TAMPA, FL – WellCare Health Plans, Inc., announced Monday that it has settled a class action lawsuit and pending inquiries by the Securities and Exchange Commission for a combined $334 million.
The announcement was made during Monday's release of its second quarter operating results. As a result of the two settlements, the Tampa, Fla.-based company reported a second quarter loss of $129.8 million, or 88 cents per share.
The actions by the SEC and an investor class action lawsuit are the result of allegations that arose in 2007 alleging healthcare fraud. WellCare, then doing business as WellCare Holdings, LLC, and also called WCG Health Management, Inc., was accused of defrauding the Florida Medicaid program and the Florida Healthy Kids Corporation of more than $40 million from 2002 to 2007.
Under a deal with the Department of Justice and other federal entities, WellCare will pay $137.5 million to settle pending inquiries of the company’s operations.
The company also said it would accrue $194 million for the settlement of the class action lawsuit pending against the company. Terms of the settlement call for WellCare to make cash payments to the class of $52.5 million within 30 days following the court's preliminary approval of the settlement, and $35 million by July 31, 2011. The company also will issue to the class tradable unsecured bonds having an aggregate face value of $112.5 million, with a fixed coupon of 6 percent. The principal portion of the bonds have a maturity date of Dec. 31, 2016. In addition, if within three years of the agreement WellCare experiences a change in control at a share price of $30 or more, the company will make an incremental $25 million payment to the class.
Despite the outlays, WellCare officials say the company “believes it will be able to meet its known near-term monetary obligations, including the terms of these settlement agreements, and maintain sufficient liquidity to operate its business.”
However, company officials warned shareholders “there can be no assurance that these settlements will be finalized. In addition, the outcome of these matters may differ materially from the preliminary terms.”
In other news, WellCare also announced a strategic reorganization of the company that would affect “fewer than 100 associates.” While it was not specific about which areas of the company would be affected, the reduction is the result of “centralization and consolidation of certain functions.”
As part of the reorganization, WellCare intends to allocate new resources and direct substantial investments to areas such as healthcare quality, information technology and business development.
