Top Counts Dropped Against Former Executive in Medicaid Fraud Case

Daniel Wise

New York Law Journal

Citing a legislative drafting glitch, a state judge has thrown out the top two charges in a 15-count fraud indictment against a former executive of the largest Medicaid managed-care provider in New York.

Acting Supreme Court Justice Lewis Bart Stone of Manhattan dismissed two counts of first-degree insurance fraud against the former chief operating officer of the managed care company, Healthfirst, which in September settled civil charges with the New York attorney general's office by paying $35 million and revamping its top management.

Though the relief provided by Justice Stone in People v. Boothe, 2237/08, was limited to dismissal of the two insurance fraud counts, as a practical matter he nullified a 1998 amendment to make health insurance fraud a Class B felony in addition to "commercial" and "personal" insurance frauds.

Class B felonies are punishable by a maximum sentence of 8 1/3 to 25 years in prison. With the dismissal of the two Class B felony-level counts, the former Healthfirst executive, James O. Boothe, now faces a top sentence of 1 1/3 to four years.

Stone also narrowed the indictment, dismissing four out of the remaining 13 counts. Those rulings mean that Boothe is headed for trial on nine counts of offering a false instrument for filing in the first degree.

Aside from the two dismissed insurance fraud counts, all of the remaining counts of the indictment were Class E felonies.

Healthfirst had contracts with New York City and Suffolk and Nassau counties to enroll in managed care plans people poor enough to qualify for the state's Medicaid program. Fee-for-service Medicaid plans allow individuals enrolled in the program to use any doctor willing to accept Medicaid reimbursement rates. Medicaid managed-care plans have a roster of doctors and other medical providers that individuals in the plans must use.

Through two subsidiaries, Healthfirst also contracted with counties to operate Medicaid managed-care plans.

The office of New York Attorney General Andrew Cuomo accused Healthfirst of violating a contractual provision requiring that it reimburse its employees upon the quality of their work and not upon the number of people they enrolled in the plans.

Rather than adhering to the contractual requirement, Cuomo contended that Healthfirst had offered bonuses and other compensation to its employees based on the number of people they signed up.

Moreover, Cuomo charged that Healthfirst had concealed the practice by filing required marketing plans with the counties that hid the fact that compensation was tied to the number of persons enrolled.

According to the attorney general, by tying compensation to employee productivity, Healthfirst had compromised the integrity of the enrollment process.

In May 2007, as it was negotiating a settlement of possible civil claims with Healthfirst, the attorney general's office obtained the indictment against Boothe, who then resigned.

In a statement issued by the state agency on Sept. 8, it declared that its Medicaid Fraud Control Unit had uncovered "enrollment fraud committed by certain of [Healthfirst's] former marketing representatives."

CIVIL SUIT SETTLED

Motions to dismiss the criminal charges against Boothe were before Stone when the attorney general announced a settlement of the civil suit in September. In addition to the $35 million payment, the company hired a new president, chief executive officer and a replacement for Boothe as chief operating officer.

In dismissing the two felony counts of first-degree insurance fraud, Stone noted that until 1998 a fraudulent insurance act that was made a Class B felony in Penal Law §176.30 was defined in another section of the Penal Law as a fraud relating to either "commercial" or "personal" insurance [PL §176.05(1)]. The 1998 amendment also added a new section, Penal Law §176.05(2), defining "a fraudulent health insurance act."

The problem, Stone concluded, was that the language in the provision creating the crime of first-degree insurance fraud -- making the commission of "a fraudulent insurance act" a Class B felony -- remained the same and failed to incorporate the new definition of "a fraudulent medical insurance act."

Before then-Gov. George E. Pataki signed the new law, which contained 47 provisions, only three of which related to the Penal Law, Stone noted, the governor was warned by his Division of Criminal Justice Services that it failed to carry out its intended purpose of making health insurance fraud a Class B felony under the statute.

"The Governor apparently found the remainder of [the new law] more important and beneficial to the state and its citizens than the need to cure the ineffectual attempt to criminalize a fraudulent health insurance act," Stone wrote.

In 2003, as a part of its legislative agenda, Stone also noted, the court system proposed an amendment to expressly incorporate the definition of "a fraudulent health insurance act" into the Class B felony of insurance fraud.

Without the change, the court system wrote in its 2003 agenda memorandum, an "apparent oversight" by the Legislature had "effectively rendered" the 1998 amendment a "nullity."

Stone noted that the Legislature has taken no action to remedy the defect despite the conclusions of both the Division of Criminal Justice Services and the court system.

4 OTHER COUNTS DISMISSED

Stone also dismissed the single count in the indictment of a scheme to defraud in the first degree because he found there was no evidence the concealed compensation system had personally benefited Boothe.

A scheme to defraud, as set forth in Penal Law §190.65, requires that a person engaged in the fraudulent scheme "obtain" a benefit of more than $1,000.

Similarly, Stone dismissed three counts of falsifying business records in the first degree, Penal Law §175.35, because the allegedly false marketing plans filed by Healthfirst did not meet the statute's definition of a "business record."

A "business record" is defined in a related provision, Penal Law §175.00(2), as a record maintained by a company for the purpose of "reflecting" its condition or activity.

Under that definition, Stone concluded, "the marketing plans, no matter how false, are not business records of a Healthfirst entity as they are not 'kept or maintained by an enterprise for the purpose of evidencing or reflecting its condition or activity.' "

Last week, a spokesman for Cuomo's office said, "We continue to pursue the remaining charges and are reviewing the court's decision."

The office was represented by Special Assistant Attorney General Bonnie Stein.

Boothe was represented by Paul Shechtman and Daniel V. Shapiro, of Stillman, Friedman & Shechtman.