FORM 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, 2008
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
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47-0937650 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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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 |
(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 o No þ
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 February 28, 2009, there were 42,235,237 shares of the registrants common stock, par value $.01
per share, outstanding.
WELLCARE HEALTH PLANS, INC.
TABLE OF CONTENTS
1
Explanatory Note
As previously disclosed, on October 24, 2007, certain federal and state agencies executed a
search warrant at our 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 remedial measures to the Board for its consideration. The Special Committee and the
Company are cooperating fully with federal and state regulators and enforcement officials in these
matters. The Special Committees review is ongoing and we cannot provide assurances as to when it
will be completed. Based on the issues referred to date to the Special Committee, other than as
described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 (the 2007
10-K), we currently do not believe that the work of the Special Committee will result in any
material adjustments to the accompanying financial statements.
Upon consideration of certain issues identified in the Special Committee investigation and
after discussions with management and our independent registered public accounting firm, the Audit
Committee of the Board (the Audit Committee) recommended to the Board, and the Board thereafter
concluded, that we should restate our previously issued consolidated financial statements for the
years ended December 31, 2004, 2005 and 2006, including the quarterly periods contained therein,
and the three-month period ended March 31, 2007 and the three- and six-month periods ended June 30,
2007, which were included in the 2007 10-K that we filed with the U.S. Securities and Exchange
Commission (the SEC) on January 26, 2009.
The
filing of this Quarterly Report on Form 10-Q was delayed due to,
among other things, the delay in completing and filing our 2007 10-K. For
additional information regarding these matters, please refer to our 2007 10-K.
References to the Company, WellCare, we, our, and us in this Quarterly Report on
Form 10-Q refer to WellCare Health Plans, Inc., together, in each case, with our subsidiaries and
any predecessor entities unless the context suggests otherwise.
2
Part I FINANCIAL INFORMATION
Item 1. Financial Statements.
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
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March 31, |
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December 31, |
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2008 |
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2007 |
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Assets |
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Current Assets: |
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Cash and cash equivalents |
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$ |
1,234,246 |
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$ |
1,008,409 |
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Investments |
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70,488 |
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253,881 |
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Premium and other receivables, net |
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225,765 |
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307,513 |
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Other receivables from government partners, net |
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8,482 |
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2,464 |
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Prepaid expenses and other current assets, net |
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144,898 |
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112,246 |
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Income taxes receivable |
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6,429 |
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Deferred income taxes |
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27,027 |
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Total current assets |
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1,710,906 |
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1,690,942 |
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Property, equipment and capitalized software, net |
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65,808 |
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66,560 |
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Goodwill |
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189,470 |
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189,470 |
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Other intangible assets, net |
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15,763 |
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16,286 |
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Long term investments |
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111,310 |
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Restricted investment assets |
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97,815 |
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89,236 |
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Other assets |
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25,527 |
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30,237 |
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Total Assets |
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$ |
2,216,599 |
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$ |
2,082,731 |
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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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$ |
661,784 |
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$ |
538,146 |
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Unearned premiums |
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2,069 |
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19,838 |
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Accounts payable |
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22,454 |
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7,979 |
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Other accrued expenses |
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303,265 |
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324,116 |
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Other payables to government partners |
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44,873 |
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119,013 |
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Taxes payable |
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14,210 |
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Deferred income taxes |
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5,985 |
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Debt |
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153,821 |
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154,581 |
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Funds held for the benefit of members |
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135,821 |
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31,782 |
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Other current liabilities |
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556 |
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556 |
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Total current liabilities |
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1,338,853 |
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1,201,996 |
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Deferred income taxes |
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36,575 |
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Other liabilities |
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28,162 |
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72,844 |
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Total liabilities |
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1,403,590 |
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1,274,840 |
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Commitments and contingencies (see Note 7) |
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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, $0.01 par value (100,000,000
authorized, 41,902,690 and 41,912,236 shares
issued and outstanding at March 31, 2008
and December 31, 2007, respectively) |
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419 |
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419 |
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Paid-in capital |
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358,107 |
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352,030 |
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Retained earnings |
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456,794 |
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455,474 |
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Accumulated
other comprehensive loss |
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(2,311 |
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(32 |
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Total stockholders equity |
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813,009 |
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807,891 |
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Total Liabilities and Stockholders Equity |
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$ |
2,216,599 |
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$ |
2,082,731 |
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See notes to unaudited condensed consolidated financial statements.
3
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
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Three Months |
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Ended March 31, |
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2008 |
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2007 |
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Revenues: |
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Premium |
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$ |
1,621,374 |
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$ |
1,288,693 |
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Investment and other income |
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15,547 |
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17,628 |
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Total revenues |
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1,636,921 |
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1,306,321 |
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Expenses: |
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Medical benefits |
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1,397,572 |
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1,095,272 |
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Selling, general and administrative |
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227,736 |
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165,616 |
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Depreciation and amortization |
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5,151 |
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4,566 |
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Interest |
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3,304 |
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3,460 |
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Total expenses |
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1,633,763 |
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1,268,914 |
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Income before income taxes |
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3,158 |
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37,407 |
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Income tax expense |
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1,838 |
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14,604 |
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Net income |
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$ |
1,320 |
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$ |
22,803 |
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Net income per common share (see Note 1): |
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Net income per common share basic |
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$ |
0.03 |
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$ |
0.57 |
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Net income per common share diluted |
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$ |
0.03 |
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$ |
0.55 |
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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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2008 |
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2007 |
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Cash from (used in) operating activities: |
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Net income |
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$ |
1,320 |
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$ |
22,803 |
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Adjustments to reconcile net income to net cash provided by
operating activities: |
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Depreciation and amortization expense |
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5,151 |
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4,566 |
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Equity-based compensation expense |
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7,607 |
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5,619 |
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Incremental tax benefit from stock-based compensation |
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(7,117 |
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Deferred taxes, net |
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3,563 |
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(24,538 |
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Changes in operating accounts: |
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Premium and other receivables, net |
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81,748 |
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(19,129 |
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Other receivables from government partners, net |
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(6,018 |
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(8,625 |
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Prepaid expenses and other, net |
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(32,652 |
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(2,017 |
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Medical benefits payable |
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123,638 |
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93,907 |
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Unearned premiums |
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(17,769 |
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228,742 |
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Accounts payable |
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14,475 |
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(782 |
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Other accrued expenses |
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(20,851 |
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(35,733 |
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Other payables to government partners |
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(74,140 |
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(64,668 |
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Taxes, net |
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20,048 |
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13,546 |
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Other, net |
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(39,341 |
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8,974 |
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Net cash provided by operations |
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66,779 |
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215,548 |
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Cash from (used in) investing activities: |
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Proceeds from sale and maturities of investments |
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175,803 |
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1,106 |
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Purchases of investments |
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(105,999 |
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(25,827 |
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Purchases of restricted investments |
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(9,317 |
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(8,267 |
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Proceeds from sale and maturities of restricted assets |
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738 |
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710 |
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Additions to property and equipment, net |
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(3,876 |
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(5,069 |
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Net cash provided by (used in) investing activities |
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57,349 |
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(37,347 |
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Cash from (used in) financing activities: |
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Proceeds from common stock issuance, net |
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156 |
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Proceeds from option exercises and other |
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6,337 |
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Incremental tax benefit received from stock-based compensation |
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7,117 |
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Purchase of
treasury stock and other |
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(1,530 |
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(1,426 |
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Repayments on debt |
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(800 |
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(400 |
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Funds received for the benefits of members, net of disbursements |
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104,039 |
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190,382 |
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Net cash provided by financing activities |
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101,709 |
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202,166 |
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Cash and cash equivalents: |
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Increase during the period |
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225,837 |
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380,367 |
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Balance at beginning of year |
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1,008,409 |
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964,542 |
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Balance at end of period |
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$ |
1,234,246 |
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$ |
1,344,909 |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Cash paid for taxes |
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$ |
15,772 |
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$ |
17,040 |
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Cash paid for interest |
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$ |
2,971 |
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$ |
3,264 |
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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 or WellCare), 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 2,446,000 members nationwide as of March 31,
2008. The Companys Medicaid plans include plans for individuals who are dually eligible for both
Medicare and Medicaid, recipients of the Temporary Assistance to Needy Families program (TANF),
Supplemental Security Income program (SSI), State Childrens Health Insurance Program (S-CHIP)
and the Family Health Plus program (FHP). Through its licensed subsidiaries, as of March 31,
2008 the Company operated its Medicaid health plans in Connecticut, Florida, Georgia, Illinois,
Missouri, New York and Ohio. The Companys Medicare plans include stand-alone prescription drug
plans (PDP) and Medicare Advantage plans, which include both Medicare coordinated care (MCC)
plans and Medicare private fee-for-service (PFFS) plans. As of March 31, 2008, the Company
offered its MCC plans in Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Missouri, New
Jersey, New York, Ohio, and Texas and PDP plans in all 50 states and the District of Columbia and
PFFS plans in 43 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, 2007 included in the 2007 10-K, filed with the SEC in January 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 the 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.
Certain 2007 amounts in the condensed consolidated interim financial statements have been
condensed or reclassified to conform to the 2008 presentation.
Net Income per Share
The Company computes basic net income per common share on the basis of the weighted-average
number of unrestricted common shares outstanding. Diluted net 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 stock options using the treasury stock method.
The following table presents the calculation of net income per common share basic and diluted:
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Three Months Ended |
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March 31, |
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2008 |
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2007 |
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Numerator: |
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Net income basic and diluted |
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$ |
1,320 |
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$ |
22,803 |
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Denominator: |
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Weighted average common shares outstanding basic |
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41,126,580 |
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40,163,234 |
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Dilutive Effect of: |
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Unvested restricted common shares |
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386,286 |
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401,963 |
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Stock options |
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431,189 |
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1,023,159 |
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Weighted average common shares outstanding diluted |
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41,944,055 |
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41,588,356 |
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Net income per common share: |
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Net income per common share basic |
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$ |
0.03 |
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$ |
0.57 |
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Net income per common share diluted |
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$ |
0.03 |
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$ |
0.55 |
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6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
Certain options to purchase common stock were not included in the calculation of diluted net
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. For
the three months ended March 31, 2008 and 2007, approximately 1,021,336 and 434,800 shares with
exercise prices ranging from $46.36 to $105.37, and from $85.53 to $89.29 per share, respectively,
were excluded from diluted weighted average common shares outstanding.
Recently Adopted Accounting Standards
In
September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standard
(FAS) No. 157, Fair Value Measurements (FAS 157). FAS 157
defines fair value, establishes a framework for measuring fair value in GAAP and requires enhanced
disclosures about fair value measurements. FAS 157 does not require any new fair value
measurements. The pronouncement is effective for fiscal years beginning after November 15, 2007.
In February 2008, the FASB issued FASB Staff Position 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. The Company adopted FAS 157 as of January 1, 2008, except
for those provisions deferred under FSP 157-2. The deferred provisions of FAS 157, which apply
primarily to goodwill and other intangible assets for annual impairment testing purposes, will be
effective in 2009. The Company adopted the new standard during the first quarter of 2008 as
required. There was no cumulative effect of adopting FAS 157 for 2008.
In
February 2007, the FASB issued FAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities (FAS 159). FAS 159 permits an
entity to measure certain financial assets and financial liabilities at fair value. Under FAS 159,
entities that elect the fair value option will report unrealized gains and losses in earnings at
each subsequent reporting date. The pronouncement is effective for fiscal years beginning after
November 15, 2007. The Company adopted the new standard during the first quarter of 2008 as
required. There was no cumulative effect of adopting FAS 159 for 2008.
Recently Issued Accounting Standards
In April 2008, the FASB issued FASB Staff Position 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 does not expect the
adoption of FSP 142-3 to have a material impact on its Consolidated Financial Statements.
