Tied up in court: City’s former insurance administrator still costs taxpayers [Lubbock Avalanche-Journal, Texas]
|By Leesha Faulkner, Lubbock Avalanche-Journal, Texas|
|McClatchy-Tribune Information Services|
Figures provided by the city for the years 2004-06, show the city paid more than
Taxes had to be raised by the
In the end, after reaching a settlement, both parties said they had reached satisfactory closure. City officials declared the settlement a fair one. Representatives from
But what happened in those six years of legal battles? How much did the reams of legal documents and court hearings actually cost taxpayers?
And how much did the two-year administration of health insurance for 6,000 city employees cost taxpayers?
The answer to the first question is in the settlement, which is unlikely to become public soon.
The answer to the second rests in an audit, which HealthSmart wants kept out of public view because, its attorneys say, the document contains proprietary information that would damage the insurance company's ability to be competitive.
Likely, that audit will not be made public soon, despite the efforts of the city and the A-J, until the
During negotiations, the city asked HealthSmart to release the audit with the settlement. Representatives for the insurance administrator refused.
Eight months later, Hernandez feels the same. Advocating having the audit made public is an issue of transparency, something that is a focus of the
"It has kind of died down; it's kind of been pushed to the back burner," he said. "I'm glad to see it brought up again."
Two others sitting on the council at the time, and who voted for the settlement, decline to discuss the audit.
"Ideally, the public has a right to know, and it would be my preference, in terms of transparency, to have it released to the public," he said.
Initially, the Avalanche-Journal requested the audit from the city under the Texas Public Information Act. The city would have released the audit upon the newspaper's request, but HealthSmart objected, requiring the city to submit the request to the office of
After the attorney general's ruling, HealthSmart immediately challenged it in
HealthSmart then filed an expedited appeal to the
Legal representatives for HealthSmart have declined to talk about the appeal, saying they do not discuss pending litigation.
The newspaper continues to advocate making the audit public, spending thousands of dollars to do so and saying so on its editorial pages. "We do not hesitate to protest to our public officials when we believe they have not acted in an open manner. We believe most of our public officials also want open government, but when we feel they don't, we're willing to take legal action, if necessary to support that belief," states an editorial from
Richards says this issue in the lawsuit "goes to the very basics of open government and accountability of a governmental body to its public."
"An audit, by its very nature, is a crucial element of accountability. In this case, we are not just talking about a financial audit (even though the dollars are substantial), but this involves a much broader audit of the basic management and operational aspects of a major program of city government. It involves public funds, public employees and public officials. The public has the right to know what happened, and the dollars involved," Richards said.
How we got here
In 2003, the city contracted with
Dumbauld declined to talk about the case because it is still in court. "Because of the pending litigation, we have a non-disparagement agreement," she said.
Then, in December of the same year,
A stop loss policy takes effect after a certain amount has been paid in claims. Organizations, such as the city of
In October, the city sent a letter to Parker at AAG, demanding a refund on the rebates totaling
Shortly after, the city hired
In the meantime, the city had switched its health insurance provider in
In an affidavit filed with the court in 2007, Frcek said he received no cooperation from AAG. Instead, the administrator provided Frcek with data files in formats the auditor couldn't use and with incomplete data.
Frcek visited the corporate offices on
Correspondence between Dumbauld and executives for AAG shows the company continued to cooperate in some instances and later refused to provide access to records.
Finally, the city went to court and asked a judge to force AAG and ICON to produce records for the audit.
AAG responded that the city wasn't entitled to the information it sought through the audit; the city violated its contract by switching to
What the first audit says
In documents filed with the courts and marked
Benefit Plan Audit Services wrote its opinion of AAG's claims and controls. Its conclusion of the operations of AAG: "Unsatisfactory."
Frcek, who also wrote the audit report, found four reportable improvement issues. He also found AAG had overpaid
The auditors reviewed a random sample of 195 claims paid between
"Based on these findings, the extrapolated amount overpaid within the population file is
Auditors also pointed out that AAG processed 98 of the 195 sample claims within 10 business days. The industry standard is 90 percent of all claims within 10 business days, according to the report.
Auditors found that from
Additionally, the audit noted that
To evaluate the methodology used by Benefit Plan Audit Services, AAG hired
"If a total of
But even using Northshore's method, the extrapolation would produce an accuracy of 97 percent, which is less than the industry expectation of 99 percent or better, according to the rebuttal.
AAG posited it overpaid claims amounting to
As far as the commissions and fees were concerned, AAG claimed in the rebuttal, the marketing of transplant coverage and stop loss insurance is a separate function from claims administration, and the charges are common.
The (city of
"We also note that rebates were paid by
Where to from here
The legal battle continued.
State District Judge
After the audit came out in 2008, AAG asked Reyes to appoint another auditor to review the original audit's findings.
Instead, Reyes ordered the city and AAG to arbitration.
Shortly after Reyes' order, on
Targets of the investigation were then-Councilman
It would be three-and-a-half years before the
None of the parties involved in the investigation have commented on the events other than statements from Leonard and Boren earlier this year when the federal prosecutor announced the investigation's end.
Leonard issued a statement: "I am relieved that this four-year-personal nightmare is over. I have maintained my innocence throughout this painful process. It is unfortunate that the personal politics of destruction, initiated by a key elected city official and a few city bureaucrats against a handful of their perceived opponents, were so extreme and costly to the taxpayers of
At the same time, Boren said, "I'm not surprised that the
Meanwhile, arbitration continued.
A second, independent audit was agreed upon. That audit was conducted, and the results were made known to city officials and HealthSmart.
After the federal prosecutor closed the books on the case, city officials quickly convened in a closed-door session, called that same day -- a Friday -- for Monday. With the specter of federal prosecution lifted, the
That closed-door session didn't result in a settlement.
But a month later and just days before voters were to go to the polls, the
As the parties wait on the appeals court decision, three city councilmen talk about the lessons learned from the experience.
Price is at a loss for what the council could have done differently in the case of HealthSmart. At the time, he said, he didn't know all the background information -- the legalities, what the insurance carrier was doing or what the insurance administrator was doing.
"When you've got that type situation, you don't know what you could do to stop all that," he said.
Hernandez said he wants closer supervision on contracts and a person designated specifically to carry out that task.
Klein doesn't expect the city to run into this kind of legal haggling again over contracts because the council has instituted rules that all contracts must be complete to form before the body signs off on them.
The issue with HealthSmart was, at least for Klein, not so much a system of checks and balances, but a matter of the contract's language.
"Clarity of the specifics of the contract was the issue and not a lack of supervision," he said.
Price acknowledges city officials have learned a lesson: to examine contracts closely and keep an eye on them.
"We won't get into that again," he said. "We are looking at more legalities on a contract. ... Now, you look for everything that is a possibility."
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