UPDATE 2-Amerigroup to pay $225 mln Medicaid settlement

(Adds company comment, updates shares)

WASHINGTON, Aug 14 (Reuters) - Health insurer Amerigroup Corp (AGP.N: Quote, Profile, Research) 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.