Posted on 07/09/2004 7:21:46 AM PDT by Arrowhead1952
Report says state paid insurance company $20 million too much
By Laylan Copelin
AMERICAN-STATESMAN STAFF
Friday, July 9, 2004
The state auditor on Thursday criticized the Health and Human Services Commission, saying it overpaid an insurance company $20 million for overseeing a program to insure poor children in rural Texas.
That overpayment, according to the audit, allowed Clarendon Insurance Group, headquartered in New York, to make $5.5 million in excessive payments to a subcontractor that had no employees and provided no direct benefit to the children's insurance program. Four individuals received the bulk of those overpayments, according to the report.
In addition, a lax contract allowed Clarendon to use almost $16 million in state dollars inappropriately for corporate use, mostly to provide temporary coverage of losses from its first year of operating the Texas program. Most of that money was reimbursed.
A spokesman for Clarendon declined comment pending review of the audit. Agency officials said that a new company is taking over the contract and that oversight has been tightened. They denied the report's conclusion that the agency abused its fiduciary responsibilities.
Bill Miller, a spokesman for the subcontractor that received the $5.5 million, said the audit has several errors, including the claim that Community Health Systems had no employees and provided no benefit to Texas.
"I think it's biased," Miller said of the audit. "It doesn't reflect the reality, nor does it take into account the enormous amount of activity it took to get a program started in rural Texas."
Gov. Rick Perry said he would ask Attorney General Greg Abbott to recoup the overcharges.
The audit comes in the wake of a House committee investigation into the management of the program.
"We're still investigating," said Rep. Terry Keel, R-Austin, a member of the House General Investigating Committee.
The state began providing health insurance to poor children in 2000, but the Legislature cut the program last year, reducing the number of children being served. The state and federal governments spend $522 million to insure about 400,000 children in Texas; the state's share is $194 million.
In 2000, Clarendon was the only bidder for a contract to process medical claims and make payments for children in 170 rural counties. The company reported more than $10 million in losses the first year and demanded a 67 percent increase in the premium the state paid.
State officials refused. Instead, the Health and Human Services Commission took over parts of the program, reducing the risk and costs for Clarendon, according to the audit. During the company's second year, the state paid it at least $123 million, the auditors said.
While the state was reducing the company's obligations, it continued to pay the same premiums, resulting in millions of dollars of overpayments, according to the audit.
Auditors said state health officials should have rebid the contract since the terms were changing so dramatically. Instead, state officials tried to amend the contract in lengthy negotiations.
Albert Hawkins, the state agency's executive director, said in a letter that the audit assumes other companies would have made bids on a new contract soon after the inception of a groundbreaking program with more than $10 million in first-year losses. In hindsight, Hawkins said, the rates paid Clarendon might appear high but were the result of difficult negotiations with the only known provider.
He said it's unfair to accuse the agency of abusing its responsibility.
Clarendon's contract expires in August; this year, three companies, including Clarendon, competed. Superior HealthPlan Network got the contract.
The audit spends several pages discussing what it called $5.5 million in excessive payments from Clarendon to its program manager, Community Health Systems.
Almost $2 million appeared to go toward business and personal expenses, including payments on credit cards, a line of credit, tax payments and payments to other individuals. The remaining $3.6 million was shared by four individuals, the audit said. The report did not identify the individuals, but company spokesman Miller did.
The co-owners of Community Health Systems, Michael and Rhonda Masters, formerly of Austin and now of St. Petersburg, Fla., paid themselves $1.7 million in commissions and salaries, according to figures from the audit. They paid Ron Lindsay, a former state health and human services executive, $1.1 million for consulting, and Marie Oser $800,000 for lobbying and consulting. Lindsay and Oser could not be reached for comment Thursday.
The audit said the services performed by the consultant and lobbyist were unclear.
"That was the professional help they needed," Miller said. "Lindsay is an expert in health care in Texas, and Marie is wired into the health organizations around the state."
Auditors said the lobbyist was not to be paid unless the company won the bid.
The audit also said it's "unclear" whether the payments to a lobbyist violate a state law prohibiting state dollars from being used for lobbying.
Miller defended Community Health Systems and its co-owners, the Masterses.
He said Clarendon hired the Masterses to create the rural program from scratch.
"They did a big job," he said. "They earned every penny they got."
This part makes me want to choke every politician who votes for all these %&^%#&* giveaway programs.
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