‘PUSH! PUSH!’ How a bungled private contract cost Texans $130 million


Highlights

Texas accuses Xerox of fraud, but lawsuit also exposes state mismanagement of one of its largest contracts.

A dozen years ago, Texas health care administrators hired a company to help determine when taxpayers should cover the cost of dental care for the state’s poorer residents, particularly children.

The company, later acquired by the giant corporation Xerox, deployed a team of medical specialists to review the tens of thousands of requests for dental and orthodontic care that flowed in every year. After evaluating each record, including X-rays and molds of the patient’s mouth, the experts rendered a professional opinion as to whether a procedure was medically necessary, the standard to earn Medicaid coverage. The system ensured that public money was responsibly spent.

That’s how it was supposed to work, anyway. What happened instead was a case of epic mismanagement that threatens to leave Texas taxpayers on the hook for more than $130 million.

Rather than retain medical professionals to analyze dental records, Xerox hired workers such as Amelia Correa, who’d dropped out of high school. Lee Friedman answered the company’s phones before moving over to work as one of Xerox’s so-called dental pre-authorization specialists. Amy Stabeno’s prior experience consisted of working on a Dell Inc. assembly line.

All would later concede they had little understanding of the dental procedures they were approving to be paid for by taxpayers. “Can you tell us what constitutes a severe handicapping malocclusion?” Friedman was asked in a recent court deposition, referring to the standard condition under which the government-funded insurance pays for orthodontia.

“Not a clue,” she answered. “Their teeth are messed up.”

Records show that what was supposed to be a thorough medical assessment instead operated like a high-volume boiler room, with Xerox workers scrambling to approve as many applications as they could as quickly as possible, with no regard for their content. As the number of preapproval requests from dentists and orthodontists exploded, clerks worked faster and faster to keep up.

“Don’t slow down!” a supervisor pleaded in a July 2011 email. “Keep pushing! Push! Push! Push! We need to have these cleared out!”

“Come on, everyone, I need you to push those keys as fast as you can,” the supervisor wrote a month later in another email accompanied by an illustration of a drowning man. “Let’s keep swimming. We can’t doggie paddle today.”

Those who didn’t process enough requests were reprimanded.

Paid by the number of applications they processed, workers had little incentive to give the pre-authorization applications anything other than a quick review. Approval rates for the dental and orthodontic requests for Medicaid-covered procedures reached 90 percent. The fastest of the clerks approved 200 applications a day — about 2½ minutes each.

Team members often worked from home, meaning that even if they were qualified, were given sufficient time and wanted to look at the records submitted by dentists and orthodontists, they couldn’t have because those were kept at the office. Investigators later found boxes filled with molds and X-rays submitted by dentists that had never been opened.

The company that held the contract before Xerox had employed two licensed dentists to review about a dozen applications a day. By comparison, Xerox employed a single dentist to oversee what grew to several hundred approval requests daily.

Records show that Dr. Jerry Felkner’s reviews of the preapproval applications could be, if anything, even more cursory than his employees’ work.

“He opened it at 8:48:57 and closed it at 8:49:03!” one clerk wrote to her supervisor in an email, taking note of computerized time logs showing that Felkner’s medical review and approval of a case she’d just referred to him had taken exactly 6 seconds.

$130 million taxpayer bill

Although the broad outlines of the dispute between Xerox, Texas and the state’s Medicaid-reimbursed dentists have been reported, the details of how Xerox furiously rubber-stamped requests for taxpayer funded dental work are just now being revealed in a huge and expanding lawsuit being heard in Travis County state district court. In the three years since it was filed, the action already has generated millions of pages of documents.

In one measure of how high the stakes are for Texas, Attorney General Ken Paxton’s office, which is representing the interests of Texas, has had 50 attorneys work on it, according to information obtained under Texas open records laws. By mid-July, the state’s lawyers collectively had spent 39,000 hours on the case— equivalent in the private sector to $20 million in legal fees. The earliest possible trial date is still more than a year off.

“It’s like Jarndyce and Jarndyce,” said Jack Stick, who oversaw state inspector general investigations into Xerox’s work from 2011 to 2014, referring to the interminable legal dispute in Charles Dickens’ “Bleak House.” “It will never end.”