In March 2008, the FASB issued FAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement
No. 133 (FAS 161). FAS 161 amends and
expands the disclosure requirements of FAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (FAS 133), to require qualitative disclosure about objectives and strategies
for using derivatives; quantitative disclosures about fair value amounts and gains and losses on
derivative instruments; and disclosures about credit-risk-related contingent features in derivative
agreements. FAS 161 is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008. The Company does not expect the adoption of FAS 160 to
have an impact on its Consolidated Financial Statements.
In December 2007, the FASB issued FAS No. 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 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. FAS
141R must be applied prospectively to all new acquisitions closing on or after January 1, 2009.
The impact of this pronouncement will depend on future acquisition activity, if any of the Company.
7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
In December 2007, the FASB issued FAS No. 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 does not expect that the adoption of FAS 160 to have an impact on its
consolidated 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 individuals who are dually eligible for both
Medicare and Medicaid, and 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 Medicare Advantage plans, which
includes CCP, PFFS and PPO 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, |
|
|
|
2008 |
|
|
2007 |
|
Medicaid premium revenues |
|
$ |
733,635 |
|
|
$ |
633,424 |
|
Medicare premium revenues |
|
|
887,739 |
|
|
|
655,269 |
|
|
|
|
|
|
|
|
Total premium revenues: |
|
|
1,621,374 |
|
|
|
1,288,693 |
|
Other income |
|
|
15,547 |
|
|
|
17,628 |
|
|
|
|
|
|
|
|
Total revenues: |
|
|
1,636,921 |
|
|
|
1,306,321 |
|
|
|
|
|
|
|
|
|
|
Medicaid medical benefits expenses: |
|
|
610,805 |
|
|
|
532,413 |
|
Medicare medical benefits expenses: |
|
|
786,767 |
|
|
|
562,859 |
|
|
|
|
|
|
|
|
Total medical benefits expenses: |
|
|
1,397,572 |
|
|
|
1,095,272 |
|
Other expenses |
|
|
236,191 |
|
|
|
173,642 |
|
|
|
|
|
|
|
|
Total expenses |
|
|
1,633,763 |
|
|
|
1,268,914 |
|
|
|
|
|
|
|
|
Income before income taxes: |
|
$ |
3,158 |
|
|
$ |
37,407 |
|
|
|
|
|
|
|
|
3. EQUITY-BASED COMPENSATION
During the three months ended March 31, 2008 and 2007, the Company recorded $7,607 and $5,619,
respectively, in compensation expense related to its equity-based compensation awards. During the
three months ended March 31, 2008, the Company granted options for the purchase of 2,585,742 shares
of common stock at a weighted-average exercise price of $44.42 per share and a weighted-average
Black-Scholes fair value of $16.60 per share. At March 31, 2008, options for 4,731,777 shares were
outstanding with a weighted-average exercise price of $44.02 per share. There were no options
exercised during the three months ended March 31, 2008. The total intrinsic value of options
exercised during the three months ended 2007 determined as of the
date of exercise was $16,118. During the three months ended March 31, 2008, the Company also granted 818,900 restricted shares
and restricted share units at a weighted-average grant-date fair value of $44.08. At March 31,
2008, 1,388,201 restricted share awards remained unvested. The total fair value of restricted
shares vested during the three months ended March 31, 2008 and
2007 was $5,129 and $2,610,
respectively.
As
of March 31, 2008, there was $105,699 of
unrecognized compensation costs related to non-vested restricted
stock arrangements that is expected to be recognized over a
weight-average period of 3.2 years.
8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Companys 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 value of the Companys term loan approximates its fair
value due to the loan being in default and, as a result, the lender has the ability to accelerate
the payment of the remaining amounts due from the Company, which amounts are equal to the term loan
carrying amounts. Additionally, because the term of the agreement expires on May 13, 2009, the
carrying amount of the term loan approximates its fair value due to the relatively short period of
time between March 31, 2008 and the expiration of the term loan agreement and because it is
variable rate debt.
The Company adopted FAS 157 for its financial assets and financial liabilities as of
January 1, 2008. This standard defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. The fair value hierarchy is as follows:
Level 1 Quoted (unadjusted) prices for identical assets or liabilities in active markets.
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly, including:
|
|
|
Quoted prices for similar assets/liabilities in active markets; |
|
|
|
|
Quoted prices for identical or similar assets in non-active markets (few
transactions, limited information, non-current prices, high variability over time); |
|
|
|
|
Inputs other than quoted prices that are observable for the asset/liability (e.g.,
interest rates, yield curves, volatilities, default rates, etc.); and |
|
|
|
|
Inputs that are derived principally from or corroborated by other observable market
data. |
Level 3 Unobservable inputs that cannot be corroborated by observable market data.
As of March 31, 2008, $111,310 of the Companys investments were comprised of municipal note
investments with an auction reset feature (auction rate securities). These notes carry
investment grade ratings and are issued by various state and local municipal entities for the
purpose of financing student loans, public projects and other activities. Liquidity for these
auction rate securities is typically provided by an auction process which allows holders to sell
their notes and resets the applicable interest rate at pre-determined intervals, usually every
seven, 14, 28 or 35 days. The Companys auction rate securities are designated as
available-for-sale securities and are reflected at fair value. The fair values of these securities
were estimated using discounted cash flow analysis as of March 31, 2008. These analyses considered,
among other things, the collateralization underlying the securities, the creditworthiness of the
counterparty, the timing of expected future cash flows, and the expectation of the next time the
security would be expected to have a successful auction. The estimated values of these securities
were also compared, when possible, to valuation data with respect to similar securities held by
other parties. Prior to January 1, 2008, these securities were recorded at fair value based on
quoted prices in active markets (i.e., FAS 157 Level 1 data).
As of December 31, 2007, the Company had $204,700 in auction rate securities, of which $90,800
were settled at par during the three months ended March 31, 2008. The remaining auction rate
securities at March 31, 2008 had auctions that failed during the three months ended March 31, 2008.
An auction failure means that the parties wishing to sell their securities could not be matched
with an adequate volume of buyers. In the event that there is a failed auction the indenture
governing the security requires the issuer to pay interest at a contractually defined rate that is
generally above market rates for other types of similar short-term instruments. The securities for
which auctions have failed continue to accrue interest at the contractual rate and be auctioned
every seven, 14, 28 or 35 days until the auction succeeds, the issuer calls the securities, or they
mature. 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 final
maturity of the underlying auction rate securities could be as long as 33 years with a
weighted-average life of 22 years for Companys auction rate securities portfolio. The
9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
Company does not believe its auction rate securities are impaired,
primarily due to government
guarantees or insured municipal bond securities and, as a result, the Company did not record any
impairment losses for its auction rate securities as of March 31, 2008.
Subsequent to March 31, 2008, $58,425 of the auction rate securities have been settled at par. At
December 31, 2008, the Company had $54,972 of auction rate securities and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2008 Using: |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
|
|
|
|
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
Description |
|
March 31, 2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
$ |
66,448 |
|
|
$ |
66,448 |
|
|
$ |
|
|
|
$ |
|
|
Auction rate securities |
|
|
111,310 |
|
|
|
|
|
|
|
|
|
|
|
111,310 |
|
Other municipal variable rate bonds |
|
|
4,040 |
|
|
|
4,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
181,798 |
|
|
$ |
70,488 |
|
|
$ |
|
|
|
$ |
111,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
4,883 |
|
|
$ |
4,883 |
|
|
$ |
|
|
|
$ |
|
|
Certificates of deposit |
|
|
1,649 |
|
|
|
1,649 |
|
|
|
|
|
|
|
|
|
U.S. Government securities |
|
|
18,599 |
|
|
|
18,599 |
|
|
|
|
|
|
|
|
|
Money market funds |
|
|
72,684 |
|
|
|
72,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restricted investments |
|
$ |
97,815 |
|
|
$ |
97,815 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument:
Certificates of Deposit. The carrying value of cash and cash equivalents approximates fair value as
maturities are less than three months.
Auction Rate Securities. All auction rate securities are held as available-for-sale investments.
The fair values of these securities were estimated using discounted cash flow analysis as of March
31, 2008. These analyses considered, among other things, the collateralization underlying the
securities, the creditworthiness of the counterparty, the timing of expected future cash flows, and
the expectation of the next time the security would be expected to have a successful auction. The
estimated values of these securities were also compared, when possible, to valuation data with
respect to similar securities held by other parties. The fair values use an approach that relies
heavily on management assumptions and qualitative observations and are therefore considered to be
Level 3 fair values.
Other municipal variable rate bonds. The estimated fair values of U.S. Government securities
held as available-for-sale are based on quoted market prices and/or other market data for the same
or comparable instruments and transactions in establishing the prices.
Cash and Cash Equivalents. The carrying value of cash and cash equivalents approximates fair value
as maturities are less than three months.
U.S. Government Securities. The estimated fair values of U.S. Government securities held as
available-for-sale are based on quoted market prices and/or other market data for the same or
comparable instruments and transactions in establishing the prices.
Money Market Funds. The carrying value of money market funds approximates fair value as maturities
are less than three months.
10
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
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 SFAS 157:
|
|
|
|
|
|
|
Fair Value Measurements |
|
|
|
Using Significant |
|
|
|
Unobservable Inputs |
|
|
|
(Level 3) |
|
Beginning balance at January 1, 2008 |
|
$ |
|
|
Total gains or losses (realized or unrealized) |
|
|
|
|
Included in earnings (or changes in net assets) |
|
|
|
|
Included in other comprehensive income |
|
|
(2,564 |
) |
Purchases, issuances and settlements |
|
|
|
|
Transfers in and/or out of Level 3 |
|
|
113,874 |
|
|
|
|
|
Ending balance at March 31, 2008 |
|
$ |
111,310 |
|
|
|
|
|
As a result of the declines in fair value for the Companys investments in auction rate
securities, which the Company deems to be temporary and attributable to liquidity issues rather
than to credit issues, the Company recorded a net unrealized loss of $2,564 to Accumulated other
comprehensive loss. If the Company determines that any future valuation adjustment was other
than temporary, a charge to earnings would be recorded as appropriate.
5. INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes. As of
March 31, 2008 and 2007, net deferred tax assets were
approximately $12,044 and $10,910, respectively. For the
three-month periods ending March 31, 2008 and 2007,
respectively, $21,592 and $8,652 of the net deferred tax
assets are included in other assets. In assessing the realizability of deferred tax assets,
management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies. The Company expects the deferred tax assets to be realized
through the generation of future taxable income and the reversal of existing taxable temporary
differences.
The
Company adopted FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, (FIN 48) on
January 1, 2007. There was no cumulative effect of adopting FIN 48 for 2007. The total amount of
unrecognized tax benefits as of the date of adoption was $1,093. The amount of unrecognized tax
benefits as of March 31, 2008 and 2007 is $22,685 and $9,745, respectively.
The Company classifies interest and penalties associated with uncertain income tax positions
as income taxes within our Condensed Consolidated Financial Statements. The FIN 48 liability is
recorded in Other liabilities. During the quarter ended March 31, 2008, the Company
recognized $105 in interest expense that is included in the current tax expense for 2008. No
amount was accrued for penalties. As of March 31, 2008 and 2007, the total amount of unrecognized
tax benefits that, if recognized, would affect the effective tax rate was $1,093.
The Company currently files income tax returns in the U.S. federal jurisdiction and various
states. The Internal Revenue Service is currently completing its exams on the consolidated income
tax returns for the 2004 through 2006 tax years. The Company is no longer subject to income tax
examinations prior to 2004 in major state jurisdictions. The Company does not believe any
adjustments that may result from these examinations will be significant.
The Company believes it is reasonably possible that its liability for unrecognized tax
benefits will not significantly increase or decrease in the next twelve months as a result of audit
settlements and the expiration of statutes of limitations in certain major jurisdictions.
6. 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).
11
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
As of March 31, 2008, the credit facilities under the Credit Agreement consisted of a senior
secured term loan facility in the outstanding principal amount of approximately $153,300 and a revolving credit facility
in the amount of $125,000, of which $10,000 was available for short-term borrowings on a swing-line
basis. The term loan and revolving credit facilities are secured by a pledge of substantially all of the
assets of 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 Prime rate plus a rate equal to
1.50%. The term loan matures in May 2009, and the revolving credit facility expired in May 2008.
