United States v. Peter E. Clay , 832 F.3d 1259 ( 2016 )

Case: 14-12373 Date Filed: 08/11/2016 Page: 1 of 124
[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-12373
________________________
D.C. Docket No. 8:11-cr-00115-JSM-MAP-5
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
PETER E. CLAY,
TODD S. FAHRA,
PAUL L. BEHRENS,
WILLIAM L. KALE,
Defendants-Appellants.
________________________
Appeals from the United States District Court
for the Middle District of Florida
________________________
(August 11, 2016)
Before TJOFLAT and HULL, Circuit Judges, and HALL, * District Judge.
*
Honorable J. Randal Hall, United States District Judge for the Southern District of
Georgia, sitting by designation.
Case: 14-12373 Date Filed: 08/11/2016 Page: 2 of 124
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.
2
Case: 14-12373 Date Filed: 08/11/2016 Page: 3 of 124
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
1
The indictment also charged Thaddeus Bereday, WellCare’s general counsel and a
Senior Vice President. Bereday’s case was severed and is not at issue here.
3
Case: 14-12373 Date Filed: 08/11/2016 Page: 4 of 124
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.
2
Since WellCare made submissions for both Staywell and HealthEase each calendar year,
the defendants were charged separately for submissions made on behalf of each company. For
Counts 2 through 9, the even counts pertained to Staywell and the odd counts pertained to
HealthEase. For purposes of our analysis, these distinctions do not matter since each defendant’s
conduct generally related to both companies. We consider each of the pairings—Counts 2 and 3,
Counts 4 and 5, Counts 6 and 7, and Counts 8 and 9—together.
4
Case: 14-12373 Date Filed: 08/11/2016 Page: 5 of 124
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
5
Case: 14-12373 Date Filed: 08/11/2016 Page: 6 of 124
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
6
Case: 14-12373 Date Filed: 08/11/2016 Page: 7 of 124
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.
3
CMH services are provided at a Community Mental Health Center and include certain
medical, psychiatric, behavioral health therapy, community support and rehabilitation,
therapeutic behavioral on-site day treatment, crisis intervention, and substance abuse services.
TCM is intensive outpatient care provided by certified personnel trained to provide one-
on-one life-coordination services, including home visits, to high-risk patients with severe
emotional or mental conditions.
7
Case: 14-12373 Date Filed: 08/11/2016 Page: 8 of 124
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 capitated rate, they would incur a loss. But if they spent
less, they made a profit. In theory, AHCA was incentivizing Staywell and
HealthEase to provide preventive care to decrease total health care costs.
Staywell and HealthEase used different methods to provide behavioral
health care services to patients. Staywell contracted directly with health care
providers. Staywell reimbursed some providers on a fee-for-service basis but paid
other providers a flat sub-capitated rate for each patient treated.
HealthEase, on the other hand, subcontracted with CompCare, an
independent behavioral health organization (“BHO”) with a network of providers.
HealthEase paid CompCare a sub-capitated rate per enrolled patient, and, in turn,
CompCare subcontracted with its network’s providers to treat HealthEase’s
Medicaid patients. A sub-capitation arrangement with a subcontractor mirrors a
capitation arrangement, but the rate is lower and the suite of covered services is
generally more limited.
As of July 1, 2002, AHCA’s contracts started requiring coverage for the two
types of outpatient behavioral health care at issue here, CMH/TCM services.
AHCA identified what particular services would qualify as CMH/TCM services in
two coverage and limitations handbooks.
8
Case: 14-12373 Date Filed: 08/11/2016 Page: 9 of 124
In exchange for this new coverage obligation, AHCA increased the capitated
rate for behavioral health care. AHCA piloted the CMH/TCM program in a
limited geographic area (called Areas 1 and 6) that included Pensacola and Tampa.
For reporting purposes, AHCA notified Staywell and HealthEase each year what
portion of the capitation payment was intended to cover CMH/TCM services.
B. Florida’s 80/20 Rule
CMH/TCM services were a very profitable part of Staywell’s and
HealthEase’s business. But those profits were threatened when Florida enacted
restrictions on companies that received Medicaid money.
Effective June 7, 2002, Florida amended its Medicaid statute as to
“comprehensive behavioral health care services.” This amendment, which created
the “80/20 rule,” was intended to ensure that most Medicaid money was spent on
patients’ medical treatment rather than yielding high profits for HMOs. 2002 Fla.
Laws 4662, 4693-94. To achieve this goal, the 80/20 rule required AHCA to
include in its contracts a requirement that an HMO spend at least 80% of its
capitation payment on providing behavioral health care services. If an HMO spent
less than 80% of the premium on behavioral health care services, the HMO was
required to refund the difference to AHCA. An HMO could retain no more than
20% of the premium for administrative costs, overhead, and profit. The 80/20 law
read as follows:
9
Case: 14-12373 Date Filed: 08/11/2016 Page: 10 of 124
To ensure unimpaired access to behavioral health care services by
Medicaid recipients, all contracts issued pursuant to this paragraph
shall require 80 percent of the capitation paid to the managed care
plan, including health maintenance organizations, to be expended for
the provision of behavioral health care services. In the event the
managed care plan expends less than 80 percent of the capitation paid
pursuant to this paragraph for the provision of behavioral health care
services, the difference shall be returned to the agency.
Fla. Stat. § 409.912(4)(b) (2006).
Upon the amendment’s enactment, AHCA’s contracts with Staywell and
HealthEase imposed the 80/20 rule on only premium money for outpatient
behavioral health care services, specifically CMH/TCM services. AHCA required
Staywell and HealthEase annually to submit expense reports certifying that 80% of
the AHCA premium was spent on CMH/TCM services. To facilitate and
standardize expense reporting, AHCA annually provided Staywell and HealthEase
with a spreadsheet template (the “Worksheet”). The Worksheet was designed to
calculate the portion of the premium Staywell or HealthEase spent on CMH/TCM
treatment that year and the amount of any refund due to AHCA.
To illustrate the expense-reporting process, we discuss Staywell’s
Worksheet for CY 2006. The Worksheet had five line items: (1) AHCA’s
CY 2006 capitation payment to Staywell for CMH/TCM services; (2) the total
amount Staywell spent on CMH/TCM services in CY 2006; (3) the ratio of line 2
to line 1, expressed as a percentage; (4) the difference between line 3 and the 80%
10
Case: 14-12373 Date Filed: 08/11/2016 Page: 11 of 124
minimum ratio; and, (5) if line 3 was less than 80%, the refund Staywell owed
AHCA to reach the 80% minimum. The Worksheet for CY 2006 appears below:
The Worksheet referenced the 80/20 rule and instructed Staywell that the purpose
of the Worksheet was to determine whether it had spent at least 80% of its
premium on “only” CMH/TCM services, stating:
Pursuant to Section 409.912(4)(b), F.S., managed care entities that
provide behavioral health services must expend at least eighty (80)
percent of the capitation paid by the Agency on those services,
defined as community mental health and targeted case management
services only. If less than eighty (80) percent of the capitation is
expended on these services, the entity shall return the difference to the
Agency.
(emphasis added). The Worksheet required Staywell’s CEO or President to certify
the accuracy of Staywell’s reported expenses.
When AHCA sent the Worksheet to Staywell or HealthEase, AHCA had
already filled in line 1, identifying how much premium money AHCA had paid
11
Case: 14-12373 Date Filed: 08/11/2016 Page: 12 of 124
them for CMH/TCM services. All Staywell and HealthEase had to do was fill in
their actual expenses on line 2. The rest of the calculations automatically flowed
from those two numbers. This case concerns the defendants’ fraudulent reporting
of false and inflated expenses on line 2 to keep Staywell and HealthEase from
having to pay larger refunds.
In July 2002, shortly after the 80/20 rule took effect, Farha joined WellCare
as CEO. Later that fall, Farha’s team acquired Staywell and HealthEase. During
Farha’s tenure, Farha signed several amendments to the Staywell and HealthEase
contracts with AHCA, wherein Farha as CEO repeatedly agreed to the contracts’
underlying terms.
C. Profit and Refund Studies
In the spring of 2003, Farha asked WellCare actuary Todd Whitney to
analyze Staywell’s and HealthEase’s profitability as to their Medicaid components.
On May 7, 2003, Whitney emailed Farha a spreadsheet titled “FL Medicaid
Projected Behavioral Health Profit.” The spreadsheet tracked what Whitney called
the “contribution margin,” that is, premium revenue for behavioral health minus
Medicaid claim costs. Whitney’s calculations revealed how much of the premium
payment Staywell and HealthEase kept for administrative costs, overhead, and
profit after paying medical claims.
12
Case: 14-12373 Date Filed: 08/11/2016 Page: 13 of 124
As to Staywell, Whitney’s calculations showed that, after paying all
CMH/TCM claims, in some areas of Florida Staywell was keeping approximately
70% of its premium money for administration, overhead, and profit (much more
than the 20% that the 80/20 rule allowed). For CMH/TCM claims, Staywell’s
most profitable area was Area 6, in which Staywell received $15.00 per-member-
per-month (“PMPM”) but paid on average only $4.69 PMPM. In Area 6, Staywell
paid only 31.3% of its premium on CMH/TCM claims and retained the remaining
68.7% for administration, overhead, and profit. Given Staywell’s total
membership in Area 6, Staywell’s annual contribution margin in Area 6 was
$5,925,691, almost double its margin in all other areas of Florida combined.
HealthEase had similar results.
Staywell’s and HealthEase’s large contribution margins for Areas 1 and 6
were due to the much higher capitated rates of $15.00 PMPM that AHCA paid for
Areas 1 and 6, as opposed to $4.00 PMPM for all other areas. The additional
$11.00 PMPM more than made up for the marginal increase in claim costs in Areas
1 and 6, the areas where AHCA required coverage of CMH/TCM services.
WellCare executives quickly recognized the implications of Florida’s new
80/20 rule. As early as February 2003, Kale circulated an email expressing
concern about WellCare’s “potential exposure regarding the new requirement that
Medicaid HMO’s must expend 80% of the capitation for [CMH/TCM] services.”
13
Case: 14-12373 Date Filed: 08/11/2016 Page: 14 of 124
Kale projected a potential refund to AHCA of almost $6.5 million (enough to
dramatically reduce WellCare’s large behavioral health care profits).
Thereafter, Whitney evaluated various refund scenarios for Staywell and
HealthEase in Areas 1 and 6. The scenarios considered different definitions of
CMH/TCM expenses. From July 2002 through September 2003, based on a strict
definition of CMH/TCM expenses, Staywell had spent just 23% of its premium on
CMH/TCM expenses and would have to pay back as much as $6,289,863. In the
best case scenario, based on a looser definition of CMH/TCM expenses, Staywell
had spent just 36% on CMH/TCM expenses and would have to pay back at least
$4,803,645, or $400,000 per month.
D. Creating New Subsidiary
In light of the size of the potential refunds, WellCare began setting up a
scheme to evade the 80/20 rule and keep its large profits. Under the scheme:
(1) WellCare would create a new wholly-owned subsidiary; (2) Staywell and
HealthEase would transfer their provider contracts to the new subsidiary;
(3) Staywell and HealthEase would each pay 85% of their premium received for
CMH/TCM services to WellCare’s new subsidiary; and (4) the new subsidiary
would continue to pay the much smaller portion of the premium for CMH/TCM
services. This structure would enable Staywell and HealthEase to report expenses
in excess of 80%, while the new subsidiary would continue to pay only 45% or less
14
Case: 14-12373 Date Filed: 08/11/2016 Page: 15 of 124
directly to providers. Under the scheme, WellCare would preserve its large profit
margins in these two types of behavioral health care services in spite of the new
80/20 rule.
The defendants began planning for the new subsidiary at least as early as
mid-2003. On July 16, 2003, Farha emailed Kale stating, “[W]e really need to
think about how to setup a BH [behavioral health] subsidiary, that will be capped
at 80% of premium.” Kale responded, “OK Todd…”
By the fall of 2003, Farha grew impatient with the slow progress of
implementation. On September 17, 2003, Farha sent an email to Kale with a
subject line reading, “Status of BH Subsidiary / Need update.” Kale responded
that the incorporation documents for the new subsidiary, “WellCare Behavioral
Health, Inc. (WCBH),” were near completion and that outside counsel would begin
drafting contracts for Staywell and HealthEase to subcontract with WCBH. Kale
also explained that “a subsidiary corp is necessary for our Areas 1 & 6 programs”
but that this “would change if the State would somehow repeal the 80% . . .
requirement . . . .” Farha imposed a deadline: “Bill, Given the stakes involved
(potentially 400k/Month of giveback), the pace of this project is not acceptable.
We must execute these intercompany contracts asap, and get this subsidiary
operating by 10/1. Why would we delay and increase the amount of our potential
giveback? We must finalize this.” (emphasis added). Farha sent an even testier
15
Case: 14-12373 Date Filed: 08/11/2016 Page: 16 of 124
follow-up message to general counsel Thad Bereday: “This Goddamn thing is
costing us 400K/Month. OUTSOURCE: Get it done, GT/ OTher/ Spend $$. I
don’t care. This is absolutely stupid.” On September 22, 2003, Kale wrote Farha:
“As we agreed, setting up the corporation is easy; it is the questions that follow
(and probably many more not included in this work plan) that will determine if we
create a viable organization if we were to be audited by AHCA.” 4
In September 2003, WCBH was finally incorporated. Farha was WCBH’s
president, CEO, and director-chairman. Behrens later became CFO and a director.
Kale became Vice President of Clinical Operations. Like Staywell and
HealthEase, WCBH did not provide any Medicaid-reimbursable health care
services.5
Lest there be any doubt, a WellCare slide titled “Fund Allocation Model”
painted a clear picture of how WellCare was creating and using this new subsidiary
to evade the 80/20 rule:
4
The “work plan” to which Kale referred appears to be a WellCare document titled
“Behavioral Health Subsidiary Corporation Work Plan.” It included such action items as
(a) “Develop Business Justification for all lines of business”; (b) “Justify why HMOs would pay
80% premium”; and (c) “Separate sub-lease for WCBH: Advantages in AHCA audit of distinctly
standalone space at WellCare.”
5
At one point, HealthEase owned and operated a clinic in the Pensacola area. This
exception aside though, Staywell and HealthEase were HMOs and did not provide health care
services to patients and certainly not CMH/TCM services.
16
Case: 14-12373 Date Filed: 08/11/2016 Page: 17 of 124
WellCare’s slide shows that WellCare’s Staywell and HealthEase would:
(1) receive the full premium from AHCA; (2) keep 15% for administration and
overhead; and (3) pay 85% to WCBH. In turn, WCBH would pay only 45% of the
whole for “direct behavioral health care services” and would keep 40% for
administration, overhead, and profit. 6 Under this fund allocation scheme,
WellCare entities retained 55% of the behavioral health care premium for
administration, overhead, and profit, well over the 20% the 80/20 rule permitted.
6
As the slide shows, out of that 40%, WCBH kept 24% and paid 16% to CHMI, another
internal WellCare subsidiary, for management.
17
Case: 14-12373 Date Filed: 08/11/2016 Page: 18 of 124
A jury could reasonably infer that Whitney’s $400,000-per-month refund
projection spurred the creation of the new subsidiary.
A company email explained that the 85% rate paid to the new WCBH
subsidiary was “based on the historical premiums received by” Staywell and
HealthEase from AHCA and “based on a conceptual pass through of 85%” of the
total premium received from AHCA. (emphasis added). As WellCare financial
analyst Greg West testified, the 85% pass-through figure was “[s]o [WellCare]
wouldn’t pay anything back on the 80/20 payback.” Staywell and HealthEase each
used a sub-capitated rate to pay WCBH. West testified he was told that the sub-
capitated rate Staywell and HealthEase each paid WCBH was a “back-of-the-
envelope calculation,” which to him meant the kind of “calculation you do in your
head or on a piece of paper that you’re going to throw away; so you have no record
of how it was calculated. And also that that would be round numbers, it wouldn’t
be real-specific.”
Another WellCare internal slide presentation framed WCBH as WellCare’s
“[p]ro-active response to potential implications” of the “New Medicaid Mental
Health Law in Florida” (the 80/20 rule). The slides listed as an action item that
WellCare needed to “[p]repare [a] rationale for WCBH and answers to All AHCA
inquiries, if any.” Staywell and HealthEase, by paying 85% of their behavioral
18
Case: 14-12373 Date Filed: 08/11/2016 Page: 19 of 124
health premium to WCBH, would pay at least twice as much as the market rates
they would pay an independent, third-party BHO like CompCare.
After WCBH was incorporated (and after the first round of 80/20 reporting
discussed below), Farha instructed Kale to change WCBH’s name to Harmony
Behavioral Healthcare—“and quickly.” Farha explained, “Let’s put some distance
between BH [Harmony] and the WellCare name.” On August 26, 2004, WCBH
changed its name from WellCare Behavioral Health, Inc. to Harmony Behavioral
Health, Inc. (“Harmony”).
III. 80/20 EXPENSE REPORTS
Because the relevant limitations period precluded fraud charges relating to
2004 and earlier, the 2011 indictment charged the defendants with fraud only as to
the CY 2005 and 2006 reports. We nevertheless consider the defendants’ conduct
in submitting the CY 2002-04 reports because it shows their acquired knowledge
and motive by the time they submitted the CY 2005 and 2006 reports.
A. CY 2002 and 2003 Reports
In 2004, Staywell and HealthEase each received a set of two Worksheets,
one for expenditures from July 1 through December 31 of 2002 7 and one for all of
2003. The Worksheets showed on line 1 the amount of premium AHCA allocated
7
The letters accompanying the CY 2002 Worksheets explained that AHCA’s general
counsel elected to impose the 80/20 requirements for only the second half of 2002, after the
80/20 law took effect, rather than for the full year, and AHCA had adjusted the premium figures
in the Worksheets for CY 2002 accordingly.
19
Case: 14-12373 Date Filed: 08/11/2016 Page: 20 of 124
to CMH/TCM services. In a June 3, 2004 email, AHCA reminded Staywell and
HealthEase that they were “required to expend at least 80 percent of the capitation
paid on such services.” A cover letter reminded Staywell and HealthEase of their
80/20 obligations and explained how to fill out the Worksheets. The cover letters
quoted the contract language relating to the 80/20 rule:
By April 1 of each year, plans with members in Areas 1 and 6 shall
provide a breakdown of expenditures related to the provision of
behavioral health care, using the spreadsheet template provided by the
agency. Pursuant to Section 409.912(3)(b), F.S., 80 percent of the
capitation paid to the plan shall be expended for the provision of
behavioral health care services. In the event the plan expends less
than 80 percent of the capitation, the difference shall be returned to
the agency.
The letters explained that “[f]or reporting purposes, behavioral health care services
are defined as those services the plan is required to provide, as listed in the
Community Mental Health and Targeted Case Management Services Coverage and
Limitations Handbooks.” To stress that AHCA wanted to know what the providers
were paid, the letter added that “[a]s used above, expended means the total amount,
in dollars, paid directly or indirectly to behavioral health providers for the
provision of those required behavioral health care services.” The letters invited
Staywell and HealthEase to contact AHCA if they had any questions.
Upon receiving the CY 2002 and CY 2003 Worksheets, Pearl Blackburn,
WellCare’s Director of Regulatory Affairs for Medicaid, filled out a “Regulatory
Inquiry Routing Form” marked “Follow-up Required: Urgent” with topic
20
Case: 14-12373 Date Filed: 08/11/2016 Page: 21 of 124
“Behavioral Health Expenditures” and forwarded the Worksheets to several
WellCare executives, including Farha, Behrens (identifying him as the “owner” of
the 80/20 reporting project), Harmony executive Dave Smith, and general counsel
Thad Bereday. On June 16, 2004, Bereday emailed Farha, Behrens, and others to
inform them that their “team ha[d] been activated on the BH [behavioral health]
expenditures reconciliation.” Bereday explained that “they [were] already busy
calculating [their] BH expenditures to achieve the most favorable reporting
possible to the state.” Bereday added, “I have also discussed this matter with Paul
[Behrens] . . . . Paul will serve as the overall project lead.”
The team responsible for calculating the 80/20 expenses was Medical
Economics, a division of WellCare’s Finance Department, which Behrens
oversaw. The team’s work largely fell to Smith, West, Kale, and another
employee. Smith told West that Darrell Lettiere, a WellCare employee, had
previously conducted a refund analysis and estimated that Staywell and HealthEase
would collectively owe a $10.2 million refund. Smith told West that they had been
“charged by Todd Farha to find a way not to pay back 10 million dollars.” They
had to “find[] a way to make it zero.”