The massive effort and expense highlight the steep financial exposure awaiting the dispute’s loser. Texas has accused Xerox of committing fraud by knowingly ignoring pre-authorization rules, causing the state to overpay millions of dollars for undeserved dental and orthodontic Medicaid claims over a decade.

Xerox was fired in 2014. Yet it stands to suffer costly consequences well beyond Texas. A company guilty of fraud is banned from doing Medicaid-related business with the federal government for a decade. Xerox currently holds Medicaid-related contracts for a half-dozen other states. (Earlier this year Xerox spun off its business services division into a separate company, Conduent Inc.; it’s unclear how the move would affect the company’s liability in the event of a loss in court.)

Texas, too, has plenty on the line. In August 2014, the inspector general for the U.S. Department of Health and Human Services, which investigates Medicaid fraud, concluded that while Xerox’s clerks approved the Medicaid procedures without a meaningful review, it was Texas administrators who shouldered the legal blame.

A year later, the federal agency presented Texas with a bill for $133 million, the amount the U.S. government calculated the state owed for unnecessary dental payments allowed by Xerox’s porous pre-authorization process. The state has tried to recover some of that by charging dozens of dentists with knowingly taking advantage of the toothless reviews by submitting applications for procedures that should not have been covered. But, except for some settlements, those efforts have been unsuccessful.

“Every time the state has alleged that a dentist has committed orthodontic fraud, they’ve lost,” said Jason Ray, an Austin attorney who has represented 19 dentists.

That leaves only any money recovered from Xerox through the lawsuit to cover that bill. If Texas loses, state taxpayers pick up the tab.

“The stakes are very high for the taxpayers of the state of Texas, and very high for Xerox,” said Raymond Winter, chief of the attorney general’s Medicaid Fraud Division.

The dispute also has laid bare embarrassing details of how loosely state bureaucrats oversaw one of Texas’ largest contracts. In its defense, Xerox claims in court records that state regulators were well aware of how it was operating, so tacitly approved of its work. A company spokesman declined to answer questions about the case.

Court documents show state workers knew of the company’s rubber-stamped pre-authorization reviews as early as 2007, alerting managers to the company’s potentially costly misdeeds. Yet little was done about it for another four years, as tens of millions of dollars flowed out the door.

Even when regulators finally took action, no public employee was held accountable for the lapses.

“There were conversations about, ‘How did we miss this?’ ” Billy Millwee, who managed the Texas Medicaid program at the time, recalled in a recent deposition. “Believe me, I did a lot of self-reflection about how did I miss this, and I felt badly about that. But no — no one was fired, no one was terminated.”

Early warnings ignored

The Texas Health and Human Services Commission hired a company known as Texas Medicaid and Healthcare Partnership, or TMHP, to manage its Medicaid claims in 2004. Xerox purchased it in 2009, keeping the name.

Like the contract with its predecessor, National Health Insurance Co., the arrangement called for Xerox to vet dental pre-authorization requests with “medically knowledgeable” personnel, according to documents and testimony. In the past, Texas officials, as well as NHIC, interpreted that to mean licensed dentists would evaluate each application.

A former NHIC employee recalled its dentists painstakingly checking to make sure procedures met the criteria for Medicaid funding.

“Sometimes they were there 30 minutes (per request); sometimes they were there 45 minutes, sometimes they would call the providers for clarification of something,” recalled Vivian LaFuente, a dental assistant.

LaFuente was later hired by Texas to help oversee the dental pre-authorization process on behalf of the state. It was from that post that she became one of the first to raise alarms that Xerox’s reviews were considerably less rigorous.

By early 2007, LaFuente noticed the number of procedure requests had exploded from a dozen a day to hundreds — and yet Xerox employed only a single full-time dentist.

“My concern were the numbers — that how can a, one, licensed dentist approve this many cases in one day?” she recalled in a December 2016 deposition.

The surge in volume wasn’t a complete mystery. In 2007, Texas had settled a large class action lawsuit, agreeing to spend dramatically more money on fixing poor children’s teeth.

