 to the Amended and Restated Bylaws of
WellCare Health Plans, Inc.
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8-K
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January 31, 2008
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3.2 |
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4.1
|
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Specimen common stock certificate
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S-1/A
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June 29, 2004
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4.1 |
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10.1
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Addendum and plan benefit package attachment accompanying
notice of renewal for 2009 with respect to Contract
#H1264 between the Centers for Medicare & Medicaid
Services and WellCare of Texas, Inc.* |
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10.2
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Form of addenda accompanying notices of renewal for 2009
with respect to contracts between the Centers for
Medicare & Medicaid Services and each of the following to
operate Medicare Advantage plans: (a) Harmony Health
Plan of Illinois, Inc. (#H1416);
(b) WellCare of Connecticut, Inc. (#H0712); (c) WellCare
of Florida, Inc. (#H1032); (d) WellCare of Georgia, Inc.
(#H1112);
(e) WellCare of Louisiana, Inc. (#H1903); and (f)
WellCare of New York, Inc. (#H3361).* |
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10.3
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Plan Benefit Package attachment to 2009 Contract Renewal
- Harmony Health Plan of Illinois, Inc. (#H1416)* |
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10.4
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Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of Connecticut, Inc. (#H0712)* |
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10.5
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Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of Florida, Inc. (#H1032)* |
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10.6
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Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of Georgia, Inc. (#H1112)* |
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10.7
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Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of Louisiana, Inc. (#H1903)* |
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10.8
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Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of New York, Inc. (#H3361)* |
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|
|
|
|
|
|
|
|
|
10.9
|
|
Form of addendum accompanying notice of renewal for 2009
with respect to contracts between the Centers for
Medicare & Medicaid Services and each of the following to
operate private fee-for-service plans: (a) WellCare
Health Insurance of Arizona, Inc. (#H1340); (b) WellCare
Health Insurance of Illinois, Inc. (#H0967 and H4577);
and (c) WellCare Health Insurance of New York, Inc.
(#H6499).* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.10
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare Health Insurance of Arizona, Inc. (#H1340)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.11
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare Health Insurance of Illinois, Inc. (#H0967)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.12
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare Health Insurance of Illinois, Inc. (#H4577)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare Health Insurance of New York, Inc. (#H6499)* |
|
|
|
|
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incorporated by reference |
Exhibit |
|
|
|
|
|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
|
with SEC |
|
Number |
|
10.14
|
|
Amendment to Contract No. FA619 between the State of
Florida, Agency for Healthcare Administration and
HealthEase of Florida, Inc. (Medicaid Non-Reform
2006-2009)
|
|
8-K
|
|
March 9, 2009
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.15
|
|
Amendment to Contract No. FA615 between the State of
Florida, Agency for Healthcare Administration and
WellCare of Florida, Inc. d/b/a/ Staywell Health Plan of
Florida (Medicaid Non-Reform 2006-2009)
|
|
8-K
|
|
March 9, 2009
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Registrants 2009 Long Term Cash Bonus Plan+
|
|
8-K
|
|
March 10, 2009
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
Amendment to Non-Qualified Stock Option Agreement
effective January 25, 2008 by and between the Registrant
and Charles Berg+
|
|
10-K
|
|
March 16, 2009
|
|
|
10.33 |
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Amendment No. 1 to Employment Agreement effective as of
April 1, 2008 by and among the Registrant, Comprehensive
Health Management, Inc. and Thomas F. ONeil
III+
|
|
10-K
|
|
March 16, 2009
|
|
|
10.38 |
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
Amendment No. 1 to Employment Agreement by and among
Thomas L. Tran, the Registrant and Comprehensive Health
Management, Inc. +
|
|
10-K
|
|
March 16, 2009
|
|
|
10.42 |
|
|
|
|
|
|
|
|
|
|
|
|
10.20
|
|
Amendment No. 1 to Employment Agreement by and among
Jonathan P. Rich, the Registrant and Comprehensive Health
Management, Inc. +
|
|
10-K
|
|
March 16, 2009
|
|
|
10.46 |
|
|
|
|
|
|
|
|
|
|
|
|
10.21
|
|
Non-Employee Director Compensation Policy*+ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.22
|
|
Restricted Stock Agreement dated March 23, 2009, between
David J. Gallitano and WellCare Health Plans,
Inc.+
|
|
8-K
|
|
March 24, 2009
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of President and Chief Executive Officer
pursuant to Section 302 of Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification of President and Chief Executive Officer
pursuant to Section 906 of Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Filed herewith |
|
+ |
|
Denotes a management contract or compensatory plan, contract or arrangement |
35
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in
Tampa, Florida on May 11, 2009.
|
|
|
|
|
|
WELLCARE HEALTH PLANS, INC.
