Case Information
*0 FILED IN 3rd COURT OF APPEALS AUSTIN, TEXAS 8/10/2015 4:53:21 PM JEFFREY D. KYLE Clerk
*1 ACCEPTED 03-15-00252-CV 6432785 THIRD COURT OF APPEALS AUSTIN, TEXAS 8/10/2015 4:53:21 PM JEFFREY D. KYLE No. 03-15-00252-CV CLERK I N T HE C OURT OF A PPEALS F OR T HE T HIRD D ISTRICT OF T EXAS AT A USTIN D R . B EHZAD N AZARI , D.D.S., ET AL ., Appellants, v. T HE S TATE OF T EXAS , Appellee, v. X EROX C ORPORATION , X EROX S TATE H EALTHCARE , LLC F / K / A ACS S TATE H EALTHCARE , LLC, Appellees. On Appeal from the 53 rd Judicial District Court of Travis County, Texas, Trial Court Cause No. D-1-GN-14-005380 B RIEF OF A PPELLEES B ECK R EDDEN LLP B ECK R EDDEN LLP Eric J.R. Nichols Constance H. Pfeiffer State Bar No. 14994900 State Bar No. 24046627 enichols@beckredden.com cpfeiffer@beckredden.com Gretchen Sween 1221 McKinney St., Ste. 4500 State Bar No. 24041996 Houston, TX 77010 gsween@beckredden.com (713) 951-3700 Christopher R. Cowan (713) 951-3720 (Fax) State Bar No. 24084975 ccowan@beckredden.com
515 Congress Ave., Ste. 1900 Austin, TX 78701 (512) 708-1000 (512) 708-1002 (Fax) G IBSON , D UNN & C RUTCHER LLP K ELLY H ART & H ALLMAN LLP
Robert C. Walters C. Andrew Weber State Bar No. 20820300 State Bar No. 00797641 rwalters@gibsondunn.com andrew.weber@kellyhart.com
2100 McKinney Ave., Ste. 1100 301 Congress, Ste. 2000 Dallas, TX 75201 Austin, TX 78701 (214) 698-3100 (512) 495-6451 (214) 571-2900 (Fax) (512) 495-6930 (Fax)
C OUNSEL FOR A PPELLEES , X EROX C ORPORATION AND X EROX S TATE H EALTHCARE , LLC, F / K / A ACS S TATE H EALTHCARE , LLC Oral Argument Requested *2 T ABLE OF C ONTENTS P AGE T ABLE OF C ONTENTS ................................................................................................... i I NDEX OF A UTHORITIES .............................................................................................. ii S TATEMENT OF THE C ASE .......................................................................................... iv S TATEMENT OF J URISDICTION ..................................................................................... v I SSUE P RESENTED ........................................................................................................ v S TATEMENT OF F ACTS ................................................................................................. 1 S UMMARY OF A RGUMENT ........................................................................................... 8 A RGUMENT ................................................................................................................. 9
I. The Court Should Decide Xerox’s Original Proceeding Along with this Appeal to Ensure that the Entire Litigation Is Procedurally Consistent. .................................................................... 9
II. Counterclaims and Third-Party Claims May Be Brought When the State Brings a TMFPA Claim. ............................................ 10 A. The ordinary rules of civil procedure apply when the
State brings a TMFPA claim. .................................................... 10 B. Because the State has brought a tort claim for damages, Chapter 33 applies and permits contribution claims as well. ........................................................................... 12
III. Xerox Will Raise Immunity Arguments Once the Providers’ Claims Are Clearer. ............................................................................. 15 P RAYER FOR R ELIEF .................................................................................................. 16 C ERTIFICATE OF S ERVICE .......................................................................................... 18 C ERTIFICATE OF C OMPLIANCE .................................................................................. 19
*3 I NDEX OF A UTHORITIES C ASE P AGE ( S ) Janek v. Harlingen Family Dentistry, P.C. ,
451 S.W.3d 97 (Tex. App.—Austin 2014, no pet.) ........................................................................................................ 4
U.S. ex rel. Miller v. Bill Harbert Intern. Const., Inc. , 505 F. Supp. 2d 20 (D.D.C. 2007) ...................................................................... 13 Mortgages, Inc. v. U.S. Dist. Court for Dist. of Nev. , 934 F.2d 209 (9th Cir. 1991) .............................................................................. 13 Reata Const. Corp. v. City of Dallas , 197 S.W.3d 371 (Tex. 2006) ....................................................................... passim Rusk State Hosp. v. Black , 392 S.W.3d 88 (Tex. 2012)................................................................................. 15 Sec. Trust Co. of Austin v. Lipscomb Cnty , 180 S.W.2d 151 (Tex. 1944) .............................................................................. 12 Shipp v. Malouf , 439 S.W.2d 432 (Tex. App.—Dallas 2014, pet. denied) .................................................................................................. 3
State v. Naylor , No. 11-0114, 2015 WL 3852284 (Tex. June 19, 2015) ....................................................................................... 8, 11
Texas Dep’t of Corr. v. Herring , 513 S.W.2d 6 (Tex. 1974) ................................................................................... 11 Texas Mut. Ins. Co. v. Ruttiger , 381 S.W.3d 430 (Tex. 2012) .............................................................................. 11 United States v. Campbell , No. CIV.A. 08-1951, 2011 WL 43013 (D.N.J. Jan. 4, 2011) ........................................................................................... 13
Wortham v. Walker , 128 S.W.2d 1138 (Tex. 1939) (orig. proceeding) ................................................................................................ 12
ii *4 S TATUTES T EX . C IV . P RAC . & R EM . C ODE § 33.002(a)(1) ......................................................... 14 T EX . H UM . R ES . C ODE
§ 36.002 ................................................................................................................. 4 § 36.007 ............................................................................................................. 4, 5 § 36.052 ................................................................................................................. 4
O THER A UTHORITIES 25 T EX . A DMIN . C ODE § 33.71 (2015) ................................................................... 2, 3
iii *5 S TATEMENT OF THE C ASE Nature of the case This is a civil Medicaid fraud case brought by the State of Texas against orthodontic-service providers. The providers have brought counterclaims against the State and third-party claims against Xerox. In this lawsuit, the State has sued only the providers. Although the State’s fraud theory alleges intertwined claims against the providers and Xerox, the State is suing Xerox in a separate lawsuit, seeking to recoup from Xerox payments the State made to the providers.
Trial court Honorable Stephen Yelenosky 345th Judicial District Court of Travis County Trial court disposition : The trial court ruled that counterclaims and third-party claims cannot be brought in a suit brought under the Medicaid fraud statute. Thus, the trial court:
(1) granted the State’s plea to the jurisdiction and dismissed the claims against the State with prejudice and
(2) granted the State’s motion to dismiss third-party claims against Xerox. Tab A. iv *6 S TATEMENT OF J URISDICTION This Court has jurisdiction under T EX . C IV . P RAC . & R EM . C ODE § 51.014(a)(8). I SSUE P RESENTED Did the trial court err by dismissing the Dental Group’s third-party claims against Xerox? v *7 S TATEMENT OF F ACTS This fraud suit is brought by the State of Texas against Medicaid providers. It is factually intertwined with a separate fraud suit the State has brought against two Xerox entities. The State simultaneously accuses Medicaid providers and Xerox of a fraudulent scheme, yet it contends it can take a divide-and-conquer approach and seek double recovery by suing them in separate lawsuits.
Although Xerox benefits from the State’s argument that the trial court adopted in this case, Xerox does not agree with it. There is no prohibition against counterclaims and third-party claims in a Texas Medicaid fraud suit. Because the order under review assumes there is, Xerox agrees that it is erroneous.
The Dental Group’s statement of facts accurately sets forth the procedural background of this case. This statement of facts provides additional context for the broader landscape of this litigation and a related proceeding before this Court.
HHSC contracts for processing of Medicaid claims The Texas Health and Human Services Commission oversees the Texas Medicaid program, which serves low-income Texans. The program includes a process for reimbursing providers for the services provided to eligible children.
HHSC has in recent years hired contractors to assist it in claims processing. During the time period from 2004 to 2014, HHSC contracted with a private entity to be its fiscal agent and claims processor. Tab B at 30. That entity was later acquired by Xerox Corporation. Id . at 2.
*8 Long known as a brand name for copiers, Xerox now has a business division that provides analytic, consulting, revenue improvement, technological, and business process outsourcing solutions to the healthcare industry worldwide. The Xerox entity that contracted with HHSC is Xerox State Healthcare, LLC. Id . [1]
HHSC contracted with Xerox State Healthcare to provide multiple Medicaid administrative and technical services, including the processing of “prior authorizations” for orthodontic services submitted by the providers. Id . at 3. The “prior authorization” process requires providers to submit forms, materials, and certifications related to the provider’s diagnosis and the patient’s condition in order to receive prior approval for the orthodontic services. Instead of performing services first and then submitting the bill for payment, Medicaid “[o]rthodontic services must be prior authorized” before the provider performs the service. 25 T EX . A DMIN . C ODE § 33.71 (2015).
Under the contract, Xerox State Healthcare established the Texas Medicaid & Healthcare Partnership (TMHP), a consortium of Xerox State Healthcare and other subcontractors. TMHP processed hundreds of thousands of prior- authorization requests for orthodontic services over the span of a decade. During that time period, the State alleges that it spent approximately $1.1 billion for orthodontic services to Medicaid-eligible children. Tab B at 3.
*9 HHSC approved the contract and prior authorization policies under which TMHP operated, and it oversaw the work of Xerox State Healthcare (and the other TMHP contractors). Tab C . [2] In fact, HHSC’s Office of Inspector General conducted a full contract audit of the prior authorization process, and the results were made public in a 2008 report. Id . Xerox State Healthcare continued to perform under its contract until May 2014, when the State terminated the contract.
Negative publicity prompts the State to cast blame As the Dental Group explained, there has been a great deal of negative publicity about HHSC and the State’s spending on Medicaid orthodontic services. See Dental Group Br. 2-3; see also Shipp v. Malouf , 439 S.W.2d 432, 437–38 (Tex. App.—Dallas 2014, pet. denied) (discussing publicity about Medicaid provider). A series of “investigative” news reports in 2011 raised questions about the State’s spending on orthodontic services to Medicaid-eligible children and about the medical judgments of orthodontic providers, causing HHSC to second-guess that spending and begin casting blame on others.
HHSC’s Office of Inspector General, led by a now-departed deputy, made sweeping pronouncements of a vast fraud against the Medicaid program by orthodontic providers across the State. HHSC then filed separate administrative proceedings against members of the Dental Group. See Dental Group Br. 1.
*10 Meanwhile, Xerox State Healthcare continued to perform under its contract with HHSC. After all, HHSC had approved the contract and prior authorization policies under which TMHP operated, and it continued to oversee the work of Xerox State Healthcare (and the other TMHP contractors). Tab B at 19-20.
As HHSC received adverse findings and results in the administrative proceedings against the providers, [3] the State ultimately turned on Xerox and filed suit in Travis County against two Xerox entities in May 2014. Tab B . The State accused Xerox of failing to “catch” the providers’ alleged fraud through the prior authorization process. Rather than suing for breach of the prior authorization procedures set by the State in the HHSC contract, the State brought a single tort claim under the Texas Medicaid Fraud Prevention Act (“TMFPA”).
The TMFPA defines “unlawful acts,” beginning with knowing misrepresentations and nondisclosures. See T EX . H UM . R ES . C ODE § 36.002. It also provides for substantial civil remedies. A person who commits an “unlawful act” can be sued for the amount of payments made “as a result of the unlawful act,” plus double damages, civil penalties for each unlawful act between $5,500 and $15,000, prejudgment interest, and reimbursement of the State’s reasonable attorneys’ fees, expenses, and costs. See id . §§ 36.052, 36.007.
*11 The State seeks the same recovery from Xerox and the providers in separate lawsuits The State’s suit against Xerox seeks “all relief possible” under the TMFPA. Tab B at 21. This relief even includes the value of payments made under the Medicaid program to the Medicaid orthodontic-service providers—not to Xerox. Id . The State’s administrative proceedings against various providers sought recovery of the same payments.
Several providers then filed four separate suits against Xerox and the State. See CR47 n.2. [4] The State filed a plea to the jurisdiction, which the trial court granted. CR67. Those providers suits are now pending solely against Xerox.
Several other providers intervened in the State’s suit against Xerox, asserting common-law tort claims against the State and Xerox and seeking to recover for losses incurred as a result of payment holds and administrative claims that the providers contend the State wrongfully asserted. Tab D . The State moved to strike the intervention, and its motion was granted. CR69-78 (motion to strike); CR61-62 (order in State v. Xerox suit).
Meanwhile, in December 2014, the State nonsuited its administrative cases against the Dental Group and filed this suit the next day. Just like the suit against Xerox, the State has sued the Dental Group solely under the TMFPA.
*12 In this suit, the Dental Group answered the State’s TMFPA claim and asserted counterclaims and third-party claims against Xerox. CR29. Xerox filed a general denial but has not yet asserted affirmative defenses or filed any motions. Tab E . The State answered and simultaneously asserted a plea to the jurisdiction, plea in bar, and a motion to dismiss the third-party claims. CR43.
The State maintains in both of its fraud suits that it can exclude any party that it has chosen not to name in that suit—even while it seeks the same damages against the excluded party elsewhere. It contends that counterclaims against the State and third-party claims against parties who may share responsibility for any damages are not permissible. Thus, while the State resists the counterclaims and third-party claims in this suit, it is simultaneously arguing that Xerox cannot file third-party claims against the providers in the State v. Xerox suit. CR69-109. The State further argues that Chapter 33 does not apply, such that Xerox could not even designate the providers as responsible third parties. CR91-108.
The trial court agrees with the State in both lawsuits and dismisses all counterclaims, third-party claims, and RTP designations The various lawsuits between the State, Medicaid providers, and the Xerox entities have all been specially assigned, through the Travis County district court administrative process, to one district judge. The trial court was made aware that the State is seeking the same damages against separate parties in separate lawsuits based on factually related allegations.
6 *13 Yet the trial court decided that the State divide-and-conquer approach is permissible. In the State’s suit against Xerox, the trial court struck the providers’ petitions in intervention. CR61-62. It twice denied motions to consolidate the various lawsuits. CR286-92. It struck Xerox’s third-party contribution claims against the providers. CR294. And it denied Xerox’s motion for leave to designate the providers as responsible third parties. CR381-82. The last two rulings are pending before this Court in an original proceeding. See Cause No. 03- 15-00401-CV (filed 7/1/15).
In this suit, the trial court reached the same result by granting the State’s plea to the jurisdiction and dismissing the counterclaims, as well as granting the State’s motion to dismiss the Dental Group’s third-party claims against Xerox. Tab A . The order in this suit made plain that the trial court’s rationale is consistent with the rulings in the State’s suit against Xerox:
Consistent with this Court’s rulings in the State’s litigation against Xerox, the Court finds that the State is entitled to bring this action against defendants to the exclusion of other parties.
Tab A ; see also CR65 (Court letter to counsel: “The State is entitled to pursue a Medicaid Fraud claim against a defendant to the exclusion of all other parties[.]”). While the premise underlying the trial court’s rulings in both proceedings is consistent, the differing postures require different analyses. Xerox responds to the part of the order that grants the State’s motion to dismiss third-party claims.
CR383-84.
7 *14 S UMMARY OF A RGUMENT I. The Court should decide the issue presented in Xerox’s original proceeding along with the issues presented in this appeal. The causes are on a parallel track; the issues are closely related; and it will promote fairness and efficiency to ensure the issues are all decided now. The trial court’s rulings have resulted in multiple skewed lawsuits. Deciding related issues in the separate lawsuits together will assist the Court’s decisional process and ensure that it understands how its holdings affect the entire litigation landscape.
II. When the State sues, it must generally abide by the same rules that apply to private litigants. The Texas Supreme Court recently reaffirmed this rule. See State v. Naylor , No. 11-0114, 2015 WL 3852284, at *6 (Tex. June 19, 2015). This settled rule is equally true when the State brings a TMFPA claim, because nothing in the TMFPA prohibits counterclaims or third-party claims.
III. The State has asserted sovereign immunity arguments on Xerox’s behalf, and Xerox would welcome an affirmance on that ground. But if the claims against Xerox are reinstated, Xerox may assert immunity arguments on its own behalf at a later date, once the Dental Group’s claims are clearer. Any holding that the State has waived immunity should not implicate Xerox, because Xerox has not asserted its own claims for affirmative relief. See R eata Const. Corp. v. City of Dallas , 197 S.W.3d 371, 377 (Tex. 2006).
8 *15 A RGUMENT I. The Court Should Decide Xerox’s Original Proceeding Along with this Appeal to Ensure that the Entire Litigation Is Procedurally Consistent. Before turning to the merits, it bears emphasis that the issues in this appeal
are closely related to the issue presented in Xerox’s original proceeding, which is currently pending in this Court. See Cause No. 03-15-00401-CV. In that proceeding, Xerox challenges orders striking its third-party claims against the providers and denying it leave to designate providers as responsible third parties. Xerox argues in that proceeding that Chapter 33 applies to the State’s fraud claim for damages and thus permits it to bring third-party claims for contribution and to designate responsible third parties. Because the two causes are on virtually parallel tracks with nearly identical briefing schedules, it would be appropriate for the Court to decide them together.
Further, it would promote efficiency and ensure fairness in this entire landscape of litigation for the Court to decide all the issues presented by the Dental Group and Xerox together. While the issues in each cause are interrelated, they are not identical. Considering all the issues together would therefore assist the Court in understanding all the consequences of its holdings for all of the State’s lawsuits. The trial court’s rulings have resulted in a multiplicity of lawsuits that are procedurally skewed in the State’s favor. The due process rights of all the defendants hinge on correcting these errors now.
9 *16 II. Counterclaims and Third-Party Claims May Be Brought When the State Brings a TMFPA Claim. The threshold issue presented by this appeal is whether the State has waived
sovereign immunity. Xerox agrees that the governing standard for waiver is set by Reata Const. Corp. v. City of Dallas , 197 S.W.3d 371, 377 (Tex. 2006). The State has asserted an affirmative claim for monetary relief and therefore “must participate in the litigation process as an ordinary litigant.” Id . To the extent the Dental Providers show that their counterclaims satisfy the standard set forth in Reata , they should be allowed to bring them. Xerox takes no position on whether the Dental Group has met that burden.
The State has argued that Reata does not apply because its claim under the TMFPA is an “enforcement action.” CR48. Xerox does take a position with respect to this conclusory assertion, which is the foundation for all of the State’s arguments—including its position that third-party claims may not be brought in a suit under the TMFPA. Xerox agrees with the Dental Group that when the State brings a TMFPA claim, it is like any litigant subject to the rules of civil procedure.
A. The ordinary rules of civil procedure apply when the State brings a TMFPA claim. The State has never presented any authority for its assertion that a TMFPA claim is an “enforcement action” that somehow trumps the rules of procedure related to counterclaims and third-party claims. Yet the trial court agreed with this
10 *17 argument in the State v. Xerox suit and presumably agreed with it here. CR297 (premising ruling on characterization of State’s suit as an “enforcement action”).
There is no basis for displacing these rules of civil procedure when the State brings suit under the TMFPA. It is immaterial whether the State calls its suit an “enforcement action” or simply a tort suit for damages. The label is irrelevant to the legal analysis.
The TMFPA does not address third-party claims or counterclaims, and there is no basis to infer from the Legislature’s silence that it intended to displace the ordinary rules of procedure. Where statutes are silent on an issue, courts “presume the silence is a careful, purposeful, and deliberate choice.” See Texas Mut. Ins. Co. v. Ruttiger , 381 S.W.3d 430, 453 (Tex. 2012).
Absent any statutory directive in the TMFPA itself, the controlling rules are the same rules that apply to ordinary litigants. The Texas Supreme Court recently reaffirmed that these rules apply equally to the State when it becomes a litigant: “where the Legislature has given no indication to the contrary the State must abide by the same rules to which private litigants are beholden.” State v. Naylor , No. 11- 0114, 2015 WL 3852284, at *6 (Tex. June 19, 2015). “As a general rule, the State litigates as any other party in Texas courts.” Texas Dep’t of Corr. v. Herring , 513 S.W.2d 6, 7 (Tex. 1974).
11 *18 This principle is settled: [W]hen a State enters the Courts as a litigant, it must be held subject to the same rules that govern the other litigants, and abide the consequences of the suit . . . . When a state appears as a party to a suit, she voluntarily casts off the robes of her sovereignty, and stands before the bar of a court of her own creation in the same attitude as an individual litigant; and her rights are determined and fixed by the same principles of law and equity . . . .
Wortham v. Walker , 128 S.W.2d 1138, 1145–46 (Tex. 1939) (orig. proceeding) (internal quotation marks omitted); accord Reata , 197 S.W.3d at 377 (“Once it asserts affirmative claims for monetary recovery, the City must participate in the litigation process as an ordinary litigant . . . .”); Sec. Trust Co. of Austin v. Lipscomb Cnty , 180 S.W.2d 151, 159 (Tex. 1944) (“When the state becomes a party to a suit it is subject to the same rules that govern other parties . . . .”). These rules likewise apply here.
B. Because the State has brought a tort claim for damages, Chapter 33 applies and permits contribution claims as well. The Dental Group has set forth the correct analysis about counterclaims and third-party claims generally, but their analogy to the False Claims Act goes too far. Specifically, because contribution claims are not permitted in federal cases under the False Claims Act, the Dental Group incorrectly assumes that they are likewise unavailable under Texas law. This assumption is incorrect. Chapter 33’s contribution scheme under the Texas Civil Practice and Remedies Code is the controlling law in state court.
12 *19 Federal law has no analogue to the Texas contribution scheme in Chapter 33. Instead, federal law provides a right to contribution or indemnity only in limited circumstances:
A defendant held liable under a federal statute has a right to contribution or indemnification from another who has also violated the statute only if such right arises (1) through the affirmative creation of a right of action by Congress, either expressly or implicitly, or (2) via the power of the courts to formulate federal common law.
Mortgages, Inc. v. U.S. Dist. Court for Dist. of Nev. , 934 F.2d 209, 212 (9th Cir. 1991) (citing Texas Indus., Inc. v. Radcliff Materials , 451 U.S. 630, 638 (1981); Northwest Airlines v. Transport Workers Union of Am. , 451 U.S. 77, 90–91 (1981)).
The False Claims Act does not contain an express or implied right to contribution, and over the last quarter century, federal courts have uniformly refused to create such a right as a matter of federal common law. See Mortgages , 934 F.2d at 212 (“We decline, therefore, to formulate federal common law on this basis.”). [5] The federal rule—that contribution and indemnification claims are unavailable under the False Claims Act—prohibits all claims (no matter how styled) that are in substance claims for contribution or indemnity. If the instant case were a False Claims Act case in federal court, there is no doubt this rule would apply.
*20 The Dental Group relies on this federal framework, arguing that their claims do not sound in contribution and would therefore not be barred by the False Claims Act. This may be true, but it is irrelevant to whether their claims are permissible in a Texas court under the TMFPA. In this case, the controlling legal framework for contribution claims is found in Chapter 33. Analogizing to the False Claims Act is helpful in many respects, but not where conflicting state law controls the issue. Xerox therefore disagrees with any suggestion in the Dental Group’s arguments that contribution claims cannot be brought in a TMFPA suit. See Dental Group Br. 20-21 (counterclaims), 29-32 (third-party claims).
Xerox’s mandamus petition fully sets forth the analysis for why a TMFPA claim is a “cause of action based on tort,” and thus is governed by Chapter 33. T EX . C IV . P RAC . & R EM . C ODE § 33.002(a)(1). In short, the State’s claim is merely a statutory fraud claim seeking to recover damages, so it is subject to Chapter 33’s proportionate responsibility and contribution schemes.
Rather than fully briefing this argument here, Xerox incorporates it by reference. Tab F . It would be more appropriate to decide that issue in Xerox’s original proceeding, where the issue will be fully joined by the State.
So long as the Dental Group is conceding that none of its claims sounds in contribution, the Court need not decide whether Chapter 33 applies in this appeal. The Court could narrowly hold that the Dental Group’s claims are permissible on their own terms—regardless of whether contribution claims are permissible.
14 *21 III. Xerox Will Raise Immunity Arguments Once the Providers’ Claims Are Clearer. Xerox has not yet filed a plea to the jurisdiction or raised an affirmative
defense of immunity. Instead, the State raised immunity on Xerox’s behalf. CR54-57. While Xerox would welcome an affirmance on this basis (rather than on the incorrect premise that the TMFPA prohibits third-party claims), it leaves it to the State to assert those arguments. For now, Xerox addresses the issue simply to clarify that it would be premature to hold that Xerox does not have an immunity defense.
Xerox can and likely will raise immunity arguments in the trial court if the claims against it are reinstated. There is no deadline or risk of waiver, because sovereign immunity implicates subject-matter jurisdiction and can be raised at any time. See Rusk State Hosp. v. Black , 392 S.W.3d 88, 95 (Tex. 2012) (defense of governmental immunity is jurisdictional and can be raised for first time on appeal). Xerox may well benefit from sovereign immunity as to acts taken as a contractor for the State. Likewise, official immunity is an affirmative defense, which Xerox can still plead.
Any holding in this appeal about waiver of sovereign immunity under Reata should be limited to the State, because Xerox has not asserted any affirmative claims for relief. Reata holds that an entity waives immunity from affirmative damage claims brought against it as an offset by asserting its own affirmative
15 *22 claims for monetary relief. Reata , 197 S.W.3d at 377. Under Reata , parties sued by the government may “assert, as an offset, claims germane to, connected with, and properly defensive to those asserted by the governmental entity.” Id . Because Xerox has not brought any claims in this case, none of the Dental Group’s claims against Xerox satisfies the Reata waiver standard.
P RAYER FOR R ELIEF The Court should either affirm the order on immunity grounds or reverse the trial court’s order. The Court should not allow the order to stand on the basis of an interpretation of Texas law that imposes a blanket prohibition on counterclaims and third-party claims when the State brings suit under the TMFPA.
