Recent Case Update: Due to a change in Department of Justice Policy, the WellCare case would not even be charged today. In 2018, DOJ revised its charging decision policies to reflect that criminal enforcement actions must be based on violations of applicable legal requirements, and not, as in the WellCare case, based “solely on allegations of noncompliance with guidance documents.” In the WellCare case, prosecutors relied heavily on informal and non-binding state agency “guidance” letters interpreting the 80/20 statute that were issued by AHCA. The prosecution treated these letters as if they constituted the law and as if failing to follow them were a crime. The indictment quoted the letters at length, and the prosecution relied on them in their opening arguments to contend that the WellCare executives had committed a crime – even though the letters were nothing more than AHCA’s position on a disputed issue of law.
United States v. Clay is a 2013 case that demonstrates the troubling effects of overcriminalization. The case revolves around WellCare, a health care company that provided, among other things, behavioral health services to Medicaid patients in Florida. At the time, the state had what was known as the 80/20 statute, which required these providers to spend 80 percent of their funding for the “provision of care.” However, the law provided no guidance as to which expenses fell into the category of providing “care.” This ambiguity, and the lack of clarifying state regulations, served as the basis for federal prosecutors to bring serious criminal charges for what was, at most, a regulatory dispute: Overcriminalization.
Like many other healthcare providers in Florida, WellCare established a subsidiary – Harmony – that delivered services to patients. WellCare included payments to its subsidiary, a practice that was common among providers with similar structures in its reporting for 80/20 purposes. It was never disputed that these payments were at market rates, nor were there any claims that the subsidiary provide substandard care. In fact, a state audit of Harmony detailed that Harmony “exceeded requirements” in its care delivery.
In 2007, after a whistleblower complaint, the FBI raided the company, confiscating records and computers, and the government charged five of the organization’s executives.
The WellCare executives argued at trial that they had interpreted Florida’s ambiguous 80/20 law in a way that was reasonable. In fact, their lawyers had advised them that their interpretation was an available one and was reasonable. Even government officials testified that their interpretation of the law was reasonable. Moreover, the case United States v. Whiteside set a precedent that a statement is not considered false if it is made based on an “objectively reasonable interpretation” of a law. This precedent was not properly applied in United States v. Clay.
The case against WellCare grew murkier when the district court essentially asked the jury to interpret the complexities of the vague 80/20 statute—when typically, judges decide answers to legal questions and juries decide answers to factual questions. In the end, the WellCare executives were convicted of health care fraud and related offenses, and they received jail time.
Even more troubling was the fact that the prosecution based its case on informal state agency “guidance” letters interpreting the 80/20 statute — even though such guidance is not binding under state law and under current DOJ regulations cannot be used as a basis for prosecution. On January 25, 2018, the U.S. Department of Justice issued a policy memorandum stating that the department “may not use its enforcement authority to effectively convert agency guidance documents into binding rules.” From that date on, federal prosecutors are no longer permitted to “use noncompliance with guidance documents as a basis for proving violations of applicable law.” Thus, this prosecution, which was inextricably bound up with the theory that the WellCare executives had violated the state agency’s interpretation of the 80/20 statute, as expressed in a guidance document, would never have been brought today.
Another troubling factor is that in the WellCare case, the trial and appellate courts reduced the standard for “knowledge.” The jury was allowed to convict, not if the executives knew their approach was incorrect, but if the jury believed the executives simply had “deliberate indifference” to the interpretation of the 80/20 requirements. That level of knowledge standard (or mens rea) was essentially a negligence standard, one that was rejected by the Supreme Court even in a civil patent dispute case as insufficient to show intentional conduct. Unfortunately, the Supreme Court declined to hear the case despite supporting briefs filed by public policy organizations and over a dozen noted criminal law professors.
This case has been highlighted by public policy organizations, defense lawyers and criminal law professors as a case of overcriminalization for many reasons:
- The Federal Prosecutor applied criminal law to solve a regulatory interpretive matter.
- The state was required to issue clarifying implementing regulations, but never did.
- The state regulator discussed clarifying the 80/20 requirements but never did.
- The prosecution was based on informal state agency “guidance” even though such guidance is not is not binding under state law – and under current DOJ regulations cannot be used as a basis for prosecution.
- Lawyers for the company approved and structured the transaction in question.
- The Government could not point to any law or regulation that prohibited the company’s interpretation of the 80/20 law.
In short, CEO Todd Farha and the WellCare executives were prosecuted and convicted for a crime the federal government created, after the state agency failed to fulfill its obligation to provide clear regulation as to what the statute required. They acted consistent with counsel’s advice and consistent with the practice of competitors, none of whom was prosecuted or even sanctioned. This case demonstrates the troubling ramifications of overcriminalization by highlighting the government’s ability to punish people for their interpretations of complex, vague laws—even when their interpretations of these laws are reasonable and there is no willful or corrupt intent.
For more information on this case, including briefs and podcasts, visit NACDL –https://www.nacdl.org/Content/usvclay
See also Curing America’s Addiction to Overcriminalization by Brett Tolman, Bloomberg Law (October 19, 2020)