Citations
- 832 F.3d 1259
Full opinion text
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 Well-Care of Florida, Inc. doing business as Staywell Health Plan of Florida (“Stay-well”) 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.
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 agajnst 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 Heal-thEase, WellCare’s two subsidiaries. William Kale was Vice President of Clinical Services at WellCare. Kale joined Well-Care 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. Counts 2 through 5 charged the defendants with making false statements in Medicaid health care expense reports submitted to state officials,,in 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.
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 Beh-rens and Clay.
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, Fa-rha, 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 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 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.
A. AHCA Contracts
Staywell and HealthEase operated under contracts with AHCA to cover medical and behavioral health care services for Medicaid enrollees. Staywell and Heal-thEase 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 Heal-thEase’s actual costs for covered members.
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 Stay-well 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. Stay-well 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-capitiated 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 servicfes in two coverage and limitations handbooks.
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:
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 Heal-thEase 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 Heal-thEase 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% minimum ratio; and, (5) if line 3 was less than 80%, the refund Stay-well 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 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 Heal-thEase contracts with AHCA, wherein Fa-rha. as CEO repeatedly agreed to the contracts’ underlying terms. ;
C. Profit and Refund Studies
In the spring of 2003, Farha asked Well-Care actuary Todd Whitney to analyze Staywell’s and HealthEase’s profitability as to their Medicaid components. On May 7, 2003, Whitney emailed Fárha 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.
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, or (“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. Heal-thEase 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.” 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 Heal-thEase 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 Heal-thEase 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 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_” Fa-rha 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 inter-company 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 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, 2008, 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.”
In September 2003, WCBH was finally incorporated. Farha was WCBH’s president, CEO, and director-chairman. Beh-rens later became CFO and a director. Kale became Vice President of Clinical Operations. Like Staywell and Heal-thEase, WCBH did not provide any Medicaid-reimbursable health care services.
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:
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. 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. 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 “[proactive 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 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 quicldy.” 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 and one for all of 2003. The Worksheets showed On line 1 the amount of premium AHCA allocated to CMH/TCM services. In a June 3, 2004 email, AHCA reminded Staywell and Heal-thEase 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, Well-Care’s Director of Regulatory Affairs for Medicaid, filled out a “Regulatory Inquiry Routing Form” marked “Follow-up Required: Urgent” with topic “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 Heal-thEase 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 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, 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 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 thd 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 Heab thEase over-reported their expenses by over $7 million and substantially underpaid their refunds.
B. CY 2004 Reports
AHCA renewed its contracts with Stay-well 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, Beh-rens (again, the “owner” of the project), and Kale. In response, on February 14, 2005, Farha emailed a group of people, 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 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 Heal-thEase’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 Heal-thEase’s total respective payments into inpatient and outpatient portions, which West would then manipulate to create his refund scenarios.
West created numerous spreadsheets ti- . tied “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 Stay-well’s and HealthEase’s sub-capitated payments to Harmony, he offset that reduction by 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 Heal-thEase 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. 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 Sattaur, then president of Staywell and Heal-thEase, signed instead of Farha. At trial, however, Sattaur testified that the work of WellCare’s Medical Eeohomics 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 Heal-thEase’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 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 Heal-thEase (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 Heal-thEase’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. 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 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; HOOOIHO ... or T1023HF) and targeted case management (procedure codes T1017; T1017HA; or T1017HK).
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, Well-Care’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 Stay-well and HealthEase’s combined premium. But in CY 2005, West estimated that Stay-well 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 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 Heal-thEase, 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 suNcapitation payments to Harmony of $6,16%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 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 Stay-well 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 “premium difference.” 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 Well-Care 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 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.” 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 desired result, increasing the combined refund total for Staywell and HealthEase to about $1.4 million. As with other aspects of Staywell and Heal-thEase’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 Heal-thEase 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 [Fa-rha] 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.”
Because Sattaur was out that day, Bere-day invited WellCare’s Jim Beermann into his office to certify the Worksheets. Bere-day 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 certificatiqns.
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, Stay-well 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, 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 Beh-rens, 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.
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 Heal-thEase 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.
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 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 Heal-thEase could count in reporting qualifying expenses. The letters admonished: “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, apd 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 AHCA, AHCA would likely just accept Staywell’s and Heal-thEase’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 Well-Care’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 Heal-thEase’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-capitátion payments that Staywell and HealthEase would count as qualifying CMH/TCM expenses.
In the first scenario, West used the amount of the outpatient portion of Stay-well’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 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 calculati