SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of
Report (Date of earliest event reported): November 12, 2008
WELLCARE
HEALTH PLANS, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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001-32209
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47-0937650
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(State
or other jurisdiction
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(Commission
File Number)
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(IRS
Employer
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of
incorporation)
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Identification
No.)
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8725
Henderson Road, Renaissance One
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Tampa,
Florida
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33634
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(813) 290-6200
Not
Applicable
(Former
name or former address, if changed since last report.)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
2.02
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Results
of Operations and Financial
Statements
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On
November 12, 2008, WellCare Health Plans, Inc. (the “Company”) filed a Form
12b-25 with the Securities and Exchange Commission to report that it will not
timely file its Quarterly Report on Form 10-Q for the quarter ended September
30, 2008. The Form 12b-25 included the following
narrative:
“The
Quarterly Report on Form 10-Q of WellCare Health Plans, Inc. (referred to in
this Form 12b-25 as “we,” “our,” “us,” or the “Company”) for the quarter ended
September 30, 2008, could not be filed timely with the U.S. Securities and
Exchange Commission (the “SEC”) in light of the circumstances described
below.
Background
Restatement
As
previously disclosed, certain federal and state agencies executed a search
warrant on October 24, 2007 at the Company’s headquarters in Tampa,
Florida. Our Board of Directors (the “Board”) formed a special
committee (the “Special Committee”) comprised of independent directors to, among
other things, investigate independently and otherwise assess the facts and
circumstances raised in any federal or state regulatory or enforcement inquiries
(including, without limitation, any matters relating to accounting and
operational issues) and in any private party proceedings, and develop and
recommend to the Board for its consideration remedial measures. The
Special Committee and the Company are cooperating fully with regulators and
enforcement officials. The Special Committee investigation is
ongoing, and the Company is currently unable to predict when it will be
completed or substantially completed.
As
previously announced, upon consideration of certain issues identified in the
Special Committee investigation, on July 18, 2008, the Audit Committee of the
Board (the “Audit Committee”), after discussions with management and our
independent registered accounting firm, recommended to the Board that our
previously issued audited consolidated financial statements for the years ended
December 31, 2004, 2005 and 2006, including each of the quarterly periods
contained therein, be restated. In addition, in light of the work of
the Special Committee, we reassessed our previously issued unaudited condensed
consolidated financial statements for the three months ended March 31, 2007 and
June 30, 2007. Based on such reassessment, the Audit Committee, after
discussions with management and our independent registered accounting firm, also
recommended to the Board that our previously issued unaudited condensed
consolidated financial statements for the three months ended March 31, 2007 and
June 30, 2007 be restated. In this Form 12b-25, the years ended
December 31, 2004, 2005 and 2006, and the three months ended March 31, 2007 and
June 30, 2007, are referred to collectively as the “Restatement
Period.”
As
previously announced, upon the recommendation of the Audit Committee, the Board
concluded on July 21, 2008 that our previously issued consolidated financial
statements for the Restatement Period need to be restated.
Accordingly,
our previously issued consolidated financial statements for the Restatement
Period and the corresponding report of our independent registered accounting
firm, Deloitte & Touche LLP, included in our previously filed 2006 Annual
Report on Form 10-K, should no longer be relied upon.
Also as
previously announced, until the independent investigation conducted by the
Special Committee is completed or substantially completed, the Company, in
addition to having been unable to file its Form 10-Q for the quarter ended
September 30, 2007, its Form 10-K for the year ended December 31, 2007 (the
“2007 10-K”) or its Form 10-Q for the quarters ended March 31, 2008 and June 30,
2008, will not be in a position to file its Form 10-Q for the quarter ended
September 30, 2008 by the required filing date or on or before the fifth
calendar day following the required filing date as prescribed by Rule
12b-25. All of the foregoing reports are hereafter referred to as the
“Past Due Reports.”
As a
result of the delay in its filing of the 2007 10-K, the Company is subject to
the late filing procedures of the New York Stock Exchange (the “NYSE”) as they
pertain to annual reports. On September 18, 2008, the Company
announced that it had been granted an extension by the NYSE for continued
listing and the trading of its securities. The extension granted
provides the Company until March 17, 2009 to complete and file the 2007
10-K. The extension is subject to reassessment by the
NYSE.
The
Company currently intends to present the restated consolidated financial
statements and related financial information in the 2007 10-K. The
Company also expects to file its Form 10-Q for the quarter ended September 30,
2007, Form 10-Q for the quarter ended March 31, 2008, Form 10-Q for the quarter
ended June 30, 2008, Form 10-Q for the quarter ended September 30, 2008 and any
subsequently delayed reports at the time of, or as soon as practical after, the
filing of the 2007 10-K. The Company is in the process of preparing
the above-described Past Due Reports and is currently unable to estimate the
timing for filing these Past Due Reports.
