Lovelace Settles With New Mexico In Secret Million-Dollar Fraud Case

Aug. 14--In November 2009, a former senior executive with Lovelace Inc. -- one of New Mexico's largest health care providers -- filed a secret court case claiming the company had cheated the state Medicaid program out of about $300 million across nearly two decades.

Duke Rodriguez claimed Lovelace had collected state gross receipts taxes from Medicaid for services provided to program recipients, even though Lovelace was exempt from paying gross receipts taxes to the state, meaning it just pocketed the tax money from Medicaid. Rodriguez said he had "firsthand knowledge" of the scheme. He also had once headed the New Mexico Human Services Department, which runs Medicaid.

Rodriguez filed the case under the Fraud Against Taxpayers Act on behalf of himself and the state. As required by the act, he filed the whistleblower case under seal in state District Court and presented his evidence to the New Mexico Attorney General's Office so it could decide whether to prosecute the case or let Rodriguez move forward on his own.

During the next several years, the Attorney General's Office gathered Medicaid claims data for Lovelace, sought additional information from the company and Rodriguez, and interviewed witnesses and government officials.

At the same time, the Attorney General's Office repeatedly sought and was granted court orders to keep Rodriguez's complaint sealed from public view, saying it needed more time to investigate and that Lovelace would be more willing to negotiate if the proceedings were secret.

In June 2015 -- more than five years after Rodriguez filed his complaint -- the Attorney General's Office wrote to Lovelace Health System, its parent company, Ardent Health Services, and former Lovelace parent Cigna. The letters said that, based on its examination of Medicaid claims data, the companies had fraudulently collected at least $142.6 million in gross receipts taxes from the insurance program for low-income people.

But within the next year, the Attorney General's Office settled with the companies for far less money than the amount of fraud alleged by Rodriguez in his complaint and the Attorney General's Office in its June 2015 letters to the companies.

Under the deals, Lovelace and Ardent paid the state $2 million and Rodriguez $500,000, as allowed under the whistleblower law. Cigna paid the state about $39,000 and Rodriguez about $8,000.

The companies denied wrongdoing in the settlement agreements with the Attorney General's Office.

Lovelace said Medicaid paid gross receipts taxes to the company even though the state had "full knowledge" it was exempt from paying such taxes.

The June 2015 letters from the Attorney General's Office to Lovelace, Ardent and Cigna that alleged massive fraud were among hundreds of pages of documents related to the case that were obtained from the Attorney General's Office under the state open-records law.

Officials with the Attorney General's Office said recently that the office received additional information from Lovelace and the Human Services Department after the June 2015 letters and that the information showed Lovelace had wrongly retained just $1.6 million in gross receipts taxes.

"We collected well beyond ... the gross receipts tax that were paid" in error to Lovelace, said Sharon Pino, deputy attorney general for criminal affairs. Ultimately, what Rodriguez had alleged was unproven, Pino said.

As part of the agreements to settle Rodriguez's complaint, the Attorney General's Office agreed not to disclose the case to the news media.

The New Mexican learned about the case while working on a story about Medicaid fraud recoveries touted by the Attorney General's Office. A judge unsealed the Rodriguez complaint in June after being asked by the newspaper why the case remained secret.

The secrecy surrounding the Lovelace case is in sharp contrast to the way that Attorney General Hector Balderas has approached a tax case against another major New Mexico health care provider.

In October 2016, three employees in the state Office of the Superintendent of Insurance alleged Presbyterian Health Plan had failed to pay the state millions of dollars in insurance premium taxes owed and, as part of the scheme, had pocketed money from Medicaid meant to cover premium taxes.

Like Rodriguez in the Lovelace case, the employees filed a sealed court complaint under the Fraud Against Taxpayers Act. But unlike in the Lovelace case, the Attorney General's Office formally took over the case, making the tax dispute public in July.

Presbyterian has denied the allegations.

The Attorney General's Office said a primary reason it went public with its case against Presbyterian was because it had already been publicly disclosed that government auditors were examining underpayment of premium taxes by Presbyterian and other insurance companies.

Duke Rodriguez began working for Lovelace in about 1980 and later was named chief financial officer, then chief operating officer before leaving the company in 1993. Gov. Gary Johnson appointed him secretary of the Human Services Department in 1996, but he resigned the following year.

In 1989, according to his complaint, Lovelace Medical Center merged with Lovelace Health Plan, creating what is now known as Lovelace Health System.

Lovelace Medical Center had collected gross receipts taxes on the health care services it provided, then paid gross receipts taxes to the state, the complaint said. Lovelace Health Plan, however, was a health maintenance organization, which was required to pay insurance premium taxes but not any other taxes, including gross receipts.

After the merger of the two companies, according to Rodriguez's complaint, Lovelace claimed all its income was exempt under state law from gross receipts taxes. The New Mexico Taxation and Revenue Department challenged the claim but later dropped the matter, the complaint said.

Lovelace "then knowingly failed to communicate to Medicaid that its status as a for-profit company no longer carried with it the presumed connotation of being a gross receipts tax remitter," the complaint said.

As a result, the state continued to pay gross receipts taxes on services purchased from Lovelace for Medicaid recipients, Rodriguez alleged.

The complaint estimated that Lovelace wrongly had collected a total of about $300 million in taxes as a fee-for-service provider since 1989 for Medicaid recipients and as a managed care Medicaid contractor since 1997.

Since being exempted from paying gross receipts taxes, Lovelace has collected money from Medicaid in different ways: as a fee-for-service provider to enrollees, as a Medicaid managed care contractor and as a fee-for-service provider to other Medicaid managed care contractors.

Officials with the Attorney General's Office said that, after their June 2015 letters to Lovelace, Ardent and Cigna, they learned that Lovelace collected gross receipts taxes from Medicaid only as a fee-for-service provider to enrollees. Officials also said Lovelace didn't bill Medicaid for gross receipts taxes but that the Human Services Department automatically added gross receipts taxes to their payments to Lovelace because it was a for-profit entity.

The officials said the Human Services Department came up with the figure of $1.6 million in gross receipts taxes wrongly paid to Lovelace and that the department agreed with the settlements with Lovelace, Ardent and Cigna. Officials with the department and in the office of Gov. Susana Martinez declined comment on the Lovelace case.

Rodriguez, who now heads a medical marijuana distributor, agreed to the settlements. In a recent interview, he said he received about $200,000 of his more than $500,000 payout after covering attorneys' fees and expenses.

"Would I have wished for a greater settlement?" he asked. "Absolutely. But I recognize the legal and political realities."

Contact Thom Cole at 505-986-3022 or [email protected].

Contact Justin Horwath at 505-986-3017 or [email protected].

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