16 *23 Respectfully submitted, By: /s/ Eric J.R. Nichols By: /s/ Constance H. Pfeiffer Eric J.R. Nichols Constance H. Pfeiffer State Bar No. 14994900 State Bar No. 24046627 enichols@beckredden.com cpfeiffer@beckredden.com Christopher R. Cowan B ECK R EDDEN LLP State Bar No. 24084975 1221 McKinney St., Ste. 4500 ccowan@beckredden.com Houston, TX 77010 (713) 951-3700
B ECK R EDDEN LLP 515 Congress Ave., Ste. 1900 (713) 951-3720 Austin, TX 78701 (512) 708-1000 (512) 708-1002 (Fax)
Robert C. Walters C. Andrew Weber State Bar No. 20820300 State Bar No. 00797641 RWalters@gibsondunn.com andrew.weber@kellyhart.com
G IBSON , D UNN & C RUTCHER LLP K ELLY H ART & H ALLMAN LLP 2100 McKinney Ave., Ste. 1100 301 Congress, Ste. 2000 Dallas, TX 75201 Austin, TX 78701 (214) 698-3100 (512) 495-6451 (214) 571-2900 (Fax) (512) 495-6930 (Fax)
C OUNSEL FOR A PPELLEES , X EROX C ORPORATION AND X EROX S TATE H EALTHCARE , LLC, F / K / A ACS S TATE H EALTHCARE , LLC 17 *24 C ERTIFICATE OF S ERVICE I hereby certify that on August 10, 2015, a true and correct copy of the above and foregoing Brief of Appellees was forwarded to all counsel of record by the Electronic Service Provider, if registered, otherwise by email, and to Respondent, by hand delivery, as follows:
Counsel for Appellants: Jason Ray E. Hart Green Riggs, Aleshire & Ray, P.C. Weller, Green, Toups & Terrell, L.L.P. 700 Lavaca, Suite 920 Post Office Box 350 Austin, TX 78701 Beaumont, TX 77704-0350 jray@r-alaw.com hartgr@wgttlaw.com
Counsel for Appellee State of Texas: J. Campbell Barker Philip A. Lionberger Deputy Solicitor General Assistant Solicitor General Office of the Attorney General Office of the Attorney General P.O. Box 12548 (MC 059) P.O. Box 12548 (MC 059) Austin, TX 78711-2548 Austin, TX 78771-2548 Cam.Barker@texasattorneygeneral.gov Philip.Lionberger@texasattorneygeneral.gov Raymond Winter Reynolds Brissenden Chief, Civil Medicaid Fraud Division Assistant Attorney General Office of the Attorney General Office of the Attorney General P.O. Box 12548 P.O. Box 12548 Austin, TX 78711-2548 Austin, TX 78711-2548 raymond.winter@texasattorneygeneral.gov reynolds.brissenden@texasattorneygeneral.gov By: /s/ Constance H. Pfeiffer Constance H. Pfeiffer 18
*25 C ERTIFICATE OF C OMPLIANCE 1. This brief complies with the type-volume limitation of Tex. R. App. P. 9.4 because it contains 3,843 words, excluding the parts of the brief exempted by Tex. R. App. P. 9.4(i)(2).
2. This brief complies with the typeface requirements of Tex. R. App. P. 9.4(e) because it has been prepared in a proportionally spaced typeface using Microsoft Word 2007 in 14 point Times New Roman font.
Dated: August 10, 2015. /s/ Constance H. Pfeiffer Constance H. Pfeiffer Counsel for Appellees 19
*26 No. 03-15-00252-CV I N T HE C OURT OF A PPEALS F OR T HE T HIRD D ISTRICT OF T EXAS AT A USTIN D R . B EHZAD N AZARI , D.D.S., ET AL ., Appellants, v. T HE S TATE OF T EXAS , Appellee, v. X EROX C ORPORATION , X EROX S TATE H EALTHCARE , LLC F / K / A ACS S TATE H EALTHCARE , LLC, Appellees. On Appeal from the 53 rd Judicial District Court of Travis County, Texas, Trial Court Cause No. D-1-GN-14-005380 A PPENDIX TO B RIEF OF A PPELLEES T AB A Order Granting State’s Plea to the Jurisdiction and
Motion to Dismiss Third Party Claims B Plaintiff’s Original Petition in Cause No. D-1-GV-14-000581 C Office of Inspector General Report dated August 29, 2008 D Providers’ Plea in Interventions in Cause No. D-1-GV-14-000581 E Xerox’s Original Answer to Defendants’ Original Third Party Petition F Xerox Corporation and Xerox State Healthcare, LLC f/k/a
ACS State Healthcare, LLC’s Mandamus Petition *27 Tab A
Order Granting State’s Plea to the Jurisdiction
and Motion to Dismiss Third Party Claims *28 DC BK1 5120 PG81 Filed in The Distric~ Court of Travis County, texas µ-
CAUSE NO. D-1-GN-14-005380
At _ _ --41.....:.....!::==--4-F-..__M . Velv a L. Pri
THE ST ATE OF TEXAS § IN THE DISTRICT COURT OF § Plaintiff, § § v. § §
DR. BEHZAD NAZARI, D.D.S. § TRAVIS COUNTY, TEXAS D/B/A ANTOINE DENTAL § CENTER, DR. BEHZAD NAZARI, § DR. WAEL KANAAN, § HARLINGEN FAMILY § DENTISTRY, P.C., NIKIA, § PRACTICAL BUSINESS § SOLUTIONS, SERIES LLC, JUAN § D. VILLAREAL D.D.S., SERIES, § PLLC D/B/A HARLINGEN § FAMILY DENTISTRY GROUP, § DR. JUAN VILLAREAL, DR. § VIVIAN TEEGARDIN, RICHARD § F. HERRSCHER, D.D.S., M.S.D., § P.C., DR. RICHARD F. § HERRSCHER, M & M § ORTHODONTICS, PA, DR. SCOTT § MALONE, DR. DIANA MALONE, § MICHELLE SMITH, NATIONAL § ORTHODONTIX, MGMT, PLLC, § DR. JOHN VONDRAK, RGV § SMILES BY ROCKY L. SALINAS, § D.D.S. PA, AND DR. ROCKY § SALINAS 53RD JUDICIAL DISTRICT §
§ Defendants. § ORDER GRANTING STATE'S PLEA TO THE JURISDICTION AND MOTION TO DISMISS THIRD PARTY CLAIMS On April 15, 2015, the Court heard the State of Texas's Plea to the Jurisdiction, Plea in Bar and Motion to Dismiss Third Party Claims, filed on January 20, 2015. All parties appeared through their respective counsel and announced ready.
Case# D-1-GN-14-005380 1~~m~m~m~m~u~M~M~w~w1a~
004002256
383 *29 DC BK15120 PG82 r b~ \-tlN- l tf- 00?3 go ~&9 (?.; i of 2-
Having considered the Pleas, Motion, response briefs, and arguments of counsel,
the Court ORDERS that the State of Texas's Plea to the Jurisdiction is GRANTED. Defendants' counterclaims against the State are DISMISSED with prejudice. The Court further ORDERS that the State of Texas' s Motion to Dismiss Third Party Claims is also GRANTED. Consistent with this Court's rulings in the State' s litigation against Xerox, the Court finds that the State is entitled to bring this action against defendants to the exclusion of other parties. Defendants' third party claims against Xerox are DISMISSED. A~
J-h Signed this.{li day of~' 2015
I
Jud~J'h;;lle{osky l I 2 384 *30 Tab B Plaintiff’s Original Petition in Cause No. D-1-GV-14-000581 *31 5/9/20141:05:46 PM Amalia Rodriguez-Mendoza District Clerk
D-1-GV-14-000581
Travis County CAUSE NO. D-1-GV-14-000581 ~------- THE STATE OF TEXAS, IN THE DISTRICT COURT PJaintiff, v. 53RD JUDICIAL DISTRICT XEROX CORPORATION; XEROX STATE HEALTHCARE,LLC;ACSSTATE HEALTHCARE, LLC, A XEROX CORPORATION,
TRAVIS COUNTY, TEXAS Defendants PLAINTIFF·'S ORIGINAL PETITION The State of Texas. by and through the Attorney General of Texas, Greg Abbott, brings this law enforcement action pursuant to the Texas Medicaid Fraud Prevention Act, ("TMFP A"), TEX. HUM. RES. CODE ANN. chapter 36. The State would show the Court:
I.
DISCOVERY CONTROL PLAN L Plaintiffs designate this case as a Level 3 case requiring a discovery control p lan tailored to the circumstances of 1he specific suit.
TI.
THE PARTIES Plaintiff is the State of Texas, by and through the Attorney General of Texas 2. ("Texas" or "the State"). 3. Defendant Xerox Corporation is a corporation organized under the laws of New York and may be served with process upon its registered agent, Prentice Hall Corporation, 211 E. 7 111 Street, Suite 620, Au~ Texas 78701-3218. Defendant Xerox State Health Care, LLC, is a whoIIy-owned subsidiary of Xerox Corporation organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Dallas, Texas 75204, and may be served with process upon its registered agent, CSC-Lawyers Incorporating Service Company, 211 E. 7 1
h *32 Street, Suite 620. Austin. Te~as 78701-3218. Dt:fom.lattl ACS Healthcare, LLC. a Xcmx Corporation, is a wholly-owned subsidiary of Xerox Corporation organized under the laws of the State of Delaware with its Texas otlices ai 2828 N. I IaskeH Ave., Dallas, Texas 75204 [1] and may be served with process upon ils registered agent, CSC-Lawye.rs lncorpQrating Service Company. 70 I Brazos Street. Suite l 050, Austltl, Texas 7870 I. Defendant Xerox Corporation acquired Defendant ACS in 2010. On info11nation and belief, ACS State Healthcare, LLC, changed its name to Xerox State Healthcare. LLC, on April 1. 2012. Defendants are referred tu hereatter as "Xerox.··
Ul. JURISDICTION ANO VENUE 4. This Court has subject-matter jurisdiction over this action pursu~mt to section .36.052(d) of the TMFPA, which provides statutory rerncdi~s to redress the conduct of Defendants. The TMFP A provides authority for this action to be brought by the Attorney General. Tex. Hum. Res. Code §§ 36.052. 36. 102. Jurisdiction is further proper be.cause the amounts sought from each Dcfondtint arc in exce~ of the minimum jurisdictional limits of this Coun.
5. This Court has jurisdiction over the Detendants named in this Petition, because each Defendant does busines~ in the State of Texas and committed the unlawful acts alleged in this Petition in whole or in part in Texas.
6. Venue is proper in T.-avis Co.unty under section 36.052f d) of the TMFPA and because many of the unlaw'f ul acts committed by Defendants were committed in Travis County, including the making of false statements and misrepresentations of material fact to the Texas Medicaid Prngram. PLAIN rlFF'S ORIGINAL PETITION PAGE2
*33 IV. PRELlMlNARY STATEMENT ANO NATURE OF THIS ACTION 7. This is a law en.forcemenl action alleging unlawtiJJ acts and seeking civil remedies
under the TMFPA 8. Xerox's unlawful acts resulted in a slibstantial breach of safoguards intended to protect ta:.xpayer dollars, maintain the integriry of Medicaid policies, and ensure the appropriate delivery of services to Medicaid clients. Xerox permitted an unpreeedented 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 wa~ deeply ~omprnmised. During the time periocJ beginning January 1, 2004, when Xerox began its tenure as the State's Medicaid contractor, and ending March l, 2012, when Texas shifted most of its dental benefits to managed care, Texas Medicaid expended approximately $1.l billlo,1- dollars for orthodontic services to Medicaid chems. Although a comprehensive damage estimate has not been completed, initial reviews of th ose expenditures indicate that a substantial percentage was paid in violation of Medicaid policies, policies Xerox repeatedly assured Texas it was enforcing. Additionally, because of its misrepresentations, Xerox was paid tens of millions of dollars for services it was, in fact, not performing.
9. Xerox's liability arises from its misrepresentations regarding, and c-0ncealment of,, material facts regarding its discharge of contractual obligations. Xerox bid for, and won, contracts with the Texas Healtb and Human Services Commission (''HHSC') and its predecessors to perfonn program administra tion for T~xas Medicaid. Included among the administration responsibilities was evaluation .and proper disposition of prior authorization requests s ubmitted lo Med[caid by dental providers for approval of orthodontic treatment. Xerox repeatedly represented to Texas Medicaid of1jcia!s that its prior authorization system ensured PLAINTIFf' SORJGINAL PETfTlON P.AGE 3 *34 propt.!r pre-determinations of medical necessity and enforcement of Medicaid po.Jicy. Contrary to those repre-sentat!ons. Xerox knowingly failed to adequately review the orthodontic PA requests and documentation submitted by providers to obtain prior authorizatio11 for orthodontic treatment. Onhodontic PA requests were routinely "rubber-stamped" by Xerox employees without proper review. Vast numbers of these orthodontic PA requests were for children whose condition did nol meet Medicaid criteria for treatment. Xerox·s failure lo properly review these applications penniued Medicaid dentaJ providers to re\.,-eive payment for services that were not within the scope of medically necessary services pennitted by Medicaid Jcntal policy. Xerox's conduct violates the TMFPA.
I 0. The State seeks to recover: ( l) the amount of any payments or the value of any monetar~ or in-kind benefits provided under the Medicaid program, directly or indirectly, as a result of the Detcndants' unlawful acts~ (2) pre-judgment interest on the amount of the payments or the value of such payments; (3) two times the amount of the payments or the value of such payments; ( 4) civil penalties in an amount not kss than $5,5.00 Of more than $11.000 for each unlawful act ~ommitted by Defendants~ [1]
( 5) costs, attorneys· fees, and expenses; and ( 6) any and all other remedies that may be allowed under the TMFPA.
V. BACKGROUND
The Texas Medicaid Orthod.ontic Benefit A. 11. Orthodontic services for children covered by Texas Medicaid arc limited by rufe
and by policy. To quallfy for orthodontic treatment, a child must meet a Mcdicaid~dcfinetl test of medical necessity. In general [1] a child must be age twelve or older, or ha:vc lost all primary [1] This maximurn civil penalty would rise to not.more than $15,000, for each unlawful act which results in injury [10] a ch ild under 18. disabled person. or elderly person. See TMFPA § 36.052( a)(3)( A). PAGF. 4 PLAINTIFF'S ORIGINAi PETl'I ION *35 dentition (sometimes known as "baby teeth"), and suffer from ~i severe handicapping malc..,cclusion. Medicaid does not authorize orthodontic treatment for cosmetic cotTectio11.
12. To ensure compliance with policy, Texas requires dental providers to obtain pdor authorization of orthodontic treatment plans. Claims submitted for treatment are not considered for payment unless prior authorization is obtained in advance. Each prior authorization request must include- documentation specified by effecti.ve policy, These requirements include the submission of a treatment plan, a properly-completed and scored Handicapping Labio~Ungual Deviation score sheet ("HLD sheet;') with a minim.um score, and clinical documentation supporting medical necessity incl uding but not limit.ed to facia1 and intraoral photographs and radiographs. Medical necessity for the requested treatment can be verified only by examination and verification of the clinical documentation by a licensed dental professional. HHSC expected and required the prior authorization process implemented by Xerox to include a proper review of all documentation and verification o.f the client's eligibility fot the services requested; that is, a thorough review to·ascertain that the dient a1:id treatment plan met all program requirements.
8. The 2003 Contract l3 . On nr about May 1, 2002, HHSC released a Request for Proposal (''2002 RFP")
for fiscal and business adminii:.tration D( the Texas Medicaid Program. The 2002 RFP described the prior authorization performance required of a successful bidder:
Prior authorization (PA} is a mechanism to determine the medfoal necessity of selected non-emergency, Medicaid-covered, and medical services prior to service delivery, . . • The PA function will serve as a utilization tnanagernent measure allowing payment for only those services that are medically necessary, appropriate, and cost-effective, and reducing tbe misuse of specified services. Additionally, the 2002 RfP listed Vendor Responsibilities that included:
Receive, correctly disposition (i.e., approve, deny, modify, or determine incomplete) ..• prior authorization requesls for services .. . . PAGES
PLA!NTIFF'S.ORJGIN AL PETfflON *36 P AC-5 Ensure that non-covered services are not prior authorized. PAC-8 Conduct quality assurance reviews to ensure appropriateness of Medicaid , . .
PA analyst decisions. PAC-15 Ensure PA staff use welt-defined processes and procedures for analysis and research for PA approvals. P AC-17 Provide sufficient. and adequate professional medical staff for staffing and managing the [>A function, induding medically knowledgeable PA analysts for processing requests and availability of licensed medical protess.ionals to provide consultative services regarding all Medicaid . . . covered service types.
PAC-40 Implement a quality assurance process and e~tab lfah procedures to periodically sample and review dispositioned [sic I PA requests to determine if PA policy and procedures are being followed. Ln response, Xero}( submitted a proposal 011 August 21, 2002 (''2002 Proposal"). In
14. lhe 2002 Proposal, Xerox represented to Texas Medicaid tha.t its prior authorization process would ensure the implemerttation of HHSC-approved dental criteria and policy and prevent medically unnecessary services and identify over-utilization of ~rvices. Xerox represented that qualified PA staff would review each request ant! determine whether the orthodontic: PA requests complied with Medicaid policy an<i the. services were medicalty necessary. Xerox assured Texas Medicaid thac qualified clinical personnel would use their medicaJ expertise and HHSC- approved policy to evaluate medical necessity and cost-effectiveness of requesk~d services. Xerox promised that it would provide ongoing quality reviews of PA activities, including reviews of accuracy of the PA determinations an<l adherence to documented pr-0cedures.
l 5. HHSC awarded the Texas Medicaid Claims/Primary Cate Case M anagen:1em Administrative Services Agreement ('.2003 contract") to Xerox. The parties executed the 2003 contract in February-, 2003 . The 2003 cr111tract specifically incorporates the 2002 RFP and the 2002 Proposal. The 2003 contract expired by its terms on or about August 31, 2007. PLAINi'lFF' S ORJGINAL PBTITION PAGE6
*37 l 6. During the transition period between execution of the contract and the assumption by Xerox of operations on or about January f. 2004, Xerox personnel submitted for HHSC approval written poJicies and procedures ("P&Ps'') specific to dental PA reqi1ests which specifically represented to HHSC that every PA request would be st1bmitted to the dental director employed by Xerox for review. The Xerox P&Ps incorporate<l the procedure followed by the contractor preceding Xerox, a procedure HHSC expected Xerox to follow bnless changes were auth0riz:ed by HIJSC. The P&Ps included a representation that the review of eacb PA request would include an examination of the HLD scoring sheet as well as the radiographs, faciaJ photographs, and plaster cast models of the patient's teeth.
17. Xerox assumed -operations u nder the 2003 contract on or about Jam1ary l ~ 2004. At or around that same time} Xerox implemented a different procedure than that described in the P&Ps. Without submitting documentation of this chat1ge to HHSC, Xerox instructed its dental clerical personnel to automatically approve applications for Medicaid-eligible chi ldren, age 12 or over, accompanied by an lILD score sheet that showed a score of 26 or above ou its face. The employees assigned to tbis task had no ql!al.ifications to ronduct a medical necessity evaluation; and, indeed, these employees made no attempt to do so. In most instances, the employees did not l!-ven ascertain that any or all of the required medical documentation was actually submitted by the provider as required by Medicaid policy. Further, the clerical personnel were inadequately lrained to review the HLD sheet for obvious over-scoring. If the application was for .a person who me.t Medicaid eligibility requirements and the HLD score was facially 26 or more,, approval was entered by the clerical personnel without forthcr ex.amination. This new procedure drastically reduced the number of applications receiving review by the dental director, who was the only perso11 employed by Xerox with the medical qualifications necessary to make a pr.opet PLAINTIFF'S ORIGINAL PETmON PAG£ 7 *38 review of these applications.
18. Clerical personnel were directed by Xerox to send only orthodontic PA requests for children whose age was under twelve or whose HLD scores were below 26 to the dental director for review, That was estimated to be l 0% of all orthodontic PA requests. However. even the W% reviewed by the dental director were not properly evaluated. The vast majority of those orthodontic PA requests were approved by lne dental director, in many instances when the denm! director knew the patient did not meet Medicaid p<'llicy requirements. Furt'her, as time went on and the number of 'PA requests increased, Xerox clerical personnel were instructed to approve applications for children under twelve without dental director review or proper authentication that the chitd·s primary dentition had been lost.
19. During the course of the 2003 contract, Xerox continued to promulgal~ written documents indicating that every dental PA request was submitted for dental director review. These documents misrepresented material facts regarding the actual procedures followed by Xerox employees. The Xerox clerical j:)ersonnel processing dental PA Tequests repeatedly observed
20 . providers were submitting dent::il Pr\ requests that, on their face, indj.c;ated a need for pmfessional review by the dental director to ascertain compliance with ~ [1] ledicaid policy. They reported their observations and concerns to their superiors. Despite the concerns raised, Xerox tnade [110] changes in its process to increase the level of review. Further, despite its representations regardi.ng the efficacy of its quality assurance processes, Xerox made no attempt to test Lhe accuracy of its orthotfontic PA dispositions.. Xerox did not even retain the medical documentation necessary to conduct such a test.
21 . In fact, Xerox 'implemented cost-saving measures that made adequate reviews less PLAINTJFF'S ORJGINAL PETlTION PAGE8 *39 Likely. In or around August of 2006, Xerox launched its so-called Activity Based Compensation ("ABC"). Under ABC, Dental PA Specialists began working from home and were c-0mpcmsated on a piece-work basis. This incentivized employees to process more PA requests in less time. Xerox's home-base.d employees had no access to the medical documentation suhm.itted by providers. In 200,8, tbellHSC' Office of Inspector General ("HHSC-OIG") began an auqit of
'22. the PA processes followed by Xetox employees, HHSC-OTG auditors ohsewed Xerox clerical personnel approving orthodontic PA requests without any review of submitted medica1 documentation . HHSC-OfG questioned whether this p(ocess rnet Xerox's contractual obligations. Xerox management vigorously contested the issue. Xerox represented to HHSC-010 that its procedures constituted a medical necessity review of each dental PA request and t11at the vast majority of the dental PA requests submitted met Medicaid coverage requirements. Xerox made those representations even though it had not. verified medical necessity for, in its 'OWn estimation. 90% of the dental PA requests stibmiU·ed and even though Xerox's ·d~ntal director was approving most of the I 0% he reviewed himself even when they did not qualify for services under Medicaid policy. Moreover, Xerox made its representations knowing it had done nothing to test the validity of any prior authorizatiol1 approvals made by clerical personnel or the dental director.
23. On or about August 29, 2008. HHSC-010 published its Performance Audit Report C'2008 HlISC·OlO Audit')) .. finding: "The PA dental team members could be approving a portion of orthodontic PA requests that arc nol for the treatment of severe handicapping malocclusion and other specially medically necessary circumstances. Dollars paid. for orthodontic treatment, for the months of September 2007 through February 2008, were at least PLAINTIFF'S ORIGINAt J>ETJT!ON PAGE9 *40 $52.6 million.'' 'HHSC-OJG made the formal recommendation that Xerox .should sample the 01thodontic PA requests approved by its per~onnel to ensure the PA re.quests meet the crit~ria for ln its management response the audit findings and Texas Medicaid benefits. to recommendations, Xerox represented that it reviewed the orthodontic PA requests "in accordance with the Medicaid administration contract, policies and rules.'' Xerox further r.epresented, "[T]he absence of PA reviews by a licensed dental professional does not mean that payments for orthodontic treatment during the audit period of September 2007 through February 2008 were inappropriate." Xerox maintained that dental d irector review was not required by the contrac;t, only statTing by "medically knowledgeable analysts,'' Xerox rnade that represeniation, knowing that, in f~c(, none of the clerical personnel processing orthodontic PA requests were medically knowledgeable. Xerox never implemented a process to sample for and confirm compliance with Medicaid policy and/or the documentation of med.ical necessity in applications apptoved by its personnel. In or arouod March, 2009, in response to demands by HHSC for updated P&Ps
24. for all areas of operations, Xerox submitted Dental Prior Authorfaation P&Ps and Werk J nstructions to H HSC that indicated that aJI reqllests for dental PA were scrutinized 10 determine that all required d ocumentation was submitted, that the dental and ot1hodontrc PA requests and H LD sheets mer Medh:aid policy requirements. anc..1 that <tUa1ifying dental and orthodontic PA requests were routinely submitted for demal director review to determine medical necessity.
25 . ln or about April. 2009, the HHSC Deputy Medicaid/CHIP Director for Claims Administrator Operations ("HHSC Deputy'\) became concerned about Xerox's orthodontic PA process. The HHSC Deputy was responsible for oversighl of Xerox's contractual performance and was vested with authority to imp!)se sanctions under the contTact. The HHSC Deputy's PLAINTlfF'S ORIGINAL PETtTION PAGE 10 *41 concerns arose from a n::view of the 2008 HHSC-OIG Audit and a letter written to HHSC-OIG in November, 2008, by the Texas Office of Attoniey Geileral Medicaid Fraud Control Unit ("MFCU letter''). The MFCU letter set out infortnati:on obtained by MFCtl from Xerox's dental director regarding the way Xerox was reviewing orthQdontic PA requests.
26. On or about April 15, 2009, the HHSC Deputy issued a State Action Reque51 (SAR) to the Managing Direct<.1r for Xerox. The SAR attached the MFCU letter of November, 2008, noting: "The contract required that [Xeroxl research, analyze, and evaluate all PA decision.s and ensure aH facts an~ considered and documented prior ~o making. a PA determination. The contract funher requires that [Xerox] correctly disposition all PA requests.'' The SAR fiirther stated:
The temarks attributed to the [Xerox I Dental Director by the OAG, if accur-ate, suggest a serious lack of undei:standiog of the prio-r authorization requirenwnts for t11~ Medicaid dental program. It is absolutely imperative that rxeroxj exercise clinical ,judgment for each individual dental prior authorization request submitted and approve only those services that are clinically appropriate. If the . . . Dental Directors [sicJ c,omments are accurate then those comments represent a serious and material breach o f the contract. [Xerox] may be subject to actual damages for any procedures that were not clinically evaluated but were authorize<l and/or liquidated damages for failure to adequately manage the dentaJ prior authorization program. Prepare a response to each comment attributed to the ... dental director in the attached [MfCll) letter and provide HHSC with assurances that each prior authorization for dental services is reviewed 'by an appropriately -credentialed professional to determine dental necessity for the service. Provide HHSC 'Nitb assurance that every dental service during the cmrent [Xerox] Dental Dir~tors [sic] tenure has been reviewed for clinical necessity. 27. ln a meeting held in or about early May~ 2009, the HHSC Deputy confronted
Xerox with the evid~nce that XerQx was not reviewing orthodontic PA requests to determine medical necessity and ensure Medicaid policy was. properly enforced. Xerox was asked specifically whether it was "rubber-stamping'' these requests based solely on the lILD score; PAGE II P LA INTIFF'S ORIGINAL PETlTlON *42 Xerox's Managh1g Director assured th'e HHSC Deputy that such was not the case. Xerox represented lha1 it was following policy and properJy reviewing orthodontic PA req.uests. Xerox did not re¥eal to HHSC that it had. without authorization from HHSC, interpreted HHSC's policies to mean that clerical personnel without any deotal training whatsoever were making detem1inations of medical nece·ssity based solely on whether they saw a 26 or above on the HLD score sheet.