West examined Lettiere’s refund analysis and discovered that it included a
number of questionable 80/20 expenses. West noticed that Lettiere’s expense
totals included not only payments to medical providers but also the amounts
21
Case: 14-12373 Date Filed: 08/11/2016 Page: 22 of 124
Staywell and HealthEase had paid to Harmony for the last two months of CY 2003.
In response to West’s questions, Smith explained that WellCare had created
Harmony as its own mental health company and Staywell and HealthEase had each
paid Harmony 85% of the premium money they received from AHCA so “they
didn’t have to pay it back.” Lettiere’s analysis still resulted in a $10 million
projected refund because Harmony had existed for only a few months of CY 2003.
To reduce the refund as close as possible to zero, as Farha requested, the team
needed to include additional non-qualifying expenses.
To reduce the refund, Kale told West to add in such non-qualifying items as:
(1) a portion of all the pharmacy costs that correlated to the percentage of claims
physicians submitted relating to behavioral health care; (2) both fee-for-service and
capitation payments to primary-care physicians, including claims in which only a
secondary diagnosis related to mental health (thus, for example, WellCare would
include its payments for a claim involving a “broken arm” if the physician had
included “depression” as a secondary diagnosis); and (3) claims either (a) paid to a
mental health provider, (b) involving a mental health diagnosis, or (c) using a
mental health procedure code, even though the CMH and TCM handbooks
required all three elements for a claim to be considered a qualifying expense. West
characterized these expenses as “gray areas” and “questionable items,” or in some
instances “not even remotely close to behavioral health” expenses. Years later,
22
Case: 14-12373 Date Filed: 08/11/2016 Page: 23 of 124
Kale, during a secretly-recorded conversation, admitted: “Yeah, I did that analysis,
I . . . remember this all too well.” Kale added, “We got very creative.”
After including all of these non-qualifying items, the team managed to
reduce Staywell and HealthEase’s collective total refund figure for CYs 2002 and
2003 to $6,147,700. On behalf of the team, Smith emailed Behrens and Bereday
their final figures. Bereday then emailed Farha:
After much back and forth, there is not going to be further change.
Kale is already waivering [sic] in his support of this number, there
was difficulty obtaining verifiable data that we felt could survive
audit, and Paul [Behrens] feels we are currently being as aggressive as
possible while still defensible.
Smith is bringing you the certification now that you need to sign.
Farha responded, “ok.”
Staywell and HealthEase completed their CY 2002 and 2003 Worksheets
consistent with the spreadsheet that Kale, West, and Smith produced. Staywell
reported to AHCA that it spent $1,848,330 (41.1% of its premium for CMH/TCM)
on qualifying services in CY 2002 and $4,519,744 (50.5% of its premium for
CMH/TCM) on qualifying services in CY 2003. This resulted in Staywell paying
a $1,746,965 refund for CY 2002 and a $2,634,626 refund for CY 2003.
HealthEase reported to AHCA that it spent $1,663,077 (57.9% of its premium for
CMH/TCM) on qualifying services in CY 2002 and $3,684,423 (61.2% of its
premium for CMH/TCM) on qualifying services in CY 2003. This resulted in
23
Case: 14-12373 Date Filed: 08/11/2016 Page: 24 of 124
HealthEase paying a $636,433 refund for CY 2002 and a $1,129,676 refund for
CY 2003. The entities collectively refunded $6,147,700 for CY 2002 and 2003.
Farha signed off on the Worksheets affirming that “the expenditure
information reported is true and correct to the best of [his] knowledge and belief.”
At trial, West testified that the 80/20 expenses Staywell and HealthEase reported in
their CY 2002 and CY 2003 Worksheets were “false number[s].”
The government’s expert witness, Harvey Kelly, also testified the reported
expenses were false. Kelly was a forensic accountant, CPA, and managing director
at a financial consulting firm. Kelly reviewed and analyzed WellCare’s records,
including its claims database. Based on his claims analysis, Kelly testified that the
numbers WellCare reported were “not true and accurate,” bearing “no logical
relationship . . . between monies paid to third-party providers for the provision of
outpatient behavioral healthcare services.” While Staywell and HealthEase
collectively reported an 80/20 expense total of $3,511,407 for CY 2002, their
actual qualifying expenses totaled a mere $923,274, a difference of $2,588,133.
The difference was even greater for CY 2003. Staywell and HealthEase reported
an expense total of $8,204,167 for CY 2003, but their actual qualifying expenses
totaled $3,350,656, a difference of $4,853,511. This means that in CY 2002 and
CY 2003, Staywell and HealthEase over-reported their expenses by over $7
million and substantially underpaid their refunds.
24
Case: 14-12373 Date Filed: 08/11/2016 Page: 25 of 124
B. CY 2004 Reports
AHCA renewed its contracts with Staywell and HealthEase for 2004. The
new contract and the CY 2004 cover letter instructed: “For reporting purposes . . .
‘behavioral health services’ are defined as those services that the Plan is required
to provide as listed in the Community Mental Health Services Coverage and
Limitations handbook and the Targeted Case Management Coverage and
Limitations handbook.” The new contract also instructed: “For reporting purposes
. . . ‘expended’ means the total amount, in dollars, paid directly or indirectly to
behavioral health providers solely for the provision of behavioral health services
. . . not including administrative expenses or overhead of the plan.” (emphasis
added). In January 2005, both Farha and Kale signed a WellCare “policy and
procedure” document that mirrored the contract language.
In February 2005, AHCA sent Staywell and HealthEase the CY 2004
Worksheets along with cover letters. The substance of the Worksheets and cover
letters was essentially unchanged. As in CY 2002 and 2003, AHCA completed
line 1 of the Worksheets, showing the CY 2004 premium amount paid to Staywell
and HealthEase for CMH/TCM services.
As she had during the previous reporting cycle, Pearl Blackburn routed the
80/20 reporting materials to Farha, Behrens (again, the “owner” of the project), and
Kale. In response, on February 14, 2005, Farha emailed a group of people,
25
Case: 14-12373 Date Filed: 08/11/2016 Page: 26 of 124
including Behrens, Kale, Bereday, and Smith. Farha wrote: “Team, lets [sic] be
sure we handle this one appropriately. Who is on point for this process?” Behrens
replied: “Todd, I am on point for the completion of this required form.
Specifically, Bill White is working with Medical Economics to assure timely and
appropriate completion.” Smith and West were again tasked with compiling data
for the reports.
West testified that he had expected Staywell and HealthEase to report
qualifying expenses totaling 85% of the premium each entity had received from
AHCA. That was because, according to Smith, Staywell and HealthEase
contracted with Harmony for the purpose of paying 85% to Harmony and avoiding
a refund. For CY 2003, West had used the sub-capitated Harmony payments for
the last two months of the year but otherwise counted an assortment of varied
expense items for the reports. Because Harmony existed for all of CY 2004, and
assuming Staywell and HealthEase had in fact paid Harmony 85% of their
premium, West thought Staywell and HealthEase should refund nothing to AHCA.
But Smith gave West different instructions. “The idea was to come up with
a payback” after all. Smith told West to produce three preliminary refund
scenarios based on different assumptions and generate total refunds of $0, $1
million, and $1.5 million. The idea was to refund at least some amount to AHCA
(presumably to avoid an audit). Because reporting that Staywell and HealthEase
26
Case: 14-12373 Date Filed: 08/11/2016 Page: 27 of 124
had each paid Harmony 85% of their premium would result in no refund, West had
to adjust downward from 85%.
To manipulate the figures and create three refund scenarios, West relied on
the fact that not all of Staywell’s and HealthEase’s payments to Harmony covered
qualifying outpatient behavioral health care services. Staywell and HealthEase
each paid Harmony a significant portion of premium for non-qualifying inpatient
behavioral health care services, for which there was no AHCA reporting
obligation. While the entities’ journal entries recorded the total amount Staywell
and HealthEase each had paid Harmony, neither the records nor the entities’
contracts with one another distinguished between inpatient and outpatient
payments. West therefore arbitrarily divided Staywell’s and HealthEase’s total
respective payments into inpatient and outpatient portions, which West would then
manipulate to create his refund scenarios.
West created numerous spreadsheets titled “AHCA Behavioral Health (TCM
and CMH) Payback Calculation.” Each spreadsheet identified a different portion
of the CY 2004 premium for CMH/TCM as having been paid to Harmony: at 85%,
Staywell and HealthEase would refund nothing; at 70%, they would collectively
refund about $1 million; at 67%, they would collectively refund about $1.5 million.
For each refund scenario, as West reduced the outpatient portion of Staywell’s and
HealthEase’s sub-capitated payments to Harmony, he offset that reduction by
27
Case: 14-12373 Date Filed: 08/11/2016 Page: 28 of 124
increasing the inpatient portion. West never considered the actual amounts paid to
health care providers for CMH/TCM services. West did not consult the Medicaid
handbooks as he had the year before. The amounts Staywell and HealthEase
actually paid (through Harmony) to health care providers for CMH/TCM services
were not reflected in any of his three calculations.
Smith later revised his instructions to West: the combined refund should
total approximately $800,000, with Staywell and HealthEase each paying a
portion, and the inpatient rates Staywell and HealthEase paid to Harmony should
be the same. 8 These criteria had nothing to do with actual expenses for
CMH/TCM services. West explained that Smith’s parameters required him to
“back[] into” inpatient rates for both Staywell and HealthEase, increasing one
HMO’s refund figure and decreasing the other’s until the inpatient rates were the
same for both. West changed the numbers in his spreadsheets to comply with
Smith’s instructions, thereby producing a fourth refund scenario. As Kelly, the
forensic accountant, explained, West’s calculations focused not on determining
qualifying expenses but on coming up with a desirable refund figure to AHCA.
West discussed his work with Behrens, and Staywell’s and HealthEase’s
final Worksheets were again based on West’s calculations. This time, Imtiaz
8
The total sub-capitated rate that Staywell and HealthEase each paid Harmony was not
broken down into inpatient and outpatient rates in Harmony’s contracts. West thus manipulated
the inpatient and outpatient rates to create these refund scenarios.
28
Case: 14-12373 Date Filed: 08/11/2016 Page: 29 of 124
Sattaur, then president of Staywell and HealthEase, signed instead of Farha. At
trial, however, Sattaur testified that the work of WellCare’s Medical Economics
team “would be approved by Mr. Paul Behrens, and the ultimate sign-off on the
approval of whether [the Worksheets get] filed with the State would be by Mr.
Todd Farha.”
Staywell certified to AHCA that, in CY 2004, it spent $6,525,079 (72.1% of
its premium for CMH/TCM) on qualifying services. Staywell therefore refunded
$713,642 to AHCA. HealthEase certified that, in CY 2004, it spent $5,119,436
(79.0% of its premium for CMH/TCM) on qualifying services. HealthEase
therefore refunded $65,707 to AHCA. The combined total expenses were
$11,644,515 and the combined total refund was $779,349.
West testified that the 80/20 expenses Staywell and HealthEase reported on
their Worksheets were “false number[s].” Kelly, the forensic accountant,
confirmed the falsity of Staywell’s and HealthEase’s reports. Based on an analysis
of claims data, Kelly testified that Staywell’s and HealthEase’s actual CY 2004
qualifying expenses totaled only $3,522,000, a difference of $8,122,515. By over-
reporting their expenses by over $8 million, Staywell and HealthEase substantially
underpaid their refunds.
WellCare’s own internal documents also confirmed the falsity of Staywell’s
and HealthEase’s CY 2004 reports. Smith directed West to calculate for internal
29
Case: 14-12373 Date Filed: 08/11/2016 Page: 30 of 124
use Staywell’s and HealthEase’s “actual expenditures” in monies “actually being
used for [CMH/TCM services].” West testified that he created a spreadsheet,
partly with Clay’s input, which calculated Staywell’s and HealthEase’s
CMH/TCM expenses according to the “strict definition” of qualifying expenses
found in the CMH and TCM handbooks provided by AHCA. According to West’s
spreadsheet, Staywell and HealthEase (through Harmony) had actually spent only
$3,237,891.98 combined (19.9% of their premium) on CMH/TCM services in
CY 2004, far below the $11,644,515 they reported to AHCA.
West testified that, if claims for additional procedure codes provided by
Kale were factored in, Staywell and HealthEase’s 80/20 expense percentage rose
from 19.9% to 22.6%. Even if all of Harmony’s administrative costs were
included, the percentage rose to only 51.1%. These percentages were still well
short of the 72.1% and 79.0% expense percentages Staywell and HealthEase
reported to AHCA in the Worksheets.9 Subsequently, Bereday shared with Farha a
presentation that detailed Staywell’s and HealthEase’s reported expenses (72.1%
and 79.0% respectively) and revealed what the entities’ “Medical Costs” were as
defined by AHCA—that is, their actual qualifying expenses (19.9%, 22.6%, or
51.1%, per West’s analysis). Farha thus knew that Staywell and HealthEase had
9
As we discuss infra, there was a mathematical error in the premium figure AHCA listed
on line 1 of the Worksheets for CY 2002 through 2004. Even if AHCA had listed the correct
figure on line 1 of the Worksheets for CY 2004, Staywell’s and HealthEase’s qualifying expense
percentages would still have been far below what they reported for CY 2004. Line 1 did not
affect Staywell’s and HealthEase’s qualifying expenses.
30
Case: 14-12373 Date Filed: 08/11/2016 Page: 31 of 124
not reported their expenses for CMH/TCM services consistent with AHCA’s
definition of qualifying expenses.
C. CY 2005 Reports
In mid-April 2006, AHCA sent Staywell and HealthEase the Worksheets for
CY 2005 with instructional cover letters. Once again, the Worksheets listed
“Targeted Case Management” and “Community Mental Health” as the only
qualifying expenses on line 2. The Worksheets also defined “behavioral health
services” as “community mental health and targeted case management services
only.” As in prior years, AHCA completed line 1 of the Worksheets, showing how
much premium Staywell and HealthEase received in CY 2005.
While AHCA made minor wording changes to the Worksheet, AHCA
revised the cover letter in some notable ways. The new cover letter now quoted
language from the 80/20 law rather than from the AHCA contracts. Also, previous
cover letters had instructed Staywell and HealthEase to use the CMH and TCM
handbooks to determine which types of behavioral health care services qualified
under the 80/20 rule. This time, the cover letter listed the only authorized
procedure codes for eligible expenses, stating:
The Agency has determined that for this purpose, “behavioral health
care services” is defined as community mental health (procedure
codes H0001HN; H0001HO . . . or T1023HF) and targeted case
management (procedure codes T1017; T1017HA; or T1017HK).
31
Case: 14-12373 Date Filed: 08/11/2016 Page: 32 of 124
The AHCA contract in CY 2005 was the same one as CY 2004, and consequently
still required Staywell and HealthEase to report only money paid to health care
providers, not any administrative expenses or overhead.
In mid-March 2006, before WellCare received the CY 2005 Worksheets,
WellCare’s Medical Economics team started working on Staywell’s and
HealthEase’s CY 2005 reports. West encountered several new hurdles. During
CY 2005, AHCA had paid Staywell and HealthEase substantially more in
capitation money for CMH/TCM services than previous years due to AHCA’s
expanding the CMH/TCM program statewide. Although Staywell and HealthEase
now covered CMH/TCM services for all of Florida (rather than just Areas 1 and 6),
Staywell and HealthEase had not paid any of this new premium money to
Harmony, which held the subcontracts with providers. In CY 2004, AHCA had
allocated $15,529,829 as Staywell and HealthEase’s combined premium. But in
CY 2005, West estimated that Staywell and HealthEase combined received
$30,310,183, almost twice as much.
When West calculated the prospective CY 2005 refunds using Staywell’s
and HealthEase’s existing sub-capitation rates to Harmony and the same Harmony
inpatient rates from CY 2004, West projected that Staywell and HealthEase would
collectively owe AHCA an $11.9 million refund. West explained the problem to
32
Case: 14-12373 Date Filed: 08/11/2016 Page: 33 of 124
Clay and WellCare employee Bill White. White said, “[W]e should have changed
our contract [with Harmony], and we didn’t.”
West reported to Kale that if they wanted to refund nothing for CY 2005,
they would have to reduce Harmony’s inpatient rate, which was $4.91 PMPM in
CY 2004, to between $1.50 and $2.46 PMPM. Kale responded, “[T]his is good
information.” Kale added, “If we wanted a small payback with an MLR below 80,
we can attempt to justify a[n inpatient] number around 2.75 or 3.00. Thanks.”
To avoid dramatically reducing the inpatient rate for both Staywell and
HealthEase, the reporting team instead added (1) Staywell’s sub-capitation
payments to Harmony of $7,337,954 for CMH/TCM services generally and
(2) Harmony’s payments of $5,263,500 to health care providers in Areas 2-5 and
7-11, thereby manipulating Staywell’s total expense figure to be $12,601,454. For
HealthEase, the team added (1) HealthEase’s sub-capitation payments to Harmony
of $6,169,747 for CMH/TCM services generally and (2) Harmony’s payments of
$5,122,816 to health care providers in Areas 2-5 and 7-11, thereby manipulating
HealthEase’s total expense figure to be $11,292,563. At trial, Kelly, the forensic
accountant, described this maneuver as a kind of “double counting.” Although
Staywell and HealthEase had not actually paid Harmony any of the increased
premium they had received for the CMH/TCM program expansion, Harmony
nevertheless had covered CMH/TCM claims statewide. Kelly explained, “You
33
Case: 14-12373 Date Filed: 08/11/2016 Page: 34 of 124
can’t have it both ways. You can’t say . . . ‘I’m going to pay you for the
capitation,’ and ‘oh, by the way, you know, if you pay any providers, I’ll tell the
state I paid the providers too.’”
With this method, West projected Staywell and HealthEase would owe a
combined refund of $699,223, far less than the $11.9 million West had originally
projected. West was optimistic about this calculation maneuver because the total
projected refund amount was close to the previous year’s refund of almost
$800,000 without dramatically affecting Harmony’s inpatient rate. In a group
email that included Clay, West explained his work and wrote “I think we got it!”
But not quite. West’s calculations were based on his estimate that Staywell
and HealthEase had received a combined $30,310,183 in premium for CMH/TCM
services for CY 2005. West estimated a $30,310,183 premium figure based on
information from rate tables on AHCA’s website. On April 18, AHCA emailed
Staywell and HealthEase the CY 2005 Worksheets. On line 1, AHCA allocated a
$12,306,570 premium to Staywell and a $12,572,017 premium to HealthEase. The
combined total premium of $24,878,587 was about $5.4 million less than West’s
original $30,310,183 estimate.
This $5.4 million difference between the actual premium figure on the
Worksheets and West’s estimated premium figure came to be known as the
34
Case: 14-12373 Date Filed: 08/11/2016 Page: 35 of 124
“premium difference.” 10 Those both inside and outside of Medical Economics at
WellCare did not know what to make of this premium difference between what
AHCA said it had paid Staywell and HealthEase for outpatient behavioral health
care, reflected on line 1, and what West estimated AHCA had paid. In the past, the
premium figures on line 1 of the Worksheets had differed from West’s estimates
by only a slight amount. Now, the difference substantially affected the refund
calculation, resulting in neither Staywell nor HealthEase owing a refund.
Despite their confusion, no one at WellCare called AHCA for clarification,
even though the cover letters accompanying the Worksheets invited them to do so.
From mid-April to mid-June 2006, the expense reporting team discussed what to
make of this premium difference and whether it should factor into the expenses
Staywell and HealthEase would report to AHCA. Of course, what Staywell and
HealthEase actually spent on qualifying expenses was unrelated to the premium
AHCA listed on line 1 of the Worksheets. Any change on line 1 would affect the
HMOs’ refunds but not their qualifying expenses.
Over the next several weeks, West and others considered a variety of refund
scenarios. By mid-June, they found themselves up against the submission deadline
10
For the first few 80/20 reporting cycles, AHCA’s premium figures on line 1 of the
80/20 Worksheets were inaccurate due to an error in the rate tables on AHCA’s website. In prior
years, the Worksheet premium figures included money for some inpatient behavioral health care
services (non-80/20) in addition to the money Staywell and HealthEase received to cover
outpatient behavioral health care, namely CMH/TCM services. As a result, the premium figures
on the Worksheets were too high. For CY 2005 and years following, AHCA corrected that error
and listed the correct premium figures on the 80/20 Worksheets.
35
Case: 14-12373 Date Filed: 08/11/2016 Page: 36 of 124
for Staywell’s and HealthEase’s Worksheets. Clay met with Farha and suggested
that Staywell and HealthEase refund nothing for CY 2005. Farha disagreed,
explaining to Clay, “No, we’re not going to do it like that. You have to pay the
Gods something.”
