Medicaid Suit Mangles Amerigroup

Amerigroup (AGP Quote) has every reason to tremble this Halloween.

The health insurer, which serves poor people on Medicaid, has just been slapped with a huge courtroom loss that could deplete the company's cash balance and still leave it scrambling for more. The company faces penalties of $144 million -- and counting -- for violating the False Claims Act.

Its stock plummeted 14% to $30.50 a share on the news.

Amerigroup stands accused of improperly excluding pregnant women, particularly those in their third trimester, from its Medicaid program in Illinois. The company counters that it "was acting with the knowledge of, and in accordance with, the direction of the Illinois Department of Public Aid."

Nevertheless, prosecutors convinced an Illinois jury this week that Amerigroup had overcharged the government by $48 million through its profit-boosting scheme. The government is entitled to collect triple damages, which total $144 million, as a result. Moreover, it can seek additional penalties for each false claim that -- under a worst-case scenario -- could push total damages into the $500 million territory.

The award ranks as the largest ever levied by a jury in a case brought under the False Claims Act.

"It's a terrific win," declared Patrick Burns, a spokesman for Taxpayers Against Fraud, a big promoter of the False Claims Act. "Amerigroup faced not only a horrific set of facts but also a tremendous liability. ... They were idiots not to settle this case; there is no other way to say it."