The Company is a party to this agreement for the purpose of guaranteeing the indebtedness of its
subsidiaries that are parties to the agreement. The revolving credit facility had not been
utilized before its expiration.
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 on-going investigations discussed in Note 7, the
Company has been unable to satisfy a number of its obligations under
the Credit Agreement, including 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 this Credit Agreement. The Company continues to make payments as required, and
consequently, 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; however, the lenders have the right to do
so at any time.
7. COMMITMENTS AND CONTINGENCIES
Government Investigations
The Company is currently under investigation by several federal and state authorities,
including the Florida Agency for Health Care Administration (AHCA), the U.S. Attorneys Office
for the Middle District of Florida (the USAO), the Civil Division of the U.S. 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 Florida Attorney Generals Medicaid Fraud Control Unit
(MFCU). Pursuant to an agreement dated August 18, 2008 with AHCA, the USAO and MFCU, two of the
Companys subsidiaries, WellCare of Florida, Inc. and HealthEase of Florida, Inc. (collectively,
the WellCare Florida HMOs), agreed to transmit $35,200 (the Transmitted Amount) to the
Financial Litigation Unit of the USAO. The Transmitted Amount was based upon the Companys best
estimate, as of the effective date of the agreement, of the total potential amount of Medicaid
behavioral health capitation refunds that the WellCare Florida HMOs owe or may owe to AHCA for
calendar years 2002 through 2006, but did not include any interest, fines, penalties or other
assessments that may be imposed against the Company. Of the total Transmitted Amount, the Company
acknowledged and agreed that the WellCare Florida HMOs would make payment of not less than a total
amount of $24,500, and therefore the Company authorized the USAO, AHCA and MFCU to access and
distribute the $24,500 to the appropriate federal and state agencies in accordance with applicable
federal and state law. In addition, the parties to the agreement acknowledged and agreed that
$10,700 of the Transmitted Amount would be held in an escrow account pending resolution of
all federal and related state claims by the United States or the State of Florida for monetary
damages or other financial impositions of any kind arising from, or related to, the investigation
by MFCU or the USAO. The amount held in escrow does not limit in any way the ability of federal or
state authorities to recover additional amounts, including interest, civil or criminal fines,
penalties or other assessments that may be imposed against the Company, nor does it provide any
assurances that the federal or state authorities will not seek or be entitled to recover amounts in
excess of the escrowed amounts. The agreement did not, nor should it be construed to, operate as a
settlement or release of any criminal, 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 agreement does not operate, nor should it be construed, as a
concession that the Company is entitled to any limitation of its potential federal, state or local
civil or criminal liability.
The Company is engaged in resolution discussions as to matters under review with the USAO, the
Civil Division, the OIG and the State of Florida. Based on the current status of matters and all
information known to the Company to date, a liability in the amount of $50,000 has been recorded in
the Companys financial statements in connection with the ultimate resolution of these matters.
However, the Company cannot provide assurances regarding the likelihood, timing or terms and
conditions of any potential negotiated resolution of pending investigations by the USAO, the
Civil Division, the OIG or the State of Florida.
12
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
In addition to the federal and state governmental investigations referenced above, as
previously disclosed, the SEC is conducting an informal investigation. The Company also 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 HMO and insurance operating subsidiaries are domiciled regarding the
investigations. The Company is cooperating with federal and state regulators and enforcement
officials in these matters. The Company does not know whether, or the extent to which, any pending
investigations might lead to the imposition of fines, penalties or operating restrictions on its
business.
In addition, 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 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). The Company and the Special Committee are undertaking to discuss with
the Civil Division, and address, 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. 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, 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 Securities Exchange Act of 1934, 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. 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
condensed consolidated financial statements for these claims.
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 D. Robert Graham, Heath Schiesser and Charles G. 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
13
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, in thousands, except member and share data)
District Court for the Middle District of Florida and asserts claims against all Company directors
(and former director Todd Farha) except Heath Schiesser and Charles G. 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 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 into 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. 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 condensed 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 our 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.
14
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 (the 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 report entitled Business, Risk Factors, Managements Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this report 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 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
We provide managed care services exclusively to government-sponsored health care programs,
focusing on Medicaid and Medicare, including health plans for families, children and the aged,
blind and disabled and prescription drug plans. As of March 31, 2008, we served approximately
2,446,000 members. We believe that this broad range of experience and exclusive government focus
allows us to serve efficiently and effectively our members and providers and to manage our
operations.
Through our licensed subsidiaries, as of March 31, 2008, we operated our Medicaid health plans
in Connecticut, Florida, Georgia, Illinois, Missouri, New York and Ohio. Our Medicare plans
include stand-alone PDP and Medicare Advantage plans, which include both MCC plans and PFFS plans.
As of March 31, 2008, we offered our MCC plans in Connecticut,
15
Florida, Georgia, Illinois, Indiana, Louisiana, Missouri, New Jersey, New York, Ohio and
Texas, and our PDP plans in all 50 states and the District of Columbia and our PFFS plans in 43
states and the District of Columbia.
Business Outlook
General Economic, Political and Financial Market Conditions
Government funding continues to be a significant challenge to our business, particularly in
light of the current economic conditions. Because the health care services we offer are through
government-sponsored programs, our profitability is largely dependent on continued funding for
government health care programs at or above current levels. Future Medicaid premium rate levels
may be affected by continued government efforts to contain medical costs or state and federal
budgetary constraints. As a result of economic uncertainty, many of the states in which we operate
have experienced significant fiscal challenges, which are likely to result in budget deficits. In
light of these budgetary challenges, the Medicaid segment premiums we receive may not keep pace
with anticipated medical expense increases. While the economic downturn may increase the number of
Medicaid recipients under current eligibility criteria, states may revise the eligibility criteria
to reduce the number of people who are eligible for our plans or otherwise revise the program
structure to redistribute the financial impact of the program. Furthermore, federal budgetary
challenges or policy or program changes could result in Medicare rates that do not keep pace with
anticipated medical expense increases or benefit plans that are less attractive to potential
members. These challenges could have a material adverse effect on our performance in the Medicaid
or Medicare segments.
We are experiencing pressure on rates in Florida and Georgia, two states from which we derive
a substantial portion of our revenue. In 2008 and 2009, Florida implemented Medicaid rates that
were below our expectations and ultimately caused us to withdraw from
the Medicaid reform program which will result in a loss of
approximately 80,000 members. The withdrawal was originally to be effective May 1, 2009 but
was subsequently changed to July 1, 2009. New or proposed
legislation in Georgia related to payment of claims, program design, eligibility determination and
provider contracting, may negatively impact revenues and profits for the plan in 2009 and beyond.
Further, continued economic slowdowns in Florida and Georgia, as well as other states, could result
in additional state actions that could adversely affect our revenues.
In January 2009, the new presidential administration took office. Although the new administration
and recently elected U.S. Congress have expressed some support for measures intended to expand the
number of citizens covered by health insurance and other changes within the health care system, the
costs of implementing any of these proposals could be financed, in part, by reductions in the
payments made to Medicare Advantage and other government programs. For example, CMS recently
announced preliminary 2010 Medicare Advantage payment rates that are significantly below our prior
expectations. Reduced Medicare rates will not only negatively impact our net income, but could also
cause us to reduce the benefits that we offer under our Medicare plans, thereby making them less
attractive to potential members. Further, in January 2009, the U.S. Congress approved the
childrens health bill which, among things, increases federal funding to the State Childrens
Health Insurance Program (S-CHIP). In addition, in February 2009, President Obama signed the
American Recovery and Reinvestment Act that provides funding for, among other things, state
Medicaid programs, the modernization of health information technology systems and aid to states to
help defray budget cuts. Because of the unsettled nature of these initiatives, the numerous steps
required to implement them and the substantial amount of state flexibility for determining how
Medicaid and S-CHIP funds will be used, we are currently unable to assess the ultimate impact that
they will have on our business.
In addition, increasing market volatility and the tightening of the credit markets has
significantly limited our ability to access external capital. However, we continue to pursue
financing alternatives to raise additional unregulated cash, including seeking dividends from
certain of our regulated subsidiaries and accessing the public and private equity and debt markets.
Medicare Competition and Outlook
In our Medicare segment, we are experiencing increased competition. In August 2008, we were
notified by the federal Centers for Medicare & Medicaid Services (CMS) that our bids for the 2009
plan year were below the CMS regional benchmark premium rate in 12 of the 34 CMS regions, which
allows us to serve auto-assigned dual-eligible Medicare beneficiaries. As of January 2009,
approximately 252,000 auto-assigned dual-eligible members were assigned away from our plans. In
addition, approximately 28,000 low-income subsidized members disenrolled from our plans effective
January 2009. In addition, several changes to the Medicare program resulting from Medicare
Improvements for Patients and Providers Act (MIPPA) that became effective in 2008 could increase
competition for our existing and prospective members, which could adversely affect our revenues.
16
In February 2009, we were notified by CMS that, effective March 7, 2009, we were being
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 the suspension 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 closely with CMS to address their
concerns. At this time, we
cannot estimate the duration of the suspension and are evaluating the impact that it could have on
our results of operations and our business. Nonetheless, we anticipate that our inability to
perform marketing activities to, or enroll new Medicare members, as well as any actions that we
take in response to the sanction will have a material negative affect on our results of operations
and business in 2009 and potentially beyond. 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. Due to uncertainty as to the duration of the suspension, we are in the process of evaluating the
effects of this suspension and resulting anticipated revenue loss on the Companys operations.
Additionally, we are also assessing the impact of ceasing marketing activities and the resulting
loss of membership to determine what effect, if any, this action will have on our staffing needs
and other operational capabilities. This assessment may require us to incur additional costs to
enhance our operational capabilities or to scale our associate levels to effectively and
efficiently meet the needs of the members we serve.
Execution of Business Strategy
To
achieve our business strategy, we continue to seek economically viable opportunities to
expand our business within our existing markets, expand our current service territory and develop
new product initiatives. We also are evaluating various strategic alternatives, which
may include entering new lines of business or markets, exiting existing lines of business or
markets and/or disposing of assets depending on various factors, including changes in our business
and regulatory environment, competitive position and financial resources. We continue to
rationalize our operations to make sure that our ongoing business is profitable. To the extent
that we expand our current service territory or product offerings, we expect to generate additional
revenues. On the other hand, if we decide to exit certain markets, as
we did during 2008 and early 2009,
our revenues could decrease.
We currently do not foresee large, one-time opportunities to expand our business, such as
prior efforts like the launch of PDPs in 2006 and the privatization of Georgia Medicaid in 2006.
We also intend to divert some resources to strengthening compliance and operating capabilities.
These factors, when combined with the rationalization of our operations and the operational
challenges we face, could cause us to not sustain the rapid growth we have achieved in the recent
past.
Membership and Trends
We provide managed care services targeted exclusively to government-sponsored health care
programs, focused on Medicaid and Medicare, including prescription drug plans and health plans for
families, children, and the aged, blind and disabled. As of December 31, 2007, we served
approximately 2,373,000 members. Most of our revenues are generated by premiums consisting of
fixed monthly payments per member.
We
currently anticipate that our revenues and medical benefits expenses
for fiscal years 2008 and 2009 will
be higher than in prior periods due to the changes in the numbers and demographic mix of membership
principally occurring in our Medicare Advantage plans and Ohio Medicaid market, and, effective in
2009, in Hawaii. As the composition of our membership base continues to change as the result of
programmatic, competitive, regulatory, benefit design, economic or other changes, we expect a
corresponding change to our premium revenue, costs and margins which may have a material adverse
effect on our cash flow, profitability and results of operations.
Encounter Data
To the extent that our encounter data is inaccurate or incomplete, we may incur 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. 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.
Financial Impact of Government Investigations and Litigation
We do not know whether, or the extent to which, any pending investigations and related
litigation discussed under Part II Item 1 Legal Proceedings will result in our payment of
fines, penalties or damages, any of which would require us to incur additional expenses and could
have an adverse affect on our results of operations. Furthermore, if as a result of the resolution
of these matters we are subject to operating restrictions, revocation of our licenses, termination
of one or more of our contracts and/or exclusion from further participation in Medicare or Medicaid
programs, our revenues and net income could be adversely affected.
