By John Lauro, a white-collar defense attorney who represented one of the WellCare defendants at trial and at the Eleventh Circuit.
On Friday, April 21, 2017, the US Supreme Court will meet in conference to consider a pending petition for certiorari in Farha v. United States, No. 16-888, a major white-collar fraud case raising an important issue of concern to the defense bar and their clients: whether “deliberate indifference” is a sufficient level of mens rea for proving “knowledge” with respect to federal criminal statutes. The High Court should grant review and reverse the US Court of Appeals for the Eleventh Circuit ruling holding otherwise.
Farha is a classic case of overcriminalization, where civil and administrative remedies are more appropriate in the regulatory area of complex healthcare and business law. The case was extensively discussed in prior postings at the WLF Legal Pulse (here and here) and a WLF Legal Backgrounder [hot link to Kaiser’s piece]. In brief, following a raid by 200 FBI Agents at the offices of WellCare, a Florida Medicaid health maintenance organization, several executives, including the CEO, CFO, and general counsel, were indicted on healthcare fraud charges based on the government’s interpretation of Florida’s Medicaid law.
Under Florida’s so-called “80/20 Statute” Medicaid providers who expend less than 80 percent of Medicaid funds for the provision of behavioral healthcare services were required to pay back the difference to Florida’s Agency for Healthcare Administration (AHCA). WellCare, with advice of their counsel and the former head of AHCA, had interpreted the statute and the contract with AHCA to allow the inclusion of funds paid to an affiliate behavioral healthcare organization that provided the services.
Notably, there were no clarifying AHCA regulations that prohibited this reasonable interpretation of the law and contract. All relationships between WellCare and its affiliate, including the market rates paid, were fully disclosed to Florida. In this case, there were no hidden companies, overbilling, or medically unnecessary procedures; nor were there any claims of substandard health care or fictitious patients as there are in typical healthcare fraud cases. Rather the case boiled down to a legal interpretation of a statute and contract.
Nevertheless, federal prosecutors claimed that funds paid to an affiliate should not have been included as part of the 80 percent expenditure formula, despite the lack of any controlling regulations or other legal authority. Indeed, another Medicaid provider had similarly counted funds paid to its affiliate as part of the 80 percent calculation, and it was not prosecuted. Instead, that company was sued civilly and Florida settled the case without obtaining a payback.
The Farha trial lasted three months and the jury deliberated for weeks before reaching a verdict. It acquitted CEO Todd Farha on most of the charges, but found him guilty of one count of healthcare fraud, even though he was acquitted of a false statement count for the same submission that formed the basis of the alleged healthcare fraud charge.
Why the inconsistent and mixed verdict? Here is my theory. The healthcare fraud statute imposes criminal liability for one who “knowing and willfully executes, or attempts to execute” a fraud. Nevertheless, the trial judge charged the jury that it could find Farha guilty of healthcare fraud if Farha was “deliberately indifferent” to the truth or falsity of the alleged false submissions. As a practical matter, this allows a jury to convict based upon negligence or recklessness, rather than the criminal intent or “guilty knowledge” needed for a false-statement conviction. Thus a jury could convict for negligence instead of proving the higher level of criminal intent of “knowledge.” The Eleventh Circuit upheld the conviction, for which Farha was sentenced to three years in prison.
The petition for certiorari filed earlier this year by Seth Waxman of WilmerHale presents the important question of whether “deliberate indifference,” a judge-made standard, satisfies the congressionally mandated level of actual “knowledge.” The petition makes the compelling argument that the “deliberate indifference” standard that the Supreme Court soundly rejected in Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754 (2011), a civil patent infringement case. Indeed, the Global-Tech Court drew upon criminal precedent to rule that “deliberate indifference,” which is akin to recklessness, is not sufficient to show intent to infringe on a patent. Accordingly, if “deliberate indifference” is insufficient in a civil context, all the more it should be rejected in the criminal context, where prosecutors often bring criminal charges in what are really civil regulatory or contract cases.
Interestingly, in response to the petition, the government seems to have shifted its position: it acknowledges that “deliberate indifference” should not satisfy the “knowledge” element of the healthcare fraud statute (contrary to the Eleventh Circuit’s decision below), but instead argues that the fraud statute does not require an accused to “know” that submissions made to an agency were in fact false. This presents an interesting issue for the Court—can someone be guilty of a healthcare fraud scheme when they do not know that the statements made in furtherance of the alleged scheme are indeed false? The question has particular importance for Farha, since he was actually acquitted of the purported false statements that formed the only basis of the healthcare fraud conviction.
With Justice Neil Gorsuch now taking his seat on the bench, he promises to be a welcome addition to the Court for his views and jurisprudence on mens rea and criminal law issues, including overcriminalization, as I have recently discussed elsewhere.
Because of the importance of the mens rea issues, this case has gathered broad amicus curiae support from national organizations during the appeals process, including the National Association of Criminal Defense Lawyers, the Cato Institute, the Reason Foundation, the Washington Legal Foundation, and 17 prominent criminal law professors. In addition, the Federalist Society has published about the case and hosted several Teleforum events. All of the amicus briefs and published articles about the case are posted on the NACDL webpage.