Clay passed Farha’s orders along to West: “Farha wants to pay back a
million.”11 West was not sure how that request could be met. After rocking back
and forth on his heels and glancing around for a few moments, Clay asked, “We
have a premium difference, don’t we?” “Yeah,” West answered. Clay pressed,
“Well, if you refunded that?” As discussed below, Clay instructed West to run the
numbers using the premium difference calculation Clay had suggested. West
testified that Clay then stared off into the distance and said to no one in particular,
“[I] was told to find a million. [I] didn’t know how [I] could do it, and [I] did it.”
Before encountering the premium difference, West had counted both
(1) Staywell and HealthEase’s combined sub-capitation payments to Harmony,
$13,507,701, and (2) Harmony’s fee-for-service payments to providers in Areas 2-
5 and 7-11, $10,386,316. Now, to reach Farha’s desired $1 million refund, Clay
instructed West to subtract the premium difference from Harmony’s total fee-for-
service payments in Areas 2-5 and 7-11. This calculation simply halved the fee-
for-service costs that Staywell and HealthEase double counted and yielded the
11
West later testified that Behrens and Bereday also confirmed to West that Farha wanted
to refund about one million dollars to AHCA for CY 2005.
36
Case: 14-12373 Date Filed: 08/11/2016 Page: 37 of 124
desired result, increasing the combined refund total for Staywell and HealthEase to
about $1.4 million. As with other aspects of Staywell and HealthEase’s evolving
expense reporting methodology, this premium difference calculation bore no
relationship to what Staywell and HealthEase (through Harmony) had actually paid
providers of CMH/TCM services or even to what Staywell and HealthEase had
paid Harmony. Kelly, the forensic accountant, testified: “You have them including
as components like the premium difference that has nothing to do with actual
amounts expended or providing services.”
On June 15, 2006, West, Behrens, and Clay reviewed the final numbers and
then walked toward Bereday’s office. On the way, Behrens slipped into Farha’s
office, and West overheard a discussion about “1.4.” Behrens rejoined the group
and confirmed, “1.4 is okay.”
As he looked over West’s spreadsheet, Bereday had questions. “I
understand [Farha] wants to make a million dollar payback,” he said, but “I also
see we’re refunding premium.” Bereday asked West about the premium difference
and how confident West was about the premium estimates West had used in his
refund calculations. West answered that the only way to be sure would be to call
an AHCA financial analyst. “No,” Bereday told West, “[Y]ou’re not going to call
. . . AHCA.”
37
Case: 14-12373 Date Filed: 08/11/2016 Page: 38 of 124
Because Sattaur was out that day, Bereday invited WellCare’s Jim
Beermann into his office to certify the Worksheets. Bereday briefed Beermann on
the Worksheets, explaining why WellCare had established Harmony and the
components of the refund calculations, including the sub-capitation payments to
Harmony, the double-counting calculation, and the premium difference calculation.
West testified that after hearing all of this, Beermann looked “pretty
uncomfortable,” and Beermann “backed himself up against the door, like he was
trying to push himself out of the room.” Beermann suggested they wait for Sattaur
to return so that he could certify the expense reports. But, according to West,
Bereday, Behrens, and Clay immediately insisted, “No, no, it’s got to go today,
you’re signing it.” Beermann relented and signed the certifications.
Staywell certified to AHCA that it spent $9,587,573 or 77.9% of its
premium for CMH/TCM on qualifying services in CY 2005 and refunded
$257,683 to AHCA. HealthEase certified it spent $8,874,848 or 70.6% of its
premium for CMH/TCM on qualifying services in CY 2005 and refunded
$1,182,766 to AHCA. Combined, Staywell and HealthEase reported $18,462,421
in expenses and paid a $1,440,449 refund.
At trial, West admitted that the expenses Staywell and HealthEase reported
for CY 2005 had nothing to do with what they paid to providers for CMH/TCM
services. Based on his analysis of claims data, Kelly, the forensic accountant,
38
Case: 14-12373 Date Filed: 08/11/2016 Page: 39 of 124
testified that, while Staywell and HealthEase together had reported $18,462,42 in
CMH/TCM expenses for CY 2005, their actual qualifying expenses, based on what
Harmony paid to health care providers, totaled $13,100,136, a difference of
$5,362,285. By over-reporting their expenses by over $5 million, Staywell and
HealthEase substantially underpaid their refunds.
WellCare’s internal records also revealed Staywell’s and HealthEase’s
CY 2005 reports were false and fraudulent. Starting with CY 2005, West’s
internal spreadsheets included a calculation of Staywell’s and HealthEase’s
qualifying expenses and corresponding refunds if they counted only the money
Harmony paid to providers for CMH/TCM services. West’s spreadsheets revealed
that their qualifying expenses were much less than they reported to AHCA. As
both West and the Kelly explained at trial, West’s spreadsheets showed that
Staywell and HealthEase combined (through Harmony) had paid to health care
providers only $12,956,122 or 52.1% of their premium on CMH/TCM services,
and that they should have refunded $6,946,748 to AHCA. It was no secret that
Staywell and HealthEase truly owed $6,946,748. Only days before Beermann
certified the Worksheets, Clay wrote Behrens, saying, “If we took AHCA
payments and AHCA definitions of eligible care we would owe them $6.9
million.” Instead, due to Staywell’s and HealthEase’s false reporting, they
refunded only $1,440,449 to AHCA.
39
Case: 14-12373 Date Filed: 08/11/2016 Page: 40 of 124
D. CY 2006 Reports
We now turn to CY 2006, the reporting year for which Farha, Behrens, and
Kale were convicted of health care fraud as to the false and fabricated expenses
reported in the Worksheets, in violation of 18 U.S.C. § 1347, and Behrens was
convicted of making false statements, in violation of 18 U.S.C. § 1035. This was
the fourth year that Staywell and HealthEase reported to AHCA their qualifying
expenses for CMH/TCM services. By this time, it was perfectly evident that
AHCA wanted to know what Staywell and HealthEase were paying to health care
providers. AHCA’s instructions were direct and unambiguous in three places:
(1) the contract, (2) the Worksheets, and (3) the cover letters.
For 2006, AHCA, Staywell, and HealthEase executed new contracts, which,
as before, expressly instructed: “For reporting purposes . . . ‘expended’ means the
total amount, in dollars, paid directly or indirectly to community behavioral health
services providers solely for the provision of community behavioral health
services, not including administrative expenses or overhead of the plan.” (emphasis
added). AHCA’s requirement was clear: only money paid to health care providers
for CMH/TCM services qualified. Staywell and HealthEase could not include
administrative or overhead expenses. As in prior years, Farha signed a WellCare
policy and procedure document agreeing to adhere to the 80/20 requirement
described in the 2006 AHCA contract.
40
Case: 14-12373 Date Filed: 08/11/2016 Page: 41 of 124
In February 2007, AHCA sent Staywell and HealthEase the Worksheets for
CY 2006 with instructional cover letters. The Worksheets cited the 80/20 law and
explained that Staywell and HealthEase were required to spend at least 80% of
their outpatient behavioral health premium money on “behavioral health services.”
The Worksheets defined “behavioral health services” as “community mental health
and targeted case management services only.” (emphasis added). The Worksheets
were clear that AHCA was asking Staywell and HealthEase to state expenses for
only CMH/TCM services. The Worksheets required the CEO or President of
Staywell and HealthEase to certify that the reported expenses were true and
correct. AHCA completed line 1 of the Worksheets, listing the portion of
Staywell’s and HealthEase’s premium allocated to CMH/TCM services.
The CY 2006 cover letters closely mirrored the CY 2005 cover letters. Like
the Worksheets, the letters instructed that Staywell and HealthEase were subject to
the 80/20 law and quoted a portion of the the statute as follows:
To ensure unimpaired access to behavioral health care services by
Medicaid beneficiaries, all contracts issued pursuant to this paragraph
shall require 80 percent of the capitation paid to the managed care
plan, including health maintenance organizations, to be expended for
the provision of behavioral health care services. In the event the
managed care plan expends less than 80 percent of the capitation paid
pursuant to this paragraph for the provision of behavioral health care
services, the difference shall be returned to the agency.
The letters listed the specific CMH/TCM procedure codes that Staywell and
HealthEase could count in reporting qualifying expenses. The letters admonished:
41
Case: 14-12373 Date Filed: 08/11/2016 Page: 42 of 124
“Report expenditures for behavioral health care services that cover targeted case
management and community mental health services only.” The letters invited
Staywell and HealthEase to contact AHCA if they had any questions regarding
their reporting obligations.
A group email exchange ensued, which included Behrens, Kale, and Clay.
Behrens announced to the group that he would “take point” on completing
Staywell’s and HealthEase’s 80/20 submissions. For CY 2006, Staywell and
HealthEase had modified their contracts with Harmony and increased their sub-
capitation rates and payments. This adjustment was intended to account for the
increased premium AHCA was paying now that the CMH/TCM program was
statewide. West testified, however, that he calculated the new sub-capitation rates,
which had nothing to do with actual behavioral health care expenses. West set the
new rates to reflect 85% of Staywell’s and HealthEase’s projected premium for
CMH/TCM services.
West testified that during a meeting in Behrens’s office, he related that
another company had paid $5 million to settle with AHCA over the reporting
method it had used. West personally hoped Behrens would “take the bait.” But
Behrens explained, “[T]he system works good for us. We pay them a million
dollars. That’s enough. They think the system works, and so, that’s it.” Behrens
believed that, if Staywell and HealthEase refunded about one million dollars to
42
Case: 14-12373 Date Filed: 08/11/2016 Page: 43 of 124
AHCA, AHCA would likely just accept Staywell’s and HealthEase’s numbers and
forgo an audit.
In determining the expense figures to report for CY 2006, West worked with
actuary Jian Yu, the new director of WellCare’s Medical Economics department.
West explained to Yu (1) how Staywell and HealthEase had determined their
expense figures in previous years and (2) that, the year before, Farha wanted to
refund about one million dollars to AHCA. In West’s words, “it became ‘how do
you get there.’” West told Yu of his concern that since Staywell and HealthEase
had increased their sub-capitation rates and payments to Harmony, Staywell and
HealthEase might not have any amount to refund to AHCA at all. Yu told West to
calculate expenses the same way as he had the previous year and to get the refunds
as close as he could to the CY 2005 numbers.
Subsequently, West sent Yu a spreadsheet that displayed Staywell’s and
HealthEase’s expense and refund figures for all prior reporting years. West’s
spreadsheets also displayed three CY 2006 refund scenarios, each showing
different expense figures that yielded different refund amounts. In each scenario,
West used the inpatient rate from the previous year to calculate the portion of the
sub-capitation payments that Staywell and HealthEase would count as qualifying
CMH/TCM expenses.
43
Case: 14-12373 Date Filed: 08/11/2016 Page: 44 of 124
In the first scenario, West used the amount of the outpatient portion of
Staywell’s and HealthEase’s sub-capitation payments to Harmony and reduced it
by a specific sum, which West labeled a “Missing Premium.” This scenario
mirrored West’s methodology for the CY 2005 Worksheets, except it did not
involve double-counting both sub-capitation payments to Harmony and some of
Harmony’s fee-for-services costs paid to providers. The second scenario was the
same except the “Missing Premium” amount was reduced. The third scenario did
not include a “Missing Premium” item at all, resulting in Staywell’s and
HealthEase’s “Medical Costs” being the same hypothetical outpatient portion of
the sub-capitation payments to Harmony (calculated by subtracting the inpatient
portion of the sub-capitation, based on an artificial inpatient rate of $4.68 PMPM).
The third scenario was similar to the methodology West used for CY 2004.
West calculated the total combined refund for Staywell and HealthEase
under each of these three scenarios as: (1) $1,948,246; (2) $1,354,226; and (3) $0.
None of West’s scenarios attempted to calculate as qualifying expenses what
Harmony had actually paid to providers of CMH/TCM services.
West recommended the second scenario to Yu because it was the best option
for reaching a refund between $1 million and $1.5 million. Yu disagreed,
preferring not to use a “Missing Premium” calculation at all. Yu instead asked
West to calculate the percentage of outpatient behavioral health care claims that
44
Case: 14-12373 Date Filed: 08/11/2016 Page: 45 of 124
used AHCA-approved CMH/TCM procedure codes and to multiply that percentage
by the outpatient portion of the sub-capitation payments to Harmony. The use of
the CMH/TCM codes in this way still would not generate accurate expenses
because the percentage Yu asked West to generate was a percentage of total claims
using the authorized codes, not a percentage of total dollars spent on authorized
claims.
Another serious problem with this calculation was that West did not have
any current claims data, and the submission deadline was near. So with Yu’s
approval, West used older claims data to generate the percentage figure Yu
requested (incidentally 85%). He multiplied 85% by the outpatient portion of the
sub-capitation payments to Harmony. Doing so yielded an expense percentage of
77.0% and a combined refund total of $1,108,726.
West and Yu met with Behrens several times to discuss their calculations.
After West and Yu finalized their calculations, Behrens asked Yu why they were
not adjusting their expense figures to account for the premium difference as they
had for CY 2005. Yu responded that such a method was not “actuarially sound.”
In response to Yu’s comment, Behrens grinned at West, licked his thumb, and held
it up, as if testing the weather.
Staywell and HealthEase once again submitted to AHCA their certified
Worksheets. Staywell’s Worksheet certified that Staywell spent $14,235,874 or
45
Case: 14-12373 Date Filed: 08/11/2016 Page: 46 of 124
78.3% of its premium for CMH/TCM on qualifying services in CY 2006, resulting
in a $305,828 refund to AHCA. HealthEase’s Worksheet certified that HealthEase
spent $14,668,012 or 75.9% of its premium for CMH/TCM on qualifying services,
resulting in a $802,898 refund to AHCA. The combined total expenses for
Staywell and HealthEase was $28,903,886, and the combined total refund was
$1,108,726. Behrens approved Staywell’s and HealthEase’s refunds to AHCA,
and the refund checks bore Farha’s signature.
At trial, West testified that the expenses Staywell and HealthEase reported in
their CY 2006 Worksheets were “false number[s].” Kelly, the forensic accountant,
testified that Staywell’s and HealthEase’s reported expenses were “not true and
accurate” and bore “[n]o logical relationship” to “moneys paid to third-party
providers for the provision of outpatient behavioral healthcare services.” Based on
his claims analysis, Kelly testified that Staywell and HealthEase’s combined actual
qualifying expenses totaled $19,909,625, which was $8,994,261 less in expenses
than the $28,903,886 in expenses they reported to AHCA. Simply put, in CY 2006
Staywell and HealthEase over-reported their expenses by almost $9 million and
substantially under-paid their refunds.
WellCare’s own internal records show that Staywell and HealthEase
reported false, inflated expense figures to AHCA in CY 2006. West’s final
spreadsheet displayed these actual qualifying expenses and corresponding refunds,
46
Case: 14-12373 Date Filed: 08/11/2016 Page: 47 of 124
along with the falsely inflated expenses and correspondingly deflated refunds
Staywell and HealthEase submitted to AHCA. As both West and Kelly explained
at trial, West’s spreadsheet showed that Staywell and HealthEase spent only
$17,904,508 or 47.7% of their premium for CMH/TCM services on qualifying
expenses, and they therefore should have refunded $12,108,104 to AHCA.
Instead, Staywell and HealthEase reported $28,903,886 or 77.0% in CMH/TCM
expenses and refunded only $1,108,726 in CY 2006.
By CY 2006, WellCare’s use of Harmony was serving its purpose. The
evidence sufficiently showed that with accurate reporting that year, Staywell and
HealthEase should have refunded approximately $12 million to AHCA. But by
creating Harmony and reporting what Staywell and HealthEase paid it, rather than
what they paid providers of CMH/TCM services, WellCare, in CY 2006 alone,
avoided refunding approximately $11 million. To avoid an audit by AHCA that
might reveal this fact, Staywell and HealthEase did not even report the full sub-
capitation payments that they paid Harmony. They instead manipulated the
numbers to generate an arbitrary refund amount of slightly over $1 million to avoid
drawing AHCA’s attention. Kelly testified that through these years, Staywell and
HealthEase used inconsistent 80/20 reporting methods that started with a
predetermined refund amount and worked backward to reach that result.
47
Case: 14-12373 Date Filed: 08/11/2016 Page: 48 of 124
E. Cumulative Impact
Kelly testified about the cumulative impact Staywell’s and HealthEase’s use
of their Harmony pass-through reporting method had on their reported expenses
and refunds. He testified, based on his claims analysis, that across all reporting
periods from CY 2002 to CY 2006, Staywell and HealthEase had actually paid
providers only $40,805,691, which was $29,920,705 less than the $70,726,396 in
total expenses they reported to AHCA.
Kelly also testified that he had examined WellCare’s Form 10-K, a restated
financial statement (the “restatement”) publicly filed with the Securities and
Exchange Commission (“SEC”) in 2007 to correct for accounting errors in
WellCare’s compliance with its refund obligations under the AHCA contracts.
Kelly examined the working papers of Deloitte & Touche LLP, the outside
accounting firm that audited and prepared the restatement. Based on the audited
numbers in the restatement, Kelly calculated Staywell and HealthEase collectively
had owed AHCA $35,134,000 more in refunds across all reporting periods than
they had paid due to their false 80/20 expense reporting.
Using the restatement numbers, Kelly also calculated the impact Staywell’s
and HealthEase’s use of their Harmony pass-through reporting method had on
WellCare’s net income before taxes for tax years 2004, 2005, and 2006. He
calculated that Staywell and HealthEase’s combined net income before taxes
48
Case: 14-12373 Date Filed: 08/11/2016 Page: 49 of 124
should have been 13.9% lower in 2004, 8.8% lower in 2005, and 6.5% lower in
2006 than they had previously reported without use of their Harmony pass-through
reporting method.
Then, using numbers from his own claims analysis, Kelly calculated that
Staywell and HealthEase’s combined net income before taxes should have been
14.7% lower in 2004, 7.4% lower in 2005, and 5.3% lower in 2006 without use of
their Harmony method. Kelly testified that the two sets of figures, while not
identical, nevertheless were close. He explained the utility of comparing the two
sets of figures: “It’s just another measuring point to compare the results and—
determine the reasonableness of my conclusion.”
IV. Patient Encounter Data
Between 2005 and 2007, AHCA learned of the defendants’ fraudulent 80/20
reporting through distinct but related mandatory reports. AHCA required HMOs
to report data regarding encounters between patients and medical providers (patient
“encounter data”). AHCA used the patient encounter data (1) to keep track of the
types and frequency of medical services delivered to Medicaid patients and (2) to
set future capitated rates payable to HMOs. Through 80/20 expense reporting,
AHCA tracked Staywell’s and HealthEase’s annual, aggregate amounts paid to
providers for CMH/TCM services. But 80/20 reporting did not reveal unit cost per
49
Case: 14-12373 Date Filed: 08/11/2016 Page: 50 of 124
service provided. In contrast, through encounter data reporting, AHCA tracked
individual services provided to patients and sometimes the cost of those services.
By 2005, large mismatches between Staywell’s and HealthEase’s reported
80/20 expenses and their patient encounter data reflecting unit costs for
CMH/TCM services created discrepancies that AHCA investigated. AHCA
requested Staywell and HealthEase to submit patient encounter data on several
occasions. In earlier years, Staywell and HealthEase had priced their patient
encounter data based on Harmony’s costs—that is, what Harmony paid providers
for services. By 2007, they shifted to pricing their encounters based on what
Staywell and HealthEase each paid to Harmony, regardless of what Harmony paid
to providers.
We discuss Staywell’s and HealthEase’s patient encounter data reporting
because it reveals (1) the defendants’ efforts to hide from AHCA salient facts
regarding their 80/20 reports and (2) the defendants’ intent to defraud with respect
to the submission of those 80/20 reports. These events also bear directly on the
conduct for which Clay was charged.
A. Discrepancies Discovered
In early 2005, AHCA discovered discrepancies between Staywell’s and
HealthEase’s 80/20 expense reports and patient encounter data. Using the patient
encounter data, AHCA estimated what percentage of premium for CMH/TCM
50
Case: 14-12373 Date Filed: 08/11/2016 Page: 51 of 124
Staywell and HealthEase should have spent on qualifying services. AHCA found
these percentages to be far lower than the percentages Staywell and HealthEase
had reported. Staywell had certified to AHCA that it spent 50.5% of its premium
on CMH/TCM services in CY 2003 and 72.1% in CY 2004. HealthEase had
certified that it spent 61.2% of its premium on CMH/TCM services in CY 2003
and 79.0% in CY 2004. By examining their encounter data, however, AHCA
calculated that Staywell and HealthEase’s combined expenses from July 2003
through June 2004 should have totaled only 21.1% of their premium for
CMH/TCM services.12 In April 2005, AHCA requested that Staywell and
HealthEase provide a detailed explanation to justify the wide variance between
AHCA’s 21.1% estimate and the much higher percentages Staywell and
HealthEase had reported in their 80/20 expense reports.