We are engaged in resolution discussions as to matters under review with the U.S. Attorneys
Office for the Middle District of Florida (the USAO), the Civil Division of the U.S. 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 State of Florida. Based on the current status of matters
and all information known to us to date, we have accrued a liability in the amount of $50.0 million
in connection with the ultimate resolution of these matters. However, we cannot provide any
assurances regarding the likelihood, timing or terms and conditions of any potential negotiated
resolution of pending investigations by the USAO, the Civil Division, the OIG or the State of
Florida.
The investigations and related matters have caused us to expend significant financial
resources. As of December 31, 2008, we had spent a cumulative amount of approximately $124.1
million on administrative expenses associated with, or consequential to, the government and Special
Committee investigations, including legal fees, accounting fees, consulting fees, employee
recruitment and retention costs and similar expenses. Approximately $21.1 million of these
investigation related costs were incurred in 2007 and approximately $103.0 million were incurred in
2008. We expect to continue incurring significant additional costs in 2009 as a result of the
federal and state investigations and pending civil actions, including administrative expenses and
costs necessary to improve our corporate governance and address other issues that may be
identified.
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 individuals who are dually eligible
for both Medicare and Medicaid, and beneficiaries of the Temporary Assistance to Needy Families
program (TANF), Supplemental Security Income program (SSI), S-CHIP and the Family Health Plus program (FHP). 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.
17
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 Medicare Advantage plans, which includes CCP, PFFS
and PPO plans. Medicare Advantage 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 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 participates in the Original Medicare program and agrees to
bill, and otherwise accepts the terms and conditions of, the sponsoring insurance company. PPO
plans are also offered by insurance companies and provide both in-network and out-of-network
benefits for Medicare beneficiaries.
Membership
The following table summarizes our membership by segment and line of business as of March 31,
2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
As of March 31, |
|
|
|
2008 |
|
|
2007 |
|
Medicaid |
|
|
|
|
|
|
|
|
TANF |
|
|
947,000 |
|
|
|
864,000 |
|
S-CHIP |
|
|
187,000 |
|
|
|
206,000 |
|
SSI |
|
|
71,000 |
|
|
|
70,000 |
|
FHP |
|
|
28,000 |
|
|
|
31,000 |
|
|
|
|
|
|
|
|
|
|
|
1,233,000 |
|
|
|
1,171,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare |
|
|
|
|
|
|
|
|
MA |
|
|
204,000 |
|
|
|
131,000 |
|
PDP |
|
|
1,009,000 |
|
|
|
970,000 |
|
|
|
|
|
|
|
|
|
|
|
1,213,000 |
|
|
|
1,101,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,446,000 |
|
|
|
2,272,000 |
|
|
|
|
|
|
|
|
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 healthcare 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 two broad categories: capitation arrangements, where we pay the
capitated providers a fixed fee per member and fee for service, as well as risk-sharing arrangements,
where the provider assumes a portion of the risk of the cost of the health care provided. 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, 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.
18
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 incurred but not reported 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.
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 of 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
has implemented a risk adjustment model that apportions premiums paid to all Medicare plans
according to the health status of each beneficiary enrolled.
CMS transitioned to the risk-adjustment model while the old demographic model was being phased
out. The demographic model based the monthly premiums paid to Medicare plans on factors such as
age, gender and disability status. The monthly premium amount for each member was separately
determined under both the risk adjustment and demographic model, and these separate payment amounts
were blended according to a transition schedule. 2007 was the first year in which risk-adjusted
payments for health plans were fully phased in. The PDP payment methodology is based 100% on the
risk-adjustment model, which began in 2006. Under the risk adjustment model, the settlement
payment is based on each members preceding year medical diagnosis data. The final settlement
payment amount under the risk-adjustment model is made in August of the following year, allowing
for the majority of medical claim run out. As a result of this process and the phasing in of the
risk-adjustment model, our CMS monthly premium payments per member may change materially, either
favorably or unfavorably.
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-
19
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 medical benefits that have been incurred but not yet reported. 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, or PMPM, basis to participating physicians and other medical 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 estimates for incurred, but not yet
reported claims (IBNR).
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
20
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 of 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 accurately predict 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.
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.
As noted above, we historically have used an estimate of medical benefits expense and medical
benefits payable because substantially complete claims data is typically not available at the
required date to file timely our annual and interim reports. However, for the quarter ended March
31, 2008, we were able to review substantially complete claims
information that became
available due to the substantial lapse in time between March 31,
2008 and the date of filing this
Quarterly Report on Form 10-Q for the three months ended March 31, 2008. We have determined that
the claims information that has become available provides additional evidence about conditions that
existed with respect to medical benefits payable at the March 31, 2008 balance sheet date and has
been considered in accordance with GAAP. Consequently, the amounts we recorded for medical
benefits payable and medical benefits expense for the three-month period ended March 31, 2008 are
based primarily on actual claims paid.
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
21
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 contract negotiations
and our initial budgeting process. We believe Goodwill and intangible
assets are not impaired at March 31, 2008. Based on the
current general economic conditions and outlook, we are undertaking a review of the underlying
valuation of Goodwill and intangibles at December 31, 2008.
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, |
|
|
2008 |
|
2007 |
Statement of Operations Data: |
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
Premium |
|
|
99.1 |
% |
|
|
98.7 |
% |
Investment and other income |
|
|
0.9 |
% |
|
|
1.3 |
% |
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
Medical benefits |
|
|
85.4 |
% |
|
|
83.8 |
% |
Selling, general and administrative |
|
|
13.9 |
% |
|
|
12.7 |
% |
Depreciation and amortization |
|
|
0.3 |
% |
|
|
0.3 |
% |
Interest |
|
|
0.2 |
% |
|
|
0.3 |
% |
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
99.8 |
% |
|
|
97.1 |
% |
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
0.2 |
% |
|
|
2.9 |
% |
Income tax expense |
|
|
0.1 |
% |
|
|
1.1 |
% |
|
|
|
|
|
|
|
|
|
Net Income |
|
|
0.1 |
% |
|
|
1.8 |
% |
|
|
|
|
|
|
|
|
|
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 incurred but not reported claims. We use our
MBR both to monitor our management of medical benefits expense and to make various business
decisions, including what healthcare plans to offer, what geographic areas to enter or exit and the
selection of healthcare 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, 2008 Compared to the Three- Month Period Ended March 31, 2007
Premium revenue. Premium revenues for the three months ended March 31, 2008 increased $332.7
million, or 25.8%, to $1,621.4 million from $1,288.7 million for the same period in the prior year.
The increase is primarily attributable to membership growth in both our Medicaid and Medicare
segments, including the continued growth of members related to the expansion of our PFFS product
launched in 2007. Total membership grew by approximately 174,000 members, or 7.7%, from 2,272,000
as of March 31, 2007 to 2,446,000 as of March 31, 2008.
The Medicaid segment premium revenue for the three months ended March 31, 2008 increased
$100.2 million, or 15.8%, to $733.6 million from $633.4 million for the same period in the prior
year. The increase in Medicaid segment revenue is due to overall growth in membership, coupled
with increases in premium rates in certain markets. Aggregate membership in our Medicaid segment
grew by approximately 62,000 members, or 5.3%, from 1,171,000 as of March 31, 2007 to 1,233,000 as
of March 31, 2008.
22
|
|
|
|
|
|
|
|
|
|
|
Medicaid Revenues and Membership |
|
|
Three Months Ended March 31, |
|
|
(Dollars in millions) |
|
|
2008 |
|
2007 |
Revenues |
|
$ |
733.6 |
|
|
$ |
633.4 |
|
% of Total Premium Revenues |
|
|
45.2 |
% |
|
|
49.2 |
% |
|
|
|
|
|
|
|
|
|
Membership |
|
|
1,233,000 |
|
|
|
1,171,000 |
|
% of Total Membership |
|
|
50.4 |
% |
|
|
51.5 |
% |
The Medicare segment premium revenue for the three months ended March 31, 2007 increased
$232.5 million, or 35.5%, to $887.7 million from $655.3 million for the same period in the prior
year. Growth in our Medicare segment premium revenue was driven by overall membership growth,
primarily in our PFFS product which contributed approximately $130.6 million of the increase.
Membership within the Medicare segment grew by approximately 112,000 members, or 10.2%, from
1,101,000 as of March 31, 2007 to 1,213,000 as of March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Medicare Revenues and Membership |
|
|
Three Months Ended March 31, |
|
|
(Dollars in millions) |
|
|
2008 |
|
2007 |
Revenues |
|
$ |
887.8 |
|
|
$ |
655.3 |
|
% of Total Premium Revenues |
|
|
54.8 |
% |
|
|
50.8 |
% |
|
|
|
|
|
|
|
|
|
Membership |
|
|
1,213,000 |
|
|
|
1,101,000 |
|
% of Total Membership |
|
|
49.6 |
% |
|
|
48.5 |
% |
Investment and other income. Investment and other income for the three months ended March 31,
2008 decreased $2.1 million, or 11.8%, to $15.5 million from $17.6 million for the same period in
the prior year. The decrease was primarily due to a lower average investment and cash balance and
reduced market rates.
Medical benefits expense. Medical benefits expense for the three months ended March 31, 2008
increased $302.3 million, or 27.6%, to $1,397.6 million from $1,095.3 million for the same period
in the prior year. The increase in medical benefits expense was due to membership growth in both
of our segments. The MBR was 86.2% and 85.0% for the three months ended March 31, 2008 and 2007,
respectively.
The Medicaid segment medical benefits expense for the three months ended March 31, 2008
increased $78.4 million, or 14.7%, to $610.8 million from $532.4 million for the same period in the
prior year. The increase was primarily due to membership growth in our markets. The Medicaid
MBR for the three months ended March 31, 2008 was 83.3% compared to 84.1% for the same period in
the prior year. This decrease resulted from changes in the healthcare utilization pattern of our
members and the demographic mix of our members.
|
|
|
|
|
|
|
|
|
|
|
Medicaid Medical benefits expense and Membership |
|
|
Three Months Ended March 31, |
|
|
(Dollars in millions) |
|
|
2008 |
|
2007 |
Medical benefits expense |
|
$ |
610.8 |
|
|
$ |
532.4 |
|
MBR |
|
|
83.3 |
% |
|
|
84.1 |
% |
|
|
|
|
|
|
|
|
|
Membership |
|
|
1,233,000 |
|
|
|
1,171,000 |
|
% of Total Membership |
|
|
50.4 |
% |
|
|
51.5 |
% |
The Medicare segment medical benefits expense for the three months ended March 31, 2008
increased $223.9 million, or 39.8%, to $786.8 million from $562.9 million for the same period in
the prior year. The increase was primarily due to an increase in PFFS membership, which
contributed approximately $122.0 million of the increase when comparing the three-month periods.
