John J. Park, Jr., Of Counsel, Strickland Brockington Lewis LLP, provides a preview of the Clay v. United States case for an upcoming Courthouse Steps Teleforum Call: Regulatory Crimes: Clay v. U.S. Oral Argument.

Join us on Friday, October 2 at 3:00 p.m. Eastern to hear Mr. Park and Paul D. Kamenar, senior fellow at the Administrative Conference of the United States, discuss Clay v. United States and regulatory crimes. ...

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On October 2, the Eleventh Circuit Court of Appeals will hear oral argument in United States v. Clay, a case that raises important questions about the nature of regulatory prosecutions. In particular, it presents issues that relate to what conduct constitutes a crime and what mental state is required to prove criminal conduct. These issues take on added importance in the light of the recent announcement of a new “get-tough policy” directed at corporate officials and employees by the US Department of Justice.

Prosecuting corporate officers and employees for their criminal conduct in the same way that other criminals are prosecuted for their wrongdoing serves the interests of justice. However, the core of determining whether someone is guilty of criminal conduct is not who the actor is, but whether that person did something that the law forbids (actus reus) with criminal intent (mens rea). Laws and regulations define the acts and states of mind which make conduct criminal, and those laws and regulations should provide clear notice of what conduct is subject to criminal sanctions. Without such notice, any prosecution is unfair and violates due process, especially when someone makes a reasonable response to an ambiguous or ill-defined government regulation or contract provision.

Clay arises out of a contract between WellCare, a publicly traded company, and the State of Florida pursuant to which WellCare provided behavioral health services to Medicaid recipients. That contract was governed, in the first instance, by Florida law and regulations. In pertinent part, Florida law required that its behavioral healthcare providers spend no less than 80% of the premiums they receive “for the provision of behavioral healthcare services.” Florida did not issue regulations addressing how that 80% threshold was to be calculated.

WellCare created a subsidiary to provide behavioral healthcare services. It paid slightly less than 80% of the premiums it received to the subsidiary to provide behavioral healthcare services and reimbursed the rest to Florida. 

WellCare didn’t pull its decision on how to provide services out of thin air. Rather, it was made with the input of WellCare’s attorneys, including outside counsel who formerly worked for the Florida regulators and wrote the Florida Medicaid law. In addition, some of WellCare’s competitors also counted payments made to affiliated organizations as part of their 80% obligation, and they were not prosecuted. Finally, when the case was tried, three lawyers called by the prosecution as witnesses testified that WellCare’s arrangement was a reasonable way of meeting Florida’s 80-20 requirement. 

The case was tried because the United States believed that WellCare was guilty of healthcare fraud. It brought false-statement and healthcare-fraud charges against four WellCare executives with respect to their submissions to Florida in five calendar years. In that regard,  18 U.S.C. § 1347, enacted in 1996, prohibits the “knowing and willful execut[ion] or attempt[ed] execution of 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, in connection with delivery of or payment for health care.

After the jury deliberated for weeks, three Wellcare executives were convicted of fraud for the payments it made to its subsidiary in 2006, one of those five calendar years; the jury could not reach a verdict on the remaining charges or they were acquitted of them.  

In the absence of any clear Florida statute or regulations, the WellCare executives ask how WellCare’s decision to provide behavioral healthcare services through an affiliate became criminal fraud on their parts? It’s not that WellCare fraudulently billed Florida for non-existent patients or provided substandard services. Nor should it be relevant that WellCare was profitable; there’s nothing criminal about making money, and publicly traded companies are in business to make a profit for their shareholders. It can only be criminal if Florida law and regulations make it so. 

The Eleventh Circuit will have to decide whether a crime was even committed. A decision in favor of the Wellcare executives will send a message that the government should look to its civil and administrative remedies before turning a contractual dispute into a criminal case—especially when businesspeople respond reasonably to regulations. A decision in favor of the government will presage additional regulatory prosecutions in which the same questions of criminal act and intent will present themselves. 

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Learn more about the upcoming Courthouse Steps Teleforum Call: Regulatory Crimes: Clay v. U.S. Oral Argument.