United States v. Clay

• Decision Date: 11 August 2016
• Docket Number: No. 14-12373,14-12373
• Parties: United States of America, Plaintiff–Appellee, v. Peter E. Clay, Todd S. Fahra, Paul L. Behrens, William L. Kale, Defendants–Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

832 F.3d 1259

United States of America, Plaintiff–Appellee,

v.Peter E. Clay, Todd S. Fahra, Paul L. Behrens, William L. Kale, Defendants–Appellants.

No. 14-12373

United States Court of Appeals, Eleventh Circuit.

Date Filed: August 11, 2016

Karin Bethany Hoppmann, Natalie Hirt Adams, Arthur Lee Bentley, III, Cherie Krigsman, Josephine W. Thomas, Jay Gilchrist Trezevant, U.S. Attorney's Office, Tampa, FL, John J. Bowers, U.S. Securities & Exchange Commission, John Andrew Michelich, U.S. Department of Justice Criminal Division, Fraud Section, Washington, DC, for Plaintiff–Appellee–Cross Appellant.

Lawrence Robbins, Donald Burke, Daniel Noah Lerman, Mark Thomas Stancil, Robbins Russell Englert Orseck Untereiner & Sauber, LLP, Washington, DC, William Jung, Paul M. Sisco, Jung & Sisco, PA, Tampa, FL, for Defendant–Appellant.

Jeffrey A. Lamken, Michael Gregory Pattillo, Jr., MoloLamken, LLP, Washington, DC, John F. Lauro, Michael Gregory Califano, Todd J. Cooper, Lauro Law Firm, Michael Patrick Matthews, Lauren Lisette Valiente, Foley & Lardner, LLP, Tampa, FL, Gregory Robert Miller, Beggs & Lane, RLLP, Pensacola, FL, for Defendant–Appellant–Cross Appellee Paul L. Behrens.

Alan E. Schoenfeld, Wilmer Cutler Pickering Hale & Dorr, LLP, New York, NY, Seth Paul Waxman, Wilmer Cutler Pickering Hale & Dorr, LLP, Lenard Barrett Boss, Cozen O'Connor, Washington, DC, Peter Erik George, Douglas J. Titus, Jr., Laura Vaughan, George & Titus, PA, Tampa, FL, Gregory Robert Miller, Beggs & Lane, RLLP, Pensacola, FL, for Defendant–Appellant–Cross Appellee Todd S. Farha.

Lauri Elizabeth Cleary, James Bradford McCullough, Stanley James Reed, Lerch Early & Brewer, Chtd., Bethesda, MD, Patrick Michael Donahue, Wise & Donahue, Annapolis, MD, Robert A. Leventhal, Robert A. Leventhal, PA, Orlando, FL, Gregory Robert Miller, Beggs & Lane, RLLP, Pensacola, FL, Larry Allen Nathans, Nathans & Biddle LLP, Baltimore, MD, for Defendant–Appellant–Cross Appellee William L. Kale.

William Newton Shepherd, Holland & Knight, LLP, West Palm Beach, FL, for Amici Curiae National Association of Criminal Defense Lawyers, Reason Foundation, Five Criminal and Health Law Scholars.

Before TJOFLAT and HULL, Circuit Judges, and HALL,^* District Judge.

HULL, Circuit Judge:

In this Medicaid fraud case, defendants Todd Farha, Paul Behrens, William Kale, and Peter Clay appeal their convictions on multiple grounds, including insufficient evidence, evidentiary errors, and improper jury instructions. At the time of the fraud, the defendants were all high-level executives of WellCare Health Plans, Inc. (“WellCare”) or one of its two Florida subsidiaries. Those subsidiaries were WellCare of Florida, Inc. doing business as Staywell Health Plan of Florida (“Staywell”) and HealthEase of Florida, Inc. (“HealthEase”).

At trial, the government proved that together the defendants participated in a fraudulent scheme to file false Medicaid expense reports that misrepresented and overstated the amounts Staywell and HealthEase spent on medical services for Medicaid patients, specifically outpatient behavioral health care services. By overstating these expenses, the defendants helped Staywell and HealthEase retain millions of dollars in tax-subsidized Medicaid funds that they should have refunded to the Florida Agency for Health Care Administration (“AHCA”). This, in turn, inflated the profits of Staywell, HealthEase, and WellCare and earned the defendants financial rewards. The jury found Farha, Behrens, and Kale guilty on two counts of substantive health care fraud and found Behrens and Clay guilty on two counts of making false representations or statements.

After reviewing the extensive trial record and with the benefit of oral argument, we affirm the defendants' convictions.

I. PROCEDURAL HISTORY

A. Indictment

On March 2, 2011, a federal grand jury in the Middle District of Florida returned an 11-count indictment against defendants Farha, Behrens, Kale, and Clay. The defendants were executives at WellCare, a publicly-held corporation headquartered in Tampa, Florida. Todd Farha was CEO and President of WellCare and one of its directors. Farha assumed leadership at WellCare in July 2002. Paul Behrens was CFO. Behrens joined WellCare in September 2003. Both Farha and Behrens held similar positions with Staywell and HealthEase, WellCare's two subsidiaries. William Kale was Vice President of Clinical Services at WellCare. Kale joined WellCare in the fall of 2002. Peter Clay joined WellCare in April 2005 as Vice President of Medical Economics and reported to Behrens.