Membership growth in our PDP product and increased utilization accounted for an additional $25.5
million of the increase. The remaining increase is attributable to the utilization pattern of our
products and the demographic mix of our members. The Medicare MBR for the three months ended
March 31, 2008 was 88.6% compared to 85.9% for the same
23
period in the prior year, primarily because of the utilization pattern of our products in PDP
and the demographic mix of our PFFS members.
|
|
|
|
|
|
|
|
|
|
|
Medicare Medical benefits expense and Membership |
|
|
Three Months Ended March 31, |
|
|
(Dollars in millions) |
|
|
2008 |
|
2007 |
Medical benefits expense |
|
$ |
786.8 |
|
|
$ |
562.9 |
|
MBR |
|
|
88.6 |
% |
|
|
85.9 |
% |
|
|
|
|
|
|
|
|
|
Membership |
|
|
1,213,000 |
|
|
|
1,101,000 |
|
% of Total Membership |
|
|
49.6 |
% |
|
|
48.5 |
% |
Selling, general and administrative expense. Selling, general and administrative (SG&A)
expense for the three months ended March 31, 2008 increased $62.1 million, or 37.5%, to $227.7
million from $165.6 million for the same period in the prior year. Our SG&A expense to revenue
ratio (SG&A ratio) was 13.9% for the three months ended March 31, 2008 compared to 12.7% for the
same period in the prior year. The increase in SG&A expense was primarily due to the
administrative expenses associated with, or consequential to, the government and Special Committee
investigations, including legal fees, accounting fees, consulting fees, employee recruitment and
retention costs and similar expenses totaling $32.0 million. These expenses contributed to the
increase in our SG&A ratio by approximately 1.9%. This increase was partially offset by increased
efficiencies in our operating environment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2008 |
|
2007 |
|
% Change |
|
|
(Dollars in millions) |
Selling, general and
administrative expenses (SG&A) |
|
|
|
|
|
|
|
|
|
|
|
|
SG&A |
|
$ |
227.7 |
|
|
$ |
165.6 |
|
|
|
37.5 |
% |
SG&A expense to total revenue ratio |
|
|
13.9 |
% |
|
|
12.7 |
% |
|
|
|
|
Depreciation and amortization expense. Depreciation and amortization expense for the
three-month period ended March 31, 2008 increased $0.6 million, or 12.8%, to $5.2 million from $4.6
million for the same period in the prior year.
Interest expense. Interest expense was $3.3 million and $3.5 million for the three months
ended March 31, 2008 and 2007, respectively.
Income tax expense. Income tax expense for the three months ended March 31, 2008 was $1.8
million compared to $14.6 million for the same period in the prior year, with an effective tax rate
of 58.2% and 39.0% at March 31, 2008 and 2007, respectively. The increase in the effective tax
rate was attributed to the non-deductibility of certain compensation costs related to the hiring
of new executive officers and state taxes, partially offset by the benefit of tax exempt income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2008 |
|
2007 |
|
% Change |
|
|
(Dollars in millions) |
Income Tax Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
1.8 |
|
|
$ |
14.6 |
|
|
|
(87.4 |
)% |
Effective tax rate |
|
|
58.2 |
% |
|
|
39.0 |
% |
|
|
|
|
Net income. Net income for the three months ended March 31, 2008 was $1.3 million, compared
to $22.8 million for the same period in the prior year, representing a decrease of 94.2%. The
decrease in net income when comparing the three month periods ended March 31, 2008 and 2007 is
primarily due to the increase in SG&A expenses discussed above in
the amount of $20.8 million after taxes and 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, 2008.
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2008 |
|
2007 |
|
% Change |
|
|
(Dollars in millions,
except per share data) |
Net Income |
|
$ |
1.3 |
|
|
$ |
22.8 |
|
|
|
(94.2 |
)% |
Net income per
diluted share |
|
$ |
0.03 |
|
|
$ |
0.55 |
|
|
|
|
|
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 and cash equivalents, which appears as a line item in our Consolidated
Balance Sheet, is the sum of regulated cash and unregulated cash, and Investments, which also
appears as a line item in our Consolidated Balance Sheet, is the sum of regulated investments and
unregulated investments.
Cash Positions and Credit Facility
At March 31, 2008 and 2007, cash and cash equivalents were $1,234.2 million and $1,344.9
million, respectively. We also had short-term investments of $70.5 million and $151.1 million at
March 31, 2008 and 2007, respectively. As of March 31, 2008, we had unregulated cash of
approximately $99.6 million and unregulated investments of approximately $5.4 million. In
addition, as of March 31, 2008, we had approximately $1,068.6 million in regulated cash and $176.4
million in regulated investments.
On December 31, 2008, three of our Florida regulated subsidiaries declared dividends to one of
our non-regulated subsidiaries in the aggregate amount of $105.1 million, two of which were paid on
December 31, 2008 and one of which was paid on January 2, 2009. As of December 31 2008, our
consolidated cash and cash equivalents were approximately $1,181.9 million. As of December 31,
2008, our consolidated short-term investments were approximately $70.1 million. As of December 31
2008, we had unregulated cash of approximately $147.7 million and unregulated investments of
approximately $4.9 million. In addition, as of December 31, 2008, we had approximately $958.3
million in regulated cash and $120.3 million in regulated investments. The proceeds from the
intercompany dividends discussed above are not reflected in our unregulated cash balances as of
March 31, 2008, but are, with the exception of the dividends received on January 2, 2009, reflected
in our unregulated cash balances as of December 31, 2008.
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
$152.8 million as of December 31, 2008, is currently in default and subject to acceleration by the
lenders and, absent acceleration by the lenders, will become due and payable on May 13,
2009. Taking into account, among other things, the increase in our unregulated cash balances as a
result of our receipt of the $105.1 million in dividends described above, we currently expect that
we will be able to repay in full the outstanding balance under the credit facility when it becomes
due. However, we cannot provide any assurances that adverse developments will not arise that
impede our ability to repay in full the outstanding balance under the credit facility when it
25
becomes due. In particular, the timing and amount of any potential resolution with the USAO,
the Civil Division, the OIG and the State of Florida is uncertain and could materially and
adversely affect our ability to meet our near-term obligations, including repayment of the
outstanding balance under the credit facility. Also, our ability to repay in full the outstanding
balance under the credit facility could be materially and adversely affected if, among other
things, 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. For example,
a state regulator recently notified us that in its view, notwithstanding a parental guarantee that has been in
place since 2006, two of our HMOs should contribute a total of approximately $30.0 million in additional statutory capital.
We are currently in discussions with the regulator
to determine the necessity of a capital contribution, if any, into
these regulated entities. In addition, there may be other potential
adverse developments that could impede our ability to repay in full the outstanding balance under
the credit facility.
We are pursuing financing alternatives to raise additional unregulated cash. Some of these
initiatives include, but are not limited to, considering additional dividends from certain of our
regulated subsidiaries to the extent that we are able to access available excess capital. Refer to
our 2007 10-K for further discussion on, among other things, our Regulatory Capital and
Restrictions on our Dividends and Management Fees. In addition to seeking dividends from certain
of our regulated subsidiaries, our strategies include accessing the public and private debt and
equity markets and potentially selling assets.
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, 2008, $111.3 million of our $181.8 million in short and 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. Subsequent to March 31, 2008, $58.4 million of auction rate securities that we held
at the balance sheet date either were sold at par or had their interest rate reset through a
successful auction.
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 2007 10-K and in this Quarterly Report on Form 10-Q.
Overview of Cash Flow Activities
For the three-month periods ended March 31, 2008 and 2007 our cash flows are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2008 |
|
2007 |
|
|
(In millions) |
Net cash provided by operations |
|
$ |
66.8 |
|
|
$ |
215.5 |
|
Net cash provided by (used in) investing activities |
|
|
57.3 |
|
|
|
(37.3 |
) |
Net cash provided by financing activities |
|
|
101.7 |
|
|
|
202.2 |
|
Cash provided by Operations: As we generally receive premiums in advance of payments of
claims for healthcare services, we maintain balances of cash and cash equivalents pending payment
of claims. During the three-month period ended March 31, 2008, cash provided from operations
consisted primarily of an increase in Medical benefits
payable of $123.6 million and an increase from Premiums and other
receivables of $81.7 million, partially offset by a decrease in Other payables to
government partners of $74.1 million.
Cash provided by (used in) Investing Activities: During the three-month period ended March
31, 2008, investing activities consisted primarily of the proceeds from the sale of investments
totaling approximately $175.8 million, partially offset by the purchases of investments totaling
approximately $106.0 million.
26
Cash provided by Financing Activities: Included in financing activities are funds held for
the benefit of others, which increased approximately $ 104.0 million as of March 31, 2008. These
PDP member subsidies represent pass-through payments from government partners and are not accounted
for in our results of operations since they represent pass-through payments from our government
partners 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 subject to
acceleration by the lenders and will become due and payable on
May 13, 2009. The term loan and revolving credit facilities were 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
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 events of default.
As of March 31, 2008, our senior debt was rated B+ by Standard & Poors and Ba2 by Moodys.
Subsequent to the balance sheet date presented, but prior to the filing of this Quarterly Report on
Form 10-Q, our senior debt was downgraded to B- by Standard & Poors.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As of March 31, 2008, we had cash and cash equivalents of $1,234.2 million, investments
classified as current assets of $70.5 million, long-term investments of $111.3 million and
restricted investments on deposit for licensure of $97.8 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, 2008 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, 2008 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.
Special Committee Investigation and Restatement
Upon consideration of certain issues identified in the Special Committee investigation
discussed in the Explanatory Note and our 2007 10-K, and after discussions with management and our
independent registered public accounting firm, the Audit Committee recommended to the Board, and
the Board thereafter concluded, that we should restate 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, and our previously issued unaudited condensed consolidated
financial statements for the three months ended March 31, 2007 and June 30, 2007.
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was
conducted under the leadership, and with the participation, of the Companys management, including
the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of
the design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Exchange Act), as of March 31, 2008. Based on that evaluation, our CEO
and CFO have concluded that, as of March 31, 2008, our disclosure controls and procedures were effective.
Material Weaknesses in Internal Control Over Financial Reporting Related to the Year Ended
December 31, 2007
A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting such that there is a reasonable possibility that a material misstatement
of the annual or interim financial statements will not be prevented or detected on a timely basis.
27
In connection with the restatements described above, management undertook to assess the
effectiveness of our internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management
identified material weaknesses in WellCares internal controls over financial reporting as of
December 31, 2007 as discussed below.
Control Environment and Control Activities
We identified a material weakness in a portion of the control environment and control
activities components of our internal controls. We have determined that certain former members of
senior management set an inappropriate tone in connection with our efforts to comply with the
regulatory requirements related to the AHCA contract and Healthy Kids contract that led to a
deficiency in the design of our internal controls. Specifically, there was inadequate control over
financial reporting as of December 31, 2007 with respect to interpreting and complying with
regulatory guidance and other contracted terms when calculating, submitting and reserving for
estimated self-reported retrospective settlements with a state agency with which certain of our
subsidiaries were contracted to provide Medicaid services.
Information and Communication
We have determined that certain former members of senior management failed to ensure effective
communications with, among others, our Board and certain regulators regarding the AHCA contract and
Healthy Kids contract, and therefore a material weakness existed in a portion of the information
and communication system. Specifically, there was a lack of communication regarding the Companys
interpretation of and compliance with regulatory guidance and other contracted terms pertaining to
self-reported retrospective settlements as well as with regard to inquiries from a state agency
pertaining to the retrospective settlement process.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting other than the remedial measures listed below.
Remedial Measures
The
following measures undertaken to remediate the
material weaknesses in our internal control over financial reporting
related to the year ended December 31, 2007 were completed by
March 31, 2008:
Beginning in October 2007, management retained outside legal and consulting firms to assist
the Company in calculating, submitting and reserving for estimated self-reported prospective
settlements with state agencies with which certain of our subsidiaries were contracted to provide
Medicaid services. Additionally, the Company has sought more clarifying information from state
regulators to ensure compliance with applicable state laws.
On January 25, 2008, Todd Farha, our former Chief Executive Officer, President and Chairman of
the Board, Paul Behrens, our former Senior Vice President and Chief Financial Officer, and Thaddeus
Bereday, our former Senior Vice President, General Counsel and Secretary, resigned from their
respective officer and director positions with us and our subsidiaries. The Board thereafter
elected Charles G. Berg as our new Executive Chairman of the Board and Heath G. Schiesser, who
previously had served as our Senior Vice President for Marketing and Sales and President of
WellCare Prescription Insurance, one of our subsidiaries, as our new President and Chief Executive
Officer. Mr. Schiesser was also elected as a director. We reorganized the senior management team
by, among other things, separating the positions of (i) Chairman and Chief Executive Officer,
(ii) General Counsel and Chief Compliance Officer and (iii) Chief Financial Officer and Chief
Accounting Officer. Our new Chief Compliance Officer reports directly to the Chief Executive
Officer.