Keith Sanders, a manager in WellCare’s Medical Economics department,
drafted a reply letter. The letter truthfully disclosed that, while AHCA had counted
money paid to providers, Staywell and HealthEase’s 80/20 reports counted
payments to Harmony:
In your letter you express concern for differences between your
calculated aggregate loss ratio of 21.08% and our submitted loss ratios
of 72.11% and 78.99% for Staywell and HealthEase respectively. We
believe the differences in loss ratio calculation are due to a difference
in the view of business entity paying the costs. Our submission is
12
WellCare’s internal records for the same period reveal that Staywell and HealthEase,
through Harmony, paid providers only 19.4%.
51
Case: 14-12373 Date Filed: 08/11/2016 Page: 52 of 124
based on capitated payments to Harmony Behavioral Health, Inc for
the provision of covered outpatient services under the contract. Your
calculation is based on capitated payments, fee for service claims, and
other monthly fixed fees for the same services paid by our contracted
behavioral health provider Harmony Behavioral Health, Inc to their
contracted “downstream” providers.
(emphasis added).
On May 27, 2005, Pearl Blackburn forwarded a copy of Sanders’s draft
letter to Behrens, Kale, and Clay, among others. Kale sent Behrens an email
stating, “Paul, I would recommend that you or Thad [Bereday] have input in this
letter. Basically, I would suggest that we again state what we did . . . without
getting into much detail.” Behrens wrote back, “I agree that we need to further edit
this letter.”
The letters Staywell and HealthEase ultimately sent to AHCA were tight-
lipped. The revised letters wholly omitted Sanders’s explanation that Staywell and
HealthEase counted their sub-capitation payments to Harmony as their 80/20
expenses, without regard to how much money Harmony paid to actual providers.
Staywell and HealthEase responded with a smokescreen and did not disclose the
true cause of the wide variance between their reported expense percentages and
AHCA’s estimate.
It is unquestionable that by 2005, WellCare executives, including Behrens,
Kale, and Clay, knew the wide variance was due to Staywell’s and HealthEase’s
having reported their payments to Harmony rather than payments to providers. In
52
Case: 14-12373 Date Filed: 08/11/2016 Page: 53 of 124
addition to falsely reporting 80/20 expenses, by 2005 Behrens, Kale, and Clay
knew that WellCare was actively misleading AHCA regarding the false reporting.
B. WellCare Inflates Costs
On January 2, 2007, AHCA requested Staywell and HealthEase to submit
patient encounter data for behavioral health care services in Areas 1 and 6 for the
period of July 1, 2005, through June 30, 2006.
On January 16, 2007, Robert Butler, WellCare’s Director of Medicaid Policy
Analytics and former Bureau Chief of AHCA’s Medicaid Program Analysis,
convened a meeting with other WellCare employees to discuss how to price
Staywell’s and HealthEase’s behavioral patient-provider encounters.
Unbeknownst to the meeting’s attendees, WellCare’s Sean Hellein had begun
secretly recording internal company conversations in preparation for filing a
whistleblower suit.
At the meeting, Butler suggested that Staywell and HealthEase price their
behavioral health patient encounters to reflect what Harmony paid providers for
health care services. Specifically, Butler pointed out that (1) Harmony was part of
WellCare, meaning that Harmony’s overhead and profit was retained by WellCare
as a whole, and thus (2) Staywell’s and HealthEase’s patient encounter data pricing
should not reflect their payments to a related party (i.e. sub-capitation money paid
to Harmony) but should instead reflect the cost of services (i.e. money Harmony
53
Case: 14-12373 Date Filed: 08/11/2016 Page: 54 of 124
paid to medical providers). 13 Butler asked whether Harmony provided any mental
health services itself. “No,” answered one of the meeting’s attendees, “[Harmony
does] utilizational review . . . it’s administrative dollars . . . [i]t’s all of our
salaries.” Another added, “It’s overhead.”
During the meeting, Kale and Clay entered the room and listened to Butler’s
suggestion that WellCare price its patient encounter data to reflect Harmony’s
payments to medical providers rather than the sub-capitation sums that Staywell
and HealthEase paid Harmony. “[I]f we provide what you’re asking for,” Clay
chimed in, “we’re in deep trouble.” “The whole argument for Harmony,” Clay
explained to Butler, “is 85 percent, that’s our cost . . . . [T]he state is doin’ this as
another end around, to find out how much money we’re makin’ in that. Which
we’ve been finessing, for years.” He added, “[W]e’re gonna have huge numbers
and were [sic] gonna get a massive rate cut.” Clay continued, “[P]rofit within
Harmony is upwards of 50%, of that 85%. It’s huge . . . . Harmony direct expense
for salaries and payroll they’d probably take it. It’s this big slug in the middle,
which is, the whole reason Harmony exists, to hide this. So, are we gonna report
that, or not?”
13
Later in the meeting, Butler explained why pricing encounters to reflect related-party
transactions was problematic. He explained that “because it’s a cap, it’s . . . a related entity, you
may be very healthy in your capitation rate.” West translated at trial: “Very healthy means . . .
internally inflated costs.” In other words, because Staywell, HealthEase, and Harmony were all
owned by WellCare, they had an incentive to pay Harmony much more in sub-capitation money
than an unaffiliated BHO in order to internalize any money not paid out to health care providers.
54
Case: 14-12373 Date Filed: 08/11/2016 Page: 55 of 124
Clay candidly expressed his concern, which others shared, that if AHCA
learned how much WellCare was profiting off of the premium for CMH/TCM
services, AHCA would reduce Staywell’s and Healthease’s capitated rates. Clay
continued, “Every year we’ve fed the gods. We’ve paid them a little money to
keep them happy. We’ve paid them a million bucks a year, or whatever. If they’re
now askin’ for us to pay it all, then let’s . . . get that conversation on the table.”
Another meeting participant, Marc Ryan, shared Butler’s concern with
reporting Medicaid patient encounter prices to reflect what Staywell and
HealthEase paid Harmony. Ryan explained why encounters priced that way would
not “sit well” with AHCA and that AHCA was expecting patient encounters to be
priced at something closer to Harmony’s actual costs to providers so as to create a
reliable process for setting capitated rates.
But Kale disapproved of any patient encounter data pricing methodology
that would reflect costs as anything less than what Staywell and HealthEase paid
Harmony because WellCare had not disclosed its 80/20 reporting methodology to
AHCA:
While, we’ve danced around this, and we send ’em a check every
year, we never, have formally been asked to justify, or we’ve never
been audited for this. So we’ve never shot the [Harmony] gun ever.
We’ve never had to publically say, this is how we priced it, this was
our methodology, and we have [Harmony] in the middle getting 85%,
and that’s where we stand.
55
Case: 14-12373 Date Filed: 08/11/2016 Page: 56 of 124
(emphasis added). After more back-and-forth, Clay added, “I don’t believe you
can disconnect these [the two reporting processes] . . . . [I]f you price [the
encounter data at] anything reasonable, we’re gonna show a 50% loss ratio, and
we’re right back to opening the Kimono.” At trial, West explained that “[o]pening
the Kimono” was to “reveal” that “WellCare should be making a huge payback” to
AHCA (since Staywell’s and HealthEase’s medical costs were 40-50% as opposed
to the 80% required by the 80/20 rule).
Clay proposed that they calculate patient encounter unit prices by dividing
the total sub-capitation paid to Harmony by the total number of encounters, which
Kale supported. Doing so would allow them to account for all the sub-capitation
payments to Harmony. While Butler entertained this proposal, he stressed the
importance of being forthright with AHCA about it. Butler explained why patient
encounter prices should reflect only actual costs in money paid to providers, not
administration, overhead, and profit for Harmony: AHCA’s actuaries already built
administration, overhead, and profit into the capitated rate. Butler emphasized that
if they wanted to price their patient encounter prices to reflect Staywell’s and
HealthEase’s sub-capitation payments, which he suggested was an “aggressive
stance,” they should put a “disclaimer with it,” explicitly disclosing how they
priced their patient encounters. Then, he explained, “If they don’t like the prices,
they are perfectly capable of repricing them however way they want. And, we
56
Case: 14-12373 Date Filed: 08/11/2016 Page: 57 of 124
haven’t hidden anything we just told them, this is, we recognize our subcap
arrangement, period.”
Apparently, Butler’s recommendation of candid disclosure fell flat. As the
group continued to discuss, Clay reminded the group: “The problem is we got a
high margin business we are trying to protect.” Clay favored reporting their
patient encounter prices to match the sub-capitation payments because doing so
would put the “onus” on AHCA to negotiate the next capitated rate. Clay
explained, in his view, the patient encounter data reporting process was as “much a
political negotiation . . . as it [was] an analytic negotiation.” He added, “There’s
more to this, than just pure analytics.” Ultimately, the group decided to price
patient encounters by spreading the sub-capitation payments across all Medicaid
patient encounters. The result was that Staywell and HealthEase would report
prices well above Harmony’s actual costs for patient services.
On January 29, 2007, in another secretly-recorded company conversation,
several WellCare employees discussed the details of Staywell’s and HealthEase’s
upcoming patient encounter data submissions. Clay said, “I keep wanting . . . to
make this a simple conversation. It is a simple conversation. I think we’re going
to have to put some numbers that are about 40 percent higher than we think they
should be, because we’re making about a 40 percent profit margin. And that’s
what we’re gonna submit . . . . And that’s all there is to this conversation. It’s that
57
Case: 14-12373 Date Filed: 08/11/2016 Page: 58 of 124
simple.” Clay later added, “[I]t’s just a matter of how inflated a unit cost number
we’re going to be submitting.”
On February 9, 2007, several WellCare employees met in Behrens’s office
to discuss final matters before Staywell and HealthEase submitted their patient
encounter data to AHCA. During the conversation, Bereday expressed concern
about an email Butler had sent in connection with the encounter data reporting
process. Bereday was concerned that Butler had carelessly conceded too much by
suggesting in an email that it would be “misleading” to characterize Harmony as a
provider. Sean Hellein quickly corrected Bereday: “[D]o you understand why they
made that distinction? . . . . [Harmony] is not a provider.” Behrens agreed, “Uh,
that’s right [Harmony] is not a provider of behavioral health services.”
Behrens explained, “You can’t refer to them as a provider because
technically under the, I’ll say, and maybe it’s not the law, but . . . of what, the state
would consider to be a provider, is like somebody that has a license to provide
medical services.” But, he added, “[Harmony] is not licensed to provide medical
services.” Behrens and Hellein agreed that AHCA was concerned with actual
health care services. Harmony did not provide such services and therefore was not
a provider because, as Behrens put it, “[Harmony] doesn’t do the laying on of
hands.” Bereday pressed, “Okay. But it’s a provider to us.” Behrens agreed in a
58
Case: 14-12373 Date Filed: 08/11/2016 Page: 59 of 124
qualified sense: “A provider of services. Just as the electric company is a provider
to us.”
Later that day, WellCare submitted its patient encounter data for Areas 1 and
6. Its cover letter accompanying its encounter data stated vaguely, “Mental health
encounters have been priced based upon the plans’ arrangements for behavioral
health services, including those paid on a capitated basis.” The cover letter still did
not mention that Staywell and HealthEase priced their Medicaid patient encounters
to reflect payments to Harmony rather than to providers of services, even though
Butler had originally suggested that Staywell and HealthEase be forthright about
this fact in their encounter data submissions. At trial, West explained that Behrens
did not want that detail slipped to AHCA. Behrens even suggested that they hold
a meeting after submitting their patient encounter data “to make sure that young
Robert is on message.” West testified that he understood Behrens to mean that
Robert Butler needed to “understand[] that the encounters [had] been priced up to
[Harmony] but he’s not to reveal to the agency the relationship between
HealthEase and Staywell and [Harmony] and the providers.”
C. AHCA Requests Backup
On April 17, 2007, after Staywell and HealthEase submitted their CY 2006
80/20 expense reports, Hazel Greenberg of AHCA emailed Butler. “Thank you for
the filing of the Behavioral 80/20 refund reports and checks,” she said. “The
59
Case: 14-12373 Date Filed: 08/11/2016 Page: 60 of 124
Agency is requesting that HealthEase and [Staywell] submit the encounter data,
with codes and reimbursement amounts for each code, for documentation for the
2006 Community Mental Health and Targeted Case Management Expenses.”
Butler promptly alerted Behrens and Kale, among others.
When West learned that AHCA “want[ed the] backups” to the 80/20
submission, “[d]own to every . . . [p]rocedure code,” he told his colleagues, “[T]he
encounters aren’t gonna get you there.” “[It] goes back to where Paul [Behrens]
was,” he added. “[I]f we cut ’em a check this big, they won’t do anything . . . .
[W]hen they do something, that’s when you gotta pay the piper.” A colleague
responded, “We should have sent them 2 million.” This was the first time AHCA
had requested patient encounter data from Staywell and HealthEase as backup for
their 80/20 expense reports. West was concerned because AHCA was asking for
expenses paid per claim and per Medicaid patient encounter, but Staywell and
HealthEase had not reported their 80/20 expenses based on actual costs in money
paid to Medicaid providers.
On April 19, 2007, Behrens convened a meeting with Yu and West to
discuss AHCA’s request for supporting data. Behrens wanted to include as many
patient encounters and procedure codes as possible, but West favored including
only encounters with procedure codes expressly authorized in the cover letters
accompanying the CY 2006 Worksheets. West also suggested to Behrens that
60
Case: 14-12373 Date Filed: 08/11/2016 Page: 61 of 124
Staywell and HealthEase tell AHCA that they counted the sub-capitation payments
to Harmony as their expenses in their 80/20 reports. West was “shocked” at how
dismissive Behrens was of that idea.
Ultimately, Behrens’s team settled on including as many patient encounters
as possible and including procedure codes that the Worksheet cover letters had not
authorized. Staywell and HealthEase submitted their encounter data unpriced.
This way, if AHCA disapproved of any procedure codes, there would not be
identifiable amounts per procedure code for which AHCA might demand a refund.
As a result, Staywell and HealthEase’s patient encounter data reporting
methodology was inconsistent with their CY 2006 80/20 expense reporting
methodology. For CY 2006, Staywell and HealthEase purportedly did not count
procedure codes beyond those authorized by the Worksheet cover letters, but now
Behrens ordered that those same previously-omitted codes be included. West
testified that he disagreed with Staywell and HealthEase’s approach and that he
expressed his concern to Behrens, whom West described as the ultimate decision-
maker for the encounter data. In response, Behrens assured West that AHCA was
“just going to ask for encounters and [AHCA was] going to put it on a shelf.”
61
Case: 14-12373 Date Filed: 08/11/2016 Page: 62 of 124
Behrens also told West that he “hope[d] the law would come off the books”—that
is, the “80/20 law.”14
Behrens had West draft a letter in reply to AHCA regarding its patient
encounter data request, the content of which Behrens and Yu dictated. West’s
letter explained:
We have stated in our Financial Worksheet for the Calculation of
Behavioral Health Care Ratio for calendar year 2006 that Community
Mental Health and Targeted Case Management Expenses are
contracted on a comprehensive basis. Since the Healthease and
StayWell amount paid is not determined by the encounters submitted
we have not used a pricing method that would force agreement to our
comprehensive payment. It should be noted that not all encounters
have been received for calendar year 2006 and some providers have
not forwarded all encounters due which is still in resolution at this
date.
West’s letter did not disclose that Staywell and HealthEase had included
unauthorized procedure codes in their patient encounter data. More significantly,
the letter failed to disclose Staywell and HealthEase’s use of their Harmony pass-
through reporting method in their 80/20 reports.
D. AHCA Requests Corrections
On June 22, 2007, AHCA’s David Starn emailed Kale and explained that
“the data submitted for Healthease and Staywell for the 2006 80/20 Annual
14
WellCare representatives, including Farha, lobbied lawmakers and other government
officials to repeal the 80/20 law. Those efforts from 2002-2007 proved fruitless. Years later,
effective June 30, 2015, Florida repealed the 80/20 provision from its Medicaid statute. See
2015 Fla. Laws 84, 87 (codified as amended at Fla. Stat. § 409.912 (2015)).
62
Case: 14-12373 Date Filed: 08/11/2016 Page: 63 of 124
Behavioral Health Expenditure report contained many procedure codes and
revenue center codes that are not in our list of valid values for behavioral health
reporting.” Starn added, “Most importantly, there is no Amount Paid for any of the
encounters reported.” (emphasis added). Starn requested that Staywell and
HealthEase resubmit their encounter data with correct information. On June 25,
2007, West alerted Behrens and Yu to Starn’s request.
Later that day, in another secretly-recorded conversation, Kale, West, and
several others discussed how Staywell and HealthEase should respond to Starn’s
message. West explained the problem to his colleagues: “Paul [Behrens] wanted
me to count everything in the encounters. But, our payback was based on not
counting everything. So we had a little over a million dollars to pay back. But
they thought that was, that would satisfy the AHCA gods, and it didn’t.” Kale
commented, “[W]e put stuff in there [the encounter data] that we didn’t even, uh,
support with our payback.” Kale expressed his concern that once AHCA was able
to see what Harmony was actually paying providers and actually spending on
Medicaid patient encounters, AHCA would likely reduce the premium money
flowing to Staywell and HealthEase and accordingly to Harmony. Kale further
commented, “Once it goes away, it’s sure gonna hurt [Harmony’s] income
statement.” Kale later added, “I think the party’s over.” West explained that he
could not send patient encounter data back to AHCA without first walking it past
63
Case: 14-12373 Date Filed: 08/11/2016 Page: 64 of 124
Behrens because Behrens was “the ultimate decision maker” and had “been a
decision maker from the beginning.”
The group also discussed a range of related issues involving the 80/20
expense reports throughout the years. Kale mentioned that he had been involved
with Staywell’s and HealthEase’s 80/20 reporting for five years, and that every
year “[t]he plan is give ’em [AHCA] a something . . . . Throw them a bone.” But
as to whether Staywell and HealthEase had ever been up front with AHCA about
their reporting methodology, Kale admitted, “[U]ltimately we haven’t formally
said, oh, well we have [Harmony].” After the meeting, Kale emailed a Harmony
employee and explained, “[West] is going to start re-pricing the encounters.” Kale
added, “I think this ultimately will lead to Paul Behrens, Thad [Bereday] and
possibly Todd [Farha] weighing in on the strategy to take with AHCA since the
dollar difference is $7-10M.”
West began re-pricing Staywell’s and HealthEase’s patient encounter data.
This time, West used only authorized procedure codes. West “priced up” all of the
Medicaid patient encounters to at least match the 85% premium money Staywell
and HealthEase had paid Harmony as expenses submitted in their 80/20 reports for
CY 2006. As with the earlier submission for Areas 1 and 6, this method allowed
West to evenly spread Staywell’s and HealthEase’s reported 80/20 expenses across
all of their qualifying patient encounters. West testified that, as Behrens described
64
Case: 14-12373 Date Filed: 08/11/2016 Page: 65 of 124
it, West “[s]pread it like peanut butter, spread it across everything.” As a result,
Staywell’s and HealthEase’s patient encounter data was again false and did not
reflect unit costs of Medicaid patient encounters—that is, money paid to Medicaid
providers—which AHCA was obviously requesting.
WellCare resubmitted Staywell’s and HealthEase’s patient encounter data as
back-up for their CY 2006 80/20 expenses. In a letter accompanying the
submission, WellCare failed to disclose that Staywell and HealthEase were
reporting Medicaid patient encounters based on the payments to Harmony rather
than on the money Staywell and HealthEase (through Harmony) paid providers.15
E. Raid on WellCare and Clay’s False Statements
On October 24, 2007, over 200 federal investigators raided WellCare’s
corporate headquarters in Tampa and executed a search warrant of the premises.
During the raid, Clay agreed to be interviewed by two federal investigators, FBI
Agent Vic Milanes and Agent Blair Johnston of the U.S. Department of Health and
Human Services. The agents interviewed Clay in his office for approximately an
hour and a half, discussing issues related to Staywell’s and HealthEase’s 80/20
reports. Agent Milanes asked Clay questions. Agent Johnston later memorialized
15
The government’s brief marshals Rule 404(b) evidence presented at trial showing
Behrens and Clay’s participation in a false expense reporting scheme under a separate Florida
statute, governing the Florida Healthy Kids program. Because the evidence is more than
sufficient to sustain their convictions for their roles in producing Staywell’s and HealthEase’s
fraudulent expense reports, we need not expand this opinion to set forth this Rule 404(b)
evidence. On appeal, no one argues that this Rule 404(b) evidence was wrongfully admitted.
65
Case: 14-12373 Date Filed: 08/11/2016 Page: 66 of 124
the details of the interview in a report. While the notes Agent Johnston took of
Clay’s responses were not verbatim, Agent Johnston testified that he attempted to
use Clay’s own words.