But in an apparent effort to save money, court documents show, Xerox used the medically untrained clerks instead of dentists — or even nurses or hygienists — to handle its pre-authorization reviews. In depositions, several acknowledged that their preparation for the job was minimal.

“We have no training material, really,” Friedman recalled. “Our training lasted maybe — maybe an hour.”

When LaFuente brought her concerns to the attention of her manager, however, she said they came to nothing.

“Well, she appreciated my work and for informing her of what was going on,” LaFuente recalled. “But that was about it.”

Several months later, documents show, LaFuente forwarded her concerns to the state health agency’s inspector general, the unit in charge of watchdogging Texas Medicaid operations. Once again, the warnings apparently went unheeded.

When asked about LaFuente’s alerts, Millwee, the program head, said he could not explain why they had not “escalated” up the state’s chain of command. (Now a consultant for a Philadelphia health care company, Millwee did not respond to an interview request.)

State was ‘lied to’

More red flags appeared. In 2008, an audit by the state inspector general’s office confirmed LaFuente’s earlier observations: The vast majority of pre-authorization requests were being rubber-stamped by medically untrained clerks. When Xerox asked the state for more money to hire additional dentists and medically trained specialists, administrators refused, and the company’s assembly line system continued.

Around the same time, during a series of meetings with dentists, Felkner, the Xerox dentist, acknowledged that he never looked at much of the clinical evidence the dentists were required to send in for the Medicaid pre-authorization review.

“The providers that were there literally threw their hands up in the air and said, ‘Why do we submit these diagnostic tools if you’re not looking at them?’ ” recalled LaFuente, who attended the meetings.

In late 2008, an investigator from then-Attorney General Greg Abbott’s office issued yet another warning. Marcus Holley had just interviewed Felkner as part of a Medicaid fraud case. Felkner explained that he trusted the dentists to accurately represent their patients’ need for Medicaid procedures, so he almost never rejected a request.

“We are concerned that TMHP might not be fulfilling its contractual requirements,” Holley wrote to the state Health and Human Services Commission.

It wasn’t until five months later, in May 2009, that Millwee summoned Xerox executives to a meeting. “I told Xerox that I needed assurances that dental professionals were reviewing the requests and that they were not just ‘rubber-stamping’ them,” he recalled in an affidavit.

They “assured me that Dr. Felkner’s statements were misunderstood and assured me that Xerox used qualified dental ‘para-professionals,’ ” Millwee continued, adding, “If Xerox had told me the truth about what it was and was not doing … then I would have immediately taken steps.”

‘Something got past us’

Texas officials claim it wasn’t the only time Xerox officials mischaracterized the company’s work.

“There was opportunity after opportunity after opportunity for Xerox to come clean, and they did not,” said Winter, the state’s lead lawyer. He said he has identified more than 40 separate instances in which Xerox misled state officials about its dental program:.

“The (state) folks who were assessing this were lied to by people they trusted and worked with,” he said.

Millwee said he was ready to officially declare Xerox had failed to follow the terms of its contract, a step that could have resulted in large fines. Instead, after meeting with company executives, he dropped the matter — essentially choosing to believe what Xerox’s executives said over what government investigators had found — a decision he now regrets.

“Based on what I know today, I believe the Marcus Holley letter was probably more accurate than not,” he said in a deposition, adding that the state audit, too, had been prescient. “I’m sorry. Looking back, I wish I would’ve paid a hell of a lot more attention to that audit now than I did then.

“Best efforts were made,” Millwee concluded of what was to become a $130 million mess. “Something got past us.”

Over the next two years, Xerox’s team of medically untrained clerks continued to approve hundreds of millions of dollars’ worth of taxpayer-funded dental care. In late 2011, after another audit confirmed the company was not doing what it was paid to do, Xerox hired more dentists and trained workers. Months later, Texas moved the program to managed care, ultimately firing Xerox in May 2014.

At the end, even Xerox’s clerks were not surprised.

“Dental has been messed up almost from Day 1,” Stabeno wrote to a colleague in a February 2011 email. “Now it’s so out of hand that fixing it is going to take years. I saw the writing on the wall 7 yrs. ago.”


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