These
management changes and the actions of the Board of Directors and new
senior management have remediated the inappropriate tone set by our
former management in connection with our efforts
to comply with the regulatory requirements and lack of effective communication related to the AHCA
contract and Healthy Kids contract.
For
further discussion on enhancements to our internal controls and
remedial measures taken, refer to Part IIItem 9A
Controls and Procedures in our 2007 10-K.
28
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.
29
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 investigation:
Government Investigations
We are currently under investigation by several federal and state authorities, including AHCA,
the USAO, the Civil Division, the OIG and the Florida Attorney Generals Medicaid Fraud Control
Unit. We are engaged in resolution discussions as to matters under review with the USAO, the Civil
Division, the OIG and the State of Florida. Based on the current status of matters and all
information known to us to date, we have accrued a liability in the amount of $50.0 million in our
financial statements in connection with the ultimate
resolution of these matters. However, we cannot provide any assurances regarding the likelihood,
timing or terms and conditions of any potential negotiated resolution of pending investigations by
the USAO, the Civil Division, the OIG or the State of Florida. However, the timing and amount of
any potential resolution are uncertain.
In addition to the federal and state governmental investigations referenced above, as
previously disclosed, the SEC is conducting an informal investigation. We also are 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. 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 these matters. We do not know whether, or the
extent to which, any pending investigations might lead to the payment of fines, penalties or
operating restrictions.
In addition, 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.
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. 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 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, 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
Securities Exchange Act of 1934, as amended. Both complaints seek, among other things,
certification as a class action and damages. The two actions have been consolidated, and various
parties and law firms filed motions seeking to be designated as Lead Plaintiff and Lead
Counsel. In an Order issued on
30
March 11, 2008, the Court appointed a group of five public pension funds from New Mexico,
Louisiana and Chicago 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. 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 for these claims.
Five putative shareholder derivative actions were filed between October 29, 2007 and
November 15, 2007. The first two actions, entitled Rosky v. Farha, et al. and Rooney v. Farha, et
al., respectively, are purportedly 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 D. Robert Graham, Heath
Schiesser and Charles G. 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 and Charles G. 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 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 into 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. 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 for these claims.
Other Lawsuits and Claims
Separate and apart from the legal matters described above, we are also involved in other legal
actions that are in the normal course of our business, some of which seek monetary damages,
including claims for punitive damages, which are not covered by insurance. We currently believe
that none of these actions, when finally concluded and determined, will have a
material adverse effect on our financial position, results of operations or cash flows.
Item 1A. Risk Factors.
Under Part I Item 1A Risk Factors of our 2007 10-K, we set forth risk factors related to
(i) our failure to file timely periodic reports with the SEC and certain regulatory filings with
state agencies; (ii) our internal control over financial reporting; (iii) the pending government
investigations and litigation; (iv) our business; (v) our financial condition; (vi) being a
regulated entity, and (vii) our common stock. You should carefully consider the risk factors set
forth in our 2007 10-K. As of the date hereof, there have been no material changes to the risk
factors set forth in our 2007 10-K other than as discussed below.
Risks Related to Our Business
If our government contracts are not renewed or are renewed on substantially different terms, are
terminated or become subject to an enrollment or marketing freeze, our business, financial
condition, results of operations and cash flows could be materially adversely affected.
We provide our Medicaid, Medicare, S-CHIP and other services through a limited number of
contracts with state, federal or local government agencies. These contracts generally have terms
of one to four years and are subject to non-renewal by
31
the applicable government agency. All of our government contracts are terminable for cause if
we breach a material provision of the contract or violate relevant laws or regulations.
Our federal and state government contracts are generally subject to cancellation, non-renewal
or a potential freeze on marketing or enrollment in the event of the unavailability of adequate
program funding, compliance violations or for other reasons. In some jurisdictions, a cancellation
or enrollment freeze may be immediate, while in other jurisdictions a notice period is required.
For example, during 2008, we were subject to a 60-day Medicaid marketing freeze in three counties
in Florida resulting from the states allegation of wrongful marketing practices. Further, in
February 2009, we were notified by CMS that, effective March 7,
2009, we were being sanctioned through a suspension of
marketing of, and enrollments into, all lines of our Medicare
business. This suspension will remain in effect until CMS has determined that the suspension should be
lifted.
At this time, we cannot estimate the duration of the suspension and are
evaluating the impact that it could have on our results of operations and business.
Nonetheless, we anticipate that our inability to perform marketing activities to,
or enroll new Medicare members, as well as any actions that we take in response to the
sanction, will have a material negative affect on our results of operations and business
in 2009 and potentially beyond.
Further, there can be no assurance 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 affect on our results of operations. Additionally,
we are assessing the impact of ceasing marketing activities and the resulting loss
of membership to determine what effect, if any, this action will have
on our staffing needs and other operational capabilities or to scale our
associate levels to effectively and efficiently meet the needs of the members
we serve.
Some of our contracts are also subject to termination or are only eligible for renewal through
annual competitive bidding processes. For example, renewal of our PDP business is subject to an
annual bidding process. As previously described, we bid above the CMS benchmark in 22 of the 34
CMS regions for plan year 2009 and are ineligible to receive auto-assigned members in these
regions. As a result, 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 on January
1, 2009. If we are unable to renew or to rebid or compete successfully for any of our existing or
potential government contracts, if any of our contracts are terminated, or if any limitations or
restrictions are imposed, our business, financial condition, results of operations and cash flows
could be materially adversely affected.
Risks Related to Being a Regulated Entity
Reductions in funding for government health care programs could have a material adverse effect on
our results of operations.
All of the health care services we offer are through government-sponsored programs, such as
Medicaid and Medicare. As a result, our profitability is dependent, in large part, on continued
funding for government health care programs at or above current levels. For example, the premium
rates paid by each state to health plans like ours differ depending on a combination of factors
such as upper payment limits established by the state and federal governments, a members health
status, age, gender, county or region, benefit mix and member eligibility categories. Future
Medicaid premium rate levels may be affected by continued government efforts to contain medical
costs or state and federal budgetary constraints. Some of the states in which we operate have
experienced fiscal challenges leading to significant budget deficits. According to the National
Association of State Budget Officers, Medicaid spending consumes approximately one-quarter of the
average states budget, representing the second largest expenditure. Health care spending
increases appear to be more limited than in the past, states continue to look at Medicaid programs
as opportunities for budget savings and some states may find it difficult to continue paying
current rates to Medicaid health plans.
Changes in Medicaid funding may lead to reductions in the number of persons enrolled in or
eligible for Medicaid, reductions in the amount of reimbursement or elimination of coverage for
certain benefits such as pharmacy, behavioral health or other benefits. In some cases, changes in
funding could be made retroactive, in which case we may be required to return premiums already
received or receive reduced future payments. In the recent past, all of the states in which we
operate have implemented or considered legislation or regulations that would reduce reimbursement
rates, payment levels, benefits covered or the number of persons eligible for Medicaid. Reductions
in Medicaid payments could reduce our profitability if we are unable to reduce our expenses at the
same rate.
Further, continued economic slowdowns in our markets have negatively impacted state revenues.
The number of persons eligible to receive Medicaid benefits may grow more slowly or even decline
more rapidly or in tandem with declining economic conditions. For example, the governments that
oversee the Medicaid programs could choose to limit program eligibility in an effort to reduce the
portion of their respective state budgets attributable to Medicaid, which would cause our
membership and revenues to decrease. Therefore, declining general economic conditions may cause
our membership levels to decrease even further, which could have a material adverse effect on our
results of operations. The
32
states may also develop future Medicaid capitation rates that, while actuarially sound, are
insufficient to keep pace with medical trends or inflation, therefore reducing our profitability in
those markets and materially adversely affecting our results of operations.
We are experiencing pressure on rates in Florida and Georgia, two states from which we derive
a substantial portion of our revenue. In 2008 and 2009, Florida implemented Medicaid rates that
were below our expectations and ultimately caused us to withdraw from the Medicaid reform program
which will result in a loss of approximately 80,000 members. The withdrawal was originally effective May 1, 2009, but was subsequently changed to July 1, 2009. New legislation
in Georgia related to payment of claims, eligibility determination and provider contracting, may
negatively impact revenues and profits for the plan in 2009 and beyond. Further, continued
economic slowdowns in Florida and Georgia, as well as other states, could result in additional
state actions that could adversely affect our revenues.
Similar to Medicaid, reductions in payments under Medicare or the other programs under which
we offer health plans could likewise reduce our profitability. The MMA permits premium levels for
certain Medicare plans to be established through competitive bidding, with Congress retaining the
ability to limit increases in premium levels established through bidding from year to year. The
federal government also has passed legislation that phases out Medicare Advantage budget neutrality
payments through 2011, which impacts premium increases over that timeframe. The Congress is
considering other reductions to rates or other changes to Medicare Part D which could also have a
material adverse effect on our results of operations.
In January 2009, the new presidential administration took office. Although the new
administration and recently elected U.S. Congress have expressed some support for measures intended to
expand the number of citizens covered by health insurance and other changes within the health care
system, the costs of implementing any of these proposals could be financed, in part, by reductions
in the payments made to under Medicare and other government programs. For example, CMS recently
announced preliminary 2010 Medicare Advantage payment rates which are be significantly below our
prior expectations. Reduced Medicare rates will not only negatively impact our net income, but
could also cause us to reduce the benefits that we offer under our Medicare plans thereby making
them less attractive to potential members. Further, in January 2009, the U.S. Congress approved
the childrens health bill which, among things, increases federal funding to S-CHIP. In addition, in February 2009, President Obama signed the
American Recovery and Reinvestment Act that provides funding for, among other things: state
Medicaid programs; the modernization of health information technology systems and aid to states to
help defray budget cuts. Because of the unsettled nature of these initiatives, the numerous steps
required to implement them and the substantial amount of state flexibility for determining how
Medicaid and S-CHIP funds will be used, we remain uncertain as to the ultimate impact they will
have on our business.
We are subject to periodic reviews and audits under our contracts with state government agencies,
and these audits could have adverse findings which may have a material adverse effect on our
business.
We contract with various governmental agencies to provide managed health care services.
Pursuant to these contracts, we are subject to various reviews, audits and investigations to verify
our compliance with the contracts and applicable laws and regulations. Any adverse review, audit
or investigation could result in:
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forfeiture or recoupment of amounts we have been paid pursuant to our government contracts; |
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imposition of significant civil or criminal penalties, fines or other sanctions on us and/or our key associates; |
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loss of our right to participate in government-sponsored programs, including Medicaid and Medicare; |
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damage to our reputation in various markets; |
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increased difficulty in marketing our products and services; |
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inability to obtain approval for future service or geographic expansion; and |
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suspension or loss of one or more of our licenses to act as an insurer, HMO or third
party administrator or to otherwise provide a service. |
We are currently undergoing standard periodic audits by several Departments of Insurance and
CMS to verify compliance with our contracts and applicable laws and regulations. In 2008, CMS
completed its routine comprehensive audit of all of our Medicare operations. CMSs audit report
indicates that we are deficient in a number of areas. We implemented corrective action plans to
address CMSs findings, but in February 2009, as described
above, we were notified by the CMS that, effective March 7,
2009, we were being sanctioned through a suspension of marketing to
Medicare beneficiaries and enrollment into
all lines of our Medicare
33
business. This suspension will remain in effect until CMS determines
that the suspension 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 closely with CMS to address their concerns.
At this time, we cannot provide any assurances regarding the duration of the suspension or the ultimate impact it will
have on our results of operations or our business. Nonetheless, we anticipate that our inability to perform marketing activities to, or enroll new Medicare
members, as well as any actions that we take in response to the
sanction,
will have a material negative affect on our results of operations and business in 2009 and potentially beyond.
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.
If state regulatory agencies require a higher
statutory capital level for our existing operations or if we become subject to additional capital requirements, we may be required to make additional capital contributions to our regulated subsidiaries,
which would have a material adverse effect on our cash flows and liquidity.