Count 1 of the indictment charged the defendants with conspiracy to defraud the United States, to make false statements relating to health care matters, and to commit Medicaid health care fraud from 2003 through 2007, in violation of 18 U.S.C. § 371.¹ Counts 2 through 5 charged the defendants with making false statements in Medicaid health care expense reports submitted to state officials, in violation of 18 U.S.C. §§ 1035 and 2. Counts 2 and 3 covered the calendar year (“CY”) 2005 reports, and Counts 4 and 5 covered the CY 2006 reports.²

Counts 6 through 9 charged the defendants with Medicaid health care fraud, in violation of 18 U.S.C. §§ 1347 and 2. Counts 6 and 7 covered CY 2005, and Counts 8 and 9 covered CY 2006.

Counts 10 and 11 charged Clay with making false statements to federal agents in 2007, in violation of 18 U.S.C. § 1001.

B. Jury Verdict

After a trial lasting almost three months, the jury returned a mixed verdict. It was unable to reach a verdict as to any defendant on Count 1, the conspiracy charge. The jury acquitted the defendants of Counts 2 and 3, involving the CY 2005 expense reports. As to Counts 4 and 5, involving the CY 2006 expense reports, the jury convicted Behrens, acquitted Farha, and was unable to reach a verdict as to Clay and Kale. As to Counts 6 and 7, involving the health care fraud in CY 2005, the jury acquitted Farha and Kale, and was unable to reach a verdict as to Behrens and Clay.

As to Counts 8 and 9, involving the health care fraud in CY 2006, the jury convicted Behrens, Farha, and Kale, but was unable to reach a verdict as to Clay. As to Counts 10 and 11, the jury convicted Clay of making false statements to federal agents in 2007.

In sum, Behrens was convicted of Counts 4 and 5, making false statements in the Medicaid CY 2006 reports, in violation of 18 U.S.C. §§ 1035 and 2; Behrens, Farha, and Kale were convicted of Counts 8 and 9, Medicaid health care fraud in CY 2006, in violation of 18 U.S.C. §§ 1347 and 2; and Clay was convicted of Counts 10 and 11, making false statements to federal agents in 2007, in violation of 18 U.S.C. § 1001.

After trial, the defendants filed renewed Rule 29(c) motions for judgment of acquittal, which the district court denied. The district court eventually dismissed all counts on which the jury was unable to reach a verdict.

C. Sentences

The district court sentenced the defendants well below their advisory guidelines ranges. The district court sentenced: (1) Farha to three years' imprisonment on Counts 8 and 9 (to run concurrently), two years' supervised release, and a $50,000 fine; (2) Behrens to two years' imprisonment on Counts 4, 5, 8, and 9 (to run concurrently) and two years' supervised release; (3) Kale to a prison term of one year and one day on Counts 8 and 9 (to run concurrently) and two years' supervised release; and (4) Clay to five years' probation on Counts 10 and 11 (to run concurrently), 200 hours of community service, and a $10,000 fine. Farha and Clay paid their fines.

The defendants appeal their convictions, primarily challenging the sufficiency of the evidence. We thus recount the trial evidence in great detail.

II. MEDICAID PROGRAM IN FLORIDA

The Medicaid program is a cooperative federal and state health care benefit program, which assists states in paying for and providing medical services to qualifying, often disabled or low-income, individuals and families. While the program is jointly run, the federal government provides most of the funding. As part of the U.S. Department of Health and Human Services, the Centers for Medicare & Medicaid Services (“CMS”) authorizes and administers the states' Medicaid programs. The states must regularly report to CMS regarding their expenses and operations. If a state Medicaid program does not expend all of its federal money in a given reporting cycle, the state must refund that money to the federal government.

In Florida, AHCA administers the state Medicaid program. AHCA contracts with a variety of private health care companies, known as managed care organizations or health maintenance organizations, such as Staywell and HealthEase, to pay health care providers for the care delivered to Medicaid patients. For our purposes, we refer to these entities as HMOs.

Medicaid and, in turn, AHCA cover medical and behavioral health care services. This case involves expense reports for only two types of outpatient behavioral health care services: (1) Community Mental Health (“CMH”) services, and (2) Targeted Case Management (“TCM”) services. We refer to them as “CMH/TCM” services.³

A. AHCA Contracts

Staywell and HealthEase operated under contracts with AHCA to cover medical and behavioral health care services for Medicaid enrollees. Staywell and HealthEase received a monthly premium from AHCA. AHCA calculated the premium, which is sometimes called a “capitation” payment, based on the number of Medicaid patients Staywell and HealthEase covered. For each covered member, AHCA paid a flat, capitated rate, known as a per-member-per-month or “PMPM” payment. This flat capitated rate was based on the estimated cost of providing a typical Medicaid patient's needed health care services and did not vary based on Staywell's and HealthEase's actual costs for covered members.

This capitation system allowed AHCA to shift risk to Staywell and HealthEase. If Staywell and HealthEase on average spent more per enrolled Medicaid patient than the...