28. On nr about May 13, 2009, the Managing Director submitted Xerox's formal written. response to HHSC's SAR. Xerox stated: "We have reviewed the SAR comments with lthe Dental Directorl who stares his comroe11ts were taken out of context." Xerox made the fo1Jowing representations:
We review the dol:umentatio11 the provider submits to determine the medical necessity criteria, as outlined in the Texas Health Steps (THSteps) Orthodontic Dental Services Medical Policy .... [Xerax] reviews the dental seFVices prior authorization request for medical necessity based on tbe medical policy guidelines established by HHSC and the dental policy and procedures that are approved by HHSC. The dental specialists who review the requests are trai.11ed in the dental MedkaJ Policy and follow the approved policy and procedures to appropriately disposition ihe PA requests. 29. On or about July 3, 2009, Ill1SC issued another SAR requesting infonnation
regarding Xerox's con-ective measures to address the HHSC-OlG audit recommendations had been appropriately implemented. Specifrcally, HHSC reqnired Xerox to provide to lfHSC docwnenta1ion demonstrating Xerox's quality assurance process and the existing P&P describing that process. HHSC also requested updated work instructions used to train PA staff. On or aboul July 20. 2009, Xerox issued its response to the July 3, 2009, SAR. Xerox stated that it had not added the sample step recommended by 1-U-ISC-OJG but had reviewed an internal sample of ten cases approved by its dental team. Xerox represented to HHSC: ·'The results of that sample were that all ten cases reviewed showed evidence of a malocclusr011 and were approved correctly PL AIN.l'IFV'S ORIGINAL P'ETJTION PAGE 12 *43 according to dental policy." Xerox. attached what it represented to be its current quality assurance ("QA") P&P for PA. The QA P&P tepresents tbat the QA process tests whether '"[a]ll medical facts are considered and documented in the PA determination." ln addition to the QA P&P. Xerox attached what it represented were current Dental PA work instructions. The described procedure represents dental altthorization requests assigned to Dental PA specialists are reviewed "tu be certain the request is submitted in its ~ntitety."' The procedure continues: "After the request is checked for client and provider el igi.bility and duplications, the request is forwarded to tb~ Dental Director,s in-box for review, and x-rays/photographs (molds, if necessary) are prepared for his inspection." Th.e work instruction adds: "The DentaJ Director will entel' the decision , _!' This documenta.J.ion submitted by Xerox to HHSC misrepresented material tacts regarding actual procedures followed by Xerox persormel.
C. The 2010 Contract. 30. On or about August 15, 2008, HHSC released a new Request fol' Proposal ("2008
RFP") for administrative services to Texas Medicaid. The 2008 RFP included svecifications of the Prior Al1lhori-'zation services HI ISC expected a successful bidder lo provide:
Generally, Ptior Authotization (PA) is a process used to determine the me.dical necessity for selected non.emergency medical services. equipment, drugs and s1.1pplies before the services or .supplies are provided . . . .In compliance with State approved policies and procedures, the Vendor prospectively implements processes to review the facts associated with cett<'lin treatments proposed by providers • . . and makes detenninations regarding the me.dical necessity and apprnpriatcncss of care. Prior Authorization requests must be reviewed on a case by-case basis for clients who are eligible for services .... The primary objective of the P /\ function by the Vendor is to manage utilization by only aJlowing payment for those covered services that are medil;ally necessary, appropriate, and cost~effective, thereby reducing over-utilization andior abuse of spedfied services.
The general requirements imposed upon the Ven.dnr included: PAGE l3 PLMNTll>F' S ORIGINAL PETITION *44 R~tain and retrieve al I PA records in accordance with the State~ PAC-03 approved record-retention and retrieval guidelines. PAC-04 Establish and follow State-apt'roved policies and procedures. for analyzing and researching PA determinations. PAC-06 Submit to the State for review and approval a quality assurance plan and procedures for verifying the accuracy of analyst and medical director prior authorization dispositions/decisions (approval, denial, incomplete and modification). The quality assurance p!an must include al least a bi-annum review schedule for all types of Prior Authorization decisions, and be submitted to the State annually. Changes to the quality assurance plan and procedures must be approved by the State prior to implementation.
Prior Authorization Processing tasks and activities were iocluded in the 2008 RFP to describe lh.c "results/outcomes'' the Vendor mt1sl achieve:
PAC-20 Receive [1] correctly disposition (i.e. approve, denY.. modify., or determine incomplete). . . . -prior authorization requests for aH services .... Eslablish and maintain State-approved processes and procedures to
PAC-23 ensure that non-covered services are not prior aul~orized unless specifically directed by the State.
Tbe 2008 RFP also identified specific criteria to "ensme chat appropriate Medical Necessity evaJuation i-s conducted for PA determinations,\' including:
Pt\C- 36 Research, analyze and evaluate all PA decisions and ensure all medical facts arc considered and documented prior to determination,
The 2008 RFP specified the following with regard to PA staffing: The Vendor's PA staff must have the education and professional credentials defined by the State to penorm the PA tasks and activities. PAC-37 Provide and maintain a st1fficienl number of knowledgeable and
profossional medical personnel to perform the PA function, in accordanc.e with State-approved proce$ses a(ld procedures. PA personnel must include:
PLAINTIFF'S ORIGINAL PETJTION PAGE 14 *45 • Medically knowledgeable PA analysts, to process teguests; • Licensed medical professionals available at all times to
provide consultative services with regard to all covered service types; and
• Licensed nurses acting within their scope-of practice ... 31. On or about January 27, 2009, Xerox submitted its Proposal for Medicaid/Child1·en with Special llt!altb Cart! Needs Services Program Claims .Processing, Primary Care Case Management and Pharmacy Claims and Rehate Administraiiou (''2009 Proposal") to HHSC. The Proposal included representations specific to Prior Authorization management:
The [Xerox} Prior Authori>tation department offers clients. providers~ and the State the benefits of detailed knowledge of medical policy authorization criteria cmd program services limitations, industry standard evidenced based criteria; as well as the clinical knowledge to faciJitate medical necessity determinations. The Prior Authorization (PA) department consistently demonstrates the principles of good health ca:re program management. enabling the State to conserve health care funds while ensuring the provision of necessary servfoes to clients who genuinely need them. The director of the PA department . . . accepts responsibility for pmcessing provider authorization requests according to . . . Medicaid . . . program requfrements. The director ensures compliance with State and Federal regulafions for authorization of services. Along witb [Xerox's) medical affairs officer and the medical director, [the PA dire~tor} feads the prior authorization activities and is responsible for processing provider authorization reqltests in accordance with HHSC approved medical policies. We review authori2at1oo requests for clients who are eligible for services .•. 011 a case-by-case basis.
Xerox represented that its PA department met the "primary business objective of the PA function . . . to redi1ce the excessive utilization or abuse of specified serviees by requiring prior uuthorization based on Medicaid policy and sound medical/dental criteria before allo\\>ing payment ... [ensuring] 'that the services are medically necessary,. appropriate~ and cost-eITective. Xero" represented that it meets this objectiv~ by "maintaining a.o efftcient prior authorization process using HHSC approved medical/dental criteria attd experienced qualified staff to review
• Xerox r~presented that it was meeting HHSC's Busjness Objective of authorizatio11 requests. [1] PLAINTl.FF 'S ORIGINAL PETITION PACE IS *46 Utilizatlon Review to Rn:-ure Appropriate Determinations for Requested Services and Supplies through its reviews of authorization requests for ~ompleteness and lts determinations by professional medical personnel for medical necessity. Xerox represented that its ·•p A policies and procedures provide the ability for tne prospective review of requested services and benefits," allowing "a comprehensive medical necessity review." Xerox addressed the quality assurance requirements as follows:
PA quality assurance activities include reviewing that PA determinations apply .. . established policies and procedures appropriat~ly, thereby meeting the applicable Federal and State laws, tules. and regulations and guidelines.
Xerox. stated: PA staff review ·and consider all medical facts submitted by a provider • .. when determining medical necessity for requested services. Before making a PA determination. we research. analyze, evaluate. and ensure we consider all d<>cumented medical facts, in accordance with State approved criteria.
Xerox represented U1at its PA pcrsonneJ includeS' "Medic.ally knowledgeable PA Specialists wno analyze and process reque,sts. [1] ' Xerox fUrther represented that medical necessity review~ were perfonned only by medically qualified personnel. All oftbese representations were false.
32. On or about S~ptember I. 2010. Xerox was awarded the new contract ("'2010 Contract"). The 20 IO contract. 1nc<rrporates both the 2008 RFP and Xerox'--s 2009 Proposal. 33. On or about January 19, 201 l , HHSC issued a. SAR identifying perfotmance issues with the prior authorization of orthodontic requests. This SAR Mtned specific authorizations approved ~Y Xerox that did not meet Medicaid policy. On or about May 18, 201 J, HHSC issued an ••oral Notice of Deficiency with Corrective Action Plan - Orthodontia Prior Authoriz~tion." On or ab0ut May 20 [1] 20 l t Xerox sent a response SAR lo HHSC with what it represented a.:> its current work instmctions aJong with what purported to be "draft" work instructio11s, The "current" work instructions still described all dental prior atnhorization requests going to the l'LAfN f IFF'S ORJGrNAL Pl:.TI flON PAGE 16 *47 dental director. The "draft'" work instructions describe a process wherein the Dental Specialist ensures that the request is complete, ensures that the HLD score is 26 or more, and sends orthodqntic PA re-quests for dental director review if the score is less than 26.. On or about .June 8, 201 1~ Xerox sent a "follow-up•• SAR response to the Oral Notice of Deficiency-. In it, Xerox represented to HHSC that the PA specialists who process requests for orthodontia serviees are ·•medically knowledgeable PA analysts who do not make final .determinations of medical necessity; therefore, these staff are not licensed or certified ," Xerox represented to HHSC that the "medically knowledgeable'' analysts only approved those applications with a "verified" score of 26 or ~bove. In fact, Xerox personnel were not trained to check the validity of a score of 26 or above. On or about July 19. 2011, in response to continuing requests for ·clarifi.catjon by l-IFISC, Xerox finally admitted; "[Xerox) ' validates' the score by 111a.theml)tically calculating I.he providers recorded numbers to ensure the score totals 26 or higher!'
34. In or about October, 2011, at HHSC's insiscence, Xerox implemented new pfocedures including a review by a licensed dental (Yrotessional of all orthodontic PA requests. 35. ln or about January~ 2012, HHSC instructed Xerox to discontinue processing dental prior authoriz.ation requests in anticipation of the implementation of managed care.
VI.
APPLICABLE TEXAS STATUTORY PROVISIONS 36. Prior to August 31~ 2005, a person committed an unlawful act as defined under the Texas MeCLicaiq F"raud Prevention Act by, among other things: Knowingly or intentionally making or causing to be made a false
A.
statement or misrepresentation of material fact on an application for a. contract, benefit, or payment under the Medicaid Progra;m; or that is intended to be used to determine a person ~s eligibiiity for a benefit or payment under the Medicaid program. TEX. HUM. Res. CooE § 36.002(l)(A) & (B). PAGl: 1'7
PLAINTIFF'S ORfGJNAI., PETITION *48 B. Knowingly or intentionally concealing or failing to disclose an event that the person knows affects the initial or cominued right of the person to a benefit or payment under the Medicaid program and to pennit a person to receive a benefit or payment that is not authorized, or that is greater than the benefit or payment that is authorized.. TEX. HUM. RES. CODE § 36.002(2).
C. Knowingly or intentionally making, or causing lX> be made, inducing, or seeking to induce the makirtg of a false statement or misrepresentatiou of a material fact concerning 'information required to be provided by a federal or stare law. rule, regulation or provider agreement pertaining to the Medicaid Program. TEX. HUM. RES. CODE § 36.002(4)(8). .
D. Knowingly or intentionally entering into an agreement. combin,ation. or conspiracy to defraud the state by obtaining or aiding another person in obtaining an unauthorized payment or benefit from the Medkaid program or a fiscal agent TEX. HUM. RES. CODE § 36.002(C>).
37. Since August 3'1, 2005, a person commits an unlawful ac1 as defined under the Texas Medicaid Ji'rnud Prevention Act by, among other things: Knowingly making or causing to be made a false statement or
A
misrepresentation of,a material fact to permit a person to receive a benefit or payment under the Medicaid program that 1s not aulhorized or tbat is greater than the benefit or payment that is authorized. TEX. HUM. RES. CODE ANN.§ 36.002(l)(A) & (B).
13. Knowingly concealing or failing to disclose information that pennits a pers0n to receive a benefit or payment under the Medicaid program that is not authori7.ed or that is greater than the benefit or payment that is authorized. TEX, HUM. RES. CODE ANN. § 36.002(2).
C. Knowingly making, causing to be made, inducing, or seeking to induce the making of a false statement or misrepresentation of material fact concerning information required to be provided by a federal or state law, rule, regulation, or provider agreement pertaining to the Medjcaid program. TEX. HUM. RES. CODE ANN. § 36.002(4 )(R).
PLA INTIFF'S ORIGlNAL Pl:".Tl'rlON PAGE 18 *49 VU. DEFENDANTS' VTOLATlONS OF T HE TEXAS MEDICAID FRAUD PREVENTION ACT;i The State re-alleges and incorporates by reference as set forth her~in the 38. allegations contained in Paragraphs t through 35 of this Petition. 39. Xerox knowingly made or caused to be made false statements or misrepresentations of material facts to HHSC authorities charged with overseeing Xerox's contractual perfonnance tegardi ng:
• The application and enforcement of M~dicaid policy with regard to orthodontic treatment~ • The conducting of medical necessity reviews of requests for orthodontic prior aulhori;r.ation; • The provision of adequate rnedicalJy knowledgeable personnel to make medical necessity determinations; • The application and .appropriate enforcement of Medicaid pollcy with regard to the review of documentation submitted by providers to support medical necessity fot orthodontic treatment
• The implementation of quality assurance processes necessary to assess the dispositions of requests for orthodontic prior authorizations; • The retention of reco·rds necessary to justify the dispositions of requests for orthodontic p.rior authorizations. Xerox•s false statements and/or misrepresentations permitted orthodontic providers to receive benefits under the Medicaid pro~ran1 in violation ofSection 36.002{1) of the TMF~A. rn August of 2005, applicable provisions of the TMFPA were amended as set forth in 1[~ [2] 36 through 37 above. Plaintjff:s are seeking the appropriate remedies for Defendants' unlawfol acts (which Include Defendants' conduct both prior to and after August 2005 for purposes of this lawsuit) as. defined in the TMFPA at the time such unlawful acts were- committed. J>AGE 19 PLAlNTTFf'S ORIGINAL PETITION
*50 40. Xerox knowingly concealed from, or failed to di.sclose to. l JHSC authorities charged with overseeing Xerox's contractual performance events or information regarding: • The application and enforcement of Med.icaid policy with regard to orthodontic treatment; • The conducting of med1cal necessity reviews of requests for orthodontic prior authorjzation; • The provision of adequate medicalJy knowledgeable personnel to conduct medical necessity tletermitiations; • The application and appropriate enforce1rteL1l of Medicaid policy with regard to the submission by providers. of medical documentation to support medical necessity for orthodontic treatment:
• The implementation of quality assurance processes necessary to assess the dispositions of requests for orthodontic prior authorizations~ • The retention of records necessary to justify the dispositions of requests for orthodontic prior authorizations, Xerox's concealment and failure to disclose material information pennt~ted orthodontic providers to receive payments under the Medicaid program that were not authorized o r that were greater than the benefits autJ1orized in violation of Section 36.002(2) of the TMFP A.
41 . Xerox knowingly or intentionally made, or caused to be made, induced, or sol,lght to induce the making of false statements or misrepresentations of material facts concerning information required to be provjded by a foderal or state law, rule, regulation or provider agreement pertai ni.ng to the Medicaid Program in violation of Section 36.002( 4) of the TMFPA. Xerox's conduct permitted Xerox to receive payments for services it failed to perfotm and PLA!NTiFF'S ORJGINAL PETITION *51 induced the Texas Medicaid program to. make payments to both Xerox and orthodontic providers that should not have been paid.
42. As a result of Xerox's conduct, hundreds of millions of dollars in pay'tnents were made for services not performed and orthodontic. benefits not authorized by Medicaid policy by the State of Texas.
43. Under the TMFPA, Xerox is liable to the State of Texas for the value of any payments or any monetary or in-kind benefits provided unde1· the Medicaid program, directly or indirei.!tly~ as a result of its unlawful acts. two times the amount of those payments, plus pre judgment intetest on the value of those payments, and a civil penalty for each unlawful act committed, in addition to the fees, expenses, and costs of the State of Texas in investigating and obtaining civil r~medies in this matter. TEX. HUM . RES. C ODE§§ 3.6.052, 36.007.
44. The State invokes ~JI relief possible at law or in equity under TEX. HUM. RES. CODE §36.052, whether specified in this pleading or not 45. The amounts sought from Xerox; are in excess orthe minimum jurisdictional limils of this Court. vrn. STATUTORY TNJUNCTION UNDER§ 36.051 OF THE ACT 46. The Attorney General bas good reason to believe the Defendants are committing, have committed, or are about to commit lln1awfo1 acts as defined by the TMFPA. These illegal acts may be enjoined under§ 36.051 Of the Act, and under TEX. GOVT. CODE§ 200L202.
lX. JURV DEMA~D 47. The State respectfully requests a trial by jury on all claims pursuant to Texas Rules of Civil Procedm'e 2 l 6. PLATNTIFF'S ORIGINA L PETITION PAGE: 21
*52 X. PRAYER 48. The State asks that judgment be. entered upon trial (}[this case it1 favor of the State against Xerox to the maximum extent allowed by law. 49. The State asks for injunctive relief pursuant to§ 36.051 of the TMFPA and ·under TEX. GOVT. CODE § 2001.202. 50'. The State asks that it recover from Xerox: A. restitution of overpayments made as a result ofXerox [7] s unlawful acts; B. lwo. times the value of any overpayments made as a result of Xer0x's
ur1iawful (lets; civil penalties~
C.
D. prejudgment interest; E. expenses, costs and attorneys· lees: and F. post-judgment interest al the Jega1 rate.
Respectfully stJbmitted,
GREG ABBOTT
Attorney General of Texas OANlEL T. HODGE First Assistant Attorney General
JOHN SCOTT
Deputy First Assistant Attorney General PACE.22
PLAINTIFF'S ORlGINAl Pf.1Tf!ON *53 /\ss1st,m1 AUurni.;ys Ot:nernl P.O. Ao\ I 2~·lN Auslm. Tc u 787 1 t-2548 51 :?l 4 ~9-0 I:! tu\ rro.u t·V. FOR THE s l'ATE OF fE ·"· ,~, • . lJ
Pt.ANTIFl- '.\ U U.ilNAI Pl· llK *54 Tab C Office of Inspector General Report dated August 29, 2008 *55 TEXAS Health and Human Services Commission
Albert Hawkins, Executive Commissioner Office of Inspector General
Performance Audit Report Texas Medicaid Healthcare Partnership Prior Authorization Audit August 29, 2008 Bart Bevers, Inspector General OlG Report No 08-70-Sl903t91-MA-03j *56 CONTENTS ... Transmittal Letter Executive Su·mmary ........ , ... ,. ........................................ ,. ............................................................... ~ .....•....•. J Detailed. Findings and Reconunendations ................................................................................................. 3 Appendix A - Objective, Scope, and Methodology ......................................... ,. ..................................... I 0 Appendix. B-Report Distribution ........................................................................................................... 12 Performance Audir Rep<lrt Page i
August 29, 2008 TMHP Prior Authorization Review otG Report No. 08-70-52903191-MA-03 *57 TEXAS HEALTH AND HUMAN SERVICES COMMISSION AL!fF.RT If A WKIN& r.\E<L H\ r o 1~1 ,11o;,1n:-.1.J{ August 29, '.2<108 .Rick Pope, Vice President, Managing Director Texas \-fedicaid Healthcare PartnL-rship l 2365~A Riata Trace Pkwy, Building 9 Austin. Texas 78727 Dea.r Mr. Pope: The Health and Human Services Commission (HHSC) - Office of Inspector General, Audit Section (OIG) has completed its audit of the Texas. Medicaid Healthcare Partnership (TMHP) Prior Authorization Ptocess. The audit obj.ective was to detennine if TMHP's prior authorization process complies with contractual obligations, Texas Administrative Code, and federal regulations. Upon finallzing th!! audit objectives, the audit scope was the period September J, 2006 to March 31, 2008. The detailed findings and recommendations with management responses ate presented in the enclosed finaJ report. We would like to thank you for the '-=ourtesy extended to us by TMHP Prior Authorization section management and staff during the audit. tf you have any questions or i::uncems~ pleac;e do not hesitate to contact Mark Poch I, Director of the: OJG Audit Section, ar mark. poch lCCi1hhsc.statc.t.x..us M by phone at (512) 491-2872. Sincerely, Mark Poehl. CPA. ClA, CFE. ClSA Director, Audir Section Endosure
P , 0. Bo.~ 85200 •Austin, Texas 78708 •Mali Code 1342 • 11 lOl Metric Blvd., Building I, Austin, Texlii\ 7ll758 *58 ILXECUTlVE SU~IMARY Audit Results (Statement of Findings) Based upon the evidence provided and test conducted. Texas Medicajd Healtlware Partnership 's (TMHP) pri(lr authorization process partially complies with contractual obligationsr Texas Administrative Code., and federaJ regulations, Areas of noncompliance are as folll1ws: • An opportunity for improvement exists in the orthodontic prior authorization requt:sts process • Prior authorization staff approved prior authorization requests that were not m compliance with the
Texa!i Medicaid Providers Pr::oced-ures Manual • Four prior authorization requests were not processed in a timely manner • USB ports are enabled on Prior Aµthorization systems for employees who work from home Objecth:e (Subject) The Health and Human Services Commission (HHSC) - Office of the Inspector General. Medicaid/CHIP Audit Unit (OIG) has completed Its audit ofTMHP Prior Authorization Process. The audit covers the period September I, 2006 to March JI, 2008-. The objective of the audit was to determine if TMHP's prior authorization process complies with contractual ob1igatians, Texas Administrative Code; and foderal regulations. This audit was conducted under the authority granted to .OLG in the Texas Government Code Section 531.102(h)(4). This performance audit was conducted in accordance with Government Auditing Srandards. 2007 revision, issued by the Comptroller GeneraJ of the United States. Those standards re~uire that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We betieve that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Summary of Scope and Methodology (Summary of Activ;ties Performed) The audit of the TMHP Prior Authorization Process covered the period beginning Septt-mber 1, 2006 and ending March J L 2008 , The methodology employed throughout this performance audit incl oded objectively reviewing and analyzing various fonns of documentation, conducting interviews and observations, and conducting tests necessary lo achieve the objectives of the audit. See AppendJ.x A for detailed objective, scope, and methodology. Background As of January I. 2004, ACS State Healtbcare LLC, under contract with the Texas Health and Human Services Commission (HHSC). assumed administration of Medicaid claims processing and the Medicaid primary care case management services program. ACS meets its new consolidated Medicaid [1] responsibilities w·ith a team of subcontractors under the name of TMHP . 1 Obtained tT<Jrn TMHP··~ \~O::bs[te as ,1f' August 5. 20<)8. ACS 1!> 1\ffflilltecf C\1mpu11.~r Services. Performance Aud1t Report Page 1 August 29. 2008
fMHP Prior Authorization Audit OIG Report No. 08-70-5290319 l -MA·il3 *59 111is Medicaid ad1ni11istration contruct incorporates the Request for Propo::icd (RFP) . Sc:ction 8, Vendor Rcsponsihilitic::s, of the RFP states ~ Prior authorizatio n (PA) is a mechanism to determine the medical necessity of selected non·c:mergency, Medicaid-covered. and medical services prior to service d~livery (and retrouctively m special casi:s). Providers submit requests for PA to pcrionn s~ificd services. The PA funct ion will ser\'e as a utilization manag~ent measure.: allowing payment for only those serv1ces that arc medically ncce~sury, appmpriat~. an<l cost-dfccth·c. and reducing the misuse of spe1.:i fied services. r>~rformance Audit Repl)rt
Augu~t 29. 2U08 TMHP Prior Au(J10riz.atioo Audit OJG Report No. 08· 70-5~9031 l) l -MA-1) ' *60 DETAILED FINDINGS AND RECOMl\ifENDATJONS Finding - Opportunity for Improvement in the Orthodontic Prior Authorization Requests Process An <)pp\lrtunity for improvement was noted in the documentation review process for orthc><lontic prior authorization (PA) requests. CutrentJy, not all documentation that supports the Texas Medicaid Program benefits for orthodontic PA requests, approved by the PA dental team, is reviewed. Rules and Regulation~ governing the orthodontk PA requests include:
o S~~tion I 9, 18. Orthodtmtic Services. of the T t!Xas Medicaid Provlders Procedures- Manual, stares "Orthodontic s~'Tv1ces for cosmetic purposes only arc not .a benefit of rhe Texas Medicaid Pro~am . Orthodontic serv1ces are limited to the treatment of severe handrcapping mnfocdusion and other special medically necessary circumstances as outlit1!!d tn Benefits and Limitations ... '~
o Section 19. l 8.2, Mandatory Prior Authorization, of the Texas Medicaid Provide·rs Procedures Manual, states "Requests for orthodontic services JllUl't be accompanied by all the following d ocum entati on:
• An orthodontic treatment plan. ,. • Cephaf(~metric radiograph with tracing models • Completed and scon:d H LD .sheet . . • Facial photographs • Full series of radiographs or a panoramic radiograph; .. , • Any additional pertinent inform.ation as determined by the dentist or requested by
TMHP's Dental Director ... " o In s1::ction 8.9.5. Vendor Responsibilities, of the Request for Proposal, it is stated in PAC-o that the Vendor must ''Research. analyze, and evaluate all PA decisions and ensur~ all medical facts are consi<lered and documentell pri\)r to determination ...
