Auditors: State Medicaid fraud investigations poorly managed, unfair

Oct. 03--

The government agency charged with rooting out medical fraud and waste is poorly managed, occasionally is unfair to those it investigates and has failed to do an effective job identifying and recovering money lost to medical fraud, according to a critical report released Friday by state auditors.

The assessment by the Sunset Advisory Commission, charged with reviewing the performance of state agencies, blasted the Health and Human Service Commission's Office of Inspector General for taking years to close its investigations into medical providers, failing to distinguish between serious misconduct and minor transgressions, and misusing its powerful authority to withhold government payments from providers as unfair leverage to compel financial settlements.

In what the Sunset staff acknowledged was "a rather harsh assessment," the report concluded that the Office of Inspector General's behavior had caused "a real harm" to medical providers and, ultimately, to taxpayers.

The scathing evaluation adds another chapter to a growing body of evidence that the state shares culpability for what it has asserted is the loss of hundreds of millions of dollars to fraud perpetrated by dentists and orthodontists who treat Medicaid patients. It also confirms findings of several American-Statesman investigations over the past year.

The evaluation of the Office of Inspector General was included in a larger assessment of the human services commission, and the latest development in a medical saga that started in 2007, when a class-action lawsuit settlement mandated that Texas spend more money on fixing poor children's teeth. Over the next five years, spending on dental and orthodontic care soared.

State regulators in 2011 alleged massive fraud, charging that money was improperly paid to providers who either billed for procedures they did not perform or did work considered medically unnecessary and thus not covered by the government insurance plan. The Office of Inspector General targeted many of the state's largest dental providers for investigation.

The agency has filed dozens of actions against dentists and orthodontists seeking to recover what it said were improper payments. In many instances, it has withheld Medicaid money for procedures already performed by the doctors, and that has forced several out of business.

Many of the providers have fought back, arguing in court that the contested orthodontic procedures, especially, were all preapproved by the private contractor hired by the state, Texas Medicaid and Health Partnership, owned by Xerox Corp. That claim gained a measure of credibility in May, when the Health and Human Services Commission canceled its contract with Xerox. The attorney general also filed a lawsuit against the company for failing to adequately vet the requests for procedures.

Yet as the Statesman reported in February, the state's own regulators had long known of Texas Medicaid and Health Partnership's failures and permitted the company to continue its work for years anyway. Xerox has insisted that it was following the state's directions.

Meanwhile, the Office of Inspector General's investigations have yielded little. Although it has claimed more than a half-billion dollars of improper payments went out the door, the office has collected about $14 million in legal settlements from barely a dozen providers.

Most recently, in August the Office of Inspector General negotiated a $39,000 settlement from Austin dentist Rachel Trueblood, whom the agency had initially claimed owed more than $16 million in repayments for performing unnecessary procedures. Although a spokeswoman said the amount was small because Trueblood had been pushed out of business, she had actually opened a new clinic just north of Austin.

"We know there is fraud and abuse occurring in the system, so it is very important that we understand why this agency is having such difficulty proving cases in court," state Sen. Jane Nelson, R-Flower Mound, former chairwoman of the Senate committee with oversight of Medicaid, told the Statesman last month.

The Sunset report echoed those concerns, concluding that "data from OIG does not show that the state is receiving an appreciable return on its investment." Although the Office of Inspector General said it had identified $1.1 billion in Medicaid provider overpayments in 2012 and 2013, "only $5.5 million in provider overpayments was collected in the period of time."

Yet the report added that the huge gap between alleged fraud and recovered payments also suggested poor screening and a misleading method of calculating violations, as well as a powerful sign that investigators were not properly distinguishing between minor paperwork violations and genuine fraud.

"Actual settlement amounts well below the identified overpayment are a likely indicator of an inconsistent and unfair process for providers," the Sunset report stated. "In practice, actual settlements rely more on a provider's ability to negotiate than any basis in medical necessity of services or financial harm to the state. While OIG is authorized to recoup the full amount, taking the harshest approach without regard to whether a case involves fraud or simple clerical errors is misleading to the public about the prevalence of intentional fraud."

Among the more controversial tools the Office of Inspector General has used in its investigations are payment holds for what it terms "credible allegations of fraud," which permit the investigating agency to stop Medicaid payments to a provider. The goal is to halt the loss of taxpayer money.

Yet the new report found that the office had used the tactic indiscriminately and, at times, inappropriately against medical providers, resulting in financial hardship to even minor offenders. OIG "uses payment holds as a negotiation tactic or bargaining tool, even for cases that do not pose significant financial risks to the state," the auditors wrote.

For example, the report found that "OIG has used payment holds as a bargaining chip to promote settlement in cases that involve just $4,000-$6,000 in overpayments spread over several years" or as a financial hammer to influence settlement negotiations.

The Sunset report also criticized the office's practice of requiring defendants to prepay to have their cases heard by administrative law judges, which hears payment hold cases. In some cases, as the Statesman reported in May, the bill for access to court reached tens of thousands of dollars.

Paying up front to be heard in court is "financially burdensome for providers from whom the state is already withholding payments," the report found.

Health and Human Services spokeswoman Stephanie Goodman said in a statement that the agency "will be conducting a management review of OIG to make sure policies and processes are fair and effective and clearly communicated to providers. We soon will be naming a special assistant to lead that review."

The lawyer representing about 20 of the medical providers who have been targeted by the Office of Inspector General said the new report offered vindication for his clients.

"It admits providers have been treated poorly and have not received due process," Austin attorney Jason Ray wrote in a statement. "The OIG has sabotaged the very programs, and the people, that it is supposed to protect and support."

Among other fixes, the Sunset Advisory Commission recommended that the Office of Inspector General not be run by a gubernatorial appointee, as it is now, but rather by someone hired and overseen by the Health and Human Services executive commissioner. Given the magnitude of the problems it uncovered, it also suggested the agency be re-evaluated six years from now.

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