Strike Force Report Outlines HHSC Mishandling of Xerox Medicaid Ortho Fiasco

Gov. Abbott’s Health and Human Services Commission Strike Force, besides reviewing the Medicaid fraud software contract with 21CT and Jack Stick, looked at the Health and Human Services Commission dealings with Xerox and its contract dealing with the company’s handling of Medicaid orthodontic prior authorization.

The Strike Force report highlights the following facts:

• HHSC knew in 2008 that Xerox’s prior authorization process for Medicaid orthodontia was broken yet it did nothing to remedy the situation.
• Xerox’s contract as Medicaid claims administrator was going to end in the summer of 2014 and HHSC had made no provisions to rebid the contract.  Preparations for bidding such a large contact takes three years.
• When HHSC cut Xerox lose in May of 2014 and the state sued the company, HHSC was totally unprepared.  When they gave Accenture a three-year extension as the claims administrator, it was the largest no-bid contract given in recent Texas history and violated state law as they did not notify the Comptroller’s Office.
• The Strike Force discovered Xerox is still working in Texas Medicaid today under Accenture, running its pharmacy benefits program.

Jack Stick, former HHSC chief counsel and OIG deputy inspector general, also makes an appearance in this section of the report.  It appears, prior to the suit against Xerox being filed, Stick attempted to broker a settlement between Xerox and the state which the Attorney General’s Office refused.

Here is the excerpt from the Strike Force report [full report here]:  The TMHP Controversy.

In May 2014, the Texas Attorney General’s Office filed a lawsuit against Xerox in an effort to reclaim hundreds of millions of dollars it alleged had been paid for medically unnecessary Medicaid claims. According to the Attorney general’s complaint, filed in Travis County district court,

Xerox’s unlawful acts resulted in a substantial breach of safeguards intended to protect taxpayer dollars, maintain the integrity of Medicaid policies, and ensure the appropriate delivery of services to Medicaid clients. Xerox permitted an unprecedented loss of Medicaid funds to predatory and unscrupulous dental providers. As a result of the conduct of both Xerox and these providers, the Medicaid program was deeply compromised.

At about the same time, HHSC notified Xerox that it planned to terminate its contract for Medicaid claims payment services. As a practical matter, the state did not terminate its contract with Xerox, but with the Texas Medicaid and Healthcare Partnership (TMHP), a Xerox subsidiary. The lawsuit alleges that the state spent $1.1 billion on Medicaid orthodontic services from January 2004 to March 2012, but does not specify how much of this represented provider overpayments. Instead, it alleged that, as a result of the contractor’s actions, “hundreds of millions of dollars in payments were made for services not performed and orthodontic benefits not authorized by Medicaid policy,” and that the company received “tens of millions of dollars” for services it did not perform.

HHSC originally contracted with TMHP in 2004, when the consortium was managed by ACS State Healthcare LLC, which Xerox acquired in 2010. The problems leading to the 2014 lawsuit emerged over several years. In 2010, Texas spent as much on orthodontic services as the nine other most populous states combined, according to an April 2012 report by the U.S. House Committee on Oversight and Government Reform, which stated:

The state has admitted that widespread fraud was occurring and that the organization the state hired to assess prior authorization forms was essentially rubber-stamping forms for approval.

In 2011, Doug Wilson became inspector general and Jack Stick became his deputy for enforcement. Under their leadership, OIG began aggressively cracking down on Medicaid providers. In October 2012, Wilson said the agency had 27 open investigations and had put payment holds on 26 providers while investigators pursued allegations of fraud.99 He also stated that the agency had identified more than $370 million in potential overpayments for Medicaid dental and orthodontic services, and that HHSC was also expanding its Medicaid fraud team in an effort to reduce the duration of fraud investigations from four years to eight weeks. In 2012, too, HHSC, OIG and the Attorney General’s office also formed a joint task force to crack down on Medicaid dental and orthodontic fraud.

It is no coincidence that this was also the period in which OIG began acquiring fraud detection services from 21CT. An October 2012 Texas Tribune article obliquely mentions the 21CT contract in connection with a report on increased OIG fraud investigation activities:

The agency is also planning to update the state’s data mining technology within the next few months. While the current system can only be used to look up information on providers the agency already suspects of fraud, the new system will use pattern analysis and other advanced tracking methods to
identify fraudulent providers in real time.

