OKLAHOMA CITY --
is starting to resemble the beleaguered
Both health care companies ranked as stock-market superstars until high-profile government raids killed their popularity. Moreover, both touted strong compliance programs that failed to protect them in the end.
Just as Tenet once did, WellCare relies on the same person to defend the company as it does to keep it in line. Thaddeus Bereday doubles as WellCare's general counsel and its chief compliance officer.
For its part, WellCare says that it combines the two roles "to ensure that compliance is always represented at the senior management level." WellCare further stresses that its independent auditors and "various regulatory partners" review the company's compliance program on a regular basis.
But when Christi Sulzbach filled both of those posts at Tenet, she came under attack by powerful critics before losing her job and ultimately becoming the target of a government investigation.
"Apparently, neither Tenet nor Ms. Sulzbach saw any conflict in her wearing two hats as Tenet's general counsel and chief compliance officer," U.S. Senate Finance Committee Chairman Chuck Grassley complained when announcing an investigation of Tenet four years ago. "As general counsel, she zealously defended Tenet against claims of ethical and legal noncompliance ... while as chief compliance officer, she supposedly ensured compliance by Tenet's officers, directors and employees.
"It doesn't take a pig farmer from Iowa to smell the stench of conflict in that arrangement."
The government wound up slapping Tenet with a huge fine before singling out Sulzbach for a new investigation this fall. Meanwhile, five years into an elusive "turnaround," Tenet itself continues to pay dearly for the wrongdoing that occurred on Sulzbach's watch.
Notably, Tenet's downfall began with an FBI raid of just one of its hospitals. Despite that narrow focus, however, analysts felt uneasy from the start.
"I think it surprised me just to see the sheer number of federal agents that descended on the hospital -- 44, I gather," one analyst noted in a conference call at the time. Added another: "To me, it seems interesting and almost overkill that there are 40 or so FBI agents who have landed in your facilities for two physicians who might be doing some procedures that are not, you know, customary and regular."
In the end, of course, Tenet faced a much broader investigation covering virtually every aspect of its operations.
Now, WellCare has been stung by an even larger raid -- with an estimated 200 government agents swarming its corporate headquarters -- and has offered no clues about the scope of the investigation. But investors have to be worried.
If nothing else, Bearn Stearns analyst John Rex says, "One has to be daunted by the massive force utilized and implied gravity" of the mysterious WellCare probe.
"Most of the fraud issues in health care services over the past decade have generally been with the facilities companies, and after fines and executive firings, the companies did continue to operate," notes Rex, whose firm seeks to do business with the companies it covers. "However, that business is about buildings, equipment and -- from a regulator perspective -- assuring community access to care."
In contrast, he adds, managed-care companies "have almost nothing in the way of fixed assets.
So there are 'go-to-zero' scenarios for these stocks."
For now, Rex is maintaining a peer-perform rating on WellCare shares. The stock, up 45 cents to $34.20 on Friday, has lost roughly 70% of its value since the sweeping government raid less than one month ago.
'The Trust Program'
After Tenet faced its own raid, the company tried to comfort investors by highlighting its "nationally renowned" compliance program.
"We have a compliance program that's recognized throughout our industry," boasted then-CEO Jeffrey Barbakow, who would later leave the company in disgrace. "We pride ourselves at Tenet on our high ethical standards and the way in which we conduct our business. It is part of who we are."
WellCare, too, expressed a "strong commitment" to its compliance program when questioned for this story. Moreover, the company said that it has actually enhanced that program with new marketing safeguards in recent months.
Otherwise, however, WellCare has said very little -- even canceling the question-and-answer segment of this month's quarterly conference call -- since the late-October raid on its headquarters.
Still, WellCare has loudly promoted "The Trust Program" in the past. This spring, in fact, WellCare issued a press release reminding investors that its Trust program was "designed to ensure full compliance with applicable laws and regulations (and) to establish a culture of integrity and trust" within the company. In both that press release and another that soon followed, Bereday personally promised that WellCare has "zero tolerance" for wrongdoing.
WellCare takes a similarly tough stand in guidelines issued to employees.
"The Trust Program, federal and state laws and WellCare's high standards of business ethics will be enforced, suspected violations will be investigated and violations will be corrected all in a fair manner -- regardless of the suspected violator's position within WellCare," the company guidelines state. "It is essential that WellCare engage in an active program of preventing, detecting and reporting all suspected incidents of fraud or abuse.
"When in doubt, WellCare directors, associates and business partners are encouraged to seek guidance from the chief compliance officer or his designee."
But that officer has stirred up some concerns of his own. Together with other WellCare leaders, including CEO Todd Farha, Bereday dumped large chunks of WellCare stock on its meteoric rise past $100 a share. Under a prearranged trading plan, Bereday was selling stock at least twice a month for a year until October's collapse. WellCare has since halted executive trading in the shares.
Meanwhile, investors have grown increasingly alarmed. Some feel clear distrust for WellCare's "Trust" program and its leader alike.
"Their compliance program ... is paper thin and is really for show," one critic insists. Moreover, "Bereday has had a history of ignoring repeated compliance issues in order to please Farha and to support the company's rapid growth."
Whatever the case, one former WellCare insider -- charged with detecting fraud inside the company -- apparently went to the authorities instead.
On Oct. 25, one day after the raid took place, Clark Bolton filed a "whistleblower" lawsuit against the company. Before that, Bolton supervised WellCare's special investigations unit. Even after his termination from WellCare on Oct. 1, Bolton continued to represent the company in that same capacity at a mid-October conference on forensic accounting.
WellCare has not yet seen Bolton's lawsuit and said it feels uncomfortable speculating about its contents. Moreover, citing a policy against disclosing personnel matters, WellCare declined to say why Bolton left the company and -- even more curiously -- why he offered a company presentation even after that.
Analysts feel baffled, to say the least.
"The details of Bolton's accusation are unknown, given the file is under seal, but what has come to light about the circumstances of the complaint is, in our opinion, bizarre," Credit Suisse analyst Gregory Nersessian wrote earlier this month. "If Bolton was aware of fraud at the time of this presentation (eight days before the raid and nine days before his whistleblower suit was filed), why did he participate on WellCare's behalf?"
Regardless, Nersessian added, "If Bolton's case is related to the investigation ... his background would suggest that there is substantial basis for regulatory involvement."
Bolton's credentials do look impressive. He is a certified fraud examiner and compliance professional who has served as an adjunct faculty member in the criminal justice department at Rochester Institute of Technology. Moreover, he has 16 years of investigation experience, with most of that focused on the health care arena.
Knowing all of this, WellCare investors must now ask themselves a tough question: Is Bolton embracing the same philosophy that he adopted at WellCare, when running its special investigations unit, now that he's pursuing the company instead?
If so, two slides from his recent presentation could prove haunting. In one, he stresses the importance of building strong cases that can go all the way to trial and win. In another -- possibly suggesting the power of his own complaint -- he says quite simply, there are "too many cases to work bad ones."