Pres calls AG’s fraud claims false, damaging

Executives shocked by allegations, said they worked with regulators every step of the way

Presbyterian Healthcare Services officials on Thursday strongly denied allegations in a lawsuit by the Attorney General’s Office that it avoided paying tens of millions of dollars in taxes on health insurance premiums over a 15-year period, saying it worked openly with state regulators in determining its tax liability.

The officials said they were blindsided by the lawsuit when it was filed Tuesday, learning of it in media reports. They said that at no point had the agency notified the company of its investigation nor had it made any demand for payment.

“We learned (of the lawsuit filing) through a press release,” Dale Maxwell, president and CEO of PHS, told the Journal editorial board Thursday. “We had no advance notice” or an opportunity to address their concerns, he added.

Presbyterian said independent firms as well as state agencies audited the insurer’s

state taxes numerous times for returns filed in the 15-year period covered in the lawsuit.

“We’ve made all (premium tax) payments in accordance with prevailing law,” Maxwell said.

These allegations of fraud “are unfair and misleading to the public and damaging to our state,” he said.

Attorney General Hector Balderas filed the civil lawsuit Tuesday in Santa Fe, accusing Presbyterian of falsifying tax deductions and credits on Medicaid premiums, alleging the company “brazenly and systematically” engaged in fraud and violated the state’s insurance code. The allegations were originally brought by three whistleblowers who formerly worked in the Office of the Superintendent of Insurance.

Named as defendants in the complaint are Presbyterian Health Plan Inc., Presbyterian Network Inc. and Presbyterian Insurance Co. Inc.

Maxwell and Brandon Fryar, chief financial officer of the health plan, said the claims are baseless.

“At no point did Presbyterian commit fraud, without a doubt,” Maxwell asserted heatedly, adding that the health system filed its returns, as well as amended returns in subsequent years, under the direction of the agency that oversees the collection of the premium tax: the Office of the Superintendent of Insurance.

“We worked alongside the OSI to amend these returns,” Maxwell said. “We did not do this alone in a back office.”

“I can’t see anything that gets us anywhere to fraud,” said Maxwell, who took over leadership of Presbyterian earlier this year. “It just didn’t happen.”

Changes in state law

Health insurers in the state are required to pay about 4 percent in taxes and surcharges on health insurance premiums, which are not subject to the state’s gross receipts tax. Premiums on some policies, such as those covering state government workers, are exempt from the tax.

Many of the attorney general’s allegations regard premium payments for Medicaid patients. PHP is an insurer in the state’s Medicaid, or Centennial Care program, and now insures 220,000 Medicaid recipients.

From 2005 forward, health system executives said, the law was clear that premiums on Medicaid policies were subject to the tax. And Presbyterian, like other insurers, they said, have paid those taxes.

The AG’s Office’s allegations are based on Presbyterian’s tax payments prior to that.

They said that in 2001 and 2002, the law was clear that Medicaid premiums were exempt from taxation. But the AG’s Office is claiming they should have paid taxes on those premiums.

Then changes made to state laws in 2003 and 2004 did away with those exemptions, but the laws were unclear and contradictory as to when they went into effect, according to PHS executives. They filed amendments in 2013, claiming Presbyterian had overpaid during that period.

Maxwell stressed that those amendments were filed with the assistance of the Office of the Superintendent of Insurance.

The AG’s Office also contends the company filed for credits to recover money it says it paid in taxes. As part of an agreement to cover Medicaid patients, the state pays Presbyterian — in addition to the premium for each patient — a set amount to cover the taxes.

“We are confident we applied these (credits) appropriately,” Fryar said Thursday.

‘A lot of moving parts’

Fryar, who described a complex set of accounting rules that govern taxation of health insurance revenue, said PHP paid over $345 million in premium taxes from 2001 to 2016.

The AG’s Office does not say in the suit how much it believes Presbyterian owes, but it claims the company improperly claimed hundreds of millions of dollars in premiums were exempt from the tax.

Neither the AG’s Office nor OSI returned calls for comment Thursday.

The attorney general’s bombshell claims leveled against the state’s largest private employer comes at a time when the State Auditor’s Office is conducting a separate investigation of whether Presbyterian and other major insurers underpaid taxes on Medicaid premiums. That audit is separate and apart from the attorney general’s claims.

The AG’s Office lawsuit, which is detailed in a 43-page complaint, includes counts for violation of the Fraud Against Taxpayers Act, violation of the New Mexico Insurance Code, unjust enrichment, fraud and negligent representations. The state is not only seeking millions of dollars in unpaid taxes, but also seeks civil penalties and punitive damages.

Maxwell said an “internal analysis” of the taxes the state says it owes now is underway and that it’s too early to tell how much money is at stake. “There are a lot of moving parts,” he said.

“We will aggressively defend the accuracy of our filings and the charges that have been alleged against us,” said Maxwell. “We will continue to cooperate with OSI on the ongiong audit of premium tax payments by all insurance companies.”

In the event the insurer loses the lawsuit, Maxwell said, any award money would come from Presbyterian’s reserves. Presbyterian has a $1.8 billion investment portfolio and $900million outstanding in bond obligations.

Maxwell said those reserves are in keeping with industry standards to maintain the highest of bond ratings.

“If we had a significant payment, it would be detrimental to our organization,” he said, impacting future investment in services, personnel and equipment to treat patients at its eight hospitals around the state.