|
|
|
By: |
/s/ Heath Schiesser
|
|
|
|
Heath Schiesser |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
By: |
/s/ Thomas L. Tran
|
|
|
|
Thomas L. Tran |
|
|
|
Senior Vice President and Chief Financial Officer |
36
Exhibit Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incorporated by reference |
Exhibit |
|
|
|
|
|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
|
with SEC |
|
Number |
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of February 12,
2004, between WellCare Holdings, LLC and WellCare Group,
Inc.
|
|
S-1/A
|
|
June 8, 2004
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation
|
|
10-Q
|
|
August 13, 2004
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
Amended and Restated Bylaws of WellCare Health Plans, Inc.
|
|
10-Q
|
|
August 13, 2004
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
3.2.1
|
|
Amendment No. 1 to the Amended and Restated Bylaws of
WellCare Health Plans, Inc.
|
|
8-K |
|
January 31, 2008
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Specimen common stock certificate
|
|
S-1/A
|
|
June 29, 2004
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.1
|
|
Addendum and plan benefit package attachment accompanying
notice of renewal for 2009 with respect to Contract
#H1264 between the Centers for Medicare & Medicaid
Services and WellCare of Texas, Inc.* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Form of addenda accompanying notices of renewal for 2009
with respect to contracts between the Centers for
Medicare & Medicaid Services and each of the following to
operate Medicare Advantage plans: (a) Harmony Health
Plan of Illinois, Inc. (#H1416);
(b) WellCare of Connecticut, Inc. (#H0712); (c) WellCare
of Florida, Inc. (#H1032); (d) WellCare of Georgia, Inc.
(#H1112);
(e) WellCare of Louisiana, Inc. (#H1903); and (f)
WellCare of New York, Inc. (#H3361).* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- Harmony Health Plan of Illinois, Inc. (#H1416)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of Connecticut, Inc. (#H0712)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of Florida, Inc. (#H1032)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of Georgia, Inc. (#H1112)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of Louisiana, Inc. (#H1903)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare of New York, Inc. (#H3361)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.9
|
|
Form of addendum accompanying notice of renewal for 2009
with respect to contracts between the Centers for
Medicare & Medicaid Services and each of the following to
operate private fee-for-service plans: (a) WellCare
Health Insurance of Arizona, Inc. (#H1340); (b) WellCare
Health Insurance of Illinois, Inc. (#H0967 and H4577);
and (c) WellCare Health Insurance of New York, Inc.
(#H6499).* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.10
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare Health Insurance of Arizona, Inc. (#H1340)* |
|
|
|
|
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incorporated by reference |
Exhibit |
|
|
|
|
|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
|
with SEC |
|
Number |
|
10.11
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare Health Insurance of Illinois, Inc. (#H0967)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.12
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare Health Insurance of Illinois, Inc. (#H4577)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.13
|
|
Plan Benefit Package attachment to 2009 Contract Renewal
- WellCare Health Insurance of New York, Inc. (#H6499)* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.14
|
|
Amendment to Contract No. FA619 between the State of
Florida, Agency for Healthcare Administration and
HealthEase of Florida, Inc. (Medicaid Non-Reform
2006-2009)
|
|
8-K
|
|
March 9, 2009
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.15
|
|
Amendment to Contract No. FA615 between the State of
Florida, Agency for Healthcare Administration and
WellCare of Florida, Inc. d/b/a/ Staywell Health Plan of
Florida (Medicaid Non-Reform 2006-2009)
|
|
8-K
|
|
March 9, 2009
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Registrants 2009 Long Term Cash Bonus Plan+
|
|
8-K
|
|
March 10, 2009
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
Amendment to Non-Qualified Stock Option Agreement
effective January 25, 2008 by and between the Registrant
and Charles Berg+
|
|
10-K
|
|
March 16, 2009
|
|
|
10.33 |
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Amendment No. 1 to Employment Agreement effective as of
April 1, 2008 by and among the Registrant, Comprehensive
Health Management, Inc. and Thomas F. ONeil
III+
|
|
10-K
|
|
March 16, 2009
|
|
|
10.38 |
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
Amendment No. 1 to Employment Agreement by and among
Thomas L. Tran, the Registrant and Comprehensive Health
Management, Inc. +
|
|
10-K
|
|
March 16, 2009
|
|
|
10.42 |
|
|
|
|
|
|
|
|
|
|
|
|
10.20
|
|
Amendment No. 1 to Employment Agreement by and among
Jonathan P. Rich, the Registrant and Comprehensive Health
Management, Inc. +
|
|
10-K
|
|
March 16, 2009
|
|
|
10.46 |
|
|
|
|
|
|
|
|
|
|
|
|
10.21
|
|
Non-Employee Director Compensation Policy*+ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.22
|
|
Restricted Stock Agreement dated March 23, 2009, between
David J. Gallitano and WellCare Health Plans,
Inc.+
|
|
8-K
|
|
March 24, 2009
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
Certification of President and Chief Executive Officer
pursuant to Section 302 of Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
Certification of President and Chief Executive Officer
pursuant to Section 906 of Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002* |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Filed herewith |
|
+ |
|
Denotes a management contract or compensatory plan, contract or arrangement |
38