Agent Milanes asked Clay if Staywell and HealthEase had over-reported
their outpatient behavioral health costs to AHCA over the years in order to avoid
paying money back to AHCA. Clay responded that, to his knowledge, they had
not. Agent Milanes also asked Clay whether Staywell and HealthEase had
purposefully inflated the costs of their behavioral health encounter submissions to
AHCA. Clay responded that, to his knowledge, they had not. Agent Milanes then
asked Clay whether he had ever attended a meeting where it was discussed or
suggested that Staywell and HealthEase should inflate the unit costs of their
encounter claims over the actual costs in their submissions to AHCA. Clay
answered that there had been no intentional inflation of costs discussed at meetings
concerning AHCA’s encounter or claims information requests. At trial, Agent
Johnston testified that he did not recall Clay asking for clarification of any
questions Agent Milanes asked him.
After the raid, Kale told West, “[Y]ou have nothing to worry about . . . . I
may have something to worry about, but you have nothing to worry about.” Kale
also reached out to Pearl Blackburn. Kale told Blackburn that “he had made up
66
Case: 14-12373 Date Filed: 08/11/2016 Page: 67 of 124
numbers.” When Blackburn asked why Kale would do that, Kale said that “he
thought he could get away with it” and “that it was a game.”
With this factual background, we now consider the issues on appeal.
V. SUFFICIENCY OF THE EVIDENCE
As to the CY 2006 expense reports, defendants Farha, Behrens, and Kale
challenge the sufficiency of the evidence as to their § 1347 convictions for health
care fraud and defendant Behrens does also as to his § 1035 convictions for
making false representations to AHCA. Clay separately challenges his § 1001
convictions for making false statements to federal agents. All defendants contend
that the district court erred in denying their motions for judgment of acquittal.
A. Standard of Review
We review de novo a district court’s denial of a Rule 29 motion for
judgment of acquittal, “viewing the evidence in the light most favorable to the
government and drawing all reasonable inferences in favor of the jury’s verdict.”
United States v. Martin, 803 F.3d 581, 587 (11th Cir. 2015). “‘The test for
sufficiency of the evidence is identical, regardless of whether the evidence is direct
or circumstantial,’ but if the government relied on circumstantial evidence,
‘reasonable inferences, not mere speculation, must support the conviction.’” Id.(citation and alterations omitted).
67
Case: 14-12373 Date Filed: 08/11/2016 Page: 68 of 124
“It is not enough for a defendant to put forth a reasonable hypothesis of
innocence, because the issue is not whether a jury reasonably could have acquitted
but whether it reasonably could have found guilt beyond a reasonable doubt.”
United States v. Thompson, 473 F.3d 1137, 1142 (11th Cir. 2006). “We will not
overturn a jury’s verdict if there is ‘any reasonable construction of the evidence
that would have allowed the jury to find the defendant guilty beyond a reasonable
doubt.’” Martin, 803 F.3d at 587 (alterations omitted). The jury has exclusive
province over the credibility of witnesses, and we may not revisit the question.
United States v. Hernandez, 743 F.3d 812, 814 (11th Cir. 2014).
B. Health Care Fraud Under §§ 1347 and 1035
Farha, Behrens, and Kale were convicted of health care fraud committed in
CY 2006, in violation of 18 U.S.C. §§ 1347 and 2 (Counts 8 and 9). Section 1347
makes it a crime for an individual “knowingly and willfully” to execute, or attempt
to execute, a scheme or artifice “(1) to defraud any health care benefit program” or
“(2) to obtain, by means of false or fraudulent pretenses, representations, or
promises, any of the money or property owned by, or under the custody or control
of, any health care benefit program” if done “in connection with the delivery of or
payment for health care benefits, items, or services.” 18 U.S.C. § 1347(a).
Section 1347(a) proscribes: (1) fraud on a health care benefit program, here
the Florida Medicaid program, see 18 U.S.C. § 1347(a)(1); and (2) obtaining a
68
Case: 14-12373 Date Filed: 08/11/2016 Page: 69 of 124
program’s money “by means of false or fraudulent . . . representations,” see id.§ 1347(a)(2); accord United States v. Dennis, 237 F.3d 1295, 1303 (11th Cir.
2001) (noting that an offense under the similarly-structured and similarly-worded
bank fraud statute, 18 U.S.C. § 1344, “is established under two alternative
methods”) (citing United States v. Goldsmith, 109 F.3d 714, 715 (11th Cir. 1997)).
The indictment charged Farha, Behrens, and Kale with both types of health
care fraud covered by § 1347. The core fraudulent conduct was generally similar
for both. Specifically, the defendants participated in a scheme to defraud AHCA
by submitting, or aiding and abetting the submission of, false expense amounts in
the CY 2006 Worksheets in order to reduce their AHCA refunds by millions of
dollars. The government thus had to prove that (1) the CMH/TCM expenses
reported in the CY 2006 Worksheets submitted to AHCA were, in fact, false; and
(2) the defendants knew those representations were, in fact, false. See United
States v. Vernon, 723 F.3d 1234, 1273 (11th Cir. 2013) (citing United States v.
Medina, 485 F.3d 1291, 1297 (11th Cir. 2007)).
Behrens was also convicted of making false and fraudulent representations
in matters involving a health care benefit program, in violation of 18 U.S.C.
§§ 1035 and 2 (Counts 4 and 5). Section 1035 makes it a crime for an individual,
“in any matter involving a health care benefit program,” to “knowingly and
willfully” (1) falsify, conceal, or cover up by any trick, scheme, or device a
69
Case: 14-12373 Date Filed: 08/11/2016 Page: 70 of 124
material fact or to (2) make any materially false, fictitious, or fraudulent statements
or representations, or make or use any materially false writing or document
knowing the same to contain any materially false, fictitious, or fraudulent
statement or entry, in connection with the delivery of or payment for health care
benefits, items, or services.16 U.S.C. § 1035(a).
The indictment charged Behrens under § 1035(a)(2) for making, or aiding
and abetting the making of, materially false, fictitious, and fraudulent
representations. The core fraudulent conduct was similar to that charged under
§ 1347. The government had to prove that the CMH/TCM expenses reported in
the CY 2006 Worksheets were, in fact, false and Behrens knew that they were, in
fact, false.
Furthermore, Farha, Behrens, and Kale were charged under an aiding and
abetting theory in their § 1347 health care fraud counts and so too was Behrens in
his § 1035 false representation counts. Regardless of who principally executed the
fraud in CY 2006 or signed the CY 2006 expense reports, the defendants could be
convicted if they aided, abetted, counseled, induced, or procured the commission
of the false representations, or if they willfully caused the false representations to
be committed. United States v. Sosa, 777 F.3d 1279, 1292 (11th Cir. 2015) (citing
16
The term “health care benefit program” has the same meaning in § 1035 as it does for
purposes of § 1347. 18 U.S.C. §§ 23(b), 1035(b). The parties do not contest that the Florida
Medicaid program administered by AHCA meets the definition of “health care benefit program.”
70
Case: 14-12373 Date Filed: 08/11/2016 Page: 71 of 124
18 U.S.C. § 2). “Under 18 U.S.C. § 2, aiding and abetting is not a separate federal
crime, ‘but rather an alternative charge that permits one to be found guilty as a
principal for aiding or procuring someone else to commit the offense.’” Id.C. CY 2006 Reported Expenses Were False
On appeal, Farha, Behrens, and Kale primarily contend that (1) the expense
amounts for CMH/TCM services to Medicaid patients, as reported in the CY 2006
Worksheets, were true, not false, and, in any event, (2) they did not know that
those reported expense amounts were false.
Our extensive review of the evidence above allows for brevity in this
analysis. Abundant evidence established that Staywell and HealthEase reported
false and fraudulent CY 2006 expenses. Staywell and HealthEase never reported
the amounts paid to providers of CMH/TCM services to Medicaid patients or even
the accurate sums paid to Harmony. Both West, WellCare’s own employee, and
Kelly, the forensic accountant, testified that the reported CMH/TCM expense
amounts were false and explained why. In the raid, the government obtained
WellCare’s own internal records that showed exactly what total expense amounts
were paid to providers, and those amounts were millions below what Staywell and
HealthEase reported to AHCA.
Defendants claim their CMH/TCM expense reports were truthful because
the 80/20 rule did not require them to report money paid to health care providers of
71
Case: 14-12373 Date Filed: 08/11/2016 Page: 72 of 124
CMH/TCM services, but allowed them to report what was paid to Harmony.
Defendants’ arguments fail for multiple reasons.
First, AHCA asked and required Staywell and HealthEase to report what
they paid providers of CMH/TCM services—not companies (like Harmony) that
rendered administrative services. The defendants rely on the language of Florida’s
80/20 law, but Staywell’s and HealthEase’s reporting obligations were governed
not only by that law but also by (1) their 2006 contracts with AHCA, (2) the
instructions included on the 80/20 Worksheets, and (3) the specific procedure
codes and instructions in AHCA’s cover letters accompanying the 80/20
Worksheets. Read together, nothing was ambiguous about what Staywell and
HealthEase were required to report on line 2 of the CY 2006 Worksheets.
The 80/20 law was clear. To ensure access to care for Medicaid patients, the
80/20 law mandated that all of AHCA’s contracts “shall require” that 80% of the
premium paid to a health plan must be expended for behavioral health care
services:
To ensure unimpaired access to behavioral health care services by
Medicaid recipients, all contracts issued pursuant to this paragraph
shall require 80 percent of the capitation paid to the managed care
plan, including health maintenance organizations, to be expended for
the provision of behavioral health care services. In the event the
managed care plan expends less than 80 percent of the capitation paid
pursuant to this paragraph for the provision of behavioral health care
services, the difference shall be returned to the agency.
72
Case: 14-12373 Date Filed: 08/11/2016 Page: 73 of 124
Fla. Stat. § 409.912(4)(b) (2006) (emphasis added). The statute made explicit that
if Staywell and HealthEase expended less than 80% of their premium “for the
provision of behavioral health care services,” then “the difference shall be returned
to [AHCA].” Id.Likewise, the 2006 AHCA contract was clear. The contract included an
entire section, titled “Community Behavioral Health Services Annual 80/20
Expenditure Report,” explaining Staywell’s and HealthEase’s 80/20 reporting
obligations.17 The section informed Staywell and HealthEase that 80% of their
premium shall be expended for behavioral health care services, as follows:
1. By April 1 of each year, Health Plans shall provide a breakdown of
expenditures related to the provision of community behavioral
health services, using the spreadsheet template provided by the
Agency (see Section XII, Reporting Requirements). In accordance
with Section 409.912, F.S., eighty percent (80%) of the Capitation
Rate paid to the Health Plan by the Agency shall be expended for
the provision of community behavioral health services. In the
event the Health Plan expends less than eighty percent (80%) of
the Capitation Rate, the Health Plan shall return the difference to
the Agency no later than May 1 of each year.
a. For reporting purposes in accordance with this Section,
‘community behavioral health services’ are defined as those
services that the Health Plan is required to provide as listed in
the Community Mental Health Services Coverage and
Limitations Handbook and the Mental Health Targeted Case
Management Coverage and Limitations handbook.
17
The defendants argue that the 2006 AHCA contract, rather than any of its prior
versions, is the relevant contract for purposes of determining what Staywell’s and Healthease’s
80/20 reporting obligations were for CY 2006. The government does not disagree. We therefore
consider the 2006 contract for purposes of our analysis.
73
Case: 14-12373 Date Filed: 08/11/2016 Page: 74 of 124
Most importantly, the section expressly and precisely described qualifying
expenses under the 80/20 rule. The section explained that “expended” meant
(1) the money paid to “community behavioral health services providers solely for
the provision” of CMH/TCM services and (2) did not include “administrative
expenses or overhead of the plan,” stating:
b. For reporting purposes in accordance with this Section
‘expended’ means the total amount, in dollars, paid directly or
indirectly to community behavioral health services providers
solely for the provision of community behavioral health
services, not including administrative expenses or overhead of
the plan. If the report indicates that a portion of the capitation
payment is to be returned to the Agency, the Health Plan shall
submit a check for that amount with the Behavioral Health
Services Annual 80/20 Expenditure Report that the Health Plan
provides to the Agency.
(emphasis added). Under the transparent, unambiguous language of the statute and
the 2006 contract, Staywell and HealthEase could count money paid to providers,
but could not count administrative expenses or overhead.
The Worksheets and cover letters reinforced the contract’s reporting
requirements and also cited the 80/20 law. They instructed that at least 80% of the
premium had to be expended on behavioral health care services, defined as
community mental health services and targeted case management services. The
instructions in the letters even listed the precise “procedure codes” for those health
74
Case: 14-12373 Date Filed: 08/11/2016 Page: 75 of 124
care services. Each procedure code was tied to a medical service and was not
linked to any administrative or overhead expenses.
Together, the 80/20 law, the 2006 contract, the Worksheets, and the cover
letters posed an unmistakable question to Staywell and HealthEase: What amount
of money did you pay to providers for their CMH/TCM services to Medicaid
patients? They answered that question falsely. A truthful answer would have
caused Staywell and HealthEase to pay large refunds to AHCA.
Further undermining the defendants’ argument, the amounts Staywell and
HealthEase reported were not based on CMH/TCM expenses at all, whether paid to
Harmony or paid to providers. The amounts on line 2 were entirely fabricated and
false figures. Staywell and HealthEase did not report on line 2 the 85% sub-
capitation payments to Harmony, as then no refund would be due to AHCA. To
avoid an audit and AHCA’s discovery that providers were receiving only 45% of
the premium for CMH/TCM services, Farha directed his employees to generate a
refund to AHCA of approximately $1 million, and his subordinates then used
fabricated and false numbers to create the refund amount that Farha wanted. Year
after year, fictitious inpatient and outpatient rates, double counting, premium-
difference machinations, and other arbitrary calculations were used to create a
predetermined refund figure. In CY 2006, that amount was $1.1 million. The
defendants modified line 2 based on the refund amount that Fahra wanted to “pay
75
Case: 14-12373 Date Filed: 08/11/2016 Page: 76 of 124
the Gods” to prevent an audit. Staywell’s and HealthEase’s reported figures were
not based on an analysis of accurate claims data or on a misinterpretation of
qualifying expenses. Rather, Staywell and HealthEase reported expenses based
upon backwards, results-oriented calculations and never reported what they paid
providers of CMH/TCM services to Medicaid patients.
D. Whiteside Decision
The defendants rely heavily on United States v. Whiteside, 285 F.3d 1345(11th Cir. 2002). They argue in effect that, based on Whiteside, regulated
industries and their executives should be protected from the improper
criminalization of routine contractual and regulatory disagreements.
Whiteside, however, is materially different and, if anything, undermines the
defendants’ arguments. Whiteside dealt with an ambiguous regulation for
categorization of debt under 42 C.F.R. § 413.153(b)(1). Id. at 1352. The
Whiteside defendants were convicted of making false statements regarding loan
interest in cost reports submitted to Medicare for reimbursement. Id. at 1345-46.
A regulation prescribed the amount of interest a medical provider could attribute to
the provider’s own capital-related costs, which were reimbursed more favorably.
Id. at 1346. But the regulation did not clarify whether capital-related costs were
those for which the loan money was originally used or those for which the money
was presently used at the time of filing. Id. at 1351-53. The Whiteside
76
Case: 14-12373 Date Filed: 08/11/2016 Page: 77 of 124
defendants’ cost reports classified certain loan-related interest expenses as 100%
capital related. Id. at 1351.
The government contended the defendants’ reporting methodology violated
Medicare regulations, and the defendants were convicted of conspiracy to defraud
the government, in violation of 18 U.S.C. §§ 371 and 2, and making false
statements in applications for Medicare benefits, in violation of 18 U.S.C. §§ 1001and 2. Id. at 1350.
This Court reversed, finding that “competing interpretations of the
applicable law” governing the cost reports were “far too reasonable to justify” the
defendants’ convictions. Id. at 1353. This is because “no Medicare regulation,
administrative ruling, or judicial decision exist[ed] that clearly require[ed] interest
expense to be reported in accordance with the original use of the loan” as opposed
to the use of the loan at the time of filing. Id. at 1352. Because the Whiteside
defendants submitted information based upon a reasonable interpretation of the
regulations, this Court decided that the “government failed to meet its burden of
proving the actus reus of the offense—actual falsity as a matter of law.” Id. at
1353. We stated that “[i]n a case where the truth or falsity of a statement centers
on an interpretative question of law, the government bears the burden of proving
beyond a reasonable doubt that the defendant’s statement is not true under a
reasonable interpretation of law.” Id. at 1351. Additionally, there was evidence in
77
Case: 14-12373 Date Filed: 08/11/2016 Page: 78 of 124
Whiteside that the defendants genuinely believed their interpretation was correct.
Id. at 1348 (noting that “[t]hey firmly believed that the interest was 100% capital-
related”).
In stark contrast to Whiteside, Staywell’s and HealthEase’s reporting
obligations were not governed simply by the Florida 80/20 law itself. Rather,
through the years, AHCA clarified and plainly set forth Staywell’s and
HealthEase’s reporting obligations in their AHCA contracts, the Worksheets, and
the cover letters and instructions attached to the Worksheets. In CY 2006, AHCA
executed new contracts with Staywell and HealthEase, which directly instructed:
“For reporting purposes . . . ‘expended’ means the total amount, in dollars, paid
directly or indirectly to community behavioral health services providers solely for
the provision of community behavioral health services, not including
administrative expenses or overhead of the plan.” The Worksheets came with
cover letters that listed the designated procedure codes for the expenses that could
be included in the reports. None of these procedure codes were for the
administrative services and overhead of Harmony.
The defendants argue that a reasonable interpretation of Staywell’s and
HealthEase’s reporting obligations was that they could report what they paid to
Harmony (even though Harmony provided only administrative services for
Staywell and HealthEase) rather than the roughly 45% amount Harmony paid to
78
Case: 14-12373 Date Filed: 08/11/2016 Page: 79 of 124
providers. But Harmony itself provided no CMH/TCM services to any Medicaid
patients. The defendants’ interpretation ignores the plain meaning of the AHCA
contracts, the Worksheets, the cover letters, and the 80/20 law itself: no less than
80% of the premium for CMH/TCM services was to be spent on the treatment of
Medicaid patients. Indeed, the defendants’ interpretation would strip the “80/20”
requirement in the law and the AHCA contracts of any real meaning. Given the
clarity of the instructions in the 2006 contract, the Worksheets, and the cover
letters containing procedure codes, we conclude that is not a reasonable legal
interpretation of Staywell’s and HealthEase’s reporting obligations for CMH/TCM
expenses.
At any rate, a plethora of evidence established that the defendants never
believed that Staywell and HealthEase could report CMH/TCM expenses this way.
The defendants fully knew that what Staywell and HealthEase were reporting was
not what AHCA requested. We need not further analyze the defendants’ post-hoc
interpretation because, as discussed below, the evidence in the light most favorable
to the jury’s verdict shows that the defendants did not believe it, knew what was
required, and knew their answers were false.
E. Knowledge of Falsity
The evidence overwhelmingly showed the defendants well understood their
CMH/TCM expense reporting obligations and knew that the CMH/TCM expense
79
Case: 14-12373 Date Filed: 08/11/2016 Page: 80 of 124
amounts reported in the 80/20 Worksheets were false. From beginning to end, the
defendants’ knowledge of that falsity remained constant. We discuss the evidence
first as to Behrens and Kale and then as to Farha.
From the outset, Kale knew Florida’s new 80/20 law would affect
WellCare’s profits. He was one of the first to warn his colleagues about it,
estimating that, under the new rule, Staywell and HealthEase might collectively be
required to refund almost $6.5 million in Medicaid payments. The specter of a
multi-million dollar annual refund spurred Farha, Kale, and others to create a
fraudulent scheme to avoid that refund. Kale knew the game plan. He personally
circulated a company slide presentation containing the “Fund Allocation Model,”
which showed that Staywell and HealthEase would each pass 85% of their
premium along to Harmony, but Harmony would pay only 45% of the premium to
providers. Kale knew WellCare had created Harmony to serve as a “conceptual
pass through,” enabling Staywell and HealthEase to report CMH/TCM expenses of
at least 80% and avoid a refund. Kale also knew that Harmony would no longer be
necessary if Florida repealed the 80/20 law.