To further complicate matters, HHSC was in the process of developing a request for proposal for a new Medicaid Management Information System (MMIS) and related systems and two requests for information had already been released. However, the agency was unready to do a competitive bid for the services in the time remaining on the term of TMHP contract. Instead, it announced in May 2014 that it would sign a three-year agreement with Accenture, then a Xerox subcontractor, to take over TMHP’s role in processing Medicaid claims, effective the following August 1.101 HHSC then planned to conduct a competitive bidding process to select a new contractor after Accenture’s three-year term. Accenture had operated the state’s Medicaid claims payment system since 2004, continuing despite its problems with the TIERS project and the subsequent end of that agreement.

This solution ran into further complication in February, when the Houston Chronicle reported that, in signing the contract with Accenture, HHSC did not follow state law by notifying the Comptroller’s office that no competition had been involved in selecting the company on a contract estimated to be worth $192 million a year. This failure to follow state procedures allowed HHSC:

…to avoid having to formally justify the process…. The decision not to classify the deal in the Comptroller’s accounting system as an ‘emergency’ agreement reached without competition also may have reduced scrutiny of what has been by far the largest such state contract in recent memory, according to the office.

In retrospect, it was a procurement oversight, but the decision to terminate the contract, while abrupt, was not necessarily the wrong decision. However, the timing was difficult for the agency given where it was in the re-procurement process.

At meetings of a state House Appropriations subcommittee and the state House Government Transparency & Operation Committee in February 2015, the executive commissioner told committee members that a no-bid emergency contract was inevitable when he started his job in September 2012, because the contract with Xerox was due to end in summer 2014, and that a competitive procurement process for such a complex contract would require three years — begging the question of why the agency had not been preparing for this contingency since 2012.

HHSC also said that in a competitive rebid, it would break the large contract into as many as five separate parts to make it easier to take action against a vendor without disrupting medical care for Medicaid clients. These procurements presumably would still require three years to complete.

Furthermore, the strike force subsequently learned that the state, through Accenture, was retaining Xerox, by then facing a state lawsuit, to continue running its pharmacy benefits management program with a lucrative new contract. The explanation given was that a different subsidiary of Xerox was handling this function and was performing well.

During interviews, the strike force heard various explanations for this chain of events, including the arguments that very few contractors can process Medicaid payments; that Accenture was a logical choice because services needed to be continued without interruption; and that there was no time to rebid the TMHP contract because of the long lead time required. The agency has publicly said that it continued its contract with TMHP, despite the alleged problems in claims processing, because HHSC feared Medicaid patients would lose access to care if the contract were canceled.

HHSC management accepts this reasoning, although the abruptness of the decisions point to the need for more effective planning and contract monitoring. The agency had hints of a problem in the dental program as early as 2008. It launched a crackdown on providers beginning in 2012 and participated in a task force on the issue with the Attorney General’s Office in 2012 and 2013.

HHSC knew that TMHP had played a role in the situation, whatever it proved to be, and just as certainly knew the TMHP contract term was ending and that sound practice would require a rebid even if the agency was unsatisfied with TMHP’s performance. It also knew in 2013 that the Attorney General’s Office was laying groundwork for a lawsuit against the company. Chief Counsel Jack Stick even brought a settlement offer from the company to the attorney general, who rejected it as inadequate given the scope of the problem. Vendors told the strike force that they believed HHSC was negotiating with Accenture to take over the contract while simultaneously negotiating a settlement agreement with Xerox.

Not unreasonably, it took the Attorney General’s Office until 2014 to build a case for what was bound to be a complex lawsuit, but HHSC inexplicably took no remedial steps against TMHP early on that might have corrected the problem before it came to a lawsuit. By the time the lawsuit was filed, it was, according to the executive commissioner, years too late to competitively rebid the contract without a stopgap solution that handed the TMHP contract to a vendor with which the state had parted company after another large system failure only seven years before.

For a large contract, worth hundreds of millions of dollars, HHSC should have used a riskbased assessment to anticipate and plan for these potential problems. The available evidence suggests that nothing of the kind happened. HHSC coasted into a major procurement problem that put the state at risk for millions in additional costs.