August 14, 2008 / 5:34 PM / 10 years ago

UPDATE 2-Amerigroup to pay $225 mln Medicaid settlement

(Adds company comment, updates shares)

WASHINGTON, Aug 14 (Reuters) - Health insurer Amerigroup Corp AGP.N will pay $225 million to settle federal and state claims of fraud in a government health insurance program, the company and the U.S. Justice Department said on Thursday.

The pact, in coordination with Illinois officials, settles allegations that the company’s health plans excluded pregnant women and unhealthy patients in the Illinois Medicaid plan. Medicaid is the state-federal health plan for the poor.

“A settlement of this magnitude sends the clear message that this office takes health care fraud very seriously,” said Patrick Fitzgerald, the U.S. attorney for the northern district of Illinois, in a statement. “This case also illustrated the perils a defendant faces in taking a case such as this to trial.”

Amerigroup said it agreed to settle in order to lessen legal and financial uncertainty for the company.

“Our responsibility to our shareholders, associates, members, providers and government partners is to close this chapter now and move toward the future,” Amerigroup Chairman and Chief Executive James Carlson said in a statement.

A jury found Amerigroup liable under federal and state law in October 2006, and the court entered a $334 million judgment against Amerigroup.

Amerigroup had appealed the ruling but will dismiss the appeal as part of the settlement, the Justice Department said. The company also entered into a corporate integrity agreement with regulators, requiring it to implement new policies to prevent discrimination.

A former Amerigroup employee, Cleveland Tyson, who filed the original lawsuit against the company, will receive $56.3 million of the settlement under federal whistle-blower law.

The company, which first announced the proposed settlement last month, saw a $162.5 million loss in the second quarter after taking a one-time $199 million charge related to the litigation. It has said it would pay for the settlement with funds reserved specifically to cover the judgment costs.

Amerigroup shares were down 1.5 percent at $25.49 in afternoon trade on the New York Stock Exchange. (Reporting by Kim Dixon, Diane Bartz and Susan Heavey; Editing by Tim Dobbyn and Braden Reddall)

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