TAMPA — Citing a lack of a criminal record and a promising career that has been ruined, a federal judge Monday sentenced former WellCare CEO Todd Farha to three years in prison for medical fraud, a sanction far below the one recommended by federal sentencing guidelines.
Two other former executives, Paul Behrens, who served as WellCare’s chief financial officer and William Kale, who was vice president of a WellCare subsidiary that was at the center of the fraud, each got lesser prison sentences. Behrens was handed a two-year prison sentence; Kale was sentenced to one year and a day. Farha was fined $50,000, which the judge ordered to be paid immediately.
A fourth defendant, Peter Clay, was placed on probation.
The charges were brought after federal investigators raided WellCare’s sprawling campus in northwest Hillsborough County, collecting computer records and documents that outlined a scheme to defraud the federal government of more than $30 million between 2003 and 2007.
All four were convicted at a trial nearly one year ago of various charges involving medical fraud, conspiracy and making false statements. The jury deadlocked on several other charges.
The pre-sentence report recommended a prison term for Farha of between 10 and 121⁄2 years; for Behrens, between nine and 11 years and between 61⁄2 and eight years for Kale.
Clay, convicted of two counts of making false statements and considered a minor player in the scheme, was handed a sentence of five years probation and fined $10,000.
Just before the sentences were announced by U.S. District Judge James Moody, Farha stood in front of a packed courtroom, filled mostly with supporters, and told the court: “I just want to let you know how sorry I am and how much shame I feel about this case.
“I never imagined I would be before you,” he said. “I’ve worked hard my whole life trying to do the right thing. I realize I made serious mistakes.”
At the trial, which lasted about 10 weeks, prosecutors listed more than 100 witnesses and presented reams of evidence in the form of emails, electronic spreadsheets and accounting ledgers. Jurors deliberated for weeks before handing up the verdicts.
WellCare paid $40 million in restitution and another $40 million to the federal government after its former executives were charged. Today, the company remains one of the nation’s more lucrative public health plan providers, earning $44 million during the first quarter of 2014.
Its stock faltered in 2008 after the executives were charged, but that may have been because of the overall slump in the economy and not because of the charges, Moody said.
WellCare deals exclusively with Medicare and Medicaid claims, and prosecutors said the indicted executives, led by Farha, formed Harmony Behavioral, described as a “shell company,” to inflate the costs for behavioral health care services.
WellCare and other managed health care corporations that process Medicare and Medicaid claims are allocated a certain amount every year through the state’s Agency for Health Care Administration. The companies are allowed to keep 20 percent of that amount for administrative costs and profit.
The remaining 80 percent pays providers for the health care services. Unused money must be returned to the Agency for Health Care Administration. Prosecutors said the former WellCare executives created fake expenses to make the books look as though the company was spending all or nearly all of the 80 percent, when expenditures actually were far less.
The result, prosecutors said, was explosive profits, which caused the stock of the publicly traded company to soar.
Defense attorneys disputed the allegations, saying no crimes were committed and all the business practices of WellCare under the executive staff were legitimate and within the law.
Farha, who holds an MBA from Harvard and started at WellCare in 2002, went by the books in incorporating Harmony Behavioral, defense attorneys said, and hired a bevy of outside consultants to make sure everything was legitimate.
The charges stem from a disagreement between the Agency for Health Care Administration and WellCare over how claims were processed, defense attorneys argued.
Farha told Moody on Monday that he was 34 when all this happened and that his position at WellCare was his first CEO job.
“The implications of these decisions seemed very small at the time,” he said. “I’ve lived with this case day and night for six years. I’ve learned painful life lessons and although I stand convicted, I believe I still can make positive contributions to this community.”
Behrens did not address the court, but Kale said: “I never imagined that this is how my career would end.”
Assistant U.S. Attorney Jay Trezevant said these were serious charges and not the result of a simple mistake or momentary lapse in business or accounting judgment.
“It was a plan concocted and executed over years,” he said. “There were multiple opportunities for each defendant to bring this to a halt, and each and every time, they rejected that in favor of continuing the scheme. It was not an isolated incident.”
Moody decided to go well below the recommended sentencing guidelines for all four ex-executives, saying the action that brought about the charges “was a complete aberration of the lives and careers of these defendants. They made a mistake and it was a costly one.
“They have been punished in the community and this has been a blow to their reputations; who they were as individuals,” Moody said. “They will never be able to re-establish their careers.”
The judge said the $30 million-plus defrauded from the government was a small part of the overall revenue of WellCare at the time, which was estimated to be $25 billion, and that none of the bilked money went directly into the pockets of the defendants.
And, the judge said, none of the defendants appears to be a risk of committing new crimes.
Moody allowed the defendants to voluntarily turn themselves in and remain free pending any appeals that may be filed.