HEALTH PLANS: WellCare killing healthcare? With help?

There’s been enough bad behavior in Medicare private health plans to go around, but some of the worst behavior has come from private FFS plans, and some of the worst behavior of all has come from WellCare, a Medicaid and Medicare plan in Florida. Last Wednesday the FBI raided Wellcare, with allegations of fraud and presumably a qui tam suit in the works. And since then the stock is down some 70%.

Just another story of another private organization pushed by Wall Street to over plunder Medicare? After all I’ve been writing about why Wall Street Hates Healthcare Services But Doesn’t Know It for years. (Apparently George Soros, who, despite his liberal foreign policy leanings, isn’t above making the odd buck or two, made out like a bandit from Wellcare).

Well almost, but then there’s one little wrinkle.

Because there are also others apart from the single-payer advocates who don’t like health plans. In fact one prominent consumer advocate from her lofty ivory tower has proclaimed health insurers as one of those who’ve been “killing” healthcare.

Who killed healthcare?

Regina E. HerzlingerPosted 09/07/2007 (Medscape)

We turn over $2.2 trillion of our money each year to those who manage our healthcare, without holding them accountable for efficiency or quality. Not surprisingly, these folks — hospitals, insurers, governments — they use the money to benefit themselves. Jack Morgan, the insured, middle-class protagonist in Who Killed Health Care? was killed by this system.

Insurers, hospitals, and governments have gotten fat on our bloated healthcare costs, which kill the competitiveness of US firms.


That’s my opinion. I’m Professor Regina Herzlinger of the Harvard Business School.

But funnily enough, there must have been something different between WellCare and those other “insurers” that were “getting fat on our bloated healthcare costs”. Different enough that Regina Herzlinger allowed herself to be appointed to the WellCare board in 2003.

Dr. Herzlinger said, “WellCare is a case study of a successful
public-private partnership, and a model for delivering quality
affordable healthcare. Over the years to come, companies like WellCare
that reach out to members with information, wellness planning and
screenings will be agents of change in the delivery of managed care
under government programs.”

So let’s guess what’s happened since then. Was she able to predict the future? The WSJ HealthBlog reports that (in what are of course claimed to be “regularly scheduled sales”):

Since July, CEO Todd Farha has sold $8.8 million worth of stock,
general counsel Thaddeus Bereday has sold $4.2 million and CFO Paul
Behrens has sold $2.1 million, according to figures from Thomson
Financial cited by the WSJ. Regina Herzlinger, who serves on the
company’s board of directors, sold $2.3 million worth of shares in

Good to know that while the typical HBS Professors’ record of failure to understand incentives in
health care continues unabated, at the least the same cannot be said
about their understanding of incentives in personal finance.

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5 replies »

  1. For me it’s hard to believe that money required for the area of health services can be stolen by anyone. I can’t even imagine how people can do so.

  2. The irony of the entire Wellcare situation is that it was originally identified, conceptually sold and brokered as part of a broader national Medicaid HMO roll-up play. The goal: drive efficiencies into government healthcare programs through consolidation and by eliminating administrative and technological redundancies and waste. Not only only did they hire a perennial industry loser without a successful track record to run the place they cashed out prior to making any real impact in the HMO marketplace. To top it all off…they screwed the family member that made it all possible for them!!!

  3. Ian Morrison ‘s Institute for the Future book, Healthcare In The New Millenium, was thought ,by some, to have substantial similarities with my book, Market-Driven Health Care. Ian Morrison graciously acknowledged that although he had read my book ,there were no similarities. Fair enough–let the reader judge.
    But ,Matthew Holt , who was some sort health care researcher at the Institute for The Future, has learned neither Ian’s work habits nor his graciousness.
    Holt, a health care blogger, also offers his services for “quick and dirty “ consulting jobs . In his ill-informed blog on my newest book, Who Killed Health Care?, and his smear of my ethics in my role as a Director of the firm WellCare and faculty member of the Harvard Business School, Holt demonstrates the aptness of his self-described work habits: he is indeed a “quick” ,careless researcher who does “dirty” work.
    Holt implies that I am hypocritical in attacking health insurers in my book while serving on the board of directors of a health insurance firm and somehow links this up with the Harvard Business School ; but it is clear from his little rant that he has not read more than a few pages of my book and is inflamed by other passion than the search for intellectual integrity.I cannot devine other’s motives,but it looks like the poor guy is jealous of what he presumes to be my fame and fortune .
    Unlike Holt ,my work is not informed by consulting, whether quick and dirty or any other kind. Instead, I base my writings on my health care research ,case writing,lecturing, and directorship activities. In Who Killed Health Care?, I use this knowledge to excoriate some health insurers for their cupidity, callousness, and lack of innovation, but I also present them as a key component of the future U.S. health care system and laud one for the brilliance of its management. To protect us, I urge an SEC like agency to ensure the kind of transparency in health care that we have elsewhere in the economy; but clearly Holt did not get that far in the book…

  4. The reason is that Wall Street can’t understand the “business” of healthcare is because health care doesn’t operate the way most businesses do.
    A cell-phone company, for instance, makes several different models of cellphone. The basic does what a phone should do—dials and receives calls—and not much else. It’s often free with a new service contract.
    The next model up has a few bells and whistles—literally—and can maybe take pictures. It isn’t free, but it doesn’t cost much.
    The high-end model surfs the Web, works with personal and workplace email, allows for custom ringtones and also works as a walkie-talkie. It costs a good bit more.
    The company makes money in the first case because of its agreement with the service provider; even though the phones don’t make a profit, the referral to, say, AT&T garners the phone maker a fee. In the second case—the middle phone—there’s some profit off the phone itself, enough to put a few cents in the bank, and the same referral fee. In the last case, there’s a tidy profit off the high-end phone and, likely, a bigger fee from the service provider (because now we’re talking text-messaging and web access).
    The manufacture, sale, and service agreements are all standard; the company knows what it will gain from each transaction and can predict its business outcomes with some certainty.
    In healthcare, there’s no real predictability. Patient 1 might do great with the minimal basic treatment—diuretics for high blood pressure, say—and patient 2 might have a heart attack. Often there is no knowledge that could have helped indicate why patient 2 did so badly on the same regimen—or patient 1 so well—and the profit/loss ratio is as unpredictable. (Patient 2 may have started out as cheaply as patient 1, but the added hospitalization and after-care costs will be huge.)
    And even if you try the high-end-for-all model, there’s a greater risk with more treatment and more drugs of side effects and “unexpected outcomes.” The “best” care available might backfire; unknown genetic conditions or previous care the patient didn’t disclose can mean the tests, drugs, constant monitoring and regular BP checks will stress the patient to the point of a heart attack.
    There is no possible “business model” for a product that affects everyone differently and which has vastly differing efficacy based on unpredictable factors.
    It ain’t a widget.