Our operations are conducted
through licensed HMO and insurance subsidiaries. These subsidiaries are subject to state regulations that, among
other things, require the maintenance of minimum levels of statutory capital and maintenance of certain financial ratios,
as defined by each state. One or more of these states may raise the statutory capital level from time to
time, which could have a material adverse effect on our cash flows and liquidity.
Our subsidiaries also may be required to maintain higher levels of statutory net worth due to the adoption of risk-based capital requirements by other states in which we operate. Our subsidiaries are subject to their state regulators' general oversight powers. Regardless of whether a state adopts the risk-based capital requirements, the state's regulators
can require our subsidiaries to maintain minimum levels of statutory net worth in excess of
amounts required under the applicable state laws if they determine that maintaining such additional
statutory net worth is in the best interests of our members. In addition, as we continue to expand
our plan offerings in new states or pursue new business opportunities, we may be required to make
additional statutory capital contributions. In either case, any additional capital contribution
made to one or more of the affected subsidiaries could have a material adverse effect on our liquidity,
cash flows and growth potential, which could harm our ability to implement our business strategy by,
for example, hindering our ability to make debt service payments on amounts drawn from our credit facilities.
In addition, increases of statutory capital requirements could cause us to withdraw from certain programs or
markets where it becomes economically difficult to continue to be profitable. For example, we
recently evaluated the capitalization requirement for our PFFS plans and determined that it was economically
prudent to withdraw from participation in these plans in Texas, Florida and Wisconsin since the capital
requirements for these states applied to the subsidiary as a whole, effectively increasing the capital
requirements for several other states operating under the same license. If we restructure our insurance
licenses for Florida, Texas and Wisconsin such that the capital requirements apply only to the business
in those states, we may re-consider our interest in offering products in those states. Accordingly, effective January 1, 2009 we exited the PFFS business in these three states in which we provided services to approximately 10,000 members.
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. For example, a state regulator recently notified us that in its view, notwithstanding a parental guarantee that has been in place since 2006, two of our HMOs should contribute a total of approximately $30.0 million in additional statutory capital. We are currently discussing this request with the regulator.
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, 2008 that were
not registered under the Securities Act of 1933, as amended.
Issuer Purchases of Equity Securities
We do not have a stock repurchase program. However, during the quarter ended March 31, 2008,
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
Number of |
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
Shares that |
|
|
|
|
|
|
|
|
|
|
Part of |
|
May Yet Be |
|
|
|
|
|
|
|
|
|
|
Publicly |
|
Purchased |
|
|
Total Number |
|
Average |
|
Announced |
|
Under the |
|
|
of Shares |
|
Price Paid |
|
Plans or |
|
Plans or |
Period |
|
Purchased(1) |
|
Per Share(1) |
|
Programs |
|
Programs |
January 1, 2008 through January 31, 2008 |
|
|
1,184 |
|
|
$ |
47.64 |
(2) |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2008 through February 28, 2008 |
|
|
737 |
|
|
$ |
50.48 |
(3) |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2008 through March 31, 2008 |
|
|
22,777 |
|
|
$ |
37.31 |
(4) |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total during quarter ended March 31, 2008 |
|
|
24,698 |
|
|
$ |
37.97 |
(5) |
|
N/A |
|
N/A |
|
|
|
(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 $47.52. |
|
(3) |
|
The weighted average price paid per share during the period was $50.45. |
|
(4) |
|
The weighted average price paid per share during the period was $37.34. |
|
(5) |
|
The weighted average price paid per share during the period was $38.16. |
Item 3. Defaults upon Senior Securities.
As previously disclosed and described in our 2007 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
34
approximately $152.8 million as of December 31, 2008, is
currently in default and subject to acceleration by the lenders and, absent acceleration by the
lenders, 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 (including our failure to
provide the lenders with audited financial statements, our 2008 budget and other requested reports
and information), some of which cannot be cured prior to maturity of the senior secured credit
facility (such as our entry into intercompany loan transactions that were not effected in
compliance with the credit agreement). As of the date hereof, our payment obligations under the
credit agreement have not been accelerated and the rate of interest has not been increased.
However, we cannot provide any assurance that such obligations will not be accelerated or the rate
of interest increased in the future or that the lenders will not exercise other remedies for
default.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
As
previously reported in a Current Report on Form 8-K filed on
February 4, 2009, we notified AHCA that we intended to terminate
our Medicaid reform contract No. FAR001 (the HealthEase Reform
Contract) dated June 26, 2006 between AHCA and HealthEase of Florida, Inc. (HealthEase), a
wholly-owned subsidiary, and Medicaid reform contract No. FAR009 (together with the
HealthEase Reform Contract, the Reform Contracts) dated June 26, 2006, between AHCA and WellCare
of Florida, Inc. d/b/a StayWell Health Plan of Florida
(WCFL), another wholly owned subsidiary. Under the Reform Contracts, HealthEase and WCFL provide health care programs in Duval
and Broward counties to recipients of Temporary Assistance for Needy Families and Supplemental
Security Income, as well as to the HIV/AIDS specialty population. The termination of the Reform
Contracts was to be effective May 1, 2009. However, on
February 27, 2009, we agreed, by
letter sent to AHCA, to extend the termination date to July 1, 2009.
35
Item 6. Exhibits.
Exhibit List
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Termination of Purchase of Service Contract Number
093-MED-FCHP-1 (Husky A) and Purchase of Service Contract
Number 093-HUS-WCC-2 (Husky B) each between the
Connecticut Department of Social Services and WellCare of
Connecticut, Inc.
|
|
8-K
|
|
January 2, 2008
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
10.2
|
|
Amendment number 1 to 2008 Managed Care Plan for the
Northeast Region Provider Agreement between the Ohio
Department of Job and Family Services and WellCare of
Ohio, Inc. (ABD)
|
|
8-K
|
|
January 8, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.3
|
|
Amendment number 1 to 2008 Managed Care Plan for the
Northeast Region Provider Agreement between the Ohio
Department of Job and Family Services and WellCare of
Ohio, Inc. (CFC)
|
|
8-K
|
|
January 8, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.4
|
|
Renewal notice to Contract (H0712) between Centers for
Medicare & Medicaid Services and WellCare of Connecticut,
Inc. (2008)
|
|
8-K
|
|
January 11, 2008
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
10.5
|
|
Renewal notice to Contract (H1032) between Centers for
Medicare & Medicaid Services and WellCare of Florida,
Inc. (2008)
|
|
8-K
|
|
January 11, 2008
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
10.6
|
|
Renewal notice to Contract ( H1416) between Centers for
Medicare & Medicaid Services and Harmony Health Plan of
Illinois, Inc. (2008)
|
|
8-K
|
|
January 11, 2008
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
Renewal notice to Contract (H1112) between Centers for
Medicare & Medicaid Services and WellCare of Georgia,
Inc. (2008)
|
|
8-K
|
|
January 11, 2008
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
10.8
|
|
Renewal notice to Contract (H1903) between Centers for
Medicare & Medicaid Services and WellCare of Louisiana,
Inc. (2008)
|
|
8-K
|
|
January 11, 2008
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
10.9
|
|
Renewal notice to Contract (H0967) between Centers for
Medicare & Medicaid Services and WellCare Health
Insurance of Illinois, Inc. (2008)
|
|
8-K
|
|
January 11, 2008
|
|
|
N/A |
|
|
10.10
|
|
Renewal notice to Contract (H3292) between Centers for
Medicare & Medicaid Services and WellCare Health
Insurance of Arizona, Inc. (2008)
|
|
8-K
|
|
January 11, 2008
|
|
|
N/A |
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incorporated by reference |
Exhibit |
|
|
|
|
|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
|
with SEC |
|
Number |
|
|
|
|
|
|
|
|
|
|
|
10.11
|
|
Renewal notice to Contract (H3361) between Centers for
Medicare & Medicaid Services and WellCare of New York,
Inc. (2008)
|
|
8-K
|
|
January 18, 2008
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
10.12
|
|
Amendment to Medicaid Managed Care and Family Health Plus
Model Contract, between the New York State Department of
Health and WellCare of New York, Inc.
|
|
8-k
|
|
January 30, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.13
|
|
Amendment number 2 to Contract 0654, between the Georgia
Department of Community Health and WellCare of Georgia,
Inc. for Provision of Services to Georgia Healthy
Families
|
|
8-K
|
|
January 30, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.14
|
|
Separation Agreement and General Release for All Claims
by and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Todd S. Farha
|
|
8-K
|
|
January 31, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.15
|
|
Separation Agreement and General Release for All Claims
by and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Paul Behrens
|
|
8-K
|
|
January 31, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.16
|
|
Separation Agreement and General Release for All Claims
by and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Thaddeus Bereday
|
|
8-K
|
|
January 31, 2008
|
|
|
10.3 |
|
|
|
|
|
|
|
|
|
|
|
|
10.17
|
|
Employment Agreement effective as of January 25, 2008 by
and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Heath Schiesser
|
|
8-K
|
|
January 31, 2008
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
10.18
|
|
Letter Agreement dated January 25, 2008 between WellCare
Health Plans, Inc. and Charles Berg
|
|
8-K
|
|
January 31, 2008
|
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
|
|
10.19
|
|
Restricted Stock Agreement effective January 25, 2008 by
and between WellCare Health Plans, Inc. and Heath
Schiesser
|
|
8-K
|
|
January 31, 2008
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
10.20
|
|
Restricted Stock Agreement effective January 25, 2008 by
and between WellCare Health Plans, Inc. and Charles Berg
|
|
8-K
|
|
January 31, 2008
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
10.21
|
|
Non-Qualified Stock Option Agreement effective January
25, 2008 by and between WellCare Health Plans, Inc. and
Heath Schiesser
|
|
8-K
|
|
January 31, 2008
|
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
10.22
|
|
Non-Qualified Stock Option Agreement effective January
25, 2008 by and between WellCare Health Plans, Inc. and
Charles Berg
|
|
8-K
|
|
January 31, 2008
|
|
|
10.9 |
|
|
|
|
|
|
|
|
|
|
|
|
10.23
|
|
Amendment number 5 to Medicaid Managed Care and Family
Health Plus Model Contract between the New York State
Department of Health and WellCare of New York, Inc.
|
|
8-K/A
|
|
February 1, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.24
|
|
Amendment number 2 to the Department of Community Health
Contract No. 0654, between the Georgia Department of
Community Health and WellCare of Georgia, Inc.
|
|
8-K/A
|
|
February 1, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.25
|
|
State of Hawaii Contract for Health and Human Services
Competitive Purchase of Services (Contract No.
