Medicaid Fraud Settlement Worries Health Providers

With a high-profile legal settlement with Carousel Pediatrics, a children’s health provider, under its belt, the Texas Health and Human Services Commission’s Office of Inspector General says its ramped-up efforts to rein in Medicaid fraud have started to pay off. But for health providers who treat the state’s poorest patients, the Carousel case has raised questions about how the inspector general’s office distinguishes fraudulent intent from human error.

“Carousel’s lesson is to make sure to read each and every regulation,” said Dan Gattis, a former state lawmaker and Carousel Pediatrics’ lawyer, “and assume that somebody is going to go over every document with a fine-tooth comb.”

In the settlement reached with the inspector general’s office in March, Carousel agreed to repay the state $3.75 million for unintended Medicaid “billing errors,” such as charging for higher levels of care than was supported by patients’ charts and double-billing for certain services. When the state’s investigation began in 2011, Carousel Pediatrics served 40,000 patients in the Austin area, 90 percent of whom were on Medicaid.

While the inspector general’s office lauded Carousel in a press release for making changes to its billing practices, the settlement is a far cry from the office’s initial demand that Carousel repay the state $17.9 million for allegedly fraudulent claims, plus a $4 million penalty.

“My position has always been to work with the provider,” said Doug Wilson, the agency’s inspector general, “and fraud is the last thing we necessarily assume unless it’s sort of a prevalent practice.”

Republican lawmakers say the settlement shows taxpayers that the inspector general’s office is saving money by cracking down on “creative billing” practices. But the Texas Medical Association has raised concerns that the Carousel case sends the wrong message to the already dwindling number of physicians who accept Medicaid that the risk of doing business with the state is too high. 

The number of Texas physicians accepting Medicaid declined to 31 percent in 2012 from 67 percent in 2000, according to the medical association — an all-time low. Although most physicians reported they chose not to participate because of Medicaid rate cuts, John Holcomb, chairman of the association’s committee on Medicaid and access to care, also faults the inspector general’s aggressive tactics.

If providers do not consistently bill for services the same way as their peers, it could trigger an investigation. That is alarming for providers like Carousel that have a high volume of Medicaid patients, Holcomb said, because the inspector general can suspend their payments with less evidence than it takes to prosecute them for fraud. These so-called payment holds have forced some providers out of business or into a settlement, he said.

The inspector general’s office says it must withhold payments from providers with suspicious billing patterns because the federal government can seek restitution from the state if Texas officials do not act and credible evidence of fraud is later found.

In the 2013 session, Texas lawmakers approved Senate Bill 1803 to ensure Medicaid providers that were put on payment holds were given due process and could resolve their cases in a timely manner. Holcomb said he hoped the legislation would convince more physicians to see Medicaid patients. 

Wilson, the inspector general, said that for his division, “it just sort of codified some things that we were already doing.”

Between 2012 and 2014, the inspector general’s office collected $14.7 million from settlements with 10 Medicaid providers. Wilson said he is in the process of settling seven or eight additional cases, and he hopes the Carousel case will encourage more providers on payment holds to settle.

State Rep. Lois Kolkhorst, R-Brenham, chairwoman of the House Public Health Committee, sponsored SB 1803. Still, she applauded the inspector general’s efforts and said taxpayers and patients, not the providers under investigation, are the “real victims.”

State lawmakers have few options to control escalating Medicaid costs, which now consume 26 percent of the state’s biennial budget, Kolkhorst said. But cutting provider reimbursement rates, which the state has done in the past, prompts providers to drop out of the program, she said, or “justify doing more services than are necessary just to cover their costs.”

Kolkhorst said she gives doctors in the Medicaid program the benefit of the doubt, but that the state must be accountable to taxpayers. “There are systemic problems in Medicaid that I think are always going to lead to potential misjudgment on billing,” she said.

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.

Disclosure: At the time of publication, the Texas Medical Association was a corporate sponsor of The Texas Tribune. (You can also review the full list of Tribune donors and sponsors below $1,000.)