United States v. Peter E. Clay
2016 U.S. App. LEXIS 14805
| 11th Cir. | 2016Background
- WellCare executives (Farha, Behrens, Kale, Clay) oversaw two Florida HMOs (Staywell, HealthEase) that submitted annual "80/20" expense Worksheets to the Florida AHCA showing amounts spent on outpatient behavioral health (CMH/TCM); if <80% expended, the HMO owed a refund.
- WellCare created a wholly owned subsidiary (Harmony) and designed a pass-through/sub-capitation scheme (85% pass-through; Harmony paid much less to providers) to preserve corporate profits and reduce refunds.
- Medical Economics at WellCare prepared annual 80/20 Worksheets using results‑oriented, inconsistent calculations (double‑counting, "premium difference," artificial inpatient/outpatient splits) to produce a modest, predetermined refund (≈$1M) rather than reporting what providers were actually paid.
- AHCA asked for encounter data and identified discrepancies between reported 80/20 expenses and encounter-derived costs; WellCare chose to price encounters to reflect payments to Harmony and withheld the true methodology.
- Federal raid (Oct. 2007), undercover recordings, internal emails, and forensic accounting showed substantial over-reporting of expenses (CY 2002–2006 ≈ $29.9M inflated) and underpayment of refunds; jury convicted Farha, Behrens, Kale (health‑care fraud §1347; Behrens also §1035) and Clay (§1001). Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of evidence for §1347 (CY2006 expense reports) | Gov: reports were false, defendants knew and intentionally submitted them to reduce refunds and obtain/keep Medicaid funds | Defs: reported figures were lawful or reasonably interpretable (could report payments to Harmony); lacked knowledge of falsity | Affirmed: ample circumstantial and documentary evidence showed reports were false and defendants knew/acted with intent to defraud |
| Behrens §§1035 false statements in CY2006 Worksheets | Gov: Behrens knowingly made materially false statements to AHCA about expenses | Behrens: reasonable interpretation of reporting rules; insufficient proof of knowledge | Affirmed: jury properly found falsity and knowledge; advice‑of‑counsel did not absolve conduct |
| Clay §1001 false statements to federal agents (2007) | Gov: Clay lied during raid about over‑reporting and inflation of encounter prices; tape and emails show contrary knowledge | Clay: questions ambiguous; Whiteside warrant for reasonable regulatory interpretation | Affirmed: records, recordings, and Clay’s role supported falsity, willfulness, and materiality |
| Jury instructions (knowledge standard for §1347) | Gov: instruction allowed proof of knowledge by deliberate/reckless indifference and willful blindness; appropriate | Defs: instruction lowered mens rea below required actual knowledge (relying on Whiteside/Global‑Tech) | Affirmed: charge (including deliberate‑indifference and willful‑blindness tethered to intent to defraud) was proper and the evidence supported actual knowledge; any error harmless |
Key Cases Cited
- United States v. Vernon, 723 F.3d 1234 (11th Cir.) (knowledge of falsity required for health‑care fraud convictions)
- United States v. Medina, 485 F.3d 1291 (11th Cir.) (discussing knowledge requirement for healthcare fraud)
- United States v. Whiteside, 285 F.3d 1345 (11th Cir. 2002) (reversing convictions where reasonable regulatory interpretation made falsity legally uncertain)
- Global‑Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011) (defining willful blindness standard)
- Bryan v. United States, 524 U.S. 184 (1998) ("willfully" requires knowledge that conduct was unlawful)