Did Texas OAG Forget to Sue Xerox For $133 Million Owed the Feds for Medicaid Orthodontic Prior Authorization Debacle?

It appears that Texas Office of the Attorney General (OAG) forgot to sue Xerox to recover over $133 million that the federal government determined it was owed because of the state’s lack of oversight over Xerox, its then-Medicaid claims administrator, which mishandled the state’s orthodontic prior authorization process from 2008-2011.

Revealed in recent court filing by Xerox

The problem was revealed last Friday when Xerox filed a Motion to Strike the state’s untimely discovery supplements.

According to the Xerox court filing (provided in full below), discovery ended on October 31 in anticipation of the spring 2019 trial date.

However, it appears that the OAG waited four years — until after 5:00 pm on the October 31, 2018 deadline — to decide that it wanted to use a 2015 federal audit report to make a claim against Xerox for the $133 million that the state has already repaid to the federal government.

State allegations against dentists caused federal audit

Those familiar with the scene will recall that in 2013 the then-HHSC-OIG leadership (Jack Stick, Doug Wilson et al) testified to the legislature that, in their opinion, widespread provider fraud had resulted in millions in overpayments to providers. As a result, the federal government conducted an audit of the state’s oversight and administration of its prior authorization systems.

That audit resulted in two reports: an August 2014 report titled “Texas Did Note Ensure That The Prior Authorization Process Was Used To Determine The Medical Necessity Of Orthodontic Services,” and a June 2015 follow-up report.

The federal audits concluded that any “deficiencies” in the processing of prior authorization requests “were due to a lack of [HHSC] oversight” and then audited 106 patient files.

After extrapolating the results, the federal government found that $191,410,707 had been overpaid.

$191 million overpaid, $133 million to go back to feds

The audit stated that because of the way that the prior authorization process was mishandled, Texas needed to repay the feds its share of that $191 million–$133,370,225!

And that’s just for the September 1, 2008, through May 28, 2011, time period, not from 2004.

Texas already paid back the $133 million

The state did not appeal the federal audit and repaid the government over $133 million earlier this year. That leaves the next Texas legislature with a $133 million hole to fill in the next budget.

Xerox blindsided by last-minute OAG filing

According to Xerox’s court filing, “… in discovery supplements made in the last-day twilight of fact discovery, the State has purported to inject issues concerning that federal audit into the case. The State wholly failed to add the issue to the case in a timely manner, much less in the way it represented to the Court it would—if the State chose to do so at all.”

Xerox asserts that it repeatedly tried to get information about how the federal audit had been conducted, presumably so that it could defend against the OAG’s attempt to recover those funds.

The state resisted disclosing that federal audit process to Xerox.

In April 2017, the OAG told the Court that it would decide whether it intended to rely on the federal audit before the discovery deadline. Then, Xerox claims, OAG waited until 5:45 pm on October 31, 2018 (the deadline day) to amend its interrogatory answers and reveal for the first time after four years of litigation that they DID intend to make the federal audit an important part of its case.

In its filing, Xerox asks the court to prevent the OAG from using the federal audits in its case.

Hearing upcoming on the motion

Whether the OAG just forgot to let Xerox know until it was too late or whether the OAG intentionally waited until after the close of business on the deadline day, will probably be heard by the court in the next month.

Xerox trial likely delayed until 2020

In the meantime, it appears the state’s case against Xerox will not be going forward in the spring of 2019.

Xerox has asked the court to delay the case until February 2020.