Government Investigations
We have
previously disclosed that we are subject to federal and state governmental
investigations, that an informal investigation is being conducted by the SEC and
that we are responding to subpoenas issued by the State of Connecticut Attorney
General’s Office involving transactions between us and our affiliates and their
potential impact on the costs of Connecticut’s Medicaid program. We
are cooperating with federal and state regulators and enforcement officials in
these matters. We have communicated with regulators in states in
which our health maintenance organization and insurance operating subsidiaries
are domiciled regarding the investigations.
We are
engaged in preliminary resolution discussions as to matters under review with
the United States Attorney's Office for the Middle District of Florida (the
“USAO”), the Civil Division of the U.S. Department of Justice (the “Civil
Division”) and the State of Florida. We can provide no assurances
regarding the likelihood, timing or terms and conditions of any potential
negotiated resolution with the USAO, the Civil Division or the State of
Florida.
We do not
know whether, or the extent to which, any pending investigations might result in
our payment of fines or penalties or the imposition of operating restrictions on
our business; however, if we are required to pay fines or penalties, the amount
could be material. If we were to plead guilty to or be convicted of a
health care related charge, potential adverse consequences could include
revocation of our licenses, termination of one or more of our contracts and/or
exclusion from further participation in Medicare or Medicaid
programs. In addition, we could be required to operate under a
corporate integrity agreement or under the supervision of a monitor, either of
which could require us to operate under significant restrictions, place
substantial burdens on our management, hinder our ability to attract and retain
qualified associates and cause us to incur significant costs.
Litigation
As
previously disclosed, the Company is also party to pending litigation related to
the investigations, the restatement of its financial statements and the decline
in its stock price. For a description of these proceedings, please
see the section captioned “Other Proceedings” in our Current Report on Form 8-K
filed with the SEC on July 21, 2008, as amended (the “July 21
8-K”). If we do not prevail in one or more pending lawsuits, we
may be required to pay a significant amount of monetary
damages. Other than as discussed in this Form 12b-25, there have been
no material changes to the status of this litigation.
In a
letter dated October 15, 2008, the Civil Division informed counsel to the
Special Committee 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). We and the Special
Committee are undertaking to discuss with the Civil Division, and address,
allegations by the qui tam relators.
In
addition, on October 31, 2008, amended complaints were filed in our previously
disclosed class and derivative actions.
Anticipated
Significant Changes in Results of Operations
Although
the Company is unable to file timely its Form 10-Q for the quarter ended
September 30, 2008, it anticipates that it will experience significant changes
in its results of operations from the corresponding period for the last fiscal
year to be reflected by the earnings statements to be included in such report
when ultimately filed. Further, at this time, the Company is
preparing its financial statements for the Restatement Period and the Past Due
Reports and, therefore, has not been able to finalize the financial statements
for the three and nine months ended September 30, 2008 and 2007,
respectively. However, the Company’s results for the three and nine
months ended September 30, 2008 are expected to reflect significant changes from
the same periods in 2007.
The
Company’s results of operations for the three and nine months ended September
30, 2007 will change from amounts previously announced in a current report on
Form 8-K filed on November 5, 2007 primarily due to the restatement
and changes in estimates resulting from the passage of
time. These changes may be material. Previously released
information for the period ended September 30, 2007 should not be relied
upon.
Medical Benefits Payable
Estimate
The
medical benefits payable estimate has historically been the most significant
estimate included in our financial statements. This estimate is
determined utilizing standard actuarial methodologies based upon historical
experience and other available information as well as assumptions about emerging
trends, 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. 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.
Changes
in medical benefits payable estimates are primarily the result of obtaining more
complete claims information and medical expense trend data over
time. 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 medical benefits ratio
(“MBR”) in such periods.
Since the
Company has not filed its Quarterly Report on Form 10-Q for the quarter ended
September 30, 2007, and it is still in the process of finalizing its financial
statements for the Restatement Period and the Past Due Reports, including the
financial statements for the three and nine months ended September 30, 2007, it
is undertaking a review of substantially complete claims information related to
such financial statements which has become available as the result of the
substantial passage of time. After completion of this review and the
determination of proper accounting treatment of the review results, the Company
may be required to record an adjustment to medical benefits payable and medical
benefits expense to reflect the difference between actual claims paid and its
original actuarially determined estimate. If the results of this
evaluation are consistent with current indications, the Company anticipates this
potential adjustment will favorably impact the periods in which the differences
are recorded by having the effect of lowering the reported medical benefits
expense and MBRs.
