UPDATE: WellPoint ‘surprised’ by Medicare action-WEB ONLY

Claims-payment snafus caused by computer problems are causing fits for WellPoint Inc. – again.

The federal Medicare program told WellPoint it can no longer sign up new customers for the Medicare plans it operates, the company confirmed late yesterday. That’s because its claims-payment problems caused some seniors to be denied payment for their medications, putting their health at serious risk.

Investors reacted with alarm. WellPoint shares were down nearly 10 percent in early trading today.

“WellPoint’s conduct poses a serious threat to the health and safety of both its prospective and current Medicare beneficiaries,” Medicare official Abby L. Block wrote in a letter notifying WellPoint of the sanctions, according to a Bloomberg News report. “The recent failures in WellPoint’s information systems have resulted in beneficiaries not receiving necessary medications at their pharmacies.”

The Indianapolis insurer issued a statement late yesterday saying company officials were “surprised” by the Centers for Medicare and Medicaid Services’ action.

WellPoint has been working with the federal program to resolve ongoing issues, the statement said, and hired an independent third party to provide the Medicare administrator – known as CMS – with ongoing assessments on its progress.

“We have made significant progress in addressing these issues. Our plan is to continue to work with CMS to make improvements as expeditiously as possible and we will continue to put the resources of our company behind this effort to help ensure we can meet the needs of our Medicare members,” the statement said.

This isn’t WellPoint’s first technology-related problem. The company also saw complaints surge last year against its Anthem subsidiaries in Indiana and Ohio because computer issues delayed payments and led to improper denials for doctors serving patients that work for national companies, such as Wal-Mart Stores Inc. and Visteon Corp.

And computer problems in late 2007 led WellPoint to price its policies too low for 2008, which wiped out its expected profit growth for the year. Partly as a result, WellPoint shares lost 52 percent of their value in 2008.

CMS’ Block wrote that WellPoint’s “longstanding and persistent failure to comply” with rules on administering the plans has disrupted enrollment, claims appeals, claims payments and other plan functions.

The problems have persistent for months, but Medicare said it had received a surge of complaints in the past 12 days.

The impact on WellPoint’s business could have been worse.

The open-enrollment period for Medicare plans ended Dec. 31, meaning most patients are settled for the next year. WellPoint claims nearly 1.9 million customers in its Medicare Part D prescription drug plans and another 460,000 in its Medicare Advantage program, which includes both health and drug coverage.

Nationwide, WellPoint claims 35 million customers.

“It isn’t as significant now as it would have been a couple of months ago,” Carl McDonald, an analyst at Oppenheimer & Co., told Bloomberg in a telephone interview.

Earlier, however, analysts were concerned that WellPoint’s computer problems could cause it to lose customers. In October BMO Capital Markets Analyst said he fears WellPoint will continue to lose customers and market share until the end of 2009.

“These companies pay claims,” Dave Shove, a health insurance analyst at BMO Capital Markets in New York, said regarding health insurance companies. “If you don’t get this right, everything else falls apart.”