DHS-08-MQD-
|
|
8-K
|
|
February 6, 2008
|
|
|
10.1 |
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incorporated by reference |
Exhibit |
|
|
|
|
|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
|
with SEC |
|
Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
5129) by and between the State of Hawaii
Department of Human Services and Ohana Health Plans,
Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.26
|
|
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
|
|
February 6, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.27
|
|
Amendment to Contract No. FA 615 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
|
|
February 6, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.28
|
|
Amendment to Contract No. FAR001 between the State of
Florida, Agency for Healthcare Administration and
HealthEase of Florida, Inc. (Medicaid Reform 2006-2009)
|
|
8-K
|
|
February 6, 2008
|
|
|
10.3 |
|
|
|
|
|
|
|
|
|
|
|
|
10.29
|
|
Amendment to Contract No. FAR001 between the State of
Florida, Agency for Healthcare Administration and
HealthEase of Florida, Inc. (Medicaid Reform 2006-2009)
|
|
8-K
|
|
February 6, 2008
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
|
|
|
10.30
|
|
Amendment to Contract No. FAR009 between the State of
Florida, Agency for Healthcare Administration and
WellCare of Florida, Inc. d/b/a Staywell Health Plan of
Florida (Medicaid Reform 2006-2009)
|
|
8-K
|
|
February 6, 2008
|
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
|
|
10.31
|
|
Amendment to Contract No. FAR009 between the State of
Florida, Agency for Healthcare Administration and
WellCare of Florida, Inc. d/b/a Staywell Health Plan of
Florida (Medicaid Reform 2006-2009)
|
|
8-K
|
|
February 6, 2008
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
10.32
|
|
Amendment to Medicaid Managed Care and Family Health Plus
Model Contract between the City of New York Department of
Health and Mental Hygiene and WellCare of New York, Inc.
|
|
8-K
|
|
February 6, 2008
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
10.33
|
|
Amendment number 1 to Department of Elder Affairs
Standard Contract (XQ744), between the State of Florida
Department of Elder Affairs and WellCare of Florida, Inc.
|
|
8-K
|
|
February 21, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.34
|
|
Contract (H1657) between the Centers for Medicare &
Medicaid Services and Harmony Health Plan of Illinois,
Inc. d/b/a Harmony Health Plan of Indiana
|
|
8-K
|
|
February 21, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.35
|
|
Amendment number 23 to Purchase of Service Contract
number 093-MED-FCHP-1, (Husky A) between the Department
of Social Services and WellCare of Connecticut, Inc.
|
|
8-K
|
|
March 14, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.36
|
|
Amendment number 8 to Purchase of Service Contract number
093-HUS-WCC-2 (Husky B) between the Department of Social
Services and WellCare of Connecticut, Inc.
|
|
8-K
|
|
March 14, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.37
|
|
Third Amendment to Credit Agreement, dated as of January
31, 2008, by and among, the Registrant, certain
subsidiaries of the Registrant, certain lenders and
Wachovia Bank, National Association* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.38
|
|
Form of Non-Qualified Stock Option Agreement under
Registrants 2004 Equity Incentive Plan* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.39
|
|
Offer letter to Anil Kottoor, dated December 18, 2006* |
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
incorporated by reference |
Exhibit |
|
|
|
|
|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
|
with SEC |
|
Number |
|
|
|
|
|
|
|
|
|
|
|
10.40
|
|
Offer letter to Adam Miller, dated January 17, 2006* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.41
|
|
WellCare Health Plans, Inc. Special Retention Bonus Plan* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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32.1
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Certification of President and Chief Executive Officer
pursuant to Section 906 of Sarbanes-Oxley Act of 2002* |
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32.2
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Certification of Chief Financial Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002* |
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39
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 March 2, 2009.
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WELLCARE HEALTH PLANS, INC.
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By: |
/s/ Heath Schiesser
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Heath Schiesser |
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President and Chief Executive Officer |
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By: |
/s/ Thomas L. Tran
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Thomas L. Tran |
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Senior Vice President and Chief Financial Officer |
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40
Exhibit Index
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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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Termination of Purchase of Service Contract Number
093-MED-FCHP-1 (Husky A) and Purchase of Service Contract
Number 093-HUS-WCC-2 (Husky B) each between the
Connecticut Department of Social Services and WellCare of
Connecticut, Inc.
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8-K
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January 2, 2008
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N/A |
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10.2
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Amendment number 1 to 2008 Managed Care Plan for the
Northeast Region Provider Agreement between the Ohio
Department of Job and Family Services and WellCare of
Ohio, Inc. (ABD)
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8-K
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January 8, 2008
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10.1 |
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10.3
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Amendment number 1 to 2008 Managed Care Plan for the
Northeast Region Provider Agreement between the Ohio
Department of Job and Family Services and WellCare of
Ohio, Inc. (CFC)
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8-K
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January 8, 2008
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10.2 |
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10.4
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Renewal notice to Contract (H0712) between Centers for
Medicare & Medicaid Services and WellCare of Connecticut,
Inc. (2008)
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8-K
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January 11, 2008
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N/A |
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10.5
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|
Renewal notice to Contract (H1032) between Centers for
Medicare & Medicaid Services and WellCare of Florida,
Inc. (2008)
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8-K
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January 11, 2008
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N/A |
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10.6
|
|
Renewal notice to Contract ( H1416) between Centers for
Medicare & Medicaid Services and Harmony Health Plan of
Illinois, Inc. (2008)
|
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8-K
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January 11, 2008
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N/A |
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10.7
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Renewal notice to Contract (H1112) between Centers for
Medicare & Medicaid Services and WellCare of Georgia,
Inc. (2008)
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8-K
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January 11, 2008
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N/A |
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10.8
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|
Renewal notice to Contract (H1903) between Centers for
Medicare & Medicaid Services and WellCare of Louisiana,
Inc. (2008)
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8-K
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January 11, 2008
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N/A |
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10.9
|
|
Renewal notice to Contract (H0967) between Centers for
Medicare & Medicaid Services and WellCare Health
Insurance of Illinois, Inc. (2008)
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8-K
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January 11, 2008
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N/A |
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10.10
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|
Renewal notice to Contract (H3292) between Centers for
Medicare & Medicaid Services and WellCare Health
Insurance of Arizona, Inc. (2008)
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8-K
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January 11, 2008
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N/A |
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10.11
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|
Renewal notice to Contract (H3361) between Centers for
Medicare & Medicaid Services and WellCare of New York,
Inc. (2008)
|
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8-K
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January 18, 2008
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N/A |
|
41
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incorporated by reference |
Exhibit |
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|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
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with SEC |
|
Number |
|
|
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10.12
|
|
Amendment to Medicaid Managed Care and Family Health Plus
Model Contract, between the New York State Department of
Health and WellCare of New York, Inc.
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8-K
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January 30, 2008
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10.1 |
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10.13
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Amendment number 2 to Contract 0654, between the Georgia
Department of Community Health and WellCare of Georgia,
Inc. for Provision of Services to Georgia Healthy
Families
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8-K
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January 30, 2008
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10.2 |
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10.14
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Separation Agreement and General Release for All Claims
by and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Todd S. Farha
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8-K
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January 31, 2008
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10.1 |
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10.15
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Separation Agreement and General Release for All Claims
by and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Paul Behrens
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8-K
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|
January 31, 2008
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10.2 |
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10.16
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|
Separation Agreement and General Release for All Claims
by and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Thaddeus Bereday
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|
8-K
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|
January 31, 2008
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10.3 |
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10.17
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Employment Agreement effective as of January 25, 2008 by
and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Heath Schiesser
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8-K
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January 31, 2008
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10.4 |
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10.18
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|
Letter Agreement dated January 25, 2008 between WellCare
Health Plans, Inc. and Charles Berg
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|
8-K
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|
January 31, 2008
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10.5 |
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10.19
|
|
Restricted Stock Agreement effective January 25, 2008 by
and between WellCare Health Plans, Inc. and Heath
Schiesser
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|
8-K
|
|
January 31, 2008
|
|
|
10.6 |
|
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|
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|
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|
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|
|
10.20
|
|
Restricted Stock Agreement effective January 25, 2008 by
and between WellCare Health Plans, Inc. and Charles Berg
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|
8-K
|
|
January 31, 2008
|
|
|
10.7 |
|
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|
10.21
|
|
Non-Qualified Stock Option Agreement effective January
25, 2008 by and between WellCare Health Plans, Inc. and
Heath Schiesser
|
|
8-K
|
|
January 31, 2008
|
|
|
10.8 |
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|
10.22
|
|
Non-Qualified Stock Option Agreement effective January
25, 2008 by and between WellCare Health Plans, Inc. and
Charles Berg
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|
8-K
|
|
January 31, 2008
|
|
|
10.9 |
|
|
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|
10.23
|
|
Amendment number 5 to Medicaid Managed Care and Family
Health Plus Model Contract between the New York State
Department of Health and WellCare of New York, Inc.
|
|
8-K/A
|
|
February 1, 2008
|
|
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10.1 |
|
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10.24
|
|
Amendment number 2 to the Department of Community Health
Contract No. 0654, between the Georgia Department of
Community Health and WellCare of Georgia, Inc.
|
|
8-K/A
|
|
February 1, 2008
|
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10.2 |
|
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|
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10.25
|
|
State of Hawaii Contract for Health and Human Services
Competitive Purchase of Services (Contract No.
DHS-08-MQD-5129) by and between the State of Hawaii
Department of Human Services and Ohana Health Plans,
Inc.
|
|
8-K
|
|
February 6, 2008
|
|
|
10.1 |
|
42
|
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|
|
|
|
|
|
|
|
|
|
|
|
incorporated by reference |
Exhibit |
|
|
|
|
|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
|
with SEC |
|
Number |
|
|
|
|
|
|
|
|
|
|
|
10.26
|
|
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
|
|
February 6, 2008
|
|
|
10.1 |
|
|
|
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10.27
|
|
Amendment to Contract No. FA 615 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
|
|
February 6, 2008
|
|
|
10.2 |
|
|
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|
|
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|
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|
10.28
|
|
Amendment to Contract No. FAR001 between the State of
Florida, Agency for Healthcare Administration and
HealthEase of Florida, Inc. (Medicaid Reform 2006-2009)
|
|
8-K
|
|
February 6, 2008
|
|
|
10.3 |
|
|
|
|
|
|
|
|
|
|
|
|
10.29
|
|
Amendment to Contract No. FAR001 between the State of
Florida, Agency for Healthcare Administration and
HealthEase of Florida, Inc. (Medicaid Reform 2006-2009)
|
|
8-K
|
|
February 6, 2008
|
|
|
10.4 |
|
|
|
|
|
|
|
|
|
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|
|
10.30
|
|
Amendment to Contract No. FAR009 between the State of
Florida, Agency for Healthcare Administration and
WellCare of Florida, Inc. d/b/a Staywell Health Plan of
Florida (Medicaid Reform 2006-2009)
|
|
8-K
|
|
February 6, 2008
|
|
|
10.5 |
|
|
|
|
|
|
|
|
|
|
|
|
10.31
|
|
Amendment to Contract No. FAR009 between the State of
Florida, Agency for Healthcare Administration and
WellCare of Florida, Inc. d/b/a Staywell Health Plan of
Florida (Medicaid Reform 2006-2009)
|
|
8-K
|
|
February 6, 2008
|
|
|
10.6 |
|
|
|
|
|
|
|
|
|
|
|
|
10.32
|
|
Amendment to Medicaid Managed Care and Family Health Plus
Model Contract between the City of New York Department of
Health and Mental Hygiene and WellCare of New York, Inc.
|
|
8-K
|
|
February 6, 2008
|
|
|
10.7 |
|
|
|
|
|
|
|
|
|
|
|
|
10.33
|
|
Amendment number 1 to Department of Elder Affairs
Standard Contract (XQ744), between the State of Florida
Department of Elder Affairs and WellCare of Florida, Inc.
|
|
8-K
|
|
February 21, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.34
|
|
Contract (H1657) between the Centers for Medicare &
Medicaid Services and Harmony Health Plan of Illinois,
Inc. d/b/a Harmony Health Plan of Indiana
|
|
8-K
|
|
February 21, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.35
|
|
Amendment number 23 to Purchase of Service Contract
number 093-MED-FCHP-1, (Husky A) between the Department
of Social Services and WellCare of Connecticut, Inc.
|
|
8-K
|
|
March 14, 2008
|
|
|
10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
10.36
|
|
Amendment number 8 to Purchase of Service Contract number
093-HUS-WCC-2 (Husky B) between the Department of Social
Services and WellCare of Connecticut, Inc.
|
|
8-K
|
|
March 14, 2008
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
10.37
|
|
Third Amendment to Credit Agreement, dated as of January
31, 2008, by and among, the Registrant, certain
subsidiaries of the Registrant, certain lenders and
Wachovia Bank, National Association* |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
10.38
|
|
Form of Non-Qualified Stock Option Agreement under
Registrants 2004 Equity Incentive Plan* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
10.39
|
|
Offer letter to Anil Kottoor, dated December 18, 2006* |
|
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|
10.40
|
|
Offer letter to Adam Miller, dated January 17, 2006* |
|
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|
43
|
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|
|
|
|
|
|
|
incorporated by reference |
Exhibit |
|
|
|
|
|
Filing Date |
|
Exhibit |
Number |
|
Description |
|
Form |
|
with SEC |
|
Number |
|
|
|
|
|
|
|
|
|
|
|
10.41
|
|
WellCare Health Plans, Inc. Special Retention Bonus Plan* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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* |
|
|
|
|
|
|
|
|
44