o Additionally. PAC·l7 states that the Vendor must "Provide sufficient and adequate professional medical staff for staffing and managing the PA function, including medically knowlt:dgeabJe PA analysts for processing requests and availability 1Jf licensed medical profe$sionals to provide consultative services regarding all Medicaid and CSHC'N covered service types, .. "
To approve an orthodontic PA request the PA dental team members verify the mathematical accuracy nf. and ensure that, the HanJict1pping Labiolingual Deviaifon (HLD) index S\.":Qre is at least 26. The PA dental wam members do t1ot re\.'iew the additional documentation required per the Texas Medicaid Providers Procedures Manual (TMPPM) and do not have rbe dental licenses ne<::essary to determine if the additivnal docurnemati.on supports the H LD index score. TMHP staff did state that under predefined circumstances. approximately I 0% [2] of the orthodontic PA reque!:its a.re referred to, and the documentation reviewed by, the Dental Director. This means [1] fhi.-; p~n:emage ha:s nol been audited by O IG. The audit client providr•l !he 51at1stu:- Performance Audit R..:pon Augtt."t 29. 2001! PageJ
TMHP Prior Authorization Audit OlG Rt!port No. 08-70-5290Jl9l-MA~03 *61 approxlrna,tery 90% of the documentation for orthodontic PA requests is not being reviewed. Zero of the 18 orthodontic sample items tested were rcforred to the Dental Director. The PA dental team members could be approving a portion: of orthodontic PA cequests thal are not for the treatment of severe handicapping malocclusion and other special medically necessary circumstances. Dollars p.a.id for orthodontic treatment for the mlmths of September 2007 through February 1008, were at least $52.6 rnH1km. Recommendation: TMHP $hould sample the orthodontic PA requests approved by the PA dental team members. The sampte and its documentation should be reviewed by a licensed dental professional to ensure that the orthodontic PA requests meet the criteria for Texas Medicaid Progratn benefits. Management Re.spom•e: TMHP r~vicws orthodontic prior authorization requests 1n acc."Ordancc with the Medicaid administration contract, policies and rules. The contract does not require orthodontic PA requests to be reviewed by a licensed dental professional. Therefore, the absence of PA reviews by a licensed dental profossional does not mean that payrrH.~nts for orthodontic treatment during the audit period of September 2007 through February 2008 were inappropriate. P AC-6 and P AC-17 require consideration of documentation to determine medical necessity and adequate management and staffing of the PA function, includjng medically knowledgeable analysts and ''the availability of' licensed medical professionals to prv1•ide consultative services." When a provider submits a PA request according to Section l 9. l 8.2, the request includes a score sheet with preset scoring criteria. According to the currently approved medical policy, a score of 26 or 1nore meets medical necessity fur approval. Scores below 26 require the r~view of a licensed medical profe,ssjonal. fn additjon, certain high cost items arc referred to a licensed medical professional for approval. As noted by the auditorS, approximately l 0% of the orthodontic PA requests were referred. to the Dental Director for consultative services in accordance with the contract. All of the orthodontic PA requests sampled by the auditors that w~e not referred to the Dental Director achieved a score of 26 or higher in accordance with the policy. TMHP is willingfo add a sample step to this process; however, it may require a change order. TMHP PA will discuss the audit recommendation to sample the orthodontic PA requests approved by the PA dcnt~l team members with HHSC. The sampl~ could be added tQ the ClUTent PA process once the scope~ resources, methodology and reporting are agreed to by TMHP and HHSC. Finding 2 - Prior Authorization Staff Approved Prior Authorization Requests That Were Not in Conlplianc.e With the Texas Providers Procedures Manual lncorrect Signatures on tire HLD Jnde)( PA staff approved two orth0dontic· PA requests, om nf the nine samp1 e items tested ( 22 .2"/o ). with incorrect signatures for the Handicapping Labiolingaul Deviation (HLD) lndex for the Comprehensive Orthodontic Treatment procedure code 08080. Section l 9. l 8.2 [1] Mandatory Prior Authorization, in the TMPPM states that ''Requests for orthodontic services must oe accompanied by all the following: <lo<.:umentation: ,,. Completed and scored HLD sheet with diagnosis of Angle class (26 points required Perfonnancc Audit Report P~ge 4 Augu~< 29', 2008
lf\411P Prior Aut hori:r.ation Audit OlG Report ~o . 08-70-52903191-MA-03 *62 for approval of non-cleft palate cases)." Seclion l9.20. How to Si;ore the Handicapping Labiolingual Deviation !HLD} Index, jn the TMP,PM further states that ·'The orthodontic prnvider must complete and sign the diagnosts (Angle class~. ·• When the provider submitted the HLD sheet to Tl'vfHP, the primary practitioner did 0(1f sign it. A stamp was used in place of the handwritten, original signature. The two sample items in tiuc:stion were from the same provider. This provider had used three difforeot signatures on the THStcps Dental Mandatory Prior Authorization Request Fonns and HLD Indexes. Incomplete THStt:p.s-CCP Prior AutborizatiOn Request Forms PA staff approved four incomplete THSteps-CC'P Prior Authorization Request Fonns out of fhe 62 sample items tested (6.5%} fur tht! Pri vate Duty Nursing services procedure code TlOOJ. Section 43 .4. l 3 .6, Documentation. in the TM PPM states that ·'The THSteps-CCP Prior Authori7.at1un R~uest Form must be completed, signed, and dated by the physician. The physician must mark ch.e Private Duty Nursing box documenting the stahility of the client for PON. All requested dat<..as of service must be irn:Ju<led." When the provider submitted the THSteps-CCP Prior Authorization Request Forms to TMHP, the primary practitioner did not ~omplete the section Primary Practitioner's Certifications TMHP did not comply witb the requirem.:nts in the TPPM tor the HLD Jndex and the THSteps-CCP Prior AuthoriLation Request Forms. Recommendation: TMHP should consider increasing training for current and. future PA staff to ensure that ini.:orrect signatures and incompJete forms arc not apprcwed. Management Re.\po11se: Incorrect Signatures on the HLD fmlex TMHP PA leadership will conduct rewuning with PA dental team staff to ensure that stamped signatures are not approved and will update the PA Work [nstruction.s used for new staff training to include the same infimnatinn. However. the currertt dental medical policy docs not require an original handwritten signature: neither the policy nor the provider manual specifies that a provider cannot use a stamp or an electric signature on the dental request fonn or th~ HLD Index. TMHP PA will work with DRT to draft HHSC approved provider harmer and bulletin communications that dental PA requests and HLD Index sht.."ets must have original provider signatures and that stamped signatures cannot be avprove<l. These communications w111 then be inclut!c<l in the next revisions of the Texus Providers Prot.:t:dures Manual (TMPPM) Dent a] section as the sechmi does not current!)' state that stamped signatures cannot be approved. Incomplete Tl lSteps-CCP Prior Authonzation ~est Forms The auditor ~1.mectly noted that a box was not checked on four PA request forms sampled. fn each instance. the form included all substantive documentation requited as well as the physkian's signature, and the fonn was reviewed by PA staff and detennined to adequately support medical necessity. Jn these cast:s. the PA was approved in th!! interest of efficiency mther than pending the request and requiring the provider to resubm;t it. Auguiit ~9. ~01)8 Page 5 Perfunnani.:c Au<JiL Report
fM HP Prior Authorization Audit OIG Report No. 08-70-52903 I 91-MA·(1J *63 TMHP PA leadership will tonduct retraining with PA CCP team staff to ensure that Private Duty Nursing (PDN) requests where the provider has not marked the PON box are ttot approved and will update the PA Work Instructions used for new staff tra1ning to include the same info.rmation. In the interest of streamlining the PA process for providers. TMHP PA leader~hlp will work with HHSC through the Medical Policy review process to consider revisions to the CCP PON .request fonn removing the. cbeckbox.es from the Primary Pr~ctitioncr's Certi1icalions. section and allowing the existing wording along with the physicia:n [1] s signature tu be the provider's certjficatfon. Finding 3 - Fout Prior Authorization Requests Were Not Processed in a Timely Manner Four out of I 0 ( 40%) PA requests for power v1-heelchairs (PWC) were not processed in a timely m~nner. Rules and Regulations for all prior authorization requests include: In section 8.9.5, Vendor Responsibilities, of' the Request for Proposal, it is stated in PAC-24
o that ·•upon receipt of the r.equ<.!sted infonnat1on from the provjder, the Vendor must process the request and make a PA detennination within one· business day .• ,
o Add1tiooally. P A:C-25 states that ~·ff the Vendor does not receive U1e requested infom1ation by the end of the f()urth business day, the Vendor must send a letter to the client stating that the PA request cannot be processed until the provider responds with the speci fie information necessary to complete the PA request. This letter must be sent w1thin one business day along with a copy of the initial letter to the provider that lists the specific information necessary to make the PA determination."
Two PA requests were not processed wJthin one business day after receiving the requested information trom the provider. For two PA requests the vendor did not send a letter to the client notifying the client of the need for additional information from his/her pro vider within four business days after the Vendor notified the provider. A delay in processing PA requests could mean a delay in a client receiving needed mc:dical care. TMHP is subject to liquidated damages. per section 14.07 of the Service Agreement between HHSC and TMHP. Section 14.07 states "The Parties agree .tl1at, except as limited by subsection (e} of this Section 14.07, HHSC may ussess a liquidated damage of up to $1,000 per calendar day for each instance of CONTRACTOR's breach or nonperfonnance of a duty that is not specified in the Performance Standards and Measures," The liquidated tlama.ges are detetmin~d to be $5S,OOO.
Calculation of Liquidated Damages Dates in Noncompliance No. of Days X $LOOO/Day Liquidated Damages Sample Item No. 8131 /07 - 9/ 11.'()7 12 PWC - t:t2 $1 ,000.00 Sl2,000.00 8/22i07 - 8/23107 2 $ IJ)00.00 PWC - #4 $2.000.00 Sl ,000,00 $18,000.00 PWC - #6 l/l2/08 - l/2W08 l8
I 0/ l l /07 - J l/2107 23 $1 .000.00 $23.000.00 PWC - #10 $55,000 . .00 Total Perfom1anc~ Audit Report Page 6 August 29. 2008 ·l'MHP PrioT Authorization Audit O lG Report. No, 08-70-52903191 -MA-03 *64 RecommeJJdatlon: TMH P .shuul<l 1.:~•nsider increasing training for current nnd futur\! PA staff to ensure that PA requests are processed in a timely manner. TMHP should puy the stat~ liquidated damages m the arrwunt of S55.000 in acc.ord~tnce with the Service Agreement between HHSC and TMHP. ~fanagement Re.'ipott.w!: TMHP PA leadership will conduct rt:trammg with PA staff to ensure that requests pended for im:ompletl! information are pro~esscd in a timely manner. The retraining will include e review of the PAC 24 r~quirement for pro~t!ssing requests within one bui'itness day upon receipt of U1e rcqucsrcd infornHition and PAC 25 r~wremt!nl for sending the CH~rH Notification Lener for incomplete requests. lncomplc:te request training for Ot!W PA employees will emphasize PAC 24 and PAC 25. The Medidad administration contract indudes spec-ific liquidated damages for failure to meet service level agre~mcnts . The LDs for prior authorization are addre~sed in Appendix D of the contract. The contract sets forth a progressive and tailored remedies proces~ that TMHP and HHSC follow to address perfonnanc~ deficien<;ies. The pro~ess must be completed us prescribed by the contract prior to the detennination of liquiJated damages. Flndln~ 4 • USB Ports Arc Enabled oo Prior Aulbo~ation Systems For Employees Who \Vock from Home USS ports are ~nabled on the computer equipment used by the PA employees who work from home. Rules and regulations include:
o HlPAA Security Rule. Section 164.JlO(d)(l): A cov~ed entity must, in accordance with Sl!ction l 64.306, "fmple1nent policies and procedures thar govern the receipt and removal of hardware und electronic media that contain electron1c protected health information into and out of a facility. and the movement of these items within the facilit y."
o Texas Medkard Healthcare Partnership (TMHP) lntbrmation Tcchnolob'Y Security Policies, Version 2. I. page 18, Section 1.6.2.b: "Workers perfonning, specific business functions indudlng data entry an<l home kt!ying will not save conti<lt;1ntial information data on a worker provided system or removahle storage lnedia. All TMHP, customer. provider, or dknt data must reside on a TMHP network server. [11]
TMHP has riot <li:.;1.1hlt:d USB ports on PA systems used in homes of PA employees. Flash drives (a fonn of removable medial could be used to copy. store, and transport electronic protected heaJtb informatit)n without the knowledge or consent of TMHP manag"-ment. Recommendation: TMHP should disable USB ports to prevent the use uf tlash dri ves or external hard driv~~ to copy electronic protected health infonnation. Managemetu Respmue: The USB ports a.re required for the current set up of the PA in-home workers' headsets used in conjunctiC'ln with rhe Avaya CCQ softphone application. A USB adapkr is required to connect the uset' !i head.scl to the computer. All f> A employees wht:thcr on-site or in-hoine are required to comply
Pcrfomiance Audtl Rt:port Page 7 TMHP Prior Authorization Audie OIG Report No. 08-70-52903 l9l·M/\·03 *65 with all TMHP infomiation technology security policies, which state that they will not save confidential information dn.ta on a worker-provided system or- removnble storage media. However, in order to mitigate any risk, a tcm1inaJ server gateway solution is currently being researched [1] which would prevent the download of darn from the TMHP network to the local machine or removable storage media over the VPN connection.
August 29, ~008 Pe.rfonnance Audit Report Pageil TM.HP Prior Authorization Audjt QIG Report No. 08-70-529"03 L 9 l-MA-OJ *66 APPE~ll l XES Augul>t 21), .:!OOR Pertbrrnance Audi! R~port Pagl! 9 l"Mf1P Prior Authorfaation Audi\ OIG Report No. 08-7Ch)l'l0J I<> J -MA .OJ *67 APPENDIX A OBJECTIVE, SCOPE, AND l\1ETHODOLOGY Objecti\'e To .det~n11i11e if ThtHP'.s prior authorization process ~omphes with contracttlal obligations. Texas Administrative Code, and federal regulations The initial scope of the audit of TMHP's prior authorization covered the period beginning S~tember l , 2006 and ending March 31 , 2008 . An engagement letter was issu<..>d to TMHP outlining the understanding of the OlG witb respect to the audit of the TMHP Prior Authorization Division for the period September I, 2006 to March 3 l, 200~ . The scope of procedu1es was based upon an assessment of ~isk and results of prejiminary audit cesting. The final scope of the audit for fieldwork testing was determined to be September 1, 2007 to February 29, 2008. Professional judgment was exercised in planning, t!xecuting an<l reporting the ~esulL~ of the audit. Methodology The methodology employed throughout this perfonnahce audit included objectively reviewing various forms of documentation including:
• TMHP e-OPM (electronic-Online Proccdufcs Manual) • Request for Proposal part of the Medicaid administration contract • Texas Medicaid Provider Procedures Manual (TMPPM) • Quality Assuranct: reports • Claims infonnation, and other to formation maintained by TMHP
The methodology also included: • Comparing policies an<l procedures to applicablt: Texas Administrative Codes (TAC) and contract requirements • Ohserving and i'nterviewing operational and administrative personnel • Performing tests using statistical random samples of data • Pcrt<.mning test using a judgmental sample of power wheelchair PA requests • Analyzing various data for aspects of practices, processes, and perfrmnancc
Criteria Used • Texas Admini8trative Code (TAC'), Title l , Part 15 • The contract te1ms ideoiifying Prior Authorization vendor responsibihties • TMHP e-OPM (electronic-Online Procedures Manual) • 2007 & 2008 Texas Medicaid Provider Procedure Manual (TMPPM) • Health lnsuranct!:. Portability and A:ccountability A<.:t, Security Rule • TMHP lnfom1atioo Technology Security PoJicies. Version 2.1
Augu~t 29, 200R Pcrfom1ance Audit Report Page 10 TMHP Prior r\uthorizatfoft AudiL OlG Report No. 08-'70-5290J 19 l-MA-0} *68 Team Members Juanita Henry. CHC, ClG, Deputy Jnspector General for C'ompliam.:e Mark Pochl, CPA. C'IA. CFE, ClSA~ Dif'e(.:tor Audit Sectiop Sandra Hardin, CPA. Audit Team Le<1<ler Richard Hut~hinson, CIA, CISA, IT Audit Teum Leader Kancttc Blomberg. CPA,. Lead Auditnr lkennalke Chidume, CPA. Auditor Trunara Stephens. Auditor Anthony Webb. Auditor John Zappa; IT Auditor Susan Phillips. Auditor
Augusc 19, JOOH P~rfonnance Audif Report Page l L fMHP Prior Authorization Audit oro Rep(lTI No. 08-70-52903191 -MA-0)
APPENDIXB
*69 REPORT DISTRIBUTION Texas Medkaid Healthcare Partnership Rick Pope, Vice President. Managing Director Texas Medicaid Healthcare Partnership 12365-A Riata Trace Pkwy, Building 9 Austin, Texar-; 78727 Erik Holt, Prior Authorization Director Texas Medicaid Healthca.n: Partnership 12365-A Riata Trace Pkwy, Building 9 Austin, Texas 7R727 Health and Human Services Commission l'vfr. Albert Hawkins, Executive Commissioner Texas Health and Human Services Commission 4900 North Lam.ar Blvd. Austin..- Texas 7875 ? Mail code BH- 1000 Dr. Charles Bell, Deputy Executive Commissioner Texas Health anQ Human Services Commission 4900 North Lamar Blvd. Austin. Texas 78751 Mail code BH- 1000 Mr, Chris Traylor. Medicaid and CHIP Associate Commissioner Texus Health and Human Services Commissioner l 1209 Metric Blvd. Austin, Texas 78758 Mail code. H-100 Mr. Billy Millwee, Deputy Medicaid/CHIP Director for CJajms Administrator Operations Texas Health attd Human Services Commissioner 11209 Metric Blvd. Austin, Tex-as 78758 Mail c<>de H-390 Mr. David M , Griffith, CPA. CIA, Director Internal Audit 1 exas Health and Human Services Cum.mission 4900 North Lamar Blvd. Austin. Texas 78751 Mail code BH-1600 August 29, 200S Perfonnance Audit Report Page l1
TMHP Prior Autl\orization Audit OIG Report No, 08-70~52903191-MA-OJ *70 Tab D Providers’ Plea in Interventions in Cause No. D-1-GV-14-000581 *71 CAUSE NO. D-1 -GV-14-000581 ATLAS DENTAL, LP, AND § IN THE DISTIUCT COURT DR. IDEU HUYNH, §
lNTERVENORS, § § vs.
§
§
THE STATE OF TEXAS, § PLAINTIFF, § 53rd JUDICIAL DISTRICT § vs.
§
§
XEROX CORPORATION; XEROX § STATE HEALTHCARE, LLC; ACS § STA TE HEALTHCARE, LLC, A XEROX § CORPORATION § TRAVIS COUNTY, TEXAS
DEFENDANTS. § PLEA IN INTERVENTION TO THE HONORABLE JUDGE OF SAID COURT: NOW COMES, Atlas Dental, LP and Dr. Hieu Huynh, hereinafter lntervenors, and file this Plea in Intervention, and in support hereof, would respectfully show the Court the following: I. Parties and Service l. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0. Box 12548, Austin, Texas 78711-2548. 2. Defendant Xerox Corporation is a corporation organized under the laws of New York has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit. Plea in Intervention Page 1 of25 *72 Defendant Xerox Corporation acquired Defendant ACS in 2010. On infonnation and belief, ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April l, 2012. Defendants are referred to hereinafter as "Xerox Defendants." 3. Atlas Dental, LP, (hereinafter ATLAS) is an approved Medicaid provider. ATLAS can be served through the undersigned counsel.
Dr. Hieu Huynh [1] is a licensed Texas dentist, approved Medicaid provider, and the owner 4. of ATLAS. Dr. Hieu Huynh can be served through his undersigned counsel.
II. Jurisdiction and Venue 5. This Court has subject-matter jurisdiction in that the amounts sought by lntervenors from all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this court. Tntervenors affirmatively plead that this suit is not governed by the expedited-actions process in TEXAS RULE OF CrvIL PROCEDURE 169 because intervenors seek monetary relief over $100,000. 6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to lntervenors' claims; b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawfu l acts alleged in this petition in whole or part in Texas.
7. Venue is proper in Travis County under TRCP §15.020 because this suit involves a "major transaction"; Venue is permissive under TRCP §I 5.035(a) because Intervenor asserts claims for breach of contract. Venue is proper pursuant to TRCP §15.02 because all or a substantial part of the events or omissions giving rise to the claim occurred in Travis County. Many of the unlawful acts committed by the State and Xerox Defendants were committed in [1] For the sake of simplicity, the lntervenors will be collectively referred to as "ATLAS" unless expressly noted. Plea in Intervention Page 2 of25 *73 Travis County, including the making of false statements and misrepresentations of material fact.
ill. Intervenors' Interest in the Suit 8. Intervenors ATLAS and Dr. Hieu Huynh have a judicial interest in the matters and controversy in this litigation. The relationship between Intervenors, the State as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of judicial economy and justice, all claims be bound and subsumed into one cause of action. Upon infonnation and belief, lntervenors were initially sued by the State in a qui tam action wherein the State alleged that Lntervenors defrauded the State. The State has elected to pursue its remedies against the lntervenors in an administrative hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the State. Intervenors have c laims against both the State and Xerox. It is assumed that Xerox will have claims against the State, and perhaps allege claims against the lntervenors. All of the different parties' claims are inextricably intertwined, as they relate to [ntervenors' submission of prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and legal duties, and State's subsequent legal action against the Intervenors for services approved by Xerox.
