Shares of WellCare Health Plans sank in early Friday trading, a day after the Tampa, Fla.-based Medicaid managed-care company reported a net loss of $7.5 million for its second quarter compared with net income of $46.9 million in the same quarter last year.
The dramatic swing is largely attributable to its participation in the expanded Florida Medicaid Managed Medical Assistance program, the company said.
WellCare began participating in Florida's expanded Medicaid managed-care program May 1, 2014. It had taken part in a program pilot in the past. WellCare is Florida's largest Medicaid insurer.
The expanded managed-care program could cost the company $75 million for the year, the majority of which is related to prescription-drug expenses, Tom Tran, chief financial officer, said in a call with analysts. Medical expenses for the managed-care program were more than 95% of premiums, he said, well above the norm for other plans.
One of the issues with Florida's plan, from WellCare's perspective, is that it calls for an open formulary for prescription drugs rather than allowing insurers to specify their own formularies. New plan members have gravitated to more expensive name-brand medications rather than generics, boosting expenses. WellCare has added about 500,000 new Florida Medicaid members this year.
"We are disappointed in the second-quarter results and the revised 2014 outlook," said Dave Gallitano, WellCare's chairman and CEO.
WellCare's common stock fell to $61.31 a share, down 20.22% or $15.54 a share, in late-morning trading.
Revenue for the quarter rose to $3.1 billion from $2.3 billion in the same period last year. For the first six months of the year, net income stood at $36.6 million compared with $68.4 million in the same period last year.
The difficult quarter led the insurer to also adjust its earnings outlook for the year, revising it downward to a range of between $2.20 and $2.50 a share from a previous forecast of between $4.40 and $4.75 per diluted share.
Follow John N. Frank on Twitter: @MHJFrank
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