But Florida did not, and that meant Staywell and HealthEase were required
to comply with the law by annually reporting how much of the premium for
CMH/TCM services was actually paid to health care providers treating Medicaid
patients. That compliance task fell to Behrens. As head of Finance at WellCare,
80
Case: 14-12373 Date Filed: 08/11/2016 Page: 81 of 124
Behrens was the “owner” of the 80/20 reporting project. For the CY 2006
reporting cycle, Behrens again announced that he would “take point.” West and
others on the Medical Economics team regularly met in Behrens’s office to confer,
and the team could not report expenses or issue refunds to AHCA without
Behrens’s approval. The Medical Economics team worked for Behrens, not the
other way around. And while not formally part of the Finance Department, Kale
assisted and advised the reporting project year after year. As Kale candidly
remarked to some colleagues in 2007, every year “[t]he plan [was] give ‘em
[AHCA] a something . . . . Throw them a bone.” So that is what they did. The
defendants’ frank comments, as revealed by company emails and secretly-recorded
conversations, show that they knew creating and using Harmony—to still pay
medical providers only 45% and retain the rest for overhead and profits—
contravened Staywell’s and HealthEase’s compliance obgligations. As Kale
remarked on the eve of Harmony’s creation: “[S]etting up the corporation is easy;
it is the questions that follow . . . that will determine if we create a viable
organization if we were to be audited by AHCA.”
Avoiding an AHCA audit became the defendants’ perennial mission. To
achieve that, Farha and his team set a one-million-dollar refund target—
theoretically just enough to satisfy AHCA and avoid suspicion. As Behrens
81
Case: 14-12373 Date Filed: 08/11/2016 Page: 82 of 124
explained to West in 2007: “[T]he system works good for us. We pay them a
million dollars. That’s enough. They think the system works, and so, that’s it.”
As this 2007 exchange reveals, the defendants sought to avoid any
interaction with AHCA that might disclose Staywell and HealthEase’s fraudulent
reporting methodology. Behrens repeatedly rejected any suggestion that WellCare
contact AHCA about 80/20 or encounter data reporting. As early as 2005, Behrens
knew precisely why there was a large variance between AHCA’s estimate of
Staywell’s and HealthEase’s CMH/TCM expenses and their reported expenses.
But rather than respond to AHCA’s inquiries with a forthright disclosure of their
reporting method as Sanders suggested, Behrens and Kale vetoed Sanders’s letter
and instead perpetuated the fraudulent scheme.
Behrens and Kale knew they were misleading AHCA with Staywell’s and
HealthEase’s 80/20 and encounter data reporting. As Kale admitted: “[W]e’ve
never shot the [Harmony] gun ever. We’ve never had to publically say, this is how
we priced it, this was our methodology, and we have [Harmony] in the middle
getting 85%.” The defendants made sure to keep it that way as long as they could.
And the reason was obvious. As Behrens explained to a colleague in 2007,
“[Harmony] is not a provider of behavioral health services.” That is why Behrens
and his colleagues hoped the 80/20 law “would come off the books.”
82
Case: 14-12373 Date Filed: 08/11/2016 Page: 83 of 124
The defendants knew if AHCA realized that their CMH/TCM expenses were
not nearly as high as they reported, more refunds would be owed and AHCA
would later reduce the premiums too. And so year after year, including in
CY 2006, although they knew Harmony was not a provider of health care services
to Medicaid patients, they continued to report CMH/TCM expenses far in excess of
their actual incurred expenses for CMH/TCM services. As the evidence shows, the
defendants knew Staywell and HealthEase did not even report their full sub-
capitation payments to Harmony, opting instead for a lesser amount through
unsound, results-oriented accounting techniques to settle on an inconspicuous
refund.
The evidence amply showed that the representations as to CMH/TCM
expenses in the CY 2006 expense reports submitted to AHCA were, in fact, false,
and the that defendants knew they were, in fact, false. See Vernon, 723 F.3d at
1273. The evidence was more than sufficient to sustain Behrens’s and Kale’s
convictions for Medicaid health care fraud, in violation of 18 U.S.C. § 1347(Counts 8 and 9), and Behrens’s separate convictions for false representations
relating to health care matters, in violation of 18 U.S.C. § 1035 (Counts 4 and 5). 18
18
Behrens also argues Counts 4 and 5 of the indictment failed to allege the essential facts
of the crime. We reject Behrens’s additional argument that the district court erred in denying his
motion to dismiss Counts 4 and 5 in the indictment.
83
Case: 14-12373 Date Filed: 08/11/2016 Page: 84 of 124
F. Farha’s Role
Farha further challenges his § 1347 convictions, contending that (1) he
played no role whatsoever in preparing, reviewing, or approving the CY 2006
expense reports, and (2) even if he did play a role, the government failed to prove
the criminal intent required to impose criminal liability for health care fraud under
§ 1347.
As Farha notes, under § 1347, the government must show that the defendant
“knowingly and willfully” executed or attempted to execute the fraud. 18 U.S.C.
§ 1347(a). A defendant acts willfully when he acts with “knowledge that his
conduct was unlawful” and acts knowingly if he acts with “knowledge of the facts
that constitute the offense.” United States v. Dominquez, 661 F.3d 1051, 1068
(11th Cir. 2011). In this case, the district court instructed the jury that it must also
find that the defendants acted with “intent to defraud,” defined as “specific intent
to deceive or cheat someone and to deprive someone of money or property.” See
United States v. Klopf, 423 F.3d 1228, 1240 (11th Cir. 2005). And as we have
already explained, with health care fraud charges premised on false and fraudulent
representations, “the defendant must be shown to have known that the claims
submitted were, in fact, false.” Vernon, 723 F.3d at 1273.
In distilling his various arguments, we observe that Farha primarily invites
us to close our eyes to all evidence of his conduct outside the narrow window of
84
Case: 14-12373 Date Filed: 08/11/2016 Page: 85 of 124
time during which Behrens’s team prepared the CY 2006 expense reports. But the
CY 2006 reporting cycle did not occur in a vacuum. In the 80/20 reports for CY
2006, Staywell and HealthEase continued the scheme that Farha set up in prior
years, using Harmony to fraudulently report inflated and false CMH/TCM
expenses. The evidence showed that Farha, as CEO, President, and a WellCare
director, designed and implemented the scheme specifically to defraud AHCA and
ordered his subordinates under his authority to perpetuate the scheme year after
year, including CY 2006.
Farha was fully aware of how the 80/20 rule affected WellCare’s bottom
line, thanks in part to the profitability and refund studies actuary Todd Whitney
produced. Farha hatched a plan to avoid the 80/20 rule’s effects. That plan started
with the creation of Harmony, WellCare’s new wholly-owned subsidiary. Farha
kept regular contact with his team during the summer and fall of 2003. He stayed
informed of the Harmony project’s progress and sent emails to subordinates
rebuking them for moving too slowly. The initial plan, as Farha instructed, was
that Harmony would “be capped at 80% of premium.” Frustrated with his team’s
slow progress, Farha ordered Kale to ensure that Harmony was up and running as
soon as possible. Farha asked, “Why would we delay and increase the amount of
our potential giveback?”
85
Case: 14-12373 Date Filed: 08/11/2016 Page: 86 of 124
Once Harmony was incorporated, Farha became Harmony’s President, CEO,
and director-chairman. Once Harmony was up and running and after the first
round of 80/20 expense reporting, Farha instructed Kale to have the subsidiary
company’s name changed from its original name of “WellCare Behavioral Health,
Inc.” to “Harmony Behavioral Healthcare” so as to “put some distance between
BH [Harmony] and the WellCare name.” Farha knew that the success of the
Harmony scheme depended upon keeping a low profile and avoiding an audit.
The evidence also shows that subordinates at WellCare routinely apprised
Farha of the 80/20 reporting process. Farha knew generally when the 80/20
Worksheets arrived. He knew which employees were taking charge of the reports.
A steady stream of emails kept Farha informed, from which a jury could
reasonably infer Farha’s active oversight and coordination.
In 2004—the year in which Staywell and HealthEase submitted their
CY 2002 and 2003 expense reports—Kale regularly emailed Farha detailed
updates regarding Harmony, some of which concerned WellCare’s strategies in
addressing the 80/20 rule. Farha was frequently in touch with Bereday as well.
Bereday later emailed Farha requesting clearance for Staywell and HealthEase to
submit their finalized 80/20 expense reports to AHCA based on the calculations
produced by the Medical Economics team. Farha gave clearance and signed the
accompanying certifications.
86
Case: 14-12373 Date Filed: 08/11/2016 Page: 87 of 124
Farha stayed involved in subsequent years. For the CY 2004 reporting
cycle, after the 80/20 Worksheets and cover letters arrived from AHCA, Farha sent
an email to Behrens and Kale, among others, saying, “Team, lets [sic] be sure we
handle this one appropriately. Who is on point for this process?” Behrens
responded that he was, along with his team. At one point, Farha and Bereday
discussed a slide presentation relating to the 80/20 rule. The presentation showed
both the expenses Staywell and HealthEase had submitted to AHCA in their CY
2004 reports and their much lower actual qualifying expenses.
Farha’s supervision continued during the CY 2005 reporting cycle. For
example, Farha was privy to an email exchange between Staywell and HealthEase
president Imtiaz Sattaur and Behrens in which Sattaur explained, “[T]he plan is
that we stay consistent to last year’s reporting by utilizing our Harmony BH Sub
methodology, less inpatient costs. We will review the final report with Todd
before we send it to AHCA.” And they did. Before finalizing the 80/20 figures for
the CY 2005 expense reports, Behrens slipped into Farha’s office to confirm that
“1.4 is okay.” Staywell and HealthEase collectively refunded a total of $1.4
million to AHCA for CY 2005. The $1.4 million figure was a fabricated and false
number, which Farha knew.
And it was Farha who gave the annual fraudulent refund targets. For
CY 2002 and 2003, Farha told his subordinates “to find a way not to pay back 10
87
Case: 14-12373 Date Filed: 08/11/2016 Page: 88 of 124
million dollars” as WellCare’s initial refund forecast had projected, but instead, to
“find[] a way to make it zero.” By the time of the CY 2005 reporting year, the
target had moved. Though Clay proposed a methodology that would result in no
refund, Farha insisted on a different reporting strategy, ordering, “No, we’re not
going to do it like that. You have to pay the Gods something.” Instead, they
would “pay back a million.” A reasonable jury could view Farha’s order as
evidence that Farha wanted Staywell and HealthEase to refund just enough to
avoid scrutiny, thereby protecting WellCare’s large ill-gotten profits. 19
Farha’s repeated refusals to allow those at WellCare to disclose to AHCA
that Staywell and HealthEase were reporting sub-capitation payments to Harmony
(rather than reporting what they paid providers for CMH/TCM services) were
additional evidence from which a jury could infer Farha’s fraudulent intent. Farha
participated in efforts by other industry players and the Florida Association of
Health Plans to negotiate 80/20-eligible expenses with AHCA. On multiple
occasions throughout this process, Sattaur urged Farha to disclose to AHCA that
19
Farha offers another take on these statements, arguing that his order to pay some refund
amount rather than no refund should be construed as evidence of prudence and conservativism
motivated by legitimate business reasons rather than evidence of fraudulent intent.
But the jury was free to draw different conclusions regarding Farha’s true motives. The
context in which Farha gave refund targets permits an inference of intent to defraud. Farha’s
predetermined refund targets were inconsistent with Staywell’s and HealthEase’s obligations to
report actual CMH/TCM expenses and refund the difference between actual expenses and 80%.
A jury could reasonably infer from Farha’s ordered predetermined refund targets that Farha
knew the expense figures in the 80/20 expense reports would, in fact, be false. Vernon, 723 F.3d
at 1273.
88
Case: 14-12373 Date Filed: 08/11/2016 Page: 89 of 124
Staywell and HealthEase had been reporting sub-capitation payments to Harmony
since WellCare had not revealed this fact to AHCA. Each time, Farha declined to
do so. Sattaur testified that Farha was confident that through lobbying efforts and
his ability to influence the Secretary of AHCA, the 80/20 law would soon be
repealed and that the issue would blow over. The evidence established Farha also
made sure his subordinates did not disclose Staywell’s and HealthEase’s reporting
practices to AHCA either. At one point, Farha attended an 80/20-related company
meeting regarding the negotiations with AHCA. At that meeting, Michael Turrell,
a WellCare lawyer who worked under Bereday, was told not to disclose to AHCA
or other industry players details that would reveal how Staywell and HealthEase
calculated their 80/20 expenses. Turrell reassured Farha that he had appropriately
screened his comments when communicating with other parties. West similarly
testified that both Behrens and Bereday told him, on different occasions, to not call
AHCA. These exchanges are evidence from which a reasonable jury could infer a
collective policy of secrecy on the part of WellCare’s leadership. Farha’s
insistence on secrecy was evidence from which a reasonable jury could infer
fraudulent intent. 20
20
Defendants emphasize that AHCA approved Staywell’s and HealthEase’s subcontracts
with Harmony. But the Harmony subcontracts do not show, or even suggest, that AHCA knew
that Staywell’s and HealthEase’s reported expenses were manipulated and fabricated figures and
not what they had actually paid providers of CMH/TCM services.
In his reply brief, Farha takes a different tact, arguing that he had legitimate strategic
reasons for not wanting AHCA to discover Staywell and HealthEase’s reporting methodology.
89
Case: 14-12373 Date Filed: 08/11/2016 Page: 90 of 124
From Farha’s exchanges with his subordinates, a reasonable jury could also
infer that Farha continued to be actively involved in overseeing and directing the
80/20 reporting process. Farha’s subordinates routinely checked in with him,
provided him with updates, and received orders about the size of the refund
Staywell and HealthEase were to remit to AHCA. All these communications
confirmed that Behrens’s team continued to prepare and submit the 80/20 expense
reports consistent with Farha’s scheme. There was no need for Farha to
micromanage the 80/20 reporting once he designed the scheme, worked out the
logistics, and delegated the pertinent tasks.
By the CY 2006 reporting cycle, Behrens’s Medical Economics team
handled the particulars in preparing Staywell’s and HealthEase’s expense reports,
and the emails they circulated among themselves did not include Farha.21
Nonetheless, Farha ignores that for CY 2006, he signed a WellCare policy and
procedure document, as he had done before, acknowledging Staywell’s and
HealthEase’s statutory and contractual duties to comply with the 80/20
He argues “it would have signaled that WellCare viewed the BHO question as an open one.”
Farha concludes that “[n]o negative inference can fairly be drawn from the decision not to invite
senior AHCA officials to treat the issue as a subject for negotiation.” Given all the evidence,
however, the jury was not required to accept Farha’s argument. The jury was free instead to
infer that Farha’s posture of secrecy and nondisclosure to AHCA was part of his fraudulent
reporting scheme.
21
Farha was shrewd about paper trails. For example, in 2006, after one of Farha’s
subordinates sent a lengthy email to a number of WellCare personnel about its strategy in
engaging with AHCA regarding the 80/20 rule, Farha wrote back, “[T]his is too large a
distribution for anything confidential. Sensitive items are best handled verbally with those who
must know.”
90
Case: 14-12373 Date Filed: 08/11/2016 Page: 91 of 124
requirements. Farha even signed the refund checks Staywell and HealthEase
issued to AHCA in conjunction with submitting their CY 2006 80/20 expense
reports.
Contrary to his contentions, Farha did more than just devise a scheme to
defraud AHCA or commit a mere act in furtherance of executing that scheme.
Farha was CEO, President, and a director of WellCare. As such, he not only
devised, but implemented and supervised the scheme’s execution year after year.
In fact, Sattaur provided a summary of Farha’s role in the scheme to defraud
AHCA. He explained that after Clay and the Medical Economics team had
calculated Staywell’s and HealthEase’s reported expenses, and after Behrens had
approved their work, “the ultimate sign-off on the approval of whether [an 80/20
report] gets filed with the State would be by Mr. Todd Farha.” Sattaur testified
that Farha, Behrens, and Bereday together were “in charge” of WellCare’s policy
of using the fraudulent reporting method concerning “whether it [was] the right
thing to do.” Sattaur repeatedly urged Farha to disclose to AHCA that Staywell
and HealthEase had reported what they paid Harmony (rather than what they paid
providers through Harmony), but Farha refused. Sattaur explained that he himself
never considered disclosing this fact to AHCA because the decision of what to
disclose to AHCA “was being worked by Mr. Todd Farha and his team of
government affairs.” Sattaur explained that “there was a very tight control over
91
Case: 14-12373 Date Filed: 08/11/2016 Page: 92 of 124
that issue with Todd Farha and his team that if you were to break the plan that they
[had], that would not be a good thing to do.” It “could be tantamount to
jeopardizing your career at WellCare.”
In summary, the evidence sufficiently showed that Farha aided and abetted
the execution of the fraud in the year for which he was convicted, and he did so
knowingly, willfully, and with intent to defraud AHCA. Accordingly, the evidence
was sufficient to sustain his convictions for Medicaid fraud, in violation of
18 U.S.C. § 1347.
G. Advice of Counsel Evidence
Defendants point to communications and testimony by lawyers who worked
for WellCare to claim the defendants were told that their CMH/TCM reporting
method was legal and common practice in the industry.
The evidence showed outside counsel contacted Florida Health Partners
(“FHP”) and learned FHP sub-capitated to “related entities,” and this “seemed”
acceptable “under the 80/20 calculation to AHCA.” The defendants concede,
however, that the “related entities” to which FHP made sub-capitated payments
were actual health clinics that provided medical services. If anything, this showed
the defendants that they should not count money paid to a related company that,
like Harmony, provided no health care services to Medicaid patients.
92
Case: 14-12373 Date Filed: 08/11/2016 Page: 93 of 124
Outside counsel also learned that United Health Plans (“United”) “used”
payments it made to a “related specialty organization” United Behavioral Health
“in connection with the 80/20 calculation.” The defendants ignore that outside
counsel, when reporting to general counsel Bereday, said that though United “did it
in this certain fashion . . . the mere fact that” it did so “doesn’t necessarily mean
that that method is or will be approved by AHCA now or in the future.”
More importantly, outside counsel was asked to “render a clean opinion”
concerning “use of . . . all of the contract expenses between [Staywell and
HealthEase] and Harmony for purposes of meeting the 80/20 requirement.”
Outside counsel was unwilling to give a “clean opinion,” that is, “a legal opinion
that in all probability would be upheld if there were any kind of problems or
allegations or appeals.” WellCare’s former outside counsel testified that, after
refusing to give a clean opinion as to the Harmony reporting method, “the number
of assignments and the . . . work referred to us by the client diminished
dramatically.” Outside counsel testified he told those at WellCare that, if Staywell
and HealthEase were going to use the Harmony reporting method, “they should
(a) tell the agency about it and (b), more importantly, make a rule challenge or
declaratory judgment action, some action to put these disputed . . . policy issues in
front of an impartial officer.”
93
Case: 14-12373 Date Filed: 08/11/2016 Page: 94 of 124
In the light most favorable to the jury’s verdict, this advice-of-counsel
evidence hurts, not helps, the defendants. If anything, outside counsel’s advice
warned the defendants not to use their Harmony reporting method without
informing AHCA. The defendants, however, proceeded in secrecy. This evidence
does not undermine the jury verdict given the abundant evidence of the defendants’
intent to defraud AHCA.
H. Clay’s § 1001 False Statements
Clay challenges his two convictions in Counts 10 and 11 for making false
statements to federal agents, in violation of 18 U.S.C. § 1001. To convict Clay
under § 1001, the government had to prove “(1) that a statement was made; (2) that
it was false; (3) that it was material; (4) that it was made with specific intent; and
(5) that it was within the jurisdiction of an agency of the United States.” United
States v. House, 684 F.3d 1173, 1203 (11th Cir. 2012). Clay argues the
government failed to present sufficient evidence of: (1) falsity, (2) willfulness, and
(3) materiality.
Count 10 of the indictment charged that Clay told federal agents that
Staywell and HealthEase had not over-reported outpatient behavioral health care
expenses to AHCA to reduce the refunds paid to AHCA, when in fact, Clay knew
that the expense figures in the CY 2005 Worksheets were purposefully over-
reported to reduce refunds paid to AHCA. Count 11 charged that Clay told federal
94
Case: 14-12373 Date Filed: 08/11/2016 Page: 95 of 124
agents that Staywell and HealthEase had not purposefully inflated the costs
associated with their behavioral health care encounter data submissions to AHCA,
when in fact, Clay knew Staywell and HealthEase had done so in February 2007.
We consider the sufficiency of the evidence for Clay’s § 1001 convictions.
1. Falsity
Clay’s statements to the federal agents were proven false. 22 Agent Vic
Milanes asked Clay if Staywell and HealthEase had over-reported their outpatient
behavioral health costs to AHCA over the years in order to avoid paying money
back to AHCA. Clay responded that, to his knowledge, they had not. But Clay
knew the opposite was true.
