On June 11, a Tampa jury found four former executives of WellCare Health Plans Inc. guilty of several charges, including health care fraud and making false statements to a law enforcement officer. The verdict came at the end of a trial lasting several months. However, it was not a complete victory for the government; the jury acquitted the defendants on some charges and was unable to reach a verdict on others, leading to a mistrial on those charges. Was this case any different from other white-collar cases?
Let’s first take a look at who was involved in the trial. The four defendants and the charges are:
- Former CEO Todd Farha—guilty of two counts of health care fraud
- Former CFO Paul Behrens—guilty of two counts of health care fraud and two counts of making false statements related to health care matters
- Former VP of a WellCare subsidiary William Kale—guilty of two counts of health care fraud
- Former VP of medical economics Peter Clay—guilty of one count of making false statements to a law enforcement officer.
WellCare is a health maintenance organization (HMO) operator. According to its website, WellCare serves about 2.7 million people.
The Familiar Pattern
The matter followed a very familiar trajectory for white collar cases. A civil whistleblower suit under the False Claims Act was filed in 2006 by a WellCare senior financial analyst, and the United States intervened. This case, along with several others alleging health care fraud, was settled in April 2012 for $137 million.
Next came the indictment. The four defendants named above, along with former general counsel Thaddeus Bereday, were indicted in 2011. (Mr. Bereday was severed from the trial and his trial date has not yet been set by the court.)
The defendants were charged with defrauding the Medicare system by failing to refund the government approximately $30 million it was owed. In a nutshell, Florida had a statute mandating that any Florida HMO had to expend 80% of the Medicaid premium paid for certain behavioral health services when it provided those services. If the HMO did not spend the 80% of the premium when it provided the services, the difference had to be returned to the government. WellCare allegedly did not spend all 80% but, rather than returning all the money it should have, submitted inflated expenditure information. The executives supposedly created a separate company to carry out the scheme.
The defense primarily argued the expenditures were legitimate and that the government knew about the strategy used by the company all along but failed to advise them to stop it.
The government used former employees as cooperating witnesses. At trial, one witness was Gregory West, a former WellCare analyst. He pleaded guilty in May 2009 and cooperated with the government. According to the government’s press release after the verdict,
West provided extensive and detailed testimony explaining the complex scheme. Other former WellCare executives provided additional testimony about the four individuals’ roles in the scheme.
The jury began deliberating in mid-May. Clearly, it struggled to reach a verdict, not finishing deliberations until June 11, 2013. The judge gave the jury an unusual 10-day break over Memorial Day weekend but this is still a long time for deliberations, even in a complicated case.
The maximum penalty for each of the health care fraud counts is 10 years in prison. A sentencing date has not yet been set.
What Happened To WellCare?
And what happened to WellCare, given that the fraud supposedly occurred at its very highest levels? It pleaded guilty, right? Nope, it entered into a deferred prosecution agreement (DPA) in 2009. Under the DPA, WellCare was required to pay $40 million in restitution, forfeit another $40 million to the United States and cooperate with the government’s criminal investigation. The company apparently complied and the criminal information was dismissed.
A company spokesman assures us that this will never happen again:
Today, WellCare is a transformed company. Since 2007, WellCare’s management has worked tirelessly to remediate the issues identified in the investigation and strengthen the company’s compliance function. In addition, we have made significant changes to the governance of our company to help ensure that this never happens again.
The Deck Is Stacked Against Corporate Executives
This case illustrates the common pattern in white collar cases. A company is accused of serious wrongdoing, along with its executives. The company cooperates, leaving the individuals to face the charges alone. The government pressures a few lower-level employees to cooperate in return for a plea deal and then uses those employees to convict the executives. It is always the executives who are left holding the bag.
I certainly don’t blame the company for entering into the DPA. The government can put incredible pressure on corporations and, like WellCare, they have an obligation to their shareholders and employees to resolve the matter as quickly as possible. That’s just the way the game is played. I’d tell my corporate clients to do the same thing.
In a way, I suppose, the pattern makes sense. We need health care companies like WellCare to provide services, so the government is willing to punish them but not when it results in putting them out of business (such as by debarring them from government work including Medicare). The executives are a whole different situation. The government has no qualms about dismissing charges against the company but continuing the case against the corporate executives. I’ve written before about DOJ’s propensity to charge individuals and not corporations.
It seems unfortunate, however, that the company can claim it is a “transformed company” to avoid being convicted and go about its business. Meanwhile, its executives go to jail.