Conversely,
the Company anticipates that medical benefits expense and MBRs in the periods
subsequent to the recording of the adjustment will be unfavorably impacted
because they will not have the off-setting benefit of the prior period
development that otherwise would have been recorded in those periods if the
Company was filing timely and not able to review substantially complete paid
claims information.
Accordingly,
the change in the medical benefits payable estimate could be material to the
results of operations and retained earnings as of and for the period ended
September 30, 2007 or other prior periods, including the Restatement Period, as
well as the period ended September 30, 2008. However, because the
Company is still in the process of completing its financial statements for the
Restatement Period and the Past Due Reports, it is unable to determine the
amounts that may need to be recorded or the periods in which an adjustment may
be required.
Membership and Other Anticipated
Changes
As
reflected in the following table, which is organized by segment and line of
business, the Company’s total membership as of September 30, 2008 has increased
from the prior year period.
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September
30,
2008
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September
30,
2007
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Medicaid
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TANF |
1,031,000
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887,000
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S-CHIP |
180,000
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215,000
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SSI |
64,000
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71,000
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FHP |
26,000
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31,000
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1,301,000
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1,204,000
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Medicare |
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MA |
240,000
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160,000
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PDP |
989,000
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972,000
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1,229,000
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1,132,000
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Total |
2,530,000
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2,336,000
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The
increase in the Company’s total membership from the prior year period is
anticipated to cause increases in the Company’s premium revenues and medical
benefits and other expenses. The Company currently anticipates that
its revenues and medical benefits expenses for the three and nine months ended
September 30, 2008 will be significantly higher than in the same periods for
2007 due to the changes in the numbers and demographic mix of membership
principally occurring in the Company’s Medicare Advantage plans and Ohio
Medicaid market. The Company also anticipates that its net income
will be substantially lower in the three and nine months ended September 30,
2008 than in the same periods in 2007, in large part resulting from the
following factors:
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The
increase in medical benefits expense is anticipated to outpace the
increase in revenue
in the three and nine months ended September 30, 2008 compared to the
prior
year periods. Absent the previously discussed impact of the
prior period development
resulting from the Company’s inability to file timely its financial
reports,
the current estimated range of increase in the MBR for the nine months
ended
September 30, 2008, is approximately 2% to 4% compared to the prior year
period. The
anticipated increase results from, among other changes, the increase
in
the MBR for our Medicare Part D products, the membership increase in our
Medicare
private fee-for-service product, which typically has a higher MBR
than some of our
other products, and the high MBR associated with our Ohio aged, blind and
disabled
business, which we exited in August
2008.
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Investment
and other income is anticipated to be approximately $8 million in the
three months ended September 30, 2008 compared to $30 million in the prior
year period. Investment and other income is anticipated to be
approximately $33 million in the nine months ended September 30, 2008
compared to $67 million in the prior year period. The decrease
is partially attributable to the non-recurring gain from the settlement of
a legal matter in the amount of $9 million which was recorded in the three
and nine months ended September 30, 2007. A similar gain did
not occur in the current year period. The remaining change is a
result of an overall decrease in invested assets, coupled with a lower
interest rate environment.
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Administrative
expenses associated with, or consequential to, the government and Special
Committee investigations, including legal fees, consulting fees, employee
recruitment and retention costs, and similar expenses are anticipated to
be approximately $23 million in the three months ended September 30,
2008, compared to $0 in the prior year period. These
expenses are anticipated to be approximately $87 million in the nine
months ended September 30, 2008 compared to $0 in the prior year
period. Excluding these expenses, we expect the ratio of
administrative expenses to total revenue to approximate the prior year
three and nine month periods.
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In
addition to the anticipated significant changes noted above, there may be other
significant changes in the Company’s results of operations that have not yet
been identified as of the date of this report when the Company subsequently
files its Quarterly Reports on Form 10-Q for the three months ended September
30, 2007 and 2008, respectively. In particular, the Company currently
expects to restate financial information that was included in its previously
filed Quarterly Reports on Form 10-Q for the three months ended March 31, 2007
and June 30, 2007 and there may be significant adjustments that are different
from or in addition to those previously disclosed, including, without
limitation, the Company’s significant estimates for these
periods. Consequently, there may be additional significant changes
not yet identified when comparing its results of operations for the same periods
in 2007 and 2008.”
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
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Date:
November 12, 2008
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WELLCARE
HEALTH PLANS, INC.
/s/
THOMAS TRAN
_________________________________
Thomas
Tran
Senior
Vice President and Chief Financial
Officer
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