Texas Officials Allege Fraud by Medicaid Contractor

Texas law enforcement officials Wednesday searched the offices of the state's Medicaid contractor after a grand jury investigation led prosecutors to believe that the company has defrauded the state of millions of dollars, the Dallas Morning News reports. Members of the Travis County district attorney's office seized records from National Heritage Insurance Co. -- which, since 1977, has served as a payment intermediary between the state and providers in the state's Medicaid program -- and its parent company Electronic Data Systems Corp. (San Martin, Dallas Morning News, 2/22). The investigation was spurred, in part, by several anonymous letters sent to House Appropriations Committee Chair Ron Junell (D) alleging that NHIC overcharged the state for "administrative costs" (Susswein/Bahadur, Austin American-Statesman, 2/22). The Morning News reports that the affidavit used to justify Wednesday's search contains information that a "high-ranking executive" with NHIC "told investigators about a secret plan allegedly hatched by the company to cheat the state out of millions of dollars in fees, and if caught, to explain away those overcharges as mistakes." While no charges have been filed, prosecutors said that three "top company officials" are being investigated for felony theft. Junell said that fraud could have cost the state more than $10 million and "possibly contributed" to the state's $602 million Medicaid shortfall (San Martin, Dallas Morning News, 2/23). The defrauding actions allegedly began in 1999 when the state and NHIC renegotiated their contract, lifting a cap on the percentage of Medicaid expenses NHIC could bill for administrative expenses. The affidavit states that NHIC increased its administrative charges to 13%, "even though the true costs were at 7%." NHIC denied the allegations, as company spokesperson Ken Smalling said, "We find this accusation of misconduct highly disturbing and believe it to be baseless" (Austin American-Statesmen, 2/22).