Texas to receive $236M in record settlement

Contractor will pay state after scheme led to unnecessary Medicaid-covered procedures

The state of Texas announced Tuesday it had settled a multi-billion-dollar lawsuit against one of its largest private contractors over what state and federal regulators claimed was a scheme that caused taxpayers to pay for thousands of unnecessary children’s dental and orthodontic procedures over nearly a decade.

Attorney General Ken Paxton said Xerox Corporation — through a division it later spun off as Conduent Business Services — will pay the state $236 million to settle all of Texas’s claims against it. In the settlement, the company did not admit any wrongdoing.

Although Paxton said the amount represents a record for Texas, the settlement is not a complete win for the state. According to Xerox’s public securities filings, Texas initially sought more than $2 billion in recovery and penalties from the company. The state already was forced to reimburse the federal government more than $100 million for the medical procedures.

Texas hired a company later acquired by Xerox to evaluate applications for Medicaid-funded dental procedures. The company was supposed to have dental professionals carefully review each application to make sure the tooth repairs were medically necessary, the standard for Medicaid to cover them.

According to the lawsuit, however, the company did little more than rubber stamp the paperwork. Under pressure to keep pace with the exploding number of applications from dentists and orthodontists, it hired untrained workers who often barely glanced at the medical records, molds and X-rays, spending only minutes on each application in some cases, court records show. Those who didn’t keep pace were reprimanded. The company employed a single dentist to review and sign off on several hundred preapproval applications per day.

The state’s lawsuit said the porous gatekeeping cheated Texas taxpayers out of hundreds of millions of dollars spent on cosmetic tooth repairs that shouldn’t have been covered under the publicly funded program.

In a statement released Tuesday, Conduent’s chief executive officer said the company is ready to move on.

“We are pleased to put this legacy issue behind us,” Ashok Vemuri said. According to a public securities filing made public Tuesday, the company will pay the $235,942,000 to Texas in installments, with the final payment scheduled for July 2021.

In a written statement, Paxton hailed the deal as a victory for the state, noting it was “the largest single resolution in a case filed by the attorney general’s office for Medicaid-related claims,” and adding that “We’re proud of this recovery of taxpayer money.”

A 2015 federal audit, meanwhile, calculated Texas had paid $191 million for unnecessary orthodontic work during only a 2.5year period between 2008 and 2011 — meaning the state’s losses were probably greater over the full length of the contract. The state Health and Human Services Commission last year wrote the U.S. Department of Health and Human Services a $133 million check to reimburse the federal portion of the improperly approved procedures identified in the audit.

And those sums don’t account for the approximately 60,000 hours in legal work performed by more than three dozen attorneys representing the state.

Beyond the monetary costs of the dental debacle, the state also sustained a black eye thanks to revelations that its own oversight of the flawed pre-authorization program was at least partly to blame for the program’s failure.

In court filings, Xerox blamed dentists seeking permission for procedures for knowingly skirting Medicaid rules. Yet the company also noted that state regulators had long been aware of how it was processing applications and did not act, thus tacitly approving of Xerox’s cursory vetting of the Medicaid preapprovals.

A program audit as early as 2008, as well as internal communications among state Medicaid program managers, confirmed Texas officials had plenty of early warning of Xerox’s skimpy reviews, yet did little to stop them as millions of taxpayer dollars flowed out the door.

Court records show no state workers were disciplined for the lapses.

Xerox managed the dental preauthorization program until 2012, when, following another scathing audit, it was replaced with a managed care model. Texas officials fired the company two years later when the state filed its lawsuit.

In its public securities filings, Xerox consistently claimed it performed according to the terms of its contract and would contest the lawsuit vigorously. Yet, last summer, the company was dealt a crippling legal blow when the Texas Supreme Court ruled it could not share legal blame for the Medicaid losses with the dentists and orthodontists. That left Xerox alone on the hook for the misspent money.

The company was under additional pressure to settle because a court finding of fraud could have imperiled its work with other governmental agencies, under federal rules. In September of 2018, the company set aside $110 million to cover its potential legal costs in the case, according to public securities filings.

Tuesday’s settlement does not end the legal wrangling over the botched pre-authorizations. The State of Texas also has sought to recover money from scores of dentists and orthodontists for what state inspectors say were procedures the practitioners knew were cosmetic, thus not covered by Medicaid. The dentists have prevailed in actions brought in administrative court, however, several lawsuits remain pending in district courts.

Jason Ray, an attorney representing many of the providers, said the settlement should prompt the state to end the cases against the dentists. “Five years of expensive and time consuming litigation has proven that the blame should have always been on Xerox, not the providers,” he said in a statement. “Continuing to blame the dental providers — who only did what Xerox told them to do under penalty of law — makes no sense.”

The providers, meanwhile, have an active lawsuit against Xerox, claiming the company’s negligence exposed them to the regulatory blowback.