IV. Facts What is Prior Authorization? 9. Texas Medicaid requires that orthodontic services be independently and objectively scrutinized before the State consents to treatment and payment. Prior authorization is the mechanism the State uses to determine the medical necessity of non~emergency orthodontic items/services prior to delivery of those items/services. Pursuant to Texas Health and Human Plea in Intervention Page 3 of25 *74 Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will pay for orthodontic services:
Orthodontic services for cosmetic reasons only are not a covered Medicaid service. Orthodontic services must be prior authorized and are limited to treatment of severe handicapping malocclusion and other related conditions as described and measured by the procedures and standards published in the [TMPPM 2
]. 25 TEX. ADMIN. CODE §33.7 1 (emphasis added). Prior authorization is a statement of assurance to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the requested orthodontic serv ice has been deemed by Xerox to be medically necessary, and therefore approved by the State. I 0. The prior authorization process is straightforward. Texas Medicaid requires that a dental provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's orthodontic condition to Xerox for review. In addition, the 01thodontic provider submits his professional opinion of the patient on a Handicapping Labio-lingual Deviation index (HLD) score sheet. Xerox knew providers relied entirely on the prior authorization process because approval was a mandatory prerequisite to provid ing orthodontic services and being paid. Once Xerox issued its prior authorization decision, the decision was not appealable by the provider. 11. The HLD scoring system combines a number of treatable orthodontic conditions into an index. HLD score sheets use a mix of objective and subjective conditions to detennine whether a Medicaid patient qualifies for orthodontic services. The fact that the HLD score sheet requires both objective and subjective fmdings highlights the importance of Xerox performing a thorough prior authorization review. T he History of O rthodontic Prior Authorization. [2] "TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides valuable guidance to Medicaid providers. Plea in Intervention Page 4 of25 *75 12. The process for reviewing and approving orthodontic prior authorization requests pre- dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage Insurance Corporation (NHIC) was responsible for reviewing prior authorization requests before Xerox assumed the contract in January 2004. Starting January l, 2004, Xerox acted as an independent contractor, and was a contracted agent of the State, under the contract with HHSC. Xerox was responsible for reviewing each orthodontic service request, and Xerox was further charged with the respons ibility to grant or deny each prior authorization req uest per the program requirements. The resu lt was that Xerox had the final say in detem1ining the medical necessity of each request for orthodontic services. 13. Prior to assuming the NHIC contract, and for a period ohime after assuming the contract from NHIC, Xerox received training from NHIC personnel regarding the proper method for receiving and processing orthodontic prior authorization requests. NI-llC personnel explained how and why the review of each prior authorization submission was important, and walked Xerox through the process. Despite its training from NHIC, Xerox had no intention of following the prior authorization system that had been in place for years, nor d id Xerox intend to otherwise meet the prior authorization requirements set out in its contract, the TMPPM and required by state law. Xerox rejects its contractual responsibilities. 14. When Xerox took over the contract in 2004, it immediately abandoned the prior authorization review process that had been setup by NHTC. Xerox never intended to fulfill its orthodontic prior authorization responsibi I ities to HHSC. From 2004 to 20 11 , Xerox continually misrepresented that it was acting in compliance with its contractual duties. IS. It is now known that Xerox failed to adequately staff their prior authorization division Plea in Intervention Page 5 of25 *76 with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004 through 20 I I , which was far short of the manpower necessary to handle the review of tens of thousands of orthodontic prior authorization requests every year. Xerox could not reasonably have expected to handle such a workload by employing only one dentist. Xerox potentially comm its thousands of violations. 16. It is believed Xerox allowed "dental specialists"- unlicensed, unqualified individuals- to render prior authorization opinions regarding the medical necessity of requested orthodontic services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed dental director or another qualified dental professional. These actions not only violated Xerox's contractual obl igations, they may have also violated other Texas law such as the Dental Practice Act. 3
lt is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior authorization approvals/medical opinions in violation of Texas law. 17. Xerox was paid by the state for each prior authorization decision that was made. It is believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a profit generating measure. 18. From January 2005 through February 2012, Intervenor submitted prior authorization requests, as required, to Xerox for a detennination of med ical necessity. Unbeknownst to [ntervenor, Xerox 's dental specialists-not the dental director- approved almost all of Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or b) the approval had been issued by a licensed dentist, and/or [3] Texas Occupations Code §251.003 prevents unUcensed individuals from diagnosing conditions of the human teeth and mouth. Section 256.001 states that a person may not practice dentistry without a license. Thus, state law requires that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section 264.151 prescribes penalties for certain violations of the Dental Practice Act. Plea in lntervention Page 6 of25
*77 c) the approval was an actual and legitimate dental diagnosis, and/or d) the requested orthodontic services were allowable under Texas law and as permitted
by Medicaid policy, the TMPPM, and HHSC rules, and/or e) a proper, thorough and legal review had been made, and/or t) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervenfog disqualification (such as the patient's ineligibility). 19. Because Xerox was charged with determining medical necessity, and because prior autho rization approval was a mandatory prerequisite to furni shing services, the promises were material. lntervenors expected performance of these promises. lntervenors relied on Xerox. Further, Xerox promised that its subsequent payments to lntervenors (after the services had actually been delivered) were made because the services had been, in fact, properly approved as medically necessary. Each prior authorization approval represents a separate violation of the law if Xerox 's approval was issued illegally and/or in violation of its contractual obligations. Xerox actively concealed its potentially illegal activity. 20. Xerox withheld the truth regarding its prior authorization program. In an attempt to publicly appear consistent with NHIC's prior authorization process, Xerox continued to require that dental providers (such as Intervenor) submit all supporting documentation for each HLD score sheet. lt is now be lieved that, incredibly, Xerox did nothing with that documentation, other than assure that it had been submitted by the provider. It is believed that Xerox's specialists were instructed to forward to its dental director only those requests lhat had scored below the thr eshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some provider j usti fi cation attached. As a result, only I 0% of the orthodontic prior authorization requests were actually forwarded to Xerox's one licensed dentist. Xerox 's actions were Plea in Intervention Page 7 of25 *78 calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox knew that its actions we re entirely inconsistent with the letter and spirit o f its obligations. Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving services without determining their medical necessity, but Xerox 's deception also exacerbated the problem by failing to give providers guidance regarding the proper standard for medical necessity, thus caus ing these providers substantial damages. 2 1. For the past ten years, Xerox has co ntinued to publicly represent to the world that it was fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was fulfilJing its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004 through the present. Each year that Xerox had its contract renewed, it represented that it would fulfill its contractual obligations and abide by Texas law requiring that decisions about medical necessity be rendered onl y by licensed dentists. Xerox made those representations knowing that it had not done so in the past, and had no intention of changing its procedures to do so in the future. The Frew decisio n magnifies Xerox's acts. 22. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to implement a corrective action plan that increased the Medicaid reimbursement rates to all dental providers. That plan was required pursuant to the Frew case [4]
, which was a 1993 c lass-action lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that they prevented indigent children from receiving timely, comprehensive health care . [4] Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir. 2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and affd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins, 401 F. Supp. 2d 619 (E.D. Tex. 2005) aff'd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v. Frew, 549 U.S. 111 8, 127 S. a. !039, 166 L. Ed. 2d 714 (2007). Plea in Intervention Page 8 of25 *79 23. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707 million ($1.8 billion in state and federal funds combined) to increase medical and dental reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists to become Medicaid providers. It worked. The state raised payment rates for dental services, and, as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to 63.4% in 20 l 0. As expected indeed, as intended spending on Texas's dental services increased dramatically. 24. Although the number of prior approval requests increased by 240% between 2007 and 20 L 0, Xerox continued to employ only one dentist. That dentist was neither tasked with nor responsible for supervising the clerical specialists that were issuing the approvals. 25. By 20 I 0, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper for the approval and payment of orthodontic services. Although the Texas Legislature had increased funding to attract dentists into the Medicaid program, all of the budgeted funds were required to be spent only on medically necessary services. The Office of Inspector General seeks recovery from Medicaid providers. 26. In early 20 I 1 , a series of news stories began highlighting the large amount of money being spent on orthodontics in Texas. In July 20 I 1, the Federal government notified Texas of its intent to audit whether Texas' prior authorization process was ensuring that only medically necessary orthodontic cases were being approved and paid. With the prospect of a federa l clawback action looming against Texas because of Xerox's prior authorization failures, the Texas Office of fnspector General (hereinafter "State") took a drastic step. Beginning in 2011, the State generated a list of the top Medicaid orthodontic billers and placed them on "payment Plea in Intervention Page 9 of25 *80 hold." Intervenor was one of those providers. 27. Given Intervenors' proximity to some of the state's poorest children, and the mandates of the Frew decision, Intervenor served a large Medicaid patient population. Because it served a large Medicaid population, it submitted a large number of prior authorization requests to Xerox from 2004 through 20 I 1. 28. fntervenors did not know that Xerox was failing to perform a true and accurate review for medical necessity. lntervenors relied on Xerox's prior authorization approvals to confirm that dentists' analysis was proper and consistent with Medicaid standards and requirements. 29. Again unbeknownst to Intervenors, State audits in 2008 and 2012 concluded that most, if not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater (indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State audits made the Federal government's pending audit especially dangerous to Texas, because the 2008 and 2012 audits were admissions that Xerox had been approving and paying claims that may not have met the federal standards for prior authorization. T hus the State, through the Attorney General, concluded that a true finding of medical necessity had in reality not occurred. The Attorney General claimed that billing for services that are not necessary is fraud, despite Xerox's prior authorization approvals. 30. It is now believed that rather than prosecute Xerox for its failure to properly evaluate dentists ' prior authorization requests, the State and the Texas Attorney General protected Xerox. This protection included the State failing to allow TMHP to hire additional medically licensed staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the Attorney General took immediate action against the providers, the Attorney General refused to hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its Plea in Intervention Page 10 of25 *81 violation of State law. Instead, the Attorney General made fraud allegations against each of the top 25 dental providers, including Intervenor, which has caused more injury and damages to lntervenors. Stated d ifferently, Xerox issued its approvals through a process that gutted the State's belief in che accuracy of Xerox's decision, and the Texas Attorney General punished the providers instead of Xerox. 3 L. Because the acts/omissions of Xerox so undermined the process, the State eventuallyinstituted a "payment hold" against Intervenor. A payment hold temporarily freezes future Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid program. The payment hold against lotervenor was issued pursuant to what the State called a "credible allegation of fraud" regarding intervenor's orthodontic prior authorization requests. The State placed a I 00% payment hold against Intervenor's orthodontic billings. 32. At the time the Attorney General began prosecuting Intervenor and similarly situated Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to authorize orthodontic services and payments. The Attorney General knew that the State's audits of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State, violating its own State-approved policies and procedures, and violating State law. Nevertheless, the Attorney General continued to only prosecute dental providers like the Intervenor; the Attorney General refused to hold Xerox responsible. ln fact, in one shameless and brazen demonstration of State' s unwavering protection of Xerox, the Deputy Director of Texas' Office of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious they were outside the course and scope of Xerox's agency with State. [5] Upon information and ' Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox. Plea in Intervention Page 11 of25 *82 belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing the State's culpability would subject the State to a federal clawback for hundreds of millions of dollars. Instead, the State and the Attorney General pointed at the dental providers. 33. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for over 6 years, became too much to hide. Three months after some providers filed suit against Xerox, and fo llowing a series of news stories questioning why Xerox had not suffered for its failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed approximately I 00 days earlier by similarly situated providers. The State's claims in this fraud lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were improper. 34. As a result of the payment hold, Intervenor was required to make significant financial concessions and changes to its business. Intervenor also engaged legal counsel to defend itself from the State's claims, at a significant expense that continues today. 35. The State 's allegations against lntervenor are rooted in two assumptions. First, the State assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is, Xerox approved Intervenor's requests without knowing whether approval was actually proper. Because Xerox is not a party to lntervenor's administrative case, Intervenor is prevented from determining whether Xerox did, in fact, perform a proper review of lntervenor's prior authorization requests. By intervening in this lawsuit, lntervenor seeks to address that question, and finally detennine whether Xerox reviewed Intervenor's requests as required by its contract and the law. 36. Regarding the State's second assumption, the State alleges some of lntervenor's requests Plea in Intervention Page 12 of25 *83 were approved when, in fact, they should have been denied. Intervenor denied that assertion in the administrative case, and Intervenor continues to deny that c laim here. All services provided to Intervenor's patients were actually medically necessary, regardless of what Xerox decided and in any event under Medicaid guidelines once the authorization was approved, Intervenor was required to provide the services. 37. The State continues to aggressively fight any allegation or affirmative defense that could result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action A. Jntervenors ' Claims Against Xerox Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement) 38. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's prior authorization approvals were fa lse representations made to Intervenor. It is believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew that it was approving requests without a proper medical review, and/or because it approved the prior authorization requests without any knowledge of their truth. It is believed Xerox intended for rntervenor to rely on the approvals as a prerequisite fo r prov iding the requested services. Approval was material because it was a mandatory prerequisite for payment. Intervenor actually and justifiably relied on Xerox's fraudulent approvals. 39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in the same o r similar manner, and led Intervenor to believe that their requests were consistent with Medicaid standards and requirements. 40. Xerox's fraudu lent approvals caused injury to Intervenor. As a resu lt of Xerox's actions, Plea in Intervention Page 13 of25 *84 Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor was placed on payment ho ld, Intervenor is fo rced to defend itself in an administrative payment hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including claims for treble damages and attorney fees). Intervenor's reputation and business have suffered severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of the Xerox-State of Texas Contract 41. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper, thorough and legal review of prior authorization requests for the purpose of determining medical necessity. To that end, Xerox should have employed a licensed dentist. 42. Xerox was an agent of the State of Texas engaged specifically for the purpose of determining medical necessity. The third party beneficiaries of that Xerox-State of Texas contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic services that were medically necessary. Intervenor was responsible for actually delivering the orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third party beneficiary that relied on Xerox's approvals. 43. Xerox breached its contract by, inter alia, failing to provide qualified staff; possibly violating Texas law; permitting non-dentists to make detenn inations of medical necessity; and issuing medical opinions without conducting a reasonable and prudent examination of evidence. The breaches were material, and recurred across many different Medicaid patients and for many years. Plea in Intervention Page 14 of25 *85 44. Xerox's actions proximately caused Jntervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, lntervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary intelligence should have anticipated that issuing a decision without actually reviewing or considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and reliabiJity of the decision. Once the State assumed that Xerox's approvals were not trustworthy, it was foreseeable that the State would demand repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because the services were medically necessary and reimbursable under Texas Medicaid law. 45. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages that would have given the lntervenors the benefit of the bargain by putting them in as good a position as they would have been in if the contract had been perfonned. Intervenor seeks reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's contract with the state and the approvals that Xerox made under that contract. Intervenor also seeks damages for its restitution interest to restore money sought by the Office of the Inspector General from Intervenor. Such damages wou ld put the lntervenors in as good a position as it would have been in if the contract had been properly fulfilled. In addition, Intervenor seeks liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal counsel to defend itself from the State 's charges, and those legal expenses continue today. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and Joss of goodwill. Intervenor seeks recovery of actual and Plea in Intervention Page 15 of25 *86 exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel) 46. Intervenor re-alleges and incorporates the above facts and allegatio ns as if fully set out herein. In the alternative, Xerox's actions constitute promissory estoppel. 47. Xerox's prior authorizations constitute promises to Intervenor in numerous ways. Because prior authorization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Interveno r reasonably, substantially, and foreseeab ly relied on Xerox's promises. 48. Intervenor suffered and continues to suffer significant damage. [ntervenor suffered reliance damages by investing time, labor, equipment, and o rthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact-namely, demonstrate that the services were medically necessary and properly reimbursable under Texas Medicaid law. lntervenor has incurred benefit of the bargain damages, o ut-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. All of these damages were directly and/or prox imately caused by Xerox's promises. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and atto rney fees.
Negligent Hiring/Negligent Supervision 49. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was required to render medical diagnoses. To that end, Xerox was required by law to employ a licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by Plea in Intervention Page 16 of25 *87 law to properly supervise its employees to make sure diagnoses were made only by licensed dentists. 50. Xerox knew or should have known that decisions regarding medical necessity can only be rendered by licensed personnel. Texas Occupations Code section 251.003 defines the practice of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.00 1 states that a person may not practice dentistry without a license; section 264.1 5 l makes it a third-degree felony to practice dentistry without a license. 5 1. Xerox's actions proximately caused Intervenor's injury. lntervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factua l cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary inte ll igence should have anticipated that paying Intervenor for services that have not properly been determ ined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because those services were medically necessary and were reimbursable under Texas Medicaid law. 52. f ntervenor suffered and continues to suffer significant damage. Intervenor suffered re liance damages by investing the cost of services for each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has suffered inconvenience and loss of enjoyment of li fe in that he has had to dedicate significant Plea in Intervention Page 17 of25 *88 mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligence 53. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox 's actions constitute negligence and gross negligence. Xerox was required to render medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel had appropriate education, training and experience to render such a finding. Xerox had a duty to review the supporting prior authorization documentation (such as x-rays and photos) to determine whether the requested services were medically necessary. 54. Xerox's actions breached the standard of care because Xerox: failed to provide prior authorization staff that were properly licensed, qualified and experienced dental professionals; violated the law, specifically the Dental Practice Act, by permitting non-dentists to make determinations of medical necessity, and; issued medical opinions (prior authorizations) without conducting a reasonable and prudent examination of evidence. 55. Xerox's actions proximately caused lntervenor's injury. intervenor' s injuries were caused-in-fact by Xerox 's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable .in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly Plea in Intervention Page 18 of25 *89 been detennined to be medically necessity wou ld precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox 's job after the fact. 56. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Dr. Hieu Huynh has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. lntervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation 57. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligent misrepresentation. Xerox's actions constitute mi srepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization approval was a prerequisite to furnishing services, these representations guided and controlled Intervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox represented that its prior authorization approvals were dispositive of medical necessity; Intervenor expected that, once approved, no further inquiry into the medical necessity of the services would be required. Further, Xerox represented that its subsequent payments to Intervenor (after the serv ices had actually been delivered) were made because services had been, in fact, properly approved as medically necessary. 58. Xerox did not exercise reasonable care or competence in making its determinations and representations. Xerox knew or should have known that its representations were false. Plea in Intervention Page 19 of25 *90 59. Because prior authorization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, foreseeably, and justifiably relied on Xerox's representations. 60. Intervenor suffered and continues to suffer signifi cant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately cause by Xerox's negligent misrepresentations. Jntervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property 6 I. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary property which would entitle Intervenors to unlimited punitive damages. B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity 62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. For a number of reasons, the State has waived sovereign immunity for claims by Intervenor, including the facts that the State brought, threatened and/or has taken civil and/or administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise 63. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out Plea in Intervention Page 20 of25 *91 herein. In the alternative, fonner Deputy Inspector General Jack Stick has stated publicly that acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's agency relationship with the State. Assuming same to be true, then the State conspired with Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime. 64. The State conspired with Xerox to allow Xerox to violate its various contractual duties. The State permitted Xerox to process as many prior authorizations as possible without the required clinical dental review and without using medically knowledgeable personnel. The State conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations submitted by the dentists. The conspiracy was committed with the intent to shift blame from the State and its agent, improperly blame the lntervenors, and enrich the State and Xerox. By recouping money from providers that were not actually to blame, the State and Xerox hoped to limit their own liability in the event of a Federal clawback action, and/or respond to unflattering news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the party to blame the dentist providers for their own improper acts and omissions is a proximate cause of the injury to lntervenors.
Not Liable for Illegal Acts of Third Party 65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein . As alleged by the State in Section VlTI paragraph 46 of the State' s petition, Xerox has committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide proper prior authorization review in rubber stampi ng the doctors prior authorization reque.sts is not the fault of the doctors. The doctors are not responsible for or liable to the State for the Plea in Intervention Page 21 of25 *92 illegal acts of a third party for which the doctors had no control; the State should not withhold money from the lntervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract 66. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. lntervenors are a direct or third party beneficiary of the contract with Xerox and the State of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox and/or reviewing the work product of Xerox. This breach by State, which allowed non- performance by Xerox, has created the pretext by which the State affirmatively sued lntervenors for repayment. To the extent that the State has withheld money and/or made claims for damages against lntervenors based on the contracts in question, the State has waived immunity and is liable up to those amounts plead.
Conversion 67. Intervenor re-alleges and incorporates the above facts and allegations as if fuUy set out herein. State and Federal law required lntervenor to request prior authorization for orthodontic services. Those prior authorization requests were approved by Xerox, which required lntervenors to provide the services. The State has unilaterally made a decision to that, based on the acts and omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor on a payment hold. To the extent that lntervenor has provided services for which lntervenor should be paid, and money which has been earmarked by the State for that payment but withheld, the State has converted the funds. In addition, the States' acts/o missions are a violation of the Texas Constitution Section 9 in that the acts/om issions constitute a seizure of money held under the pretext of a payment hold. Plea in Intervention Page 22 of25
*93 VI. Damages 68. Intervenors have suffered and are entitled to recover damages inc luding, but not limited to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees and expenses, interest, punitive/exemplary damages, and attorney fees.
VU. Conclusion 69. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent hiring, negligence, and gross neg ligence. Xerox's actions have subjected lntervenor to unnecessary civi l and adminfatrative legal action, and that, in turn has caused additional inj ury. Xerox's actions have required Intervenor to perform Xerox's job after-the-fact, by proving to the State that the orthodontic services rendered were medically necessary and appropriate for reimbursement. The State's actions have harmed Intervenor because the state's conspiracy to improperly blame the dentists has resulted in meritless legal claims against the lntervenors and conversion of the Intervenor's property.
VIII. Jury Demand 70. Intervenors respectfully request a trial by j ury. IX. Request for Disclosure 71. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State d isclose, within SO days of the service of this request, tbe information or material described in Rule 194.2. 72. Wherefore, premises considered, [ntervenors Atlas Dental, LP and Dr. Hieu Huynh pray that upon final hearing of the cause, judgment be entered jointly and seve rally against the Plea in Intervention Page 23 of25 *94 Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and post judgment interest at the legal rate, costs of court, and other such relief to which the lntervenors may be entitled.
Respectfully ..submitted, ~ J son Ray Texas Bar No. 240 RIGGS, ALESHIRE & RAY, P.C. 700 Lavaca, Suite 920 Austin, Texas 7870 l (5 12) 457-9806 (Telephone) (5 12) 457-9866 (Fax) jray@r-alaw.com
Isl Hart Green w/ permission by J Ray E. Hart Green Texas Bar No. 08349290 Mitchell A. Toups Texas Bar No. 20151600 WELLER, GREEN, TOUPS & TERRELL, L.L.P. Post Office Box 350 Beaumont, Texas 77704-0350 (409) 838-0101 (Telephone) (409) 832-8577 (Fax) hartgr@wgttlaw.com matoups@wgttlaw.com ATTORNEYS FOR INTERVENORS ATLAS DENT AL, LP AND DR. RIEU H UYNH
Plea in Intervention Page 24 of25
CERTIFICATE OF SERVICE
*95 l hereby certify that a true and correct copy of the foregoing Plea in Intervention was served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on the following: Eric J.R. Nichols Beck Redden 515 Congress A venue, Suite 1750 Austin, Texas, 78701 ENICHOLS@beckredden.com Attorney for Xerox Defendants Raymond Winter Chief, Civil Medicaid Fraud Division Assistant Attorney General Office of the Attorney General P.O. Box 12548 Austin, Texas 78711 -2548 raymond.winter@texasattomeygeneral.gov Attorney for the Plaintiff State of Texas Plea in Intervention Page 25 of25
CAUSE NO. D-1-GV-14-000581
*96 DR. STEPHEN CHU, § IN THE DISTRICT COURT INTERVENOR, § § VS. § § THE STATE OF TEXAS, § PLAINTIFF, § § 53rd JUDICIAL DISTRICT vs.
§
§
XEROX CORPORATION; XEROX § STATE HEALTHCARE, LLC; ACS § STATE HEALTHCARE, LLC, A XEROX § § CORPORATION §
DEFENDANTS. TRAVIS COUNTY, TEXAS PLEA IN INTERVENTION TO THE HONORABLE JUDGE OF SAID COURT: NOW COMES, Dr. Stephen Chu, hereinafter Intervenor, and file this Plea in intervention, and in support hereof, would respectfully show the Court the follow ing: I. Parties and Service 1. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0. Box 12548, Austin, Texas 787 l 1-2548. 2. Defendant Xerox Corporation is a corporation organized under the laws of New York has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit. Plea in Intervention Pagel of25 *97 Defendant Xerox Corporation acquired Defendant ACS in 2010. On information and belief, ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April l, 2012. Defendants are referred to hereinafter as "Xerox Defendants." 3. Dr. Stephen Chu is a licensed Texas dentist, approved Medicaid provider. Dr Chu can be served through his undersigned counsel.
n. Jurisdiction and venue 4. This Court has subject-matter jurisdiction in that the amounts sought by Intervenor from all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction Limits of this court. Intervenor affirmatively pleads that this suit is not governed by the expedited-actions process in TEXAS Ruu::: OF CrvIL PROCEDURE 169 because Intervenor seeks monetary relief over $100,000. 5. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenor's claims; b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in thi s petition in whole or part in Texas.
6. Venue is proper in Travis County under TRCP §15.020 because this suit involves a "major transaction"; Venue is permissive under TRCP § l 5.035(a) because intervenor asserts claims for breach of contract. Venue is proper pursuant to TRCP § I 5.02 because all or a substantial part of the events or omissions giving rise to the claim occurred in Travis County. Many of the unlawful acts committed by the State and Xerox Defendants were committed in Travis County, including the making of false statements and misrepresentations of material fact. Plea in lntervention Page 2 of25
*98 ID. Intervenor's Interest in the Suit 7. Intervenor has a judicial interest in the matters and controversy in this litigation. The relationship between Lntervenor, the State as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of judicial economy and justice, all claims be bound and subsumed into one cause of action. Upon information and belief, Intervenor was initially sued by the State in a qui tam action wherein the State alleged that Intervenor defrauded the State. The State has elected to pursue its remedies against the lntervenor in an administrative hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the State. Intervenor has claims against both the State and Xerox. It is assumed that Xerox will have claims against the State, and perhaps allege claims against the lntervenor. All of the different parties' claims arc inextricably intertwined, as they relate to Intervenor's submission of prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and legal duties, and State's subsequent legal action against the Intervenors for services approved by Xerox.