Clay worked with West and others on Behrens’s team to produce the
CY 2005 expense reports. West conferred with Clay in producing the calculations
for the reports, West reported to Clay the results of his work, and Clay was among
those present in Bereday’s office the day West presented his work and WellCare
certified the CY 2005 reports. It was Clay who relayed to West that “Farha wants
to pay back a million” because “[y]ou have to pay the Gods something.” Clay
22
As to the specific § 1001 charges in Counts 10 and 11, the district court instructed the
jury that the government had to prove: (1) “the defendant made a statement as charged”; (2) “the
statement was false”; (3) “the falsity concerned a material matter”; (4) “the defendant acted
willfully knowing that the statement was false”; and (5) “the false statement was made or used
for a matter within the jurisdiction of the department or agency of the United States.” The court
instructed that “[a] statement is false when made if it is untrue when made and the person
making it knows it is untrue.” On appeal, Clay does not challenge the court’s charge as to
§ 1001. To the extent Clay challenges the general part of the jury charge, his claims lack merit.
95
Case: 14-12373 Date Filed: 08/11/2016 Page: 96 of 124
knew Staywell and HealthEase had used both double-counting and premium-
difference calculations in an effort to achieve Farha’s desired result. It was Clay’s
idea to use the premium difference calculation in the first place.
Clay knew that for CY 2005, Staywell and HealthEase combined had
reported $18,462,421 in 80/20 expenses and had refunded only $1,440,449 to
AHCA. Clay also knew that the internal spreadsheets, prepared by West, showed
that Staywell and HealthEase combined had actually paid health care providers
only $12,956,122 for qualifying services. The 80/20 Worksheets and cover letters
instructed Staywell and HealthEase to report money paid to providers of
CMH/TCM services. Clay knew that if Staywell and HealthEase reported $12
million in CMH/TCM expenses, they would owe a refund of $6,946,748. Clay
admitted as much in an email he sent to Behrens just days before the CY 2005
expense reports were certified, stating, “If we took AHCA payments and AHCA
definitions of eligible care we would owe them $6.9 million.”
In Clay’s own words, “the whole reason Harmony exist[ed]” was to “hide”
the “big slug” of profits that Harmony captured for WellCare. Clay summed up
Staywell’s and HealthEase’s approach to 80/20 compliance this way: “Every year
we’ve fed the gods. We’ve paid them a little money to keep them happy. We’ve
paid them a million bucks a year, or whatever.” Clay knew Staywell and
96
Case: 14-12373 Date Filed: 08/11/2016 Page: 97 of 124
HealthEase had over-reported their 80/20 expenses, but he falsely told Agent
Milanes that they had not.
Agent Milanes also asked Clay whether Staywell and HealthEase had
purposefully inflated the costs of their behavioral health encounter submissions to
AHCA. Clay responded that, to his knowledge, they had not. But, again, Clay
knew the opposite was true.
Clay attended secretly-recorded company meetings on both January 16,
2007, and January 29, 2007. At the first meeting, convened to discuss how
Staywell and HealthEase planned to price their patient-provider encounters, Clay
listened as both Robert Butler and Marc Ryan suggested that Staywell and
HealthEase price the encounters based on what Harmony paid health care
providers. Clay heard Butler explain that encounter prices should reflect only
actual costs in money paid to providers, rather than administration, overhead, and
profit for Harmony, because AHCA already built into the capitated rate money for
administration, overhead, and profit.
Clay, however, warned that if they did what Butler said they should do, they
would be in “deep trouble.” Clay offered his take on the encounter data reporting
process: “[T]he state is doin’ this as another end around, to find out how much
money we’re makin’ in that. Which we’ve been finessing, for years.” If they
priced encounters based on what Harmony paid providers, Clay knew it would
97
Case: 14-12373 Date Filed: 08/11/2016 Page: 98 of 124
reveal to AHCA their huge, ill-gotten profits, and Clay feared there would be a
“massive rate cut” in Staywell’s and HealthEase’s premium money. At one point
Clay explained to his colleagues, “[I]f you price [the encounter data] at anything
reasonable, we’re gonna show a 50% loss ratio, and we’re right back to opening
the Kimono.”
As a solution, Clay proposed they instead price the encounters based upon
the sub-capitation payments to Harmony. This method spread the full sub-
capitation sum across all of the encounters and resulted in encounter prices that
were significantly higher than what Harmony, had paid providers of CMH/TCM
services. In the January 29 meeting, Clay told his team, “I think we’re going to
have to put some numbers that are about 40 percent higher than we think they
should be, because we’re making about a 40 percent profit margin. And that’s
what we’re gonna submit . . . . And that’s all there is to this conversation. It’s that
simple.” He later added, “[I]t’s just a matter of how inflated a unit cost number
we’re going to be submitting.” Clay knew Staywell and HealthEase had
purposefully inflated the costs of their behavioral health encounter data.
The jury’s task was to determine what Clay understood the agents to be
asking him and whether Clay knew what he told the federal agents was false. The
98
Case: 14-12373 Date Filed: 08/11/2016 Page: 99 of 124
evidence was more than adequate for the jury to find Clay understood the question
and knew his answer was false.23
It is noteworthy that Staywell’s and HealthEase’s CY 2005 expense reports
for CMH/TCM services contained expense figures calculated using both their sub-
capitation payments to Harmony and Harmony’s payments to providers, a double-
counting calculation method. Even if Clay thought the sub-capitation payments
themselves were a reportable expense (which he did not), he still knew the reported
expenses in CY 2005 involved double-counting and were therefore “over-
reported.”
For example, West’s spreadsheets reveal that for CY 2005, Staywell and
HealthEase collectively paid Harmony $13,507,701, and Harmony paid providers
$12,956,122. In 2006, WellCare executives realized they forgot to update the
Harmony subcontracts so as to pay Harmony any of the additional premium money
Staywell and HealthEase received for the CMH/TCM program expansion. The
$13,507,701 they did pass along to Harmony was enough to account for the
$12,956,122 that Harmony paid providers. But in addition to reporting expenses of
$13,507,701 to AHCA, Staywell and HealthEase double-counted a portion of the
23
Clay invokes the Whiteside decision, but stretches it to mean that the agent’s factual
questions to him were necessarily posed and answered under Clay’s interpretation of the 80/20
rule. Clay argues his denials were true based on his reasonable legal interpretation of the
questions asked, but his interpretation is not reasonable. We reject Clay’s Whiteside arguments
for the same reasons outlined above as to the other defendants, including the fact that the
evidence showed Clay did not believe his post-hoc interpretation anyway.
99
Case: 14-12373 Date Filed: 08/11/2016 Page: 100 of 124
$12,956,122 sum, which was already accounted for in the $13,507,701 figure.
Kelly, the forensic accountant, explained why there was no valid basis for such an
accounting maneuver. Clay knew the 80/20 expenses were over-reported.
As to encounter data, Clay quarrels with the meaning of the word “inflated”
in Agent Milanes’s question. The jury heard that as of the October 24, 2007 raid
on WellCare, federal investigators had already gathered months’ worth of secretly-
recorded company conversations collected by a whistleblower. Though Clay did
not necessarily know that, Clay knew that investigators were executing a search
warrant of WellCare’s corporate headquarters. Clay knew, based on the questions
the agents asked him, that the search concerned WellCare’s 80/20 expense and
encounter data reporting. Agent Milanes’s questions concerned, in part, what had
been discussed at WellCare company meetings that Clay attended. When Agent
Milanes asked Clay whether Staywell and HealthEase had purposefully “inflated”
their encounter costs, Agent Milanes knew that Clay had previously told his
colleagues, “I think we’re going to have to put some numbers that are about 40
percent higher than we think they should be . . . . [I]t’s just a matter of how inflated
a unit cost number we’re going to be submitting.” (emphasis added). 24
24
Clay cites to the encounter template in the contract, which provided that Staywell and
HealthEase were to report the “[a]mount [p]aid” per encounter as the “[c]osts associated with the
claim.” Clay argues that the “[c]osts associated with the claim” reasonably could be interpreted
to be either (1) what Harmony actually paid the provider for the claim or (2) an allocable (larger)
portion of what Staywell or HealthEase paid Harmony to cover the claim, which included
Harmony’s administration, overhead, and profit generated for WellCare. This is not a reasonable
100
Case: 14-12373 Date Filed: 08/11/2016 Page: 101 of 124
Clay had no basis to deny that Staywell and HealthEase had purposefully
inflated their encounter costs. Clay was, of course, free to argue to the jury that he
understood Agent Milanes to be asking something else, but the duties of fact
finding and making credibility determinations belong to the jury alone.25 Our role
is simply to ensure there was sufficient evidence from which a reasonable jury
could find that Clay understood what Agent Milanes was asking and that Clay
knew his denials were false. That evidence was amply sufficient.
2. Willfulness
Clay’s statements to the agents were not only false but willfully made. As to
specific intent, § 1001 criminalizes false statements made “knowingly and
willfully.” 18 U.S.C. § 1001; see also House, 684 F.3d at 1204. The Supreme
Court has said that, to establish a willful violation of a statute, generally “the
Government must prove that the defendant acted with knowledge that his conduct
was unlawful.” Bryan v. United States, 524 U.S. 184, 191-92, 118 S. Ct. 1939,
1945 (1998). Using the pattern instruction, the district court charged the jury that
“[t]he word ‘willfully’ means that the act was committed voluntarily and
purposefully with the intent to do something the law forbids, that is, with the bad
interpretation of the federal agent’s question. In any event, tape recordings of Clay established
that Clay knew the encounter data was inflated.
25
Agent Johnston testified that he did not recall Clay asking for clarification of any
questions that Agent Milanes asked.
101
Case: 14-12373 Date Filed: 08/11/2016 Page: 102 of 124
purpose to disobey or disregard the law.” See Eleventh Circuit Pattern Jury
Instructions (Criminal Cases) 9.1A (2010).
Here, the context of Clay’s statements is important. Clay met with Agents
Johnston and Milanes on the same day that over 200 federal agents streamed
through the doors of WellCare’s corporate office to execute a search warrant.
Agent Johnston testified that when they approached Clay to ask if he would
consent to an interview, Johnston and Milanes would have identified themselves as
federal agents involved with the execution of the search warrant. Johnston testified
that they would have shown Clay their federal credentials and that Clay knew he
and Milanes were federal agents. Johnston testified that he and Milanes also told
Clay they wanted to interview him in conjunction with the investigation of
WellCare. The agents proceeded to interview Clay in his office for approximately
an hour and a half. During this time, other agents continued executing the search
warrant outside Clay’s office. Many of the interview questions Agent Milanes
asked Clay specifically pertained to WellCare’s reporting of the 80/20 expenses
and encounter data.
Clay served as Vice President of Medical Economics under Behrens. He
was closely involved with the preparation of Staywell’s and HealthEase’s CY 2005
expense reports for CMH/TCM services and their February 2007 encounter data
submissions. He fully knew about their reporting obligations to AHCA. Given
102
Case: 14-12373 Date Filed: 08/11/2016 Page: 103 of 124
Clay’s job and the subject of Agent Milanes’s questions, the jury could readily
infer that Clay knew the agents were investigating WellCare’s reporting of its
actual expenses to AHCA. By knowingly making false statements to the federal
agents during the raid, Clay acted willfully. See Bryan, 524 U.S. at 191-92, 118 S.
Ct. at 1945.
Clay argues that the government was required to offer more mens rea
evidence of willfulness. To be sure, the government’s evidence of willfulness was
circumstantial, but “[g]uilty knowledge can rarely be established by direct
evidence, especially in respect to fraud crimes which, by their very nature, often
yield little in the way of direct proof.” United States v. Suba, 132 F.3d 662, 673
(11th Cir. 1998). Mens rea elements such as knowledge or intent may be proven
by circumstantial evidence. See United States v. Santos, 553 U.S. 507, 521, 128 S.
Ct. 2020, 2029 (2008); Suba, 132 F.3d at 673. The government did not need to
rely, and did not rely, on a presumption of willfulness to prove Clay violated
§ 1001. The government presented ample evidence from which a reasonable jury
could infer that Clay acted willfully and with the necessary criminal intent.
3. Materiality
As to materiality, Clay’s false statements concerned the core conduct that
the agents were investigating during the October 2007 raid of WellCare. Clay’s
103
Case: 14-12373 Date Filed: 08/11/2016 Page: 104 of 124
false denials of over-reporting and inflating encounter prices went to the heart of
the matter being investigated and were material.
Contrary to Clay’s contention, the test is not whether the agents were
actually misled. A false statement is material if it has “a natural tendency to
influence, or [is] capable of influencing, the decision of the decisionmaking body
to which it was addressed.” United States v. Boffil-Rivera, 607 F.3d 736, 741
(11th Cir. 2010). “[A] false statement can be material even if the decision maker
actually knew or should have known that the statement was false” or “even if the
decision maker did not actually rely on the statement.” United States v. Neder, 197
F.3d F.3d 1122, 1128 (11th Cir. 1999); see also House, 684 F.3d at 1203 (“[P]roof
of actual influence is not required.”); United States v. Gafyczk, 847 F.2d 685, 691
(11th Cir. 1988) (“[I]n order for a false statement to be material under § 1001, it
need not be shown to have actually influenced the government or caused it any
pecuniary loss.”).
Clay was aware he was being interviewed by federal investigators and that
WellCare was being investigated precisely for the exact conduct he was being
asked about. Clay was a high-level, sophisticated executive at a publicly-traded
company receiving public funds, and he certainly knew that lying to federal agents
investigating the company for health care fraud was unlawful. He was
undoubtedly familiar with the dozens of certifications and warnings that false
104
Case: 14-12373 Date Filed: 08/11/2016 Page: 105 of 124
statements to the government carry criminal liability. Nevertheless, he told the
agents there was no over-reporting and no inflation, despite knowing these things
were not true.
Ample evidence allowed a reasonable jury to find Clay knowingly and
willfully made false material statements to federal agents.
VI. JURY INSTRUCTIONS
Farha, Behrens, and Kale challenge their fraud convictions under 18 U.S.C.
§ 1347 and contend the district court improperly instructed the jury as to their
knowledge that the reported expenses were false.
Regarding the defendants’ § 1347 charges, the district court instructed the
jury that the defendants had to act knowingly, willfully, and with intent to defraud:
A defendant can be found guilty of this offense only if all the
following facts are proved beyond a reasonable doubt:
One, he knowingly executed or attempted to execute a scheme or
artifice to defraud a healthcare benefit program or to obtain money or
property owned by or under the custody or control of a healthcare
benefit program by means of false or fraudulent pretenses and
representations;
[T]wo, the false or fraudulent pretenses and representations related to
a material fact;
[T]hree, he acted willfully and intended to defraud; and
[F]our, he did so in connection with the delivery of or payment for
healthcare benefits, items, or services.
105
Case: 14-12373 Date Filed: 08/11/2016 Page: 106 of 124
(emphasis added). The district court explained that “knowingly” means that “an
act was done voluntarily and intentionally and not because of a mistake or by
accident.” The court charged that “willfully” means that “the act was committed
voluntarily and purposely with the intent to do something the law forbids, that is,
with the bad purpose to disobey or disregard the law.” The instructions thus
advised the jury that it could not find the defendants guilty unless it concluded that
they acted voluntarily, intentionally and with the bad purpose to disregard the law
in executing a scheme to defraud AHCA.
The district court also instructed that “[a] scheme to defraud includes any
plan or course of action intended to deceive or cheat someone out of money or
property by using false or fraudulent pretenses and representations relating to a
material fact.”
The district court then instructed that a “statement or representation is false
or fraudulent if it is about a material fact that the speaker knows is untrue or makes
with deliberate indifference as to the truth and makes with intent to defraud.” The
court added, “A statement or representation may be false or fraudulent when it’s a
half truth or effectively conceals a material fact and is made with the intent to
defraud.” The court explained that “‘[t]o act with intent to defraud’ means to do
something with a specific intent to deceive or cheat someone and to deprive
someone of money or property.”
106
Case: 14-12373 Date Filed: 08/11/2016 Page: 107 of 124
The district court thus told the jury that, as to knowledge of falsity, the
defendants had to either “know” the representations were untrue or make them
“with deliberate indifference as to the truth” and “with intent to defraud.” This
deliberate indifference instruction was tethered to an instruction requiring a finding
that the defendants made the representations “with intent to defraud.”
A. Standard of Review
We review jury instructions “to determine whether the instructions misstated
the law or misled the jury to the prejudice of the objecting party.” United States v.
Gibson, 708 F.3d 1256, 1275 (11th Cir. 2013). We will not reverse a conviction
based on a jury instruction challenge “unless we are ‘left with a substantial and
ineradicable doubt as to whether the jury was properly guided in its deliberations.’”
Id. But “[w]hen the jury instructions, taken together, accurately express the law
applicable to the case without confusing or prejudicing the jury, there is no reason
for reversal even though isolated clauses may, in fact, be confusing, technically
imperfect, or otherwise subject to criticism.” Id. Moreover, the Supreme Court
has admonished that “in reviewing jury instructions, our task is also to view the
charge itself as part of the whole trial,” noting that “[o]ften isolated statements
taken from the charge, seemingly prejudicial on their face, are not so when
107
Case: 14-12373 Date Filed: 08/11/2016 Page: 108 of 124
considered in the context of the entire record of the trial.” United States v. Park,
421 U.S. 658, 675-76, 95 S. Ct. 1903, 1913 (1975). 26
B. Section 1347 Instructions
The defendants argue that the district court erred by instructing the jury that
it could convict the defendants under § 1347 upon finding that the defendants made
false representations in the CY 2006 expense reports “with deliberate indifference
as to the truth.” They argue that the “deliberate indifference” standard is akin to a
“recklessness” standard and impermissibly lowered the bar below what Vernon
and Medina require.
We agree that in a health care fraud case such as this, “the defendant must be
shown to have known that the claims submitted were, in fact, false.” United States
v. Vernon, 723 F.3d 1234, 1273 (11th Cir. 2013) (quoting United States v. Medina,
485 F.3d 1291, 1297 (11th Cir. 2007)). Although the government must prove the
defendant’s knowledge of falsity, a defendant’s knowledge can be proven in more
than one way. Here, the district court properly instructed the jury that a “statement
or representation is false or fraudulent if it is about a material fact that the speaker
knows is untrue or makes with deliberate indifference as to the truth and makes
26
We review de novo the legal correctness of jury instructions, but we review the district
court’s phrasing for abuse of discretion. United States v. Prather, 205 F.3d 1265, 1270 (11th Cir.
2000). Jury instructions are also subject to harmless error review. United States v. House, 684
F.3d 1173, 1196 (11th Cir. 2012). An error is harmless “if the reviewing court is satisfied
‘beyond a reasonable doubt that the error complained of did not contribute to the verdict
obtained.’” Id. at 1197.
108
Case: 14-12373 Date Filed: 08/11/2016 Page: 109 of 124
with intent to defraud.” Representations made with deliberate indifference to the
truth and with intent to defraud adequately satisfy the knowledge requirement in
§ 1347 cases.
The Eleventh Circuit Pattern Jury Instructions for § 1347 support our
conclusion. The pattern § 1347 instruction provides that a “statement or
representation is ‘false’ or ‘fraudulent’ if it is about a material fact that the speaker
knows is untrue or makes with reckless indifference as to the truth and makes with
intent to defraud.” Eleventh Circuit Pattern Jury Instructions (Criminal Cases) 53
(2010). Here, the district court’s instruction mirrored the § 1347 pattern
instruction, except the district court used the even stronger phrase “deliberate
indifference” instead of the phrase “reckless indifference” found in the pattern
instructions. Id. The district court’s language imposed a higher burden on the
government than that suggested by our § 1347 pattern jury instruction.
In the mail and wire fraud context, this Court has said that “[f]raudulent
conduct that will establish a ‘scheme to defraud’ includes knowingly making false
representations” and also “statements made with reckless indifference to their truth
or falsity.” United States v. Sawyer, 799 F.2d 1494, 1502 (11th Cir. 1986); see
also United States v. Simon, 839 F.2d 1461, 1470 (11th Cir. 1988) (“[R]eckless
indifference to the truth . . . supplies the criminal intent necessary to convict . . .
.”); United States v. Edwards, 458 F.2d 875, 881 (11th Cir. 1972) (“Such reckless
109
Case: 14-12373 Date Filed: 08/11/2016 Page: 110 of 124
indifference to the truth of representations is more than sufficient to afford the
government a remedy under the mail fraud statute.”). The district court’s
instruction was not only consistent with the pattern charge but also with this
Circuit’s fraud precedents.
The defendants argue the mail and wire fraud cases are inapplicable because
those statutes do not require, as § 1347 does, that a defendant “knowingly and
willfully execute[] . . . a scheme to defraud.” 18 U.S.C. § 1347(a); see 18 U.S.C.
