State, Carousel Pediatrics Settle Medicaid Fraud Case

Carousel Pediatrics, which has been the subject of a multiyear investigation in Texas, has settled its Medicaid fraud case with the Health and Human Services Commission’s Office of Inspector General, agreeing to pay the state $3.75 million.

The settlement, which was reached last week, comes after the OIG began a medical review of Carousel’s practices in 2011, finding among them a “pattern of billing errors,” alleging that Carousel had overbilled the state’s Medicaid system by $17.9 million from 2007 to 2011 for similar services other Medicaid providers offer at lower costs. Carousel attorney Dan Gattis said the business acknowledged that there were billing errors but added that they were not intentional or fraudulent. 

“This agreement will help ensure that children with Medicaid coverage can get quality health care services and that the state pays only for services that are necessary and provided to the child,” Inspector General Douglas Wilson said in a statement.

The investigation was part of the OIG’s increased efforts in recent years to investigate possible fraud among health providers who are paid to treat poor children and the disabled.

Carousel owner Glenn Wood had denied the fraud accusations, saying his business had been targeted because of its size. Since opening in 2002, Carousel expanded its services to provide primary medical care, dental care and therapy treatments to 40,000 low-income children — 90 percent of which are on Medicaid — at six Austin-area medical facilities.

“We understand why OIG suspected fraud, and we think it acted reasonably under the facts as they knew them,” Gattis said. “Fortunately, they listened to us, understood our approach and worked out a repayment agreement that protects the state’s interests, Carousel’s interests and also protects the kids Carousel serves.”

Carousel will be required to make an initial payment of nearly $614,000 to be followed by monthly payments until it fully reimburses the state. The OIG had originally said it wanted Carousel to pay back the full $17.9 million they said had been overbilled, plus a $4 million penalty.

Carousel and other providers who largely serve Medicaid patients have been vocal about their opposition to the OIG’s efforts, claiming its method of investigation offers little due process to those being investigated. The OIG has increasingly relied on a rule that allows investigators to freeze financing to any health provider accused of overbilling. Wilson has defended the OIG’s methods, saying that payment holds are only used when credible evidence exists.

Under federal law, the state needs credible evidence — but less proof than what is necessary to prosecute the provider — to hold payments while the state investigates further. The law also compels the state to act because the federal government can seek restitution from the state for failing to hold payments when there is credible evidence.

Several state senators have also questioned the OIG’s investigation method, particularly its ability to use payment holds, because it could force accused Medicaid providers out of business while under investigation.

During the last legislative session, lawmakers passed a bill to protect Medicaid providers' rights, giving them the ability to request an informal review of their cases before the OIG takes its case to an administrative judge to implement a payment hold. The legislation also gave some providers the ability to appeal an administrative judge's decision in district court.

The measure passed by the Legislature also required the OIG to hire a medical director and dental director to ensure that an expert reviews the findings in fraud investigations. Expert medical reviews of patient files that suggest a provider has intentionally overbilled the state are among the methods used to pursue investigations.

In his statement following the Carousel settlement, Wilson said the process the Legislature created was efficient in OIG’s investigation of Carousel.

“Carousel came to the table to correct the overpayment and make changes in its billing practices to comply with state rules,” Wilson said, adding that “the process the Legislature outlined worked.”

This story was produced in partnership with Kaiser Health News, an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.