IV. Facts What is Prior Authorization? 8. Texas Medicaid requires that orthodontic services be independently and objective ly scrutinized before the State consents to treatment and payment. Prior authorization is the mechanism the State uses to detennine the medical necessity of non-emergency orthodontic items/services prior to delivery of those items/services. Pursuant to Texas Health and Human Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will pay for orthodontic services: Plea in Intervention Page 3 of25
*99 Orthodontic services for cosmetic reasons only are not a covered Medicaid service. Orthodontic services must be prior authorized and are limited to treatment of severe handicapping malocclusion and other related conditions as described and measured by the procedures and standards published in the [TMPPM [1]
]. 25 TEX. ADM IN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the requested orthodontic service has been deemed by Xerox to be medically necessary, and therefore approved by the State. 9. The prior authorization process is straightforward. Texas Medicaid requires that a dental provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his professional opinion of the patient on a Handicapping Labio-lingual Deviation index (HLD) score sheet. Xerox knew providers relied entirely on the prior authorization process because approval was a mandatory prerequisite to providing orthodontic services and being paid. Once Xerox issued its prior aulhorization decision, the decision was not appealable by the provider. The HLD scoring system combines a number of treatable orthodontic conditions into an l 0. index. HLD score sheets use a mix of objective and subjective conditions to determine whether a Medicaid patient qualities for orthodontic services. The fact that the HLD score sheet requires both objective and subjective findings highlights the importance of Xerox performing a thorough prior authorization review. The History of Orthodontic Prior Authorization. l l. The process for reviewing and approving orthodontic prior authorization requests pre- dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage [1] "TMPPM" is the Texas Medicaid Provider Procedures Manual, whi.ch is issued yearly by the HHSC and provides valuable guidance to Medicaid providers. Plea in Intervention Page4 of25 *100 Insurance Corporation (NHlC) was responsible for reviewing prior authorization requests before Xerox assumed the contract in January 2004. Starting January I, 2004, Xerox acted as an independent contractor, and was a contracted agent of the State, under the contract with HHSC. Xerox was responsible for reviewing each orthodontic service request, and Xerox was further charged with the responsibility to grant or deny each prior authorization request per the program requirements. The result was that Xerox had the final say in determ ining the medical necessity of each request for orthodontic services. 12. Prior to assuming the NHIC contract, and for a period ohime after assum ing the contract from NHIC, Xerox received training from NHJC personnel regarding the proper method for receiving and processing orthodontic prior authorization requests. NHTC personnel explained how and why the review of each prior authorization submission was important, and walked Xerox through the process. Despite its training from NHIC, Xerox had no intenlion of following the prior authorization system that had been in place for years, nor did Xerox intend to otheiwise meet the prior authorization requirements set oul in its contract. the TMPPM and required by state law. Xerox rejects its contractual responsibilities. 13. When Xerox took over the contract in 2004, it immediately abandoned the prior authorization review process that had been setup by NHIC. Xerox never intended to fulfill its orthodontic prior authorization responsibilities to HHSC. From 2004 to 20 11, Xerox continually misrepresented that it was acting in compliance with its contractual duties. 14. It is now known that Xerox failed to adequately staff their prior authorization division with knowledgeable medical professionals. Xerox employed only one licen sed dentist from 2004 through 2011, which was far short of the manpower necessary to handle the review of tens of Plea in Intervention Page5 of25 *101 thousands of orthodontic prior authorization requests every year. Xerox could not reasonably have expected to handle such a workload by employing only one dentist . Xerox potentially commits thousands of violations. 15. It is believed Xerox allowed "dental specialists"-unlicensed, unqualified individuals- to render prior authorization opinions regarding the medical necessity of requested orthodontic services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed dental director or another qualified dental professional. These actions not only violated Xerox's contractual obligations, they may have also violated other Texas law such as the Dental Practice Act. 2 It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior authorization approvals/medical opinions in violation of Texas law. 16. Xerox was paid by the state for each prior authorization decision that was made. It is believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a profit generating measure. 17. From January 2005 through February 2012, Intervenor submitted prior authorization requests, as required, to Xerox for a determination of medical necessity. Unbeknownst to lntervenor, Xerox's dental specialists-not the dental director-approved almost all of Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/ or b) the approval had been issued by a licensed dentist, and/or c) the appro val was an actual and legitimate dental diagnosis, and/or d) the requested orthodontic services were allowable under Texas law and as permitted [2] Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth and mouth. Section 256.001 states that a person may not practice dentistry without a license. Thus, state law requires that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section 264.151 prescribes penalties for certain violations of the Dental Practice Act. Plea in Intervention Page 6 of25 *102 by Medicaid policy, the TMPPM. and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or f) future orthodontic services would be properly reimburseable to Intervenor, absent some
intervening disquali fication (such as the patient's ineligibility). 18. Because Xerox was charged with detennining medical necessity, and because prior authorization approval was a mandatory prerequisite to furn ishing services, the promises were material. Intervenor expected performance of these promises. Intervenor rel ied on Xerox. Further, Xerox promised that its subsequent payments to Intervenor (after the services had actually been delivered) were made because the services had been, in fact, properly approved as medically necessary. Each prior authorization approval represents a separate violation of the law if Xerox's approval was issued illegaJly and/or in violation of its contractual obligations. Xerox actively concealed its potentially illegal activity. l 9. Xerox withheld the truth regarding its prior authorization program. In an attempt to publicly appear consistent with NHIC's prior authorization process, Xerox continued to require that dental providers (such as intervenor) submit all supporting documentation for each HLD score sheet. It is now believed that, incredibly, Xerox did nothing with that documentation, other than assure that it had been submitted by the provider. It is believed that Xerox's speciaJists were instructed to forward to its dental director only those requests that had scored below the threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some provider justification attached. As a res ult, only 10% of the orthodontic prior authorization requests were actua lly forwarded to Xerox's one licensed dentist Xerox's actions were calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox knew that its actions were entirely inconsistent with the letter and spirit of its obligations. Plea in Intervention Page 7 of25 *103 Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving services without determining their medical necessity, but Xerox's deception also exacerbated the problem by failing to give providers guidance regarding the proper standard for medical necessity, thus causing these providers substantia l damages. For the past ten years, Xerox bas continued to publicly represent to the world that it was 20. fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was fulfilling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004 through the present. Each year that Xerox had its contract renewed, it represented that it would fulfill its contractual obligations and abide by Texas law requiring that decisions about medical necessity be rendered only by licensed dentists. Xerox made those representations knowing that it bad nm done so in the past, and had no intention of changing its procedures to do so in the future. The Frew decision magnifies Xerox's acts. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to 21. implement a corrective action plan that increased the Medicaid reimbursement rates to all dental providers. That plan was required pursuant to the Frew case [3]
, which was a 1993 class-action lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that they prevented indigent children from receiving timely, comprehensive health care. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707 22. million ($1.8 billion in state and federal funds combiJ1ed) to increase medical and dental [3] Frew v. Gilbert, 109 P. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir. 2002) rev'd sub nom. Frew ex rel. Frew v. llawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and a.ffd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins, 40 1 F. Supp. 2d 619 (E.D. Tex. 2005) afj'd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v. Frew, 549 U.S. 1118, 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007). Plea in Intervention Page 8 of25 *104 reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists to become Medicaid providers. It worked. The state raised payment rates for dental services, and, as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to 63.4% in 20 I 0. As expected indeed, as intended spending on Texas's dental serv ices increased dramatically. 23 . Although the number of prior approval requests increased by 240% between 2007 and 2010, Xerox continued to employ only one dentist. That dentist was neither tasked with nor responsible for superv ising the clerical specialists that were issuing the approvals. 24. By 20 I 0, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox was the sole entity responsible fo r overseeing this increase, because it was the sole gatekeeper for the approval and payment of orthodontic services. Although the Texas Legislature had increased funding to attract dentists into the Medicaid program, all of the budgeted funds were required to be spent only on medically necessary services. The Office of Inspector General seeks recovery from Medicaid providers. 25. In early 2011, a series of news stories began highlighting the large amount of money being spent on orthodontics in Texas. ln July 201 1, the Federal government notified Texas of its intent to audit whether Texas' prior authorization process was ensuring that only medically necessary o rthodontic cases were being approved and paid. With the prospect of a federal clawback action looming against Texas because of Xerox 's prior authorization failures, the Texas O ffice of lnspector General (hereinafter "State") took a drastic step. Beginning in 20 I I, the State generated a list of the top Medicaid orthodontic billers and placed them on "payment hold." Intervenor was one of those providers. 26. Given Intervenor's proximity to some of the state's poorest children, and the mandates of Plea in Intervention Page 9 of25 *105 the Frew decis ion, Intervenor served a large Medicaid patient population. Because it served a large Medicaid populatio n, it submitted a large number of prior authorization requests to Xerox from 2004 through 2011. 27. Intervenor d id not know that Xerox was faili ng to perform a true and accurate review for medical necessity. Intervenor relied on Xerox's prior authorization approvals to confirm that dentists ' analysis was proper and consistent w ith Medicaid standards and requirements. 28. Again unbeknownst to Intervenor, State audits in 2008 and 2012 concluded that most, if not almost all, of the prior authorization requests for patients with HLD scores o f 26 or greater (indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State audits made the Federal government's pending audit especially dangerous to Texas, because the 2008 and 2012 audits were admissions that Xerox had been approving and paying claims that may not have met the federal standards for prior authorization. T hus the State, through the Attorney General, concluded that a true fi nding o f med ical necessity had in reality not occurred. The Attorney General claimed that billing for services that are not necessary is fraud, despite Xerox's prior authorization approvaJs. 29. It is now believed that rather than prosecute Xerox for its failure to properly evaluate dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox. This protection included the State failing to a llow TMHP to hire additional medically licensed staff. and in 2008-2009 telling TMHP to continue its prior authorization practices . Although the Attorney General took immediate action against the providers, the Attorney General refused to ho ld Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its violation of State law. lnstead, the Attorney General made fraud allegations against each of the top 25 dental providers, including Intervenor, which has caused more injury and damages to Plea in Intervention Page 10 of25 *106 Intervenor. Stated differently, Xerox issued its approvals through a process that gutted the State's belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the providers instead of Xerox. 30. Because the acts/omissions of Xerox so undermined the process, the Slate eventually instituted a " payment hold" against Intervenor. A payment hold temporarily freezes future Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid program. The payment hold against Intervenor was issued pursuant to what the State called a "credible allegation of fraud" regarding Intervenor's orthodontic prior authorization requests. The State placed a IOO% payment hold against Intervenor's orthodontic billings. 3 1. At the time the Attorney General began prosecuting Intervenor and similarly situated Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to authorize orthodontic services and payments. The Attorney General knew that the State's audits of Xerox in 2008 and 2012 bad concluded that Xerox was violating its contract with the State, violating its own State-approved policies and procedures, and violating State law. Nevertheless, the Attorney General continued to only prosecute dental providers like the Intervenor; the Attorney General refused to hold Xerox responsible. In fact, in one shameless and brazen demonstration of State 's unwavering protection of Xerox, the Deputy Director of Texas' Office of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious they were outside the course and scope of Xerox's agency with State. [4] Upon infonnation and belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing the State's culpability would subject the State to a federal clawback for hundreds of millions of [4] Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox. Plea in Intervention Page 11 of25 *107 dollars. Instead, the State and the Attorney General pointed at the dental providers. 32. Ultimately, the ev idence of Xerox's failu res, and the State's refusal to correct Xerox for over 6 years, became too much to hide. Three months after some providers filed suit against Xerox, and following a series of news stories question ing why Xerox had not suffered for its failures, the Attomey General reversed course. On May 9, 20 14, the State, through the Texas Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed approximately 100 days earlier by similarly situated providers. The State's c laims in this fraud lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were improper. 33. As a result of the payment hold, Intervenor was required to make significant finan cial concessions and changes to its business. Intervenor also engaged legal counsel to defend itself from the State's claims, at a significant expense that continues today. 34. The State's allegations against Intervenor are rooted in two assumptions. First, the State assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is, Xerox approved fntervenor's requests without knowing whether approval was actually proper. Because Xerox is not a party to Intervenor's adm inistrative case, Intervenor is prevented from determining whether Xerox did, in fact, perform a proper review of Intervenor's prior authorization requests. By intervening in this lawsuit, lntervenor seeks to address that question, and finally detennine whether Xerox reviewed Intervenor's requests as required by its contract and the law. 35. Regarding the State's second assumption, the State alleges some of Intervenor's requests were approved when, in fact, they should have been denied. Intervenor denied that assertion in the administrative case, and Intervenor continues to deny that claim here. All services provided Plea in Intervention Page 12 of25 *108 to Intervenor's patients were actually medically necessary, regardless of what Xerox decided and in any event under Medicaid guidelines once the authorization was approved, Intervenor was required to provide the services. 36. The State continues to aggressively fight any allegation or affirmative defense that could result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action A. Intervenor's Claims Against Xerox Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement) 37. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein . Xerox's prior authorization approvals were false representations made to Intervenor. It is believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew that it was approving requests without a proper medical review, and/or because it approved the prior authorization requests without any knowledge of their truth. lt is believed Xerox intended for Intervenor to rely on the approvals as a prerequisite for providing the requested services. Approval was material because it was a mandatory prerequisite for payment. Intervenor actually and justifiably relied on Xerox's fraudulent approvals. 38. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in the same or similar manner, and led Intervenor to believe that their requests were consistent with Medicaid standards and requirements. 39. Xerox's fraudulent approvals caused injury to Intervenor. As a result of Xerox's actions, Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor was placed on payment hold, Intervenor is forced to defend itself in an administrative payment Plea in Intervention Page 13 of25 *109 hold hearing, and lntervenor is facing administrative claims by HHSC for repayment (including claims for treble damages and attorney fees). Intervenor's reputation and business have suffered severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of the Xerox-State of Texas Contract 40. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper, thorough and legal review of prior authorization requests for the purpose of detennining medical necessity. To that end, Xerox should have employed a licensed dentist. 41 . Xerox was an agent of the State of Texas engaged specifically for the purpose of detem1ining medical necessity. The third party beneficiaries of that Xerox-State of Texas contract were Medicaid patients and Intervenor. T he patients were entitled to receive orthodontic services that were medically necessary. Intervenor was responsible for actually delivering the orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third party beneficiary that relied on Xerox's approvals. 42. Xerox breached its contract by, inter alia, failing to provide qualified staff; possibly violating Texas law; permitting non-dentists to make determinations of medical necessity; and issu ing medical opinions without conducting a reasonable and prudent examination of evidence. The breaches were material, and recurred across many different Medicaid patients and for many years. 43. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeab le. Because Xerox's prior Plea in Intervention Page 14of25 *110 authorization was a necessary prerequisite to providing services, lntervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary intelligence should have anticipated that issuing a decision without actually reviewing or considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy, it was foreseeable that the State would demand repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because the services were medically necessary and reimbursable under Texas Medicaid law. Intervenor suffered and continues to surfer s ignificant damage. rntervenor seeks damages 44. that would have given the Intervenor the benefit of the bargain by putting them in as good a position as they would have been in if the contract had been performed. Intervenor seeks reliance interest damages to restore the expenditures lntervenor made in reliance on Xerox 's contract with the state and the approvals that Xerox made under that contract. Intervenor also seeks damages for its restitution interest to restore money sought by the Office of the Inspector General from Intervenor. Such damages wou ld put the Intervenor in as good a position as it would have been in if the contract had been properly fulfilled. In addition. Intervenor seeks Liquidated damages as set out in the Xerox-State of Texas contract. Jntervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. lntervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel) Plea in lntervention Page 15 of25 *111 Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 45. herein. In the alternative, Xerox's actions constitute promissory estoppel. 46. Xerox's prior authorizations constitute promises to Intervenor in numerous ways. Because prior authorization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, and foreseeably relied on Xerox 's promises. 4 7. Intervenor suffered and continues to suffer significant damage. Intervenor suffered rel iance damages by investing time, labor, equipment, and orthodontic appl iances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact-namely, demonstrate that the services were medically necessary and properly reimbursable under Texas Medicaid law. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proxjmately caused by Xerox's promises. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Hiring/Negligent Supervision 48. lntervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was required to rend er medical diagnoses. To that end, Xerox was required by law to employ a li censed dentist to render a diagnosis regarding med ical necessity. Xerox was a lso req uired by law to properly supervise its employees to make sure diagnoses were made only by licensed dentists. Plea in Intervention Page 16 of25 *112 49. Xerox knew or should have known that decisions regarding medical necessity can only be rendere<l by licensed personnel. Texas Occupations Code section 251.003 defines the practice of dentistry to include a d iagnosis of the human mouth and/or teeth; section 256.001 states that a person may not practice dentistry without a license; section 264. 151 makes it a third-degree felony to practice dentistry without a license. 50. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox' s actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly been detennined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because those services were medically necessary and were reimbursable under Texas Medicaid law. 51. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing the cost of services for each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. lntervenor suffered and continues to suffer signi ficant damage to its reputation, business, referral base, earnings and earning power. Intervenor has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox' s job. Intervenor has suffered exemplary damages because Xerox 's conduct was grossly negligent, outrageous and malicious, and such conduct Plea in Intervention Page 17 of25 *113 should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligence 52. Intervenor re-alleges and incorporates che above facts and allegations as if fully set out herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel had appropriate education, training and experience to render such a finding. Xerox had a duty to review the supporting prior authorization documentation (such as x-rays and photos) to determine whether the requested services were medically necessary. 53. Xerox 's actions breached the standard of care because Xerox: failed to provide prior authorization staff that were properly licensed, qualified and experienced dental professionals; violated the law, specifically the Dental Practice Act, by permitting non-dentists to make determinations of medical necessity, and; issued medical opinions (prior authorizations) without conducting a reasonable and prudent examination of evidence. 54. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Jntervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence shou Id have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity wou ld precipitate a demand for repayment, and/or wou ld require Intervenor to independently do Xerox's job after the fact. Plea in Intervention Page 18 of25 *114 55. Intervenor suffered and continues to suffer s ignificant damage to its reputation, business, referral base, earnings and eaming power. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Dr. Chu has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation 56. Intervenor re-alleges and incorporates the above facts and allegations as if fu lly set out herein. Xerox 's actions constitute negligent misrepresentation. Xerox's actions constitute misrepresentations to Intervenor in numerous ways. Because, inter aUa, prior authorization approval was a prerequisite to furnishing services, these representations guided and controlled Cntervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox represented that its prior authorization approvals were dispositive of medical necessity; Intervenor expected that, once approved, no further inquiry into the medical necessity of the services would be required. Further, Xerox represented that its subsequent payments to Cntervenor (after the services had actually been delivered) were made because services had been, in fact, properly approved as medically necessary. 57. Xerox did not exercise reasonable care or competence in making its determinations and representations. Xerox knew or should have known that its representations were false. 58. Because prior authorization was a prerequis ite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, Plea in Intervention Page 19of25 *115 substantially, foreseeably, and justifiably relied on Xerox's representations. 59. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State 's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact. intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, loss of credit, and loss o f goodwill. All of these damages were directly and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property 60. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary property which would entitle lntervenors to unlimited punitive damages. B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity 61. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out berein. For a num ber of reasons, the State has waived sovereign immunity for claims by lntervenor, including the facts that the State brought, threatened and/or has taken civil and/or administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise 62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's Plea in Intervention Page 20 of25 *116 agency relationship with the State. Assuming same to be true, then the State conspired with Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from Intervenor but not Xerox, and conspired to false ly accuse Intervenor of fraud/crime. 63. The State conspired with Xerox to allow Xerox to violate its various contractual duties. The State permitted Xerox to process as many prior authorizations as possible without the required clinical dental review and without using medically knowledgeable personnel. The State conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations submitted by the dentists. The conspiracy was committed with the intent to shift blame from the State and its agent, improperly blame the Intervenors, and enrich the State and Xerox. By recouping money from providers that were not actually to blame, the State and Xerox hoped to limit their own liabi lity in the event of a Federal clawback action, and/or respond to unflattering news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the party to blame the dentist providers for their own improper acts and omiss ions is a proximate cause of the injury to lntervenors .
Not Liable for Illegal Acts of Third Party Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 64. herein. As alleged by the State in Section Vlll paragraph 46 of the State' s petition, Xerox has committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide proper prior authorization review in rubber stamping the doctors prior authorization requests is not the fault of the doctors. The doctors are not responsible for or liable to the State for the illegal acts of a th ird party for which the doctors had no control; the State should not withhold money from the lntervenors because of the illegal acts of Xerox complained about by the State. Plea in Intervention Page 21 of25
*117 Breach of Contract 65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Intervenors are a direct or third party beneficiary of the contract with Xerox and the State of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox and/or reviewing the work product of Xerox. This breach by State, which allowed non- performance by Xerox, has created the pretext by which the State affirmatively sued Intervenors for repayment. To the extent that the State has withhe ld money and/or made claims for damages against Intervenors based on the contracts in question, the State has waived immunity and is liable up to those amounts plead.
Conversion 66. lntervenor re-alleges and incorporates the above facts and allegations as if fu lly set out herein. State and Federal law required Intervenor to request prior authorization for orthodontic services. Those prior authorization requests were approved by Xerox, which required lntervenors to provide the services. The State has unilaterally made a decision to that, based on the acts and omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor on a payment hold. To the extent that Intervenor has provided services for which Intervenor should be paid, and money which has been earmarked by the State for that payment but withheld, the State has converted the funds. In addition, the States' acts/omissions are a violation of the Tex.as Constitution Section 9 in that the acts/om issions constitute a seizure of money held under the pretext of a payment hold.
YL..,llamages lntervenors have suffered and are entitled to recover damages including, but not limited 67. to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to Plea in Intervention Page 22 of25 *118 business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees and expenses, interest, punitive/exemplary damages, and attorney fees.
Vll. Conclusion 68. Xerox's actions have banned Intervenor because Xerox committed fraud, negligent hiring, negligence, and gross negligence. Xerox's actions have subj ected Intervenor to unnecessary civil and administrative legal action, and that, in turn has caused additional injury. Xerox's actions have required Intervenor to perform Xerox'sjob after-the-fact, by proving to the State that the orthodontic services rendered were medically necessary and appropriate for reimbursement. T he State's actions have harmed Intervenor because the state's conspiracy to improperly blame the dentists has resulted in meritless legal claims against the Intervenor and conversion of the Intervenor's property.
VID . .Jury Demand 69. Intervenor respectfully requests a trial by jury. IX. Request for Disclosure 70. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State disclose, within 50 days o f the service of this request, the information or material described in Rule 194.2. 71. Wherefore. premises considered, Intervenor Dr. Stephen Chu pray that upon final hearing o f the cause, judgment be entered jointly and severally against the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC fo r damages, together with pre-judgment and post judgment interest at the legal rate, costs of court, and other such relief to whfoh the Intervenor may be entitled . Plea in Intervention Page 23 of25
*119 J son Ray Texas Bar No. 24 05 RIGGS, ALESHIRE & RAY, P.C. 700 Lavaca, Suite 920 Austin, Texas 78701 (512) 457-9806 (Telephone) (512) 457-9866 (Fax) jray@r-alaw.com
Isl Hart Green w/ permission by J Ray E. Hart Green Texas Bar No. 08349290 Mitchell A. Toups Texas Bar No. 201 51600 WELLER, GREEN, TOUPS & TERRELL, L.L.P. Post Office Box 350 Beaumont, Texas 77704-0350 (409) 838-0 10 1 (Telephone) (409) 832-8577 (Fax) hartgr@wgttlaw.com matoups@wgttlaw.com ATTORNEYS FOR INTERVENOR DR. STEPHEN CHU
Plea in Intervention Page 24 of25
CERTIFICATE OF SERVICE
*120 I hereby certify that a true and correct copy of the foregoing Plea in Intervention was served via e-mail and certified mail, return receipt requested on this J 5th day of May, 2014 on the following: Eric J.R. Nichols Beck Redden 515 Congress Avenue, Suite 1750 Austin, Texas, 78701 ENICHOLS@beckredden.com Attorney for Xerox Defendants Raymond Winter Chief, Civil Medicaid Fraud Division Assistant Attorney General Office of the Attorney General P.O. Box 12548 Austin, Texas 78711-2548 raymond. winter@texasatlorneygeneral.gov Attorney for the Plaintiff State of Texas Plea in Intervention Page 25 of25
CAUSE NO. D-1-GV-14-000581
*121 DR. RICHARD F. HERRSCHER, § IN THE DISTRICT COURT INTERVENOR, § § vs.
§
§
THE ST ATE OF TEXAS, § PLAINTIFF, § 53rd JUDICIAL DISTRICT § vs.
§
§
XEROX CORPORATION; XEROX § STATE HEALTHCARE, LLC; ACS § § STATE HEALTHCARE, LLC, A XEROX CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TEXAS PLEA IN INTERVENTION TO THE HONORABLE JUDGE OF SAID COURT: NOW COMES, Dr. Richard F. Herrscher, hereinafter Intervenor, and fi le this Plea in Intervention, and in support hereof, would respectfully show the Court the following: I. Parties and Service I. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0. Box 12548, Austin, Texas 78711-2548. 2. Defendant Xerox Corporation is a corporation organized under the laws of New York has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit. Plea in Intervention Page I of25 *122 Defendant Xerox Corporation acquired Defendant ACS in 2010. On infonnation and belief, ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012. Defendants are referred to hereinafter as "Xerox Defendants." 3. Dr. Richard F. Herrscher is a licensed Texas dentist, approved Medicaid provider. Dr Richard F. Herrscher can be served through his undersigned counsel.
Jl . .Jurisdiction and Venue 4. This Court has subject-matter jurisdiction in that the amounts sought by Intervenor from aU parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this court. Intervenor affirmatively pleads that this suit is not governed by the expedited-actions process in TEXAS RULE OF CIVIL PROCEDURE 169 because Intervenor seeks monetary relief over $100,000. 5. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenor's claims; b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in this petition in whole or part in Texas.
6. Venue is proper in Travis County under TRCP §15.020 because this suit involves a "major transaction"; Venue is pennissive under TRCP § l 5.035(a) because Intervenor asserts claims for breach of contract. Venue is proper pursuant to TRCP §15.02 because all or a substantial part of the events or omissions giving rise to the claim occurred in Travis County. Many of the unlawful acts committed by the State and Xerox Defendants were committed in Travis County, including the making of false statements and misrepresentations of material fact. Plea in Intervention Page 2 of25
*123 ID. Intervenor's Interest in the Suit 7. Intervenor has a judicial interest in the matters and controversy in this litigation. The relationship between Intervenor, the State as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of judicial economy and justice, all claims be bound and subsumed into one cause of action. Upon information and belief, Intervenor was initially sued by the State in a qui tam action wherein the State alleged that Intervenor defrauded the State. The State has elected to pursue its remedies against the Intervenor in an administrative hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the State. Intervenor has claims against both the State and Xerox. It is assumed that Xerox will have claims against the State, and perhaps allege claims against the Intervenor. All of the different parties' claims are inextricably intertwined, as they relate to Intervenor's submission of prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and legal duties, and State's subsequent legal action against the lntervenors for services approved by Xerox.
IV. Facts What .is Prior Authorization? 8. Texas Medicaid requires that orthodontic services be independently and objectively scrutinized before the State consents to treatment and payment. Prior authorization is the mechanism the State uses to detennine the medical necessity of non-emergency orthodontic items/services prior to delivery of those items/services. Pursuant to Texas Health and Human Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will pay for orthodontic services: Plea in Intervention Page 3 of25
*124 Orthodontic services for cosmetic reasons only are not a covered Medicaid service. Orthodontic services must be prior autho1·ized and are limited to treatment of severe handicapping malocclusion and other related conditions as described and measured by the procedures and standards published in the [TMPPM [1]
]. 25 Tux. ADMIN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the requested orthodontic service has been deemed by Xerox to be medically necessary, and therefore approved by the State. 9. The prior authorization process is straightforward. Texas Medicaid requires that a dental provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his professional opin ion of the patient on a Handicapping Labia-lingual Deviation index (HLD) score sheet. Xerox knew providers relied entirely on the prior authorization process because approval was a mandatory prerequisite to providing orthodontic services and being paid. Once Xerox issued its prior authorization decision, the decision was not appealable by the provider. l 0. The HLD scoring system combines a number of treatable orthodontic conditions into an index. HLD score sheets use a mix of objective and subjective conditions to determine whether a Medicaid patient qualifies for orthodontic services. The fact that the HLD score sheet requires both objective and subjective findings highlights the importance of Xerox perfom1ing a thorough prior authorization review. The History of Orthodontic Prior Authorization. 11. The process for reviewing and approving orthodontic prior authorization requests pre- dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage [1] "TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides valuable guidance to Medicaid providers. Plea in Intervention Page 4 of25 *125 Insurance Corporation (NHIC) was responsible for reviewing prior authorization requests before Xerox assumed the contract in January 2004. Starting January l, 2004, Xerox acted as an independent contractor, and was a contracted agent of the State, under the contract with HHSC. Xerox was responsible for reviewing each orthodontic service request, and Xerox was further charged with the responsibility to grant or deny each prior authorization request per the program requirements. The result was that Xerox had the final say in determining the medical necessity of each request for orthodontic services. 12. Prior to assuming the NHIC contract, and for a period of time after assuming the contract from NHIC, Xerox received training from NHIC personnel regarding the proper method for receiving and processing orthodontic prior authorization requests. NHIC personnel explained how and why the review of each prior authorization submission was important, and walked Xerox through the process. Despite its training from NHIC, Xerox had no intention of following the prior authorization system that had been in place for years, nor did Xerox intend to otherwise meet the prior authorization requirements set out in its contract, the TMPPM and required by state law. Xerox rejects its contractual responsibilities. 13. When Xerox took over the contract m 2004, it immediately abandoned the prior authorization review process that had been setup by NHIC. Xerox never intended to fulfill its orthodontic prior authorization responsibilities to I-IHSC. From 2004 to 2011, Xerox continually misrepresented that it was acting in compliance with its contractual duties. It is now known that Xerox failed to adequately staff their prior authorization division 14. with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004 through 2011, which was far short of the manpower necessary to handle the review of tens of Plea in Intervention Page 5 of25 *126 thousands of orthodontic prior authorization requests every year. Xerox could not reasonably have expected to handle such a workload by employing only one dentist. Xerox potentially commits thou sands of violations. 15. It is believed Xerox allowed " dental specialists"-unlicensed, unqua lifi ed individuals- to render prior authorization opinions regarding the medica l necessity of requested orthodontic services. The " dental specialist" approvals were not reviewed or ratified by Xerox's licensed denta l director or another qualified dental profess ional. These actions not only violated Xerox's contractual obligations, they may have also violated other Texas law such as the Dental Practice Act. [2] It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior authorization approvals/medical opin ions in violation of Texas law. 16. Xerox was paid by the state for each prior authorization decision that was made. It is believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a profit generating measure. 17. From January 2005 through February 20 12, Intervenor subm itted prior authorization requests, as required, to Xerox for a determ ination of medical necessity. Unbeknownst to Intervenor, Xerox's dental specialists-not the dental director-approved a lmost all of Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or b) the approval had bee n issued by a licensed dentist, and/or c) the approval was an actual and legitimate denta l diagnosis, and/or d) the requested orthodontic services were allowable under Texas law and as permitted [2] Texas Occupations Code §25 .1.003 prevents unlicensed individuals from diagnosing conditions of the human teeth and mouth. Section 256.00 I states that a person may not practice dentistry without a license. Thus, state law requires that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section 264 .15 I prescribes penalties for certain violations of the Dental Practice Act. Plea in Intervention Page 6 of25 *127 by Medicaid policy, the TMPPM, and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or t) future orth odontic services would be properly reimburseable to Intervenor, absent some
intervening disqualification (such as the patient's ineligibility). 18. Because Xerox was charged with determining medical necessity, and because prior authorization approval was a mandatory prerequisite to furnishing services, the promises were material. Intervenor expected performance of these promises. Intervenor relied on Xerox. Further, Xerox promised that its subsequent payments to Intervenor (after the services had actually been delivered) were made because the services had been, in fact, properly approved as medically necessary. Each prior authorization approval represents a separate violation of the law if Xerox's approval was issued illegally and/or in violation of its contractual obligations. Xerox actively concealed its potentially illegal activity. 19. Xerox withheld the truth regarding its prior authorization program. In an attempt to publicly appear consistent with NHIC's prior authorization process, Xerox continued to require that dental providers (such as Intervenor) submit all supporting documentation for each HLD score sheet. Jt is now believed that, incredibly, Xerox did nothing with that documentation, other than assure that it had been submitted by the provider. It is believed that Xerox's specialists were instructed to forward to its dental directo r only those requests that had scored below the threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some provider justification attached. As a result, only I 0% of the orthodontic prior authorization requests were actually forwarded to Xerox's one licensed dentist. Xerox's actions were calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox knew that its actions were entirely inconsistent with the letter and spirit of its obligations. Plea in Intervention Page 7 of25 *128 Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving services without detenn ining their medical necessity, but Xerox's deception also exacerbated the problem by failing to give providers guidance regarding the proper standard for medical necessity, thus causing these providers substantial damages. 20. For the past ten years, Xerox has continued to publicly represent to the world that it was fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was fulfil ling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004 through the present. Each year that Xerox had its contract renewed, it represented that it would fulfill its contractual obligations and abide by Texas law requiring that decisions about medical necessity be rendered o nly by licensed dentists. Xerox made those representations knowing that it had not done so in the past, and had no intention of changing its procedures to do so in the fucure. The Frew decision magnifies Xerox's acts. 21. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to implement a corrective action plan that increased the Medicaid reimbursement rates to all dental providers. That plan was required pursuant to the Frew case [3]
, which was a 1993 class-action lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that they prevented indigent children from receiving timely, comprehensive health care. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707 22. million ($1.8 billion in state and federal funds combined) to increase medical and dental [3] Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir. 2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and aff'd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins, 40 I F. Supp. 2d 619 (E.D. Tex. 2005) affd sub nom. Frazar v. Ladd, 457 F .3d 432 (5th Cir. 2006); Hawkins v. Frew, 549 U.S. 1118, 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007). Plea in Intervention Page 8 of25 *129 reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists to become Medicaid providers. It worked . The state raised payment rates for denlal services, and, as a result, the number of dentists participating in Medicaid increased fro m 45.4% in 2007 to 63.4% in 2010. As expected indeed, as intended spending on Texas's dental services increased dramatically. 23 . Although the num ber of prior approval requests increased by 240% between 2007 and 2010, Xerox continued to employ only one dentisL That dentist was ne ither tasked with nor responsible for supervising the clerical specialists that were issuing the approvals. 24. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox was the sole entity responsible for overseeing th is increase, because it was the sole gatekeeper for the approval and payment of orthodontic services. Although the Texas Legislature had increased fundin g to attract dentists into the Medicaid program, all of the budgeted fund s were required to be spent only on medically necessary services. The Office of Inspector General seeks recovery from Medicaid providers.
In early 20 11 , a series of news stories began highlight ing the large amount of money 25. being spent on orthodontics in Texas. In July 20 11, the Federal government notified Texas of its intent to audit whether Texas' prior authorization process was ensuring that only medically necessary orthodontic cases were being approved and paid. With the prospect of a federal clawback action looming against Texas because of Xerox's prior authorization failures, the Texas Office of Inspector General (hereinafter "State") took a drastic step. Beginning in 2011, the State generated a list of the top Medicaid orthodontic billers and placed them on " payment hold." Interven or was one of those providers. 26. Given £ntervenor's proximity to some of the state's poorest children, and the mandates of Plea in Intervention Page 9 of25 *130 the Frew decision, Intervenor served a large Medicaid patient population. Because it served a large Medicaid population, it submitted a large number of prior authorization requests to Xerox fro m 2004 through 20 11 . 27. Intervenor d id not know that Xerox was failing to perform a true and accurate review for medical necessity. Intervenor relied on Xerox's prior authorization approvals to confirm that dentists' analysis was proper and consistent with Medicaid standards and requirements. 28. Again unbeknownst to Intervenor, State audits in 2008 and 2012 concluded that most, if not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater (indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State audits made the Federal government's pending audit especially dangerous to Texas, because the 2008 and 20 12 audits were admissio ns that Xerox had been approving and paying c laims that may not have met the federal standards for prior authorization. Thus the State, through the Attorney General, concluded that a true fi nding of med ical necessity had in reality not occurred. The Attorney General claimed that billing for services that are not necessary is fraud, despite Xerox's prior authorization approvals. 29. It is now believed that rather than prosecute Xerox for its failure to properly evaluate dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox. This protection included the State failing to allow TMHP to hire additional medically licensed staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the Attorney General took immediate action against the providers, the Attorney General refused to hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its violation of State law. Instead, the Attorney General made fraud allegations against each of the top 25 dental providers, including Intervenor, which has caused more injury and damages to Plea in Intervention Page 10 of25 *131 Intervenor. Stated differently, Xerox issued its approvals through a process that gutted the State's belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the providers instead of Xerox. 30. Because the acts/omissions of Xerox so undermjned the process, the State eventually instituted a "payment hold" against Intervenor. A payment hold temporarily freezes future Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid program. The payment hold against Intervenor was issued pursuant to what the State called a "credible allegation of fraud" regarding Intervenor's orthodontic prior authorization requests. The State placed a I 00% payment hold against Intervenor's orthodontic billings. 3 l. At the time the Attorney General began prosecuting Intervenor and similarly situated Medicaid providers, it knew Xerox, not [ntervenor, had the sole authority and responsibility to authorize orthodontic services and payments. The Attorney General knew that the State's audits of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State, violating its own State-approved policies and procedures, and violating State law. Nevertheless, the Attorney General continued to only prosecute dental providers like the Intervenor; the Attorney General refused to hold Xerox responsible. ln fact, in one shameless and brazen demonstration of State's unwavering protection of Xerox, the Deputy Director of Texas' Office of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious they were outside the course and scope of Xerox's agency with State. [4] Upon information and belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing the State' s culpability would subject the State to a federal clawback for hundreds of millions of [4] lncredibly, that testimony came in an administrative proceeding ia which the State was seeking $8 million from a dental provider for following Xerox' s instructions to provide braces to the provider's patients. The idea that the State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it was actiug outside ofi1s contract is a novel and imaginative reason not to prosecute Xerox. Plea in Intervention Pagel l of25 *132 dollars. lnstead, the State and the Attorney General pointed at the dental providers. 32. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for over 6 years, became too much to hide. Three months after some providers filed suit against Xerox. and following a series of news stories questioning why Xerox had not suffered for its failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed approximately I 00 days earlier by similarly situated providers. The State 's claims in this fraud lawsuit include admissions that the State knew as early as 2006 that Xerox 's actions were improper. 33. As a result of the payment hold, Intervenor was required to make significant financial concessions and changes to its business. Intervenor also engaged legal counsel to defend itself from the State's claims, at a significant expense that continues today. 34. The State's allegations against lntervenor are rooted in two assumptions. First, the State assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is, Xerox approved Intervenor's requests without knowing whether approval was actually proper. Because Xerox is not a party to Intervenor's administrative case, Intervenor is prevented from determining whether Xerox. did, in fact, perform a proper review of Jntervenor's prior authorization requests. By intervening in this lawsuit, lntervenor seeks to address that question, and finally determine whether Xerox reviewed Intervenor's requests as required by its contract and the law. 35. Regarding the State's second assumption, the State alleges some of Intervenor's requests were approved when, in fact, they should have been denied. lntervenor denied that assertion in the administrative case, and Intervenor continues to deny that claim here. A 11 services provided Plea in Intervention Page 12 of25 *133 to Intervenor's patients were actually medically necessary, regardless of what Xerox decided and in any event under Medicaid guidelines once the authorization was approved, lntervenor was required to provide the services. 36. The State continues to aggressively fight any allegation or affirmative defense that could result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action A. Intervenor's Claims Against Xerox Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement) 37. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out here in. Xerox's prior authorization approvals were false representations made to Intervenor. lt is believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew that it was approving requests without a proper medical review, and/or because it approved the prior authorization requests without any knowledge of their truth. It is believed Xerox intended for Intervenor to rely on the approvals as a prerequisite for providing the requested services. Approval was material because it was a mandatory prerequisite for payment. lntervenor actually and justifiably relied on Xerox's fraudulent approvals. 38. Xerox's approvals induced lntervenor to continue to grade subsequent HLD requests in the same or similar manner, and led Intervenor to believe that their requests were consistent with Medicaid standards and requirements. 39. Xerox's fraudulent approvals caused injury to Intervenor. As a result of Xerox's actions, Intervenor subm itted requests for payment and Xerox actually paid for those services, Intervenor was placed on payment hold, Intervenor is forced to defend itself in an administrative payment Plea in Intervention Page 13 of25 *134 hold hearing, and Intervenor is fac ing administrative claims by HHSC for repayment (including claims for treble damages and attorney fees). lntervenor's reputation and business have suffered severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of the Xerox-State of Texas Contract 40. Intervenor re-alleges and incorporates the above facts and allegations as if fu lly set out herein. In the alternative, Xerox's actio ns constitute a breach o f Xerox's contract with the State for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper, thorough and legal review of prior au thorization requests for the purpose of determining medical necessity. To that end, Xerox should have employed a licensed dentist. 41.. Xerox was an agent of the State of Texas engaged specifically for the purpose of determining medical necessity. The third pa1ty benefi ciaries of that Xerox-State o f Texas contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic services that were medically necessary. Intervenor was responsible for actually delivering the orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third party beneficiary that relied on Xerox's approvals. 42. Xerox breached its contract by, inter alia, failing to provide q ualified staff; possibly violating Texas law; permitting non-dentists to make determinations of medical necessity; and issuing medical opinions without conducting a reasonable and prudent examination of evidence. The breaches were material, and recurred across many different Medicaid patients and for many years. 43. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox 's actions, and they were foreseeable. Because Xerox's pr ior Plea in Intervention Page 14 of25 *135 authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary intelligence should have anticipated that issuing a decision without actually reviewing or considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy, it was foreseeable that the State would demand repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because the services were medically necessary and reimbursable under Texas Medicaid law. 44. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages that would have given the Intervenor the benefit of the bargain by putting them in as good a position as they would have been in if the contract had been performed. Intervenor seeks reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's contract with the state and the approvals that Xerox made under that contract. Intervenor also seeks damages for its restitution interest to restore money sought by the Office of the Inspector General from Intervenor. Such damages would put the Intervenor in as good a position as it would have been in if the contract had been properly fulfilled. ln addition, Intervenor seeks liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees. Plea in Intervention Page 15 of25
*136 Breach of Contract (Promissory Estoppel) Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 45. herein. In the alternative, Xerox's actions constitute promissory estoppel. 46. Xerox' s prior authorizations constitute promises to Intervenor in numerous ways. Because prior authorization was a prerequisite to fu rnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, and foreseeably relied on Xerox's promises. 47. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Cntervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox 's job after the fact-namely, demonstrate that the services were medically necessary and properly reimbursable under Texas Medicaid law. Lntervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately caused by Xerox's promises. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Hiring/Negligent Supervision lntervenor re-alleges and incorporates the above facts and allegations as if fully set out 48. herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was requ ired to render medical diagnoses. To that end, Xerox was required by law to employ a licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by law to properly supervise its employees to make sure diagnoses were made only by licensed Plea in Intervention Page 16 of25 *137 dentists. 49. Xerox knew or should have known that decisions regarding medical necessity can only be rendered by licensed personnel. Texas Occupations Code section 251.003 defines the practice of dentistry to include a diagnosis of the hum an mouth ancl/or teeth; section 256.001 states that a person may not practice dentistry without a license; section 264.15 1 makes it a third-degree felony to practice dentistry without a license. 50. Xerox's actions proximately caused Intervenor' s injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because those services were medically necessary and were reimbursable under Texas Medicaid law. 51. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing the cost of services for each Medicaid patient that Xerox approved. lntervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has suffered inconvenien ce and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox' s job. Intervenor has suffered exemplary damages Plea in Intervention Page 17 of25 *138 because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligence 52. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel had appropriate education, training and experience to render such a finding. Xerox had a duty to review the supporting prior authorization documentation (such as x-rays and photos) to detennine whether the requested services were medically necessary. 53. Xerox's actions breached the standard of care because Xerox: failed to provide prior authorization staff that were properly licensed, qualified and experienced dental professionals; violated the law, specifically the Dental Practice Act, by pennitting non-dentists to make determinations of medical necessity, and; issued medical opin ions (prior authorizations) without conducting a reasonable and prudent examination of evidence. 54. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox 's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's detenninations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or Plea in Intervention Page 18 of25 *139 would requ ire Tntervenor to independently do Xerox's job after the fact. 55. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Dr. Richard F. Herrscher has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation 56. interveno r re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligent misrepresentation. Xerox' s actions constitute misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization approval was a prerequisite to furnishing services, these representations guided and controlled intervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox represented that its prior authorization approvals were dispositive of medical necessity; Intervenor expected that, once approved, no further inquiry into the medical necessity of the services would be required. Further, Xerox represented that its subsequent payments to Intervenor (after the services had actually been delivered) were made because services had been, in fact, properly approved as medically necessary. 57. Xerox did not exercise reasonable care or competence in making its detenninations and representations. Xerox knew or should have known that its representations were false. Because prior authorization was a prerequisite to furnish ing services, and because Xerox 58. Plea in Intervention Pa ge 19 of25 *140 was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, foreseeab ly, and justifiably relied on Xerox's representations. 59. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, loss of credjt, and loss of goodwill. All of these damages were directly and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property 60. Lntervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary property which would entitle Intervenors to unlimited punitive damages. B. lntervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity 61. Lntervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. For a number of reasons, the State has waived sovereign immunity for claims by Intervenor. including the facts that the State brought, threatened and/or has taken civil and/or administrative action against Intervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint E nterprise 62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that Plea in Intervention Page 20 of2S *141 acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's agency relationship with the State. Assuming same to be true, then the State conspired with Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime. 63. The State conspired with Xerox to allow Xerox to violate its various contractual duties. The State permitted Xerox to process as many prior authorizations as possible without the required clinical dental review and without using medically knowledgeable personnel. The State conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations submitted by the dentists. The conspiracy was committed with the intent to shift blame from the State and its agent, improperly blame the Intervenors, and enrich the State and Xerox. By recouping money from providers that were not actually to blame, the State and Xerox hoped to limit their own liability in the event of a Federal clawback action, and/or respond to unflattering news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the party to blame the dentist providers for their own improper acts and omissions is a proximate cause of the injury to Intervenors.
Not Liable for Illegal Acts of Third Party 64. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. As alleged by the State in Section VIII paragraph 46 of the State's petition, Xerox has committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide proper prior authorization review in rubber stamping the doctors prior authorization requests is not the fault of the doctors. The doctors are not responsible for or liable to the State for the Plea in Intervention Page 21 of25 *142 illegal acts of a third party for which the doctors had no control; the State should not withhold money from the Intervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract 65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Intervenors are a direct or third party beneficiary of the contract with Xerox and the State of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox and/or reviewing the work product of Xerox. This breach by State, which allowed non- performance by Xerox, has created the pretext by which the State affirmatively sued Intervenors for repayment. To the extent that the State has withheld money and/or made claims for damages against Intervenors based on the contracts in question, the State has waived immunity and is liable up to those amounts plead.
Conversion 66. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. State and Federal law required Intervenor to request prior authorization for orthodontic services. Those prior authorization requests were approved by Xerox, which required Intervenors to provide the services. The State has unilaterally made a decision to that, based on the acts and om issions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor on a payment hold. To the extent that Intervenor has provided services for which Intervenor should be paid, and money which has been eannarked by the State for that payment but withheld, the State has converted tbe funds. Jn addition, the States' acts/omissions are a violation of the Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under the pretext of a payment hold. Plea in Intervention Page 22 of25
*143 VI. Damages 67. lntervenors have suffered and are entitled to recover damages including, but not limited to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fe.es and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion 68. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent hiring, negligence, and gross negligence. Xerox's actions have subjected Intervenor to unnecessary civil and administrative legal action, and that, io turn has caused additional injury. Xerox's actions have required Intervenor to perform Xerox's j ob after-the-fact, by proving to the State that the orthodontic services rendered were medically necessary and appropriate for reimbursement. The State's actions have harmed lntervenor because the state's conspiracy to improperly blame the dentists has resulted in meritless legal claims against the Intervenor and conversion of the Intervenor's property.
VIII. Jury Demand 69. Intervenor respectfully requests a trial by jury. IX. Request for Disclosure 70. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State di sclose, within SO days of the service of this request, the information or material described in Rule 194.2. 71. Wherefore, premises considered, Intervenor Dr. Richard F. Herrscher pray that upon final hearing of the cause, judgment be entered jointly and severally against the Plaintiff the State of Plea in [ntervention Page 23 of25 *144 Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and post judgment interest at the legal rate, costs of court, and other such relief to which the Intervenor may be entitled.
Respectfully _submitted, J son Ray Texas Bar No. 240 RIGGS, ALESHIRE & RAY, P.C. 700 Lavaca, Suite 920 Austin, Texas 7870 l (512) 457-9806 (Telephone) (512) 457-9866 (Fax) jray@r-alaw.com
Isl Hart Green wl permission by J Ray E. Hart Green Texas Bar No. 08349290 Mitchell A. Toups Texas Bar No. 20151600 WELLER, GREEN, TOUPS & TERRELL, L.L.P. Post Office Box 350 Beaumont, Texas 77704-0350 ( 409) 838-0l01 (Telephone) (409) 832-8577 (Fax) hartgr@wgttlaw.com matoups@wgttlaw.com ATTORNEYS FOR INTERVENOR DR. RICHARD F. HERRSCHER
Plea in Intervention Page 24 of25
CERTIFICATE OF SERVICE
*145 I hereby certify that a true and correct copy of the foregoing Plea in Intervention was served via e-mail and certified mail, return receipt requested on th is 15th day of May, 2014 on the follow ing: Eric .J.R. Nichols Beck Redden 5 15 Congress A venue, Suite 1750 Austin, Texas, 78701 EN£CHOLS@beckredden.com Attorney for Xerox Defendants Raymond Winter Chief, Civil Medicaid Fraud Division Assistant Attorney General Office of the Attorney General P.O. Box 12548 Austin, Texas 78711 -2548 raymond. winter@texasattomeygeneral.gov Attorney for the Plaintiff State of Texas Plea in Intervention Page 25 of25
*146 CAUSE NO. D-1-GV-14-000581 IRMA CANTU-THOMPSON, DDS, PC, AND § IN THE DISTRICT COURT IRMA CANTU-THOMPSON, §
INTERVENORS, § § vs.
§
§ §
THE STA TE OF TEXAS, PLAINTIFF, § 53rd JUDICIAL DISTRICT § vs.
§
§ §
XEROX CORPORATION; XEROX ST A TE HEAL TH CARE, LLC; ACS § § STATE HEALTHCARE, LLC, A XEROX CORPORATION §
DEFENDANTS. § TRAVIS COUNTY, TEXAS PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, lnna Cantu-Thompson, DDS, PC and fnna Cantu-Thompson, hereinafter lntervenors, and file this Plea in Intervention, and in support hereof, would respectfully show the Court the following:
1. Parties and Service 1. Plaintiff, State o f Texas, has appeared in this action and may be served with a notice of this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0. Box 12548, Austin, Texas 78711-2548. 2. Defendant Xerox Corporation is a corporation organized under the laws of New York has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Plea in Intervention Page l of25 *147 Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox Corporation acquired Defendant ACS in 2010. On in formation and beliet: ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012. Defendants are referred to hereinafter as "Xerox Defendants." 3. Irma Cantu-Thompson, DDS, PC, (hereinafter Thompson) is an approved Medicaid provider. Thompson can be served through the undersigned counsel. 4. Irma Cantu-Thompson [1] is a licensed Texas dentist, approved Medicaid provider, and the owner of Thompson Irma Cantu-Thompson can be served through her undersigned counsel.
II. Jurisdiction and Venue 5. This Court has subject-matter jurisdiction in that the amounts sought by lntervenors from all parties (both Plaintiff and Defendants) arc in excess of the minimal jurisdiction limits of this court. Intervenors affirmatively plead that this suit is not governed by the exped ited-actions process in TEXAS Ruu~ OF CIVIL PROCEDURE 169 because intervenors seek monetary relief over $100,000. 6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenors' claims; b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in this petition in whole or part in Texas.
7. Venue is proper in Travis County under TRCP §15.020 because this suit involves a " major transaction"; Venue is permissive under TRCP §15.035(a) because Intervenor asserts claims for breach of contract. Venue is proper pursuant to TRCP §15.02 because all or a [1] For the sake of simplicity, the intervenors will be collectively referred to as .. THOMPSON" unless expressly noted. Plea in Intervention Page 2 of25 *148 substantial part of the events or omissions giving rise to the claim occurred in Travis County. Many of the unlawful acts committed by the State and Xerox Defendants were committed in T ravis County, including the making of false statements and misrepresentations of material fact.
m. Intervenors' Interest in the Suit 8. lntervenors T HOMPSON and Irma Cantu-Thompson have a judicial interest in the matters and controversy in this litigation. T he relations hip between Intervenors, the State as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of judicial economy and justice, all claims be bound and subsumed into one cause of action. Upon information and belief, lntervenors were initially sued by the State in a qui tam action wherein the State alleged that lntervenors defrauded the State. The State has elected to pursue its remedies against the Jntervenors in an administrative hearing. Now, the State has sued Xerox in State Court o n the same facts, alleging that Xerox has committed fraud against the State. lntervenors have claims against both the State and Xerox. It is assumed that Xerox will have claims against the State, and perhaps allege claims against the Intervenors. All of the different parties' claims are inextricably intertwined, as they relate to l ntervenors' submission of prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and legal duties, and State's subsequent legal action against the lntervenors for services approved by Xerox.
IV. Facts What is Prior Authorization? 9. Texas Medicaid requires that orthodontic services be independently and objectively scrutinized before the State consents to treatment and payment. Prior authorization is the Plea in Intervention Page 3 of25 *149 mechanism the State uses to determine the medical necessity of non-emergency orthodontic items/services prior to delivery of those items/services. Pursuant to Texas Health and Human Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will pay for orthodontic services:
Orthodontic services for cosmet ic reasons only are not a covered Medicaid service. Orthodontic services must be prior authorized and are limited to treatment of severe handicapping malocclusion and other related conditions as described and measured by the procedures and standards published in the (TMPPM 2
]. 25 TEX. ADMIN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the requested orthodontic service has been deemed by Xerox to be medically necessary, and therefore approved by the State. I 0. The prior authorization process is straightforward. Texas Med icaid requires that a dental provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his professional opinion of the patient on a Handicapping Labia-lingual Deviation index (HLD) score sheet. Xerox knew providers relied entirely on the prior authorization process because approval was a mandatory prerequisite to providing orthodontic services and being paid. Once Xerox issued its prior authorization decision, the decision was not appealable by the provider. 11. The HLD scoring system combines a number of treatable orthodontic conditions into an index. HLD score sheets use a mix of objective and subjective conditions to detenn ine whether a Medicaid patient qualifies for orthodontic services. The fact that the 1-ILD score sheet requires both objective and subjective findings high lights the importance of Xerox perform ing a thorough [2] "TMPPM" is lhe Texas Medicaid Provider Procedures Manual, whicb is issued yearly by Lhe HHSC and provides valuable guidance to Medfoaid providers. Plea in Intervention Page4 of25 *150 prior authorization review. The History of Orthodontic Prior Authorization. 12. The process for reviewing and approving orthodontic prior authorization requests pre- dates the defendant Xerox's handling of Medicaid claims process ing. The National Heritage Jnsurance Corporation (NHIC) was responsible for reviewing prior authorization requests before Xerox assumed the contract in January 2004. Starting January I, 2004, Xerox acted as an independent contractor, and was a contracted agent of the State, under the contract with HHSC. Xerox was responsible for reviewing each orthodontic service request, and Xerox was further charged with the responsibility to grant or deny each prior authorization request per the program requirements. The result was that Xerox had the final say in determining the medical necessity of each request for orthodontic services. 13. Prior to assuming the NHIC contract, and for a period of time after assuming the contract from NHTC, Xerox received training from NHlC personnel regarding the proper method for receiving and processing orthodontic prior authorization requests. NHIC personnel explained how and why the review of each prior authorization submission was important, and walked Xerox through the process. Despite its training from NHIC, Xerox had no intention of following the prior authorization system that had been in place for years, nor did Xerox intend to otherwise meet the prior authorization requirements set out in its contract, the TMPPM and required by state law. Xerox rejects its contractual responsibilities. J 4. When Xerox took over the contract in 2004, it immediately abandoned the prior authorization review process that had been setup by NHIC. Xerox never intended to fulfill its orthodontic prior authorization responsibilities to HHSC. From 2004 to 2011, Xerox continually Plea in Intervention Page 5 of25 *151 misrepresented that it was acting in compliance with its contractual duties. l5. It is now known that Xerox failed to adequately staff their prior authorization division with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004 through 20 11, wh ich was far short of the manpower necessary to handle the review of tens of thousands of orthodontic prior authorization requests every year. Xerox could not reasonably have expected to handle such a workload by employing only one dentist. Xerox potentially commits thousands of violations, 16. It is bel ieved Xerox allowed "dental specialists"-unlicensed, unqualified individuals - to render prior authorization opinions regarding the medical necessity of requested orthodontic services. The " dental specialist" approvals were not reviewed or ratified by Xerox's licensed dental director or another qualified dental pro fessional. These actions not only violated Xerox's contract ual obligations, they may have also violated other Texas law such as the Dental Practice Act. 3 1t is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior authorization approvals/medical opinions in violation of Texas Jaw. L 7. Xerox was paid by the state for each prior authorization decision that was made. lt is believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a profit generating measure. 18. From January 2005 through February 20 12, Intervenor submitted prior authorization requests, as required, to Xerox for a determination of medical necessity. Unbeknownst to Intervenor, Xerox's dental specialists-not the dental director-approved almost all of Intervenor's requests. Xerox's prior authorization approvals were promises that: [3] Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth and mouth. Section 256.00 I states that a person may not practice dentistry without a license. Thus, state law requires that opinions regarding medical necessity of onhodontic treatment must be made by licensed dentists. Section 264.15 1 prescribes penalties for certain violations of the Dental Practice Act. Plea in Intervention Page 6 of25
*152 a) the requested orthodontic services were m edically necessary, and/or b) the approval had been issued by a licensed de11tist, and/or c) the approval was an actual and legitimate dental diagnosis, and/or d) the requested orthodontic serv ices were a llowable under Texas law and as permitted
by Medicaid policy, the TMPPM, and HHSC ru les, and/or e) a proper, thorough and legal review had been made, and/or f) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervening disqualification (such as the patient's ineligibility). 19. Because Xerox was charged with determining medical necessity, and because prior authorization approval was a mandatory prerequisite to furn ishing services, the promises were material. lntervenors expected performance of these promises. Intervenors relied on Xerox. Further, Xerox promised that its subsequent payments to Intervenors (after the services had actually been delivered) were made because the services had been, in fact, properly approved as medically necessary. Each prior authorization approval represents a separate violation of the law if Xerox's approval was issued illegally and/or in violation o f its contractual obligations. Xerox actively concealed its potentially illegal activity. 20. Xerox withheld the truth regarding i.rs prior authorization program. In an attempt to publ icly appear consistent with NHIC 's prior authorization process, Xerox continued to require that dental providers (such as Intervenor) submit all supponing documentation for each HLD score sheet. It is now believed that, incredibly, Xerox d id nothing with that documentation, other than assure that it had been submitted by the provider. It is believed that Xerox's specialists were instructed to forward to its dental director only those requests that had scored below the threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some Plea in Intervention Page 7 of25 *153 provider j ustification attached. As a result, on ly I 0% of the orthodontic prior authorization requests were actual ly forwarded to Xerox's one licensed dentist. Xerox's actions were calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox knew that its actions were entirely inconsistent w ith the letter and spirit of its obligations. Effecti vely, then, Xerox's actions not only damaged the Med icaid program directly by approvi ng services without determining their medical necessity, but Xerox's deception also exacerbated the problem by failing to give providers guidance regarding the proper standard for medical necessity, thus causing these providers substantial damages. 21. For the past ten years, Xerox has continued to publicly represent to the world that it was fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was fulfilling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004 through the present. Each year that Xerox had its contract renewed, it represented that it would fulfill its contractual obligations and abide by Texas law requiring that decisions about medical necessity be rendered on ly by licensed dentists. Xerox made those representations knowing that it had not done so in the past. and had no intention of changing its procedures to do so in the future. The Frew decision magnifies Xerox's acts. 22. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to implement a corrective action plan that increased the Medicaid reimbur sement rates to all dental providers. T hat plan was required pursuant to the Frew case [4]
, which was a 1993 class-action [4] Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir. 2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) aod afj'd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins, 401 F. Supp. 2rl 619 (E.D. Tex. 2005) affd sub nom. Frazar v. Ladd, 457 P.3d 432 (5th Cir. 2006); Hawkins v. Frew, 549 U.S. 1118, 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007). Plea in Intervention Page 8 of25 *154 lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that they prevented indigent children from receiving timely, comprehensive health care. 23. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707 million ($1.8 billion in state and federal funds combined) to increase medical and dental reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists to become Medicaid providers. It worked. The state raised payment rates for dental services, and, as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to 63.4% in 20 I 0. As expected indeed, as intended spending on Texas's dental services increased dramatically. 24. Although the number of prior approval requests increased by 240% between 2007 and 20 I 0, Xerox continued to employ only one dentist. That dentist was neither tasked with nor responsible for supervising the clerical specialists that were issuing the approvals. 25. By 20 10, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper for the approval and payment of orthodontic services. Although the Texas Legislature had increased funding to attract dentists into the Medicaid program, all of the budgeted funds were required to be spent only on medicall y necessary services. The Office of Inspector General seeks recovery from Medicaid providers. 26. In early 20 11, a series of news stories began high lighting the large amount of money being spent on orthodontics in Texas. In July 2011, the Federal government notified Texas of its intent to audit whether Texas' prior authorization process was ensuring that only medically necessary orthodontic cases were being approved and paid. With the prospect of a federal clawback action looming against Texas because of Xerox 's prior authorization failures, the Plea in Intervention Page 9 of25 *155 Texas Office of Inspector General (hereinafter "State") took a drastic step. Beginning in 201 l , the State generated a list of the top Medicaid orthodontic billers and p laced them on "paymenl hold." Intervenor was one of those providers. 27. Given Tntervenors' proximity to some of the state's poorest children, and the mandates of the Frew decision, Intervenor served a large Medicaid patient population. Because it served a large Medicaid population, it submitted a large number of prior authorization requests to Xerox from 2004 through 20 I I. 28. Intervenors did not know that Xerox was failing to perform a true and accurate review for medical necessity. Jntcrvenors relied on Xerox's prior authorizatio n approvals to confirm that dentists• analysis was proper and consistent w ith Medicaid standards and requ iremen ts. 29. Again unbeknownst to Intervenors, State audits in 2008 and 20 J 2 concluded that most, if not almost all, o f the prior authorization requests for patients with HLD scores of 26 or greater (indicating medical necessity) had not been actually "evaluated" at all by Xerox. T hese State audits made the Federal government's pending audit especially dangerous to Texas, because the 2008 and 2012 audits were admissions that Xerox had been approv ing and paying claims that may not have met the federal standards for prior authorization . Thus the State, through the Attorney General , concluded that a true finding o f medical necessity had in reality not occurred. The Attorney General claimed that b illing for services that are not necessary is fraud, despite Xerox's prior authorization approvals. 30. It is now believed that rather than prosecute Xerox for its fail ure to properly evaluate dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox. This protection included the State failing to allow TMHP to hire additional medically licensed staff, and in 2008-2009 telling TMHP to continue its prior authorization pract ices. Although the Plea in Intervention Page 10 of25 *156 Attorney General took immediate action against the providers, the Attorney General refused to hold Xerox accountable for its orthodontic "approvals," its repeated contractua l fai lures, or its violation of State law. Instead, the Attorney General made fraud allegations against each of the top 25 dental providers, including Intervenor, which has caused more injury and damages to lntervenors. Stated differently, Xerox issued its approvals through a process that gutted the State's belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the providers instead of Xerox. 3 I . Because the acts/omissions of Xerox so undermined the process, the State eventuallyinstituted a "payment hold" agajnst Intervenor. A payment hold temporarily freezes future Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid program. The payment hold against Intervenor was issued pursuant to what the State called a "credible allegation of fraud" regarding Intervenor's orthodontic prior authorization requests. The State placed a l 00% payment hold against Intervenor's orthodontic billings. 32. At the time the Attorney General began prosecuting Intervenor and similarly situated Med icaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to authorize orthodontic services and payments. The Attorney General knew that the State's audits of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State, violating its own State-approved policies and procedures, and violating State law. Nevertheless, the Attorney General continued to only prosecute dental providers like the Intervenor; the Attorney General refused to hold Xerox responsib le. ln fact, in one shameless and brazen demonstration of State's unwavering protect ion of Xerox, the Deputy Director of Texas' Office of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious Plea in lntervention Page 11 of 25 *157 they were outside the course and scope of Xerox's agency with State. 5 Upon information and belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing the State's culpability would subject the State to a federal clawback for hundreds of millions of dollars. Instead, the State and the Attorney General pointed at the dental providers. 33. Ultimately, the evidence of Xerox's fai lures, and the State's refusal to correct Xerox for over 6 years, became too much to hide. Three months after some providers filed suit against Xerox, and following a series of news stories questioning why Xerox had not suffered for its fail ures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit fi1ed approximately I 00 days earlier by simi larly situated providers. The State's claims in this fraud lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were improper. 34. As a result of the payment hold, Intervenor was required to make sign ificant financial concessions and changes to its business. Intervenor also engaged legal counsel to defend itself from the State's claims, at a significant expense that continues today. 35. The State's allegations against Intervenor are rooted in two assumptions. First, the State assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is, Xerox approved lntervenor's requests without knowing whether approval was actually proper. Because Xerox is not a party to Intervenor's administrative case, Intervenor is prevented from determining whether Xerox did, in fact, perform a proper review of Intervenor's prior authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question, s Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox. Plea in Intervention Page 12 of25 *158 and finally detenn ine whether Xerox reviewed Intervenor's requests as required by its contract and the Jaw. 36. Regarding the State's second assumption, the State alleges some ofln tervenor's requests were approved when, in fact, they should have been denied. Intervenor denied that assertion in the administrative case, and intervenor continues to deny that claim here. All services provided to Intervenor's patients were actually medically necessary, regardless of what Xerox decided and in any event under Medicaid guidelines once the authorization was approved, Intervenor was required to provide the serv ices. 37. The State continues to aggressively fight any allegation or affirmative defense that could result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action A. lntervenors ' Claims Against Xerox Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement) 38. Intervenor re-alleges and incorporates the above facts and allegations as if folly set o ut herein. Xerox's prio r authorization approvals were false representations made to Intervenor. It is believed Xerox knowi ngly issued these prior authorizations to Intervenor because Xerox knew that it was approving requests without a proper medical review, and/or because it approved the prior authorization requests without any knowledge of their truth. It is believed Xerox intended for Lntervenor to rely on the approvals as a prereq uisite for providing the requested services. Approval was material because it was a mandatory prerequisite for payment. Intervenor actually and justifiably relied on Xerox 's fraudulent approvals. 39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in Plea in Intervention Page 13 of25 *159 the same or similar manner, and led Intervenor to believe that their requests were consistent with Medicaid standards and requirements. 40. Xerox's frau dulent approvals caused injury to Intervenor. As a result of Xerox's actions, Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor was placed on payment hold, Intervenor is forced to defend itself in an administrative payment hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including claims for treble damages and attorney fees). lntervenor's reputatio n and business have suffered severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and atto rney fees.
Breach of the Xerox.State of Texas Contract 41. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State for the benefit of lntervenor. Xerox's contract with the state required that it conduct a proper, thorough and legal review of prior authorization requests for the purpose of determining medical necessity. To that end, Xerox should have employed a licensed denti st. 42. Xerox was an agent of the State of Texas engaged specifically for the purpose of determining medical necessity. The third party beneficiaries of that Xerox-State of Texas contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic services that were medica lly necessary. Intervenor was responsible for actually delivering the orthodontic services that Xerox had deemed medically necessary. Thus, lntervenor was a third party bene fic iary that relied on Xerox' s approvals. 43. Xer ox breached its contract by, inter alia, fa iling to provide qualified staff; possibly violating Texas law; permitting non-dentists to make determinations of medical necessity; and Plea in Intervention Page 14 of25 *160 issuing medical opinions without conducting a reasonable and prudent examination of evidence. The breaches were material, and recurred across many different Medicaid patients and for many years. 44. Xerox's actions proximately caused intervenor's injury. [ntervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, intervenor relied entirely on Xerox's determ inations regarding medical necessity; thus, Xerox's actions were the direct factua l cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary intelligence should have anticipated that issuing a decision without actually reviewing or considering the evidence (x-rays, photos, mode ls, etc.) would eviscerate the cred ibility and reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy, it was foreseeab le that the State would demand repayment, and/or would requ ire Intervenor to independently do Xerox's job after the fact by proving that payment was proper because the services were medically necessary and reimbursable under Texas Medicaid law. 45. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages that would have given the lntervenors the benefi t of the bargain by putting them in as good a position as they would have been in if the contract had been performed. Intervenor seeks reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's contract with the state and the approvals that Xerox made under that contract. Intervenor also seeks damages for its restitution interest to restore money sought by the Office of the Inspector General from lntervenor. Such damages would put the lntervenors in as good a position as it would have been in if the contract had been properly fulfilled. In addition, Intervenor seeks liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal Plea in Intervention Page 15 of25 *161 counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel) 46. Intervenor re-alleges and incorporates the above facts and allegations as if fu lly set out herein. In the alternative, Xerox's actions constitute promissory estoppel. 47. Xerox's prior authorizations constitute promises to Intervenor in numerous ways. Because prior authorization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, and foreseeably relied on Xerox's promises. 48. Intervenor suffered and continues to suffer significant damage. intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. lntervenor has been required to do Xerox's job after the fact-namely, demonstrate that the services were medically necessary and properly reimbursable under Texas Medicaid law. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost futu re profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately caused by Xerox's promises. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Hiring/Negligent Supervision lntervenor re-alleges and incorporates the above facts and allegations as if fully set out 49. Plea in Intervention Page 16 of25 *162 herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was required to render medical diagnoses. To that end, Xerox was required by law to employ a licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by law to properly supervise its employees to make sure diagnoses were made only by licensed dentists. 50. Xerox knew or should have known that decisions regarding medical necessity can only be rendered by I i.censed personnel. Texas Occupations Code section 25 I .003 defines the practice of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a person may not practice dentistry without a license; section 264.151 makes it a third-degree fe lony to practice dentistry without a license. SI. Xerox's actions proximately caused intervenor' s injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox 's determinations regarding medical necessity; thus, Xerox 's actions were the direct factua l cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or wou ld require Jntervenor to independently do Xerox's job after the fact by proving that payment was proper because those services were medically necessary and were reimbursable under Texas Medicaid law. 52. Interven or suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing the cost of services for each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State' s charges, and Plea in J ntervention Page 17 of25 *163 those legal expenses continue today. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligence 53. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel had appropriate education, training and experience to render such a finding. Xerox had a duty to review the supporting prior authorization documentation (such as x-rays and photos) to determine whether the requested services were medically necessary. 54. Xerox's actions breached the standard of care because Xerox: fai led to provide prior authorization staff that were properly licensed, qualified and experienced dental professionals; violated the law, specifically the Dental Practice Act, by permitting non-dentists to make determinations of medical necessity, and; issued medical opinions (prior authorizations) without conducting a reasonable and prudent examination of evidence. 55. Xerox's actions proximately caused intervenor's injury. Intervenor' s injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Plea in lntervention Page 18 of25 *164 Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeab le in that any person of ordinary intelligence should have anticipated that paying intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or would require f ntervenor to independently do Xerox's job after the fact. 56. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Jrma Cantu-Thompson has suffered inconvenience and loss of enjoyment of life in that she has had to dedicate significant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. lntervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 57. herein. Xerox's actions constitute negligent misrepresentation. Xerox's actions constitute misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization approval was a prerequisite to furnishing services, these representations guided and controlled intervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox represented that its prior authorization approval s were dispositive of medical necessity; Intervenor expected that, once approved, no further inquiry into the medical necessity of the services would be required. Further, Xerox represented that its subsequent payments to Intervenor (after the serv ices had actually been delivered) were made because services had been, Plea in Intervention Page 19 of25 *165 in fact, properly approved as medically necessary. 58. Xerox did not exercise reasonable care or competence in making its determinations and representations. Xerox knew or should have known that its representations were false. 59. Because prior authorization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, foreseeably, and justifiably relied on Xerox's representations. 60. Intervenor suffered and continues to suffer significant damage. Intervenor suffered rel iance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Cntervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact. Intervenor has incurred benefit of the. bargain damages, out-of-pocket damages, lost profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 61. herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary property which would entitle Intervenors to unlimited punitive damages. B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity 62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. For a number of reasons, the State has waived sovereign immunity for claims by Intervenor, including the facts that the State brought, threatened and/or has taken civil and/or Plea in Intervention Page 20 of25 *166 administrative action against Intervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise 63. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Jn the alternative, former Deputy Inspector General Jack Stick has stated publicly that acts and omissions of Xerox were so egregious as to be outside the course o f scope of Xerox's agency relationship with the State. Assuming same to be true, then the State conspired with Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime. 64. The State conspired with Xerox to allow Xerox to violate its various contractual duties. The State permitted Xerox to process as many prior authorizations as possible without the required clinical dental review and without using medically knowledgeable personnel. The State conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations submitted by tbe dentists . The conspiracy was committed with the intent to shift blame from the State and its agent, improperly blame the rnrervenors, and enrich the State and Xerox. By recouping money fro m providers that were not actually to blame, the State and Xerox hoped to limit their own tiabi lity in the event of a Federal clawback action, and/or respond to unflattering news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the party to blame the dentist providers for their own improper acts and omissions is a proximate cause of the inj ury to lntervenors.
Not Liable for Illegal Acts of Third Party 65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. As alleged by the State in Section V lH paragraph 46 of the State's petition, Xerox has Plea in Intervention Page 21 of25 *167 committed or is about to commit unlawful acts. The illegal acts of Xerox in fa iling to provide proper prior authorization review in rubber stamping the doctors prior authorization requests is not the fault of the doctors. The doctors are not responsible for or liable to the State for the illegal acts of a third party for which the doctors had no control; the State should not withhold money from the lntervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract 66. Intervenor re-alleges and incorporates lhe above facts and allegations as if fully set out herein. 1ntervenors are a direct or third party beneficiary of the contract with Xerox and the State of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox and/or reviewing the work product of Xerox. This breach by State, which allowed non- performance by Xerox, has created the pretext by which the State affirmatively sued [ntervenors for repayment. To the extent that the State has withheld money and/or made claims for damages against Intervenors based on the contracts in question, the State has waived immunity and is liable up to those amounts plead.
Conversion 67. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. State and Federal law required [ntervenor to request prior authorization for orthodontic services. Those prior authorizati on requests were approved by Xerox, which required lntervenors to provide the services. The State has unilaterally made a decision to that, based on the acts and om issions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor on a payment hold. To the extent that Intervenor has provided services for which Intervenor should be paid, and money which has been earmarked by the State for that payment but withheld, tbe State has converted the funds. In addition, lhe States' acts/omissions are a violation of the Plea in Intervention Page 22 of25 *168 Texas Constitution Section 9 in that the acts/om issions constitute a seizure of money held under the pretext of a payment hold.
VI. Damages 68. Intervenors have suffered and are entitled to recover damages including, but not limited to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion 69. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent hiring, negligence, and gross negligence. Xerox's actions have subj ected Intervenor to unnecessary civil and adm inistrative legal action, and that, in turn has caused additional injury. Xerox's actions have required Intervenor to perform Xerox's j ob after-the-fact, by proving to the State that the orthodontic services rendered were medically necessary and appropriate for reimbursement. The State's actions have hann ed Intervenor because the state's conspiracy to improperly blame the dentists has resulted in meritless legal claims against the lntervenors and conversion of the Intervenor's property.
VIII. Jury Demand 70. Intervenors respectfully request a trial by jury. IX. Request for Disclosure 71. Under Texas Rule of Civil Procedure L 94, Intervenor requests that Plaintiff the State disclose, within 50 days of the service of this request, the information or material described in Rule 194.2. Plea in Intervention Page 23 of25
*169 X.Prayer 72 . Wherefore, premises considered, Intervenors Irma Cantu-Thompson, DDS, PC and Inna Cantu-Thompson pray that upon final hearing of the cause, judgment be entered jointly and severally against the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and post judgment interest at the legal rate, costs of court, and other such relief to which the lntervenors may be entitled.
RIGGS, ALESHlRE & RAY, P.C. 700 Lavaca, Suite 920 Austin, Texas 78701 (512) 457-9806 (Telephone) (512) 457-9866 (Fax) jray@r-alaw.com
Isl Hart Green w/ permission by J Ray E. Hart Green Texas Bar No. 08349290 Mitchell A. Toups Texas Bar No. 20151600 WELLER, GREEN, TOUPS & TERRELL, L.L.P. Post Office Box 350 Beaumont, Texas 77704-0350 (409) 838-0101 (Telephone) (409) 832-8577 (Fax) hartgr@wgttlaw.com matoups@wgttJaw.com ATTORNEYSFORINTERVENORS IRMA CANTU-THOMPSON, DDS, PC AND IRMA CANTU-THOMPSON
Plea in Intervention Page 24 of25
CERTIFICATE OF SERVICE
*170 l hereby certify that a true and correct copy of the foregoin g Plea in Intervention was served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on the following: Eric J.R. Nicho ls Beck Redden 5 15 Congress Avenue, Suite 1750 Austin, Texas, 78701 ENTCHOLS@beckredden.com Attorney for Xerox Defendants Raymond Winter Chief:, Civi l Medicaid Fraud Division Assistant Attorney Genernl Office of the A ttomey General P.O. Box 12548 Austin, Texas 78711-2548 raymond. w inter@texasattorneygeneral.gov Attorney for the Plaintiff State of Texas Plea in Intervention Page 25 of25
CAUSE NO. D-1-GV-14-000581
*171 MAN & CFN ORTHO, PLLC, NAVARRO § IN THE DISTRICT COURT
ORTRODONTIX OF IRVING, PC, NAVARRO§
§ ORTHODONTIX OF FT. WORTH, PLLC, NAVARRO ORTHODONTIX OF MCALLEN, § PLLC, NAVARRO ORTHODONTIX OF § § EDINBURG, PLLC, NAVARRO ORTBODONTIX, PC, AND DR. CARLOS F. § NAVARRO §
INTERVENORS, § § vs.
§
§
THE STATE OF T EXAS, § PLAINTIFF, § § 53rd JUDICIAL DISTRICT VS. § § XEROX CORPORATION; XEROX § STATE HEALTHCARE, LLC; ACS § STATE HEAL TH CARE, LLC, A XEROX § CORPORATION § §
DEFENDANTS. TRAVIS COUNTY, TEXAS PLEA IN INTERVENTION TO THE HONORABLE JUDGE OF SAID COURT: NOW COMES, MAN & CFN Ortho, PLLC, Navarro Orthodontix of Irving, PC, Navarro Orthodontix of Ft. Worth, PLLC, Navarro Orthodontix of McAllen, PLLC, Navarro Orthdontix of Edinburg, PLLC, Navarro Orthodontix, PC and Dr. Carlos F. Navarro, hereinafter Intervenors, and file this Plea in Intervention, and in support hereof, would respectfully show the Court the following:
I. Parties and Service I. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0. Box 12548, Austin, Texas 78711 -2548. Plea in Intervention Page I of26 *172 2. Defendant Xerox Corporation is a corporation organized under the laws of New York has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox Corporation acquired Defendant ACS in 2010. On information and belie(, ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April l, 2012. Defendants are referred to hereinafter as "Xerox Defendants." 3. MAN & CFN Ortho, PLLC, Navarro Orthodontix of Irving, PC, Navarro Orthodontix of Ft. Worth, PLLC, Navarro Orthodontix of McAllen, PLLC, Navarro Orthdontix of Edinburg, PLLC, Navarro Orthodontix, PC and Dr. Carlos F. Navarro, (hereinafter Navarro) are approved Medicaid providers, and can be served through the undersigned counsel. Dr. Carlos F. Navarro [1] is a licensed Texas dentist, approved Medicaid provider, and the 4. owner of Navarro. Dr Navarro can be served through his undersigned counsel.
II. Jurisdiction and Venue 5. This Court has subject-matter jurisdiction in that the amounts sought by Intervenors from all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this court. Intervenors affirmatively plead that this suit is not governed by the expedited-actions process in TEXAS RULE OF CIVIL PROCEDURE 169 because intervenors seek monetary relief over $100,000. 6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenors' claims; [1] For the sake of simplicity, the Intervenors will be collectively referred to as "Navarro" unless expressly noted. Plea in Intervention Page 2 of26
*173 b) This Court has jurisdiction over Xerox Defendants because each Defendant does business in the State of Texas and comm itted the unlawful acts a lleged in thi s petition in whole or part in Texas.
7. Venue is proper in Travis County under TRCP §15.020 because this suit involves a " major transaction"; Venue is permissive under TRCP § 15.035(a) because Int ervenor asserts claims for breach of contract. Venue is proper pursuant to TRCP § 15.02 because all or a substantial part of the events or omissions giving rise to the claim occurred in Travis County. Many of the unlawful acts committed by the State and Xerox Defendants were committed in Travis County, including the making of false statements and misrepresentations of material fact.
ID. Intervcnors' Interest in the Suit 8. Intervenors MAN & CFN Ortho, PLLC, Navarro Orthodontix of Irving, PC, Navarro Orthodontix of Ft. Worth, PLLC, Navarro Orthodo ntix of McAllen, PLLC, Navarro Orthdontix of Edinburg, PLLC, Navarro Orthodontix, PC and Dr. Carlos F. Navarro have a judicial interest in the matters and controversy in this litigation. The relationship between lntervenors, the State as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of judicial economy and j ustice, all claims be bound and subsumed into one cause of action. Upon information and belief, Intervenors were initially sued by the State in a qui tam action wherein the State alleged that lntervenors defrauded the State. The State has elected to pur sue its remed ies against the Intervenors in an administrative hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the State. lntervenors have claims against both the State and Xerox. It is assumed that Xerox will have claims against the State, and perhaps allege claims against the Intervenors. All of the different parties' c laims are inextricably intertwined, as they relate to Intervenors' submission of Plea in Intervention Page 3 of26 *174 prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and legal duties, and State's subsequent legal action against the Intervenors for services approved by Xerox.
IV.Facts Wbat is Prior Authorization? 9. Texas Medicaid requires that orthodontic services be independently and objectively scrutinized before the State consents to treatment and payment. Prior authorization is the mechanism the State uses to determine the medical necessity of non-emergency orthodontic items/services prior to delivery of those items/services. Pursuant to Texas Health and Human Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will pay for orthodontic services:
Orthodontic services for cosmetic reasons only are not a covered Medicaid service. Orthodontic services must be prior authorized and are limited to treatment of severe handicapping malocclusion and other related conditions as described and measured by the procedures and standards published in the [TMPPM 2
] . 25 TEX. ADMIN. CODE §33.71 (emphasis added) . Prior authorization is a statement of assurance to the orthodontic provider that, absent an intervening d isqualifying factor, lhe delivery of the requested orthodont ic service has been deemed by Xerox to be medically necessary, and therefore approved by the State. I 0. The prior authorization process is straightforward. Texas Medicaid requires that a dental provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's orthodontic condition to Xerox for rev iew. In addition, the orthodontic provider submits his [2] "TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides valuable guidance to Medicaid providers. Plea in Intervention Page 4 of26 *175 professional opinion of the patient on a Handicapping Labio-lingual Deviation index (HLD) score sheet. Xerox knew providers relied entire ly on the prior authorization process because approval was a mandatory prerequisite to providing orthodontic services and being paid. Once Xerox issued its prior authorization decision, the decision was not appealable by the provider. I l. The HLD scoring system combines a number of treatable orthodontic conditions into an index. HLD score sheets use a mix of objective and subjective conditions to determine whether a Medicaid patient qualifies for orthodontic serv ices. The fact that the HLD score sheet requires both objective and subjective findings highlights the importance of Xerox performing a thorough prior authorization review. The History of Orthodontic Prior Authorization. 12. The process for reviewing and approving orthodontic prior authorization requests pre- dates the defendanl Xerox's handling of Medicaid claims processing. The National Heritage Lnsurance Corporation (NHIC) was responsible for reviewing prior authorization requests before Xerox assumed the contract in January 2004. Starting January 1, 2004, Xerox acted as an independent contractor, and was a contracted agent of the State, under the contract with HHSC. Xerox was responsible for reviewing each orthodontic service request, and Xerox was further charged with the responsibility to grant or deny each prior authorization request per the program requirements. The result was that Xerox had the final say in determining the medical necessity of each request fo r orthodontic services. Prior to assuming the NHIC contract, and for a period of time after assuming the contract 13. from N HlC, Xerox received training from NHIC personnel regarding the proper method for receiving and processing orthodontic prior authorization requests. NHlC personnel explained how and why the review of each prior authorization subm ission was important, and walked Plea in Intervention Page 5 of26 *176 Xerox through the process. Despite its training from NHIC, Xerox had no intention of following the prior authorization system that had been in place for years, nor did Xerox intend to otherwise meet the prior authorization requirements set out in its contract, the TMPPM and required by state law. Xerox rejects its contractual responsibilities. 14. When Xerox took over the contract m 2004, it immediately abandoned the prior authorization review process that had been setup by NHIC. Xerox never intended to fulfill its orthodontic prior authorization responsibilities to HHSC. From 2004 to 2011, Xerox continually misrepresented that it was acting in compliance with its contractual duties. 15. It is now known that Xerox failed to adequately staff their prior authorization division with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004 through 2011, which was far short of the manpower necessary to handle the review of tens of thousands of orthodontic prior authorization requests every year. Xerox could not reasonably have expected to handle such a workload by employing only one dentist. Xerox potentially commits thousands of violations. 16. It is believed Xerox allowed "dental specialists"-unlicensed, unqualified individuals- to render prior authorization opinions regarding the medical necessity of requested orthodontic services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed dental director or another qualified dental professional. These actions not only violated Xerox's contractual obligations, they may have also violated other Texas law such as the Dental Practice Act. 3 It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior [3] Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth and mouth. Section 256.001 states that a person may not practice dentistry without a license. Thus, state law requires that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section 264.151 prescribes penalties for certain violations of the Dental Practice Act. Plea in Intervention Page 6 of26 *177 authorization approvals/medical opinions in violation of Texas law. 17. Xerox was paid by the state for each prior authorization decision that was made. It is believed that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a profit generating measure. 18. From January 2005 through February 20 12, Intervenor subm itted prior authorization requests, as required, to Xerox for a determ ination of medical necessity. Unbeknownst to Intervenor, Xerox's dental specialists-not the dental director-approved almost all of Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or b) the approval had been issued by a licensed dentist, and/or c) the approval was an actual and legitimate dental diagnosis, and/or d) the requested orthodontic services were allowable under Texas law and as permitted
by Medicaid policy, the TMPPM, and HHSC rules, and/or e) a proper, thorough and legal review had been made, and/or f) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervening disqualification (such as the patient's ineligibility). 19. Because Xerox was charged w ith dete1111ining medical necessity, and because prior authorizatjon approval was a mandatory prerequisite to