Federal Audit: Texas Responsible for Misspent Medicaid Dollars

^{Editor's note: This story has been updated with a comment from Xerox and with information about the state's contract with a new subcontractor that will take over processing Medicaid claims.}

Texas is “ultimately responsible” for millions of misspent Medicaid dollars, according to a new federal audit, because a state agency failed to properly oversee the contractor that reviewed the medical necessity of Medicaid claims.

For nearly five years, the Texas Medicaid and Healthcare Partnership (TMHP), a subsidiary of Xerox, allowed workers with limited expertise to approve dental claims for Texas’ Medicaid program, the joint state-federal insurer. State spending on orthodontic services spiraled out of control: Between 2003 and 2010, Texas Medicaid payments for orthodontic services grew by more than 3,000 percent — from $6.5 million to $220.5 million — while program enrollment only grew 33 percent. By 2012, federal and state auditors found that the contractor’s actions had opened the door to a “massive Medicaid fraud scheme” that cost taxpayers hundreds of millions of dollars.

Federal auditors now say the Texas Health and Human Services Commission is responsible for the uncontrolled spending growth because the state agency failed to ensure that its contractor, TMHP, followed state Medicaid guidelines to evaluate the medical necessity of orthodontic claims. According to the audit, which was released by the U.S. Department of Health and Human Services’ Office of Inspector General on Aug. 6, the state’s lack of oversight allowed TMHP to approve claims that may not have been medically necessary.

“Although TMHP failed to properly use the prior-authorization process to determine the medical necessity of orthodontic services, the State agency is ultimately responsible for contractor compliance,” the audit says.

State agency officials agreed that TMHP had failed to follow state guidelines but disputed the claim that the problems at TMHP were caused by a lack of state oversight.

“We understand that, obviously, as the folks entrusted with that taxpayer money, we’re ultimately responsible,” said Stephanie Goodman, a spokeswoman for HHSC. “In this case, though, we had a vendor who deceived us, so we are seeking to recover that money from the vendor.”

The state agency officials also told federal auditors that by violating the terms of its contract, TMHP “opened the door to potential fraud by unscrupulous orthodontic providers” that exploited the contractor’s lax claims processes.

Kevin Lightfoot, a spokesman for Xerox, said in an email that TMHP “always performed its work in good faith and with transparency.”
 
He added, "The entire program Xerox implemented was designed by HHSC, and Xerox received HHSC approval on each of its processes while providing monthly reports to HHSC from the beginning of the program."

HHSC contracted with TMHP in 2004 to process Medicaid claims. In December 2011, an investigation by WFAA-TV in Dallas revealed that Texas was spending more on Medicaid orthodontic services than the nation’s nine other most populous states combined. The company had employed only one dentist to review thousands of monthly claims, according to another federal audit of the Texas program in 2012, and was “essentially rubber-stamping” dental claims.

More than two years later, Texas health officials have reined in spending on Medicaid orthodontic services and pursued legal action against health care providers that billed for the services.

In May, the HHSC terminated its contract with TMHP, and the state filed a lawsuit against its parent company, Xerox, seeking to reclaim millions of dollars that the state alleges were erroneously doled out to Medicaid providers as a result of the contractor’s actions. Jim Moriarty, a private practice attorney hired by the HHSC’s Office of Inspector General to assist with the state’s investigations of Medicaid providers, estimated that the AG’s lawsuit, if successful, could result in up to $2 billion in damages and penalties.

Goodman said the federal government is working on an additional audit to determine how much the state overpaid on medically unnecessary Medicaid orthodontic claims, and how much the state will be responsible for in repaying the federal government. 

The state finalized a contract on Aug. 1 with Accenture, a different subcontractor under Xerox, to take over TMHP’s role in processing Medicaid claims, Goodman said. The state has also hired a dental director to “monitor the effectiveness of its dental and orthodontia programs," according to the audit.