§§ 1341, 1343. But § 1347 links knowledge and willfulness to a “scheme to
defraud.” See 18 U.S.C. § 1347(a). The government thus had to prove the
defendants both (1) knowingly and willfully executed that scheme to defraud and
(2) made false statements with “deliberate indifference as to the truth” and “with
intent to defraud.” Cf. United States v. Dearing, 504 F.3d 897, 903 (9th Cir. 2007)
(holding that where a court’s “reckless indifference” instruction “was tethered to
the specific intent to defraud element” of § 1347, such an instruction did not negate
the court’s separate instruction that, to convict under § 1347, the jury also had to
find the defendant “knowingly and willingly” executed a scheme to defraud).
Here, the district court properly defined “knowingly” and “willfully” and
made clear the government had to prove that the defendants executed a scheme to
defraud AHCA “voluntarily and intentionally” rather than by “mistake or by
accident” and “with the intent to do something the law forbids.” The district court
110
Case: 14-12373 Date Filed: 08/11/2016 Page: 111 of 124
also linked “deliberate indifference” to “intent to defraud.” The instruction
required the jury to find more than deliberate indifference to the truth; rather, a
finding of deliberate indifference would suffice only if the jury also found that the
defendants made the false statement with intent to defraud. The court then
instructed that “‘[t]o act with intent to defraud’ means to do something with a
specific intent to deceive or cheat someone and to deprive someone of money or
property.” Therefore, under the factual circumstances of this case, to find that the
defendants made representations of expenses in the CY 2006 reports (1) with
deliberate indifference to the truth and (2) with intent to defraud necessarily
required the jury to find that the defendants knew the representations were false.
See United States v. Hough, 803 F.3d 1181, 1197-98 (11th Cir. 2015) (“A crucial
assumption underlying the jury trial system is that juries will follow the
instructions given them by the trial judge.” (alterations omitted)); United States v.
Stone, 9 F.3d 934, 938 (11th Cir. 1993) (“Few tenets are more fundamental to our
jury trial system than the presumption that juries obey the court’s instructions.”).
Further, the trial proceeded under a theory of actual knowledge rather than
deliberate indifference. The indictment charged that the defendants knew the
information in the CY 2006 reports was false. The government’s closing argument
hammered over and over again that the defendants knew what they represented to
AHCA was false. From beginning to end, the government alleged the defendants’
111
Case: 14-12373 Date Filed: 08/11/2016 Page: 112 of 124
knowledge and intent, not mere recklessness. For the jury to convict the
defendants without finding that they knew the expense reports were false would be
to ignore both the district court’s jury instructions and the government’s whole
theory of the case. Viewing the charge as a whole and the entire trial, we find no
error, much less reversible error, in the court’s thorough charge to the jury.
C. Willful Blindness Instruction
The defendants also argue that our circuit’s pattern § 1347 instruction is
inconsistent with the Supreme Court’s decision in Global-Tech Appliances, Inc. v.
SEB S.A., 563 U.S. 754, 131 S. Ct. 2060 (2011). They argue that, under Global-
Tech, the district court should have instructed that the government had to prove
(1) actual knowledge of falsity or (2) at least “willful blindness.” Id. at 769; 131 S.
Ct. at 2070.
First, as the government emphasizes, the district court actually did give a
“willful blindness” instruction consistent with the definition of willful blindness in
Global-Tech. The Supreme Court in Global-Tech said that willful blindness has
“two basic requirements: (1) the defendant must subjectively believe that there is a
high probability that a fact exists and (2) the defendant must take deliberate actions
to avoid learning of that fact.” Id. at 769, 131 S. Ct. at 2071. In the opening part
of its charge, here, the district court similarly instructed that “[i]f a defendant’s
knowledge of a fact is an essential part of a crime, it is enough that the defendant
112
Case: 14-12373 Date Filed: 08/11/2016 Page: 113 of 124
was aware of a high probability that the fact existed and took deliberate action to
avoid learning of the fact unless the defendant actually believed the fact did not
exist.” The district court gave an example to explain “deliberate” action to avoid
knowledge of a fact:
To give you an example from a different kind of case,
deliberate avoidance of positive knowledge, which is equivalent of
knowledge, occurs in a drug case if a defendant possesses a package
and believes it contains a controlled substance but deliberately avoids
learning that it contains the controlled substance so he or she can deny
knowledge of the package’s contents.
So, in such a case, the jury may find that a defendant knew
about the possession of a controlled substance if the jury determines
beyond a reasonable doubt that the defendant, one, actually knew
about the controlled substance or, two, had every reason to know but
deliberately closes his or her eyes.
(emphasis added). The court then admonished: “But I must emphasize that
negligence, recklessness, carelessness, or foolishness is not enough to prove that a
defendant knew about the possession of the controlled substance.” (emphasis
added).
Alternatively, the defendants argue that the district court still erred by
allowing the jury to find knowledge of falsity under the § 1347 pattern instruction
standard of “reckless indifference to the truth and intent to defraud” as opposed to
charging only the Global-Tech standard of actual knowledge or willful blindness.27
27
Behrens (as to § 1035) and Clay (as to § 1001) also argue the evidence was insufficient
to trigger a willful blindness instruction at all. For example, Behrens’s brief (and Clay’s by
113
Case: 14-12373 Date Filed: 08/11/2016 Page: 114 of 124
This ignores that the district court substituted “deliberate indifference” for
“reckless indifference” in the § 1347 pattern charge. That substitution made the
§ 1347 pattern charge much closer to the “deliberate” standard in the willful
blindness charge. The district court never once said “reckless indifference.” The
court explicitly said that recklessness was not enough.
We also reject the claim that Global-Tech alone controls this criminal §
1347 fraud case or creates reversible error here. Global-Tech is a civil patent-
infringement case. In Global-Tech, the Supreme Court analyzed the meaning of
the term “actively induces” in 35 U.S.C. § 271(b), a statute that provides that
“[w]hoever actively induces infringement of a patent shall be liable as an
infringer.” Id. 563 U.S. at 760, 131 S. Ct. at 2065. Global-Tech was not a criminal
fraud case and did not abrogate, conflict with, or preclude the district court from
giving the § 1347 pattern charge in this case. As noted earlier, knowledge of
falsity can be proved in more than one way, and we view the § 1347 pattern charge
adoption) argues that there was no evidence the defendants were aware of a high probability that
their expense reports were false and purposefully contrived to avoid learning the truth. We
disagree and find adequate evidence to warrant the instruction, given their deliberate refusal to
call AHCA at certain important times. Although there was more evidence of actual knowledge,
we cannot say the evidence of willful blindness was non-existent or too sparse. Alternatively,
given the abundant evidence of actual knowledge, any alleged error was harmless for the reasons
outlined in United States v. Esquenazi, 752 F.3d 912, 931 (11th Cir. 2014), and Stone, 9 F.3d at
938-39.
114
Case: 14-12373 Date Filed: 08/11/2016 Page: 115 of 124
as a permissible and acceptable way to prove knowledge of falsity. 28 Considering
the charge as a whole, we conclude that the district court did not err in giving the §
1347 charge in this criminal fraud case.
VII. EVIDENTIARY ISSUES
A. Compensation Evidence
The defendants challenge the district court’s admission of evidence of their
compensation, which the government introduced to prove the defendants’ motive.
The compensation evidence included: (1) the defendants’ receipt of company stock
when hired; (2) the amount of the defendants’ stock bonuses during the period of
the fraud; (3) the defendants’ shares sold during the period of the fraud; (4) the sale
price for up to two stock sales per defendant; and (5) other compensation including
base salary, cash bonuses, and stock options.
We review for abuse of discretion the district court’s evidentiary decisions.
United States v. Brown, 415 F.3d 1257, 1264-65 (11th Cir. 2005). “The district
court has broad discretion to determine the relevance and admissibility of any
given piece of evidence.” United States v. Merrill, 513 F.3d 1293 (11th Cir. 2008).
“[E]vidence of wealth or extravagant spending may be admissible when relevant to
28
See Sovereign Military Hospitaller Order of Saint John of Jerusalem of Rhodes and of
Malta v. Fla. Priory of the Knights Hospitallers of the Sovereign Order of Saint John of
Jerusalem, Knights of Malta, the Ecumenical Order, 702 F.3d 1279, 1291 (11th Cir. 2012)
(declining to import Global-Tech’s standard to analyze a fraud claim outside the specific civil
patent-infringement context with which Global-Tech was concerned, and stating, “We have been
admonished to exercise caution before importing standards from one area of intellectual-property
law into another”).
115
Case: 14-12373 Date Filed: 08/11/2016 Page: 116 of 124
issues in the case and where other evidence supports a finding of guilt.” United
States v. Bradley, 644 F.3d 1213, 1271 (11th Cir. 2011). A district court has
“broad discretion to admit the Government’s ‘wealth evidence’ so long as it aided
in proving or disproving a fact in issue.” Id. at 1270, 1272 (finding no reversible
error where the district court permitted the government to present substantial
evidence of the defendants’ wealth).
The district court did not abuse its broad discretion in admitting this
evidence. First, the district court carefully limited the wealth evidence to evidence
of compensation that depended upon WellCare’s profits. That way, the district
court admitted only what was necessary to show that the defendants had an
incentive to maximize WellCare’s profits. Second, before the government
presented any wealth evidence, the district court instructed the jury to consider
such evidence only to the extent it established financial motive for the defendants
to commit the charged offenses and for no other reason. The district court further
instructed the jury that the defendants’ wealth had nothing to do with whether the
defendants were guilty or innocent of the charges against them. The district
court’s jury instructions guarded against the chance that the jury would draw any
impermissible inferences to the defendants’ detriment. As a result, the district
court admitted only relevant evidence and took steps to mitigate any prejudicial
effect.
116
Case: 14-12373 Date Filed: 08/11/2016 Page: 117 of 124
Additionally, we reject Kale’s complaint that the government’s wealth
evidence was especially prejudicial to his defense because he had only a “modest
compensation alongside Mr. Farha’s rich financial rewards.” The record shows
that the government presented distinct, individualized evidence of each defendant’s
compensation. The admitted evidence showed that Kale’s compensation paled in
comparison to Farha’s. If anything, this evidence helped distance Kale from the
motive evidence. We find no impermissible spillover effects and no abuse of
discretion by the district court.
B. Forensic Accountant’s Testimony
The defendants argue that the district court abused its discretion under Rule
703 of the Federal Rules of Evidence by allowing Kelly, the forensic accountant,
(1) to disclose the fact that WellCare had publicly filed an audited financial
restatement with the SEC and (2) to use any of the content of the restatement in his
calculations and testimony. Rule 703 addresses an expert witness’s opinion
testimony and provides as follows:
An expert may base an opinion on facts or data in the case that the
expert has been made aware of or personally observed. If experts in
the particular field would reasonably rely on those kinds of facts or
data in forming an opinion on the subject, they need not be admissible
for the opinion to be admitted. But if the facts or data would
otherwise be inadmissible, the proponent of the opinion may disclose
them to the jury only if their probative value in helping the jury
evaluate the opinion substantially outweighs their prejudicial effect.
117
Case: 14-12373 Date Filed: 08/11/2016 Page: 118 of 124
Fed. R. Evid. 703. The rule allows experts to base their opinions on “facts or data”
(1) that an expert has “been made aware of or personally observed” or (2) that
experts in the particular field would “reasonably rely on.” Those “kinds of facts or
data” need not be admissible.
In forming his opinions, Kelly reasonably relied on the “facts or data”
contained in WellCare’s audited financial restatement. Even though Kelly’s expert
opinions themselves were admissible, the defendants challenge his disclosing to
the jury (1) the fact that a restatement was filed to correct accounting errors and
(2) certain numbers set forth in the restatement. They contend that these facts were
inadmissible hearsay. The defendants stress that Rule 703 provides that if the facts
or data used by the expert are not admissible, the experts may disclose them only if
the probative value “substantially outweighs” the prejudicial effect. Defendants’
argument fails because the financial restatement was admissible as a business
record under Rule 803(6). Kelly could both use and reveal this evidence.29
Notably too, the facts and data Kelly disclosed from the financial
restatement primarily corroborated his own claims data analyses of WellCare’s
over-reporting expenses and under-paying refunds. For context, Kelly’s testimony
covered: (1) his own review and analysis of WellCare, Staywell, and HealthEase’s
29
The restatement contained comments and addressed issues beyond the scope of this
case. The government offered to redact the restatement, but the district court decided not to
admit it. The district court instead allowed Kelly to testify as to how he relied on and used
certain financial information in the restatement. If anything, the district court’s careful and
practical resolution of this issue underscores how the district court did not abuse its discretion.
118
Case: 14-12373 Date Filed: 08/11/2016 Page: 119 of 124
records, including the claims database; (2) his calculations for each year from
CY 2002-2006 as to the differences between the amounts Staywell and HealthEase
reported to AHCA and what Staywell and HealthEase actually spent on
CMH/TCM services; (3) Kelly’s calculations that the falsely-reported expenses
were $29,920,705 more than the actual CMH/TCM expenses; (4) his own
calculations of the impact of the falsely-reported expenses on WellCare’s annual
financial statements filed with the SEC; and (5) Kelly’s analysis of the inconsistent
80/20 reporting methodologies and Staywell and HealthEase’s use of a results-
oriented reporting methodology that started with a predetermined refund amount
and worked backward to expense figures to reach that result.
After testifying about his own analyses, Kelly explained that public
companies like WellCare regularly file 10-K financial statements with the SEC.
Sometimes public companies conclude that a filed financial statement contains
materially incorrect information. When that happens, the company must file a
restatement with the SEC.
Kelly told the jury that WellCare had restated its financial statement in 2007
to correct accounting errors related to the refunds required under the AHCA
contract. Based on his examination of WellCare’s restatement and Deloitte &
Touche’s working papers, Kelly used audited figures from the restatement and
calculated that Staywell and HealthEase collectively had owed $35,134,000 more
119
Case: 14-12373 Date Filed: 08/11/2016 Page: 120 of 124
in refunds than what they paid from CY 2002 through CY 2006. Kelly also
testified that, for tax years 2004, 2005, and 2006, Staywell and HealthEase’s
combined net income before taxes should have been 13.9% lower in 2004, 8.8%
lower in 2005, and 6.5% lower in 2006 than they reported.
There was no error in admitting Kelly’s testimony about the fact of the
audited restatement’s public filing or about certain financial figures in the
restatement. The district court correctly noted on several occasions, including
when ruling on the defendants’ Rule 703 objection, that the audited restatement
qualified as a business record under Rule 803(6) of the Federal Rules of Evidence.
The audited restatement was a report made in 2007 in conjunction with a detailed
accounting review by those with knowledge of Staywell’s and HealthEase’s books
and records. The restatement is a business record of the accounting review itself
and its review of what Staywell and HealthEase publicly showed for their eligible
expenses during the relevant period of the AHCA contracts. Federal courts
commonly admit audited financial reports that restate earnings and are publicly
filed with the SEC. 30 See, e.g., SEC v. Jasper, 678 F.3d 1116, 1124 (9th Cir. 2012)
(collecting cases).
30
The government argues that any errors as to the restatement should be reviewed for
plain error because the defendants either did not properly object or invited the errors by their
shifting litigation position. We need not resolve those issues as the district court did not abuse its
discretion.
120
Case: 14-12373 Date Filed: 08/11/2016 Page: 121 of 124
Similar to this case, Jasper involved a fraud action in which the SEC alleged
that a company’s former CFO perpetuated a fraudulent scheme resulting in the
company’s significantly overstating its income. Id. at 1119. The Ninth Circuit
rejected the CFO’s argument that the company’s restatement, which the company
filed following an internal investigation after the CFO had left the company, could
not be admitted under Rule 803(6). Id. at 1122-23. See also In re Worldcom, Inc.,
357 B.R. 223, 229 (S.D.N.Y. 2006) (recognizing the admissibility of a financial
restatement under Rule 803(6) and stressing the trial judge’s finding that “the
intense public scrutiny involved in the restatement of WorldCom’s financial [sic]
adequately ensured that the results were trustworthy”). As in Jasper, the
restatement is generally admissible under Rule 803(6).
The defendants also argue WellCare’s restatement was a result not of the
company’s regular practice of a regularly conducted activity but rather of pressure
WellCare faced while under threat of criminal prosecution. The Ninth Circuit
rejected a similar argument in Jasper, where the CFO argued that the company’s
financial restatement should have been excluded because it was “explicitly created
with an eye toward pending litigation.” 678 F.3d at 1123. The Ninth Circuit
disagreed, stating:
This argument has no limiting principle: the filing of an accurate 10-K
was and continues to be a legal requirement for Maxim [the
company]. In today’s litigation-heavy climate, the filing of any 10-K
can always subject companies to legal exposure. That is why lawyers
121
Case: 14-12373 Date Filed: 08/11/2016 Page: 122 of 124
pore over 10-Ks every year at substantial expense to shareholders.
Were this court to accept [the CFO’s] contention, virtually every
document a public company releases to the public would be
inadmissible as a business record merely because companies are
worried about litigation risks. That is not the law under the Federal
Rules of Evidence.
Id., at 1123-24.
While the circumstances in which WellCare filed the restatement had legal
overtones, the process WellCare used to produce the restatement conformed to
regular practice. It is undisputed that Deloitte & Touche conducted an independent
audit in accordance with generally accepted accounting principles. 31 As this Court
has said, the “touchstone of admissibility under the business records exception to
the hearsay rule is reliability, and a trial judge has broad discretion to determine the
admissibility of such evidence.” United States v. Langford, 647 F.3d 1309, 1327
31
Deloitte & Touche’s audit report states:
We have audited the accompanying consolidated balance sheets of WellCare
Health Plans, Inc. and subsidiaries (the “Company”) as of December 31, 2007,
2006, 2005, and 2004, and the related consolidated statements of income,
stockholders’ and members’ equity and comprehensive income, and cash flows
for each of the four years in the period ended December 31, 2007. . . .
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). . . .
The defendants argue that the restatement, though publicly filed with the SEC, was not properly
authenticated by a custodian and thus could not be used at all. The restatement itself, however,
was not admitted and therefore does not require separate authentication. The restatement was
discussed only through Kelly’s expert testimony, and the limited content of the restatement that
Kelly used was sufficiently reliable and admissible for purposes of his testimony. The
defendants were free to cross-examine Kelly on the reliability of the facts and data upon which
he relied.
122
Case: 14-12373 Date Filed: 08/11/2016 Page: 123 of 124
(11th Cir. 2011). Any pressure WellCare experienced when cooperating with
federal and state law enforcement and government agencies goes to the weight of
the restatement’s content rather than to the restatement’s admissibility. Because
the financial restatement was audited by an independent accounting firm, was
publicly filed with the SEC, and was a reliable and relevant business record, we
conclude that Rule 703 does not bar the testimony that Kelly offered regarding the
restatement.
We also reject the defendants’ allegation that they had no opportunity to
alert the jury to circumstances that could cast doubt on the restatement’s
reliability. 32 Defense counsel asked Kelly if WellCare had filed its restatement
“after the company had been raided by 200 agents.” Kelly responded, “Yes, it
was.” Defense counsel continued, “It was when the company was under federal
investigation; right?” Kelly responded, “Yes, that’s true.” Defense counsel
continued to press, “Well, the restatement was done at a time when the company
was under threat of criminal prosecution; correct?” Kelly again, “I believe that’s
right.” Later defense counsel asked, “[S]ometimes companies restate in order to
survive; isn’t that correct?” Kelly answered, “Sometimes companies restate, yes,
to correct their financial statements.” He explained that be it “for purposes of
32
Several months before trial, the district court expressed a preliminary willingness to
allow the restatement to be admitted into evidence. After defense counsel objected, the court
said, “Well, you can notify your forensic accountant that’s maybe an area where the
government’s headed.” The government’s expert forensic accountant’s use of the audited
financial statement was therefore no surprise.
123
Case: 14-12373 Date Filed: 08/11/2016 Page: 124 of 124
getting lending or whatever . . . accurate financial statements are very important.”
Kelly finished, “So, yes, companies do that to survive sometimes.” The defendants
successfully communicated to the jury that external legal pressure may have
motivated WellCare to restate its financials.
By the time Kelly discussed the restatement and certain numbers therein, the
jury already had heard about the false expense reports from Kelly, West, and
internal company records. Kelly’s additional calculations based on the
restatement’s financial information, while probative, were cumulative.
The district court did not abuse its discretion in allowing Kelly to testify to a
limited extent about the restatement.33
VIII. CONCLUSION
For all of the forgoing reasons, we affirm the defendants’ convictions.
AFFIRMED.
33
Kale alone contends that the district court improperly limited his impeachment of Pearl
Blackburn’s testimony and improperly allowed the government’s hypothetical question to
witness Michael Turrell. Kale has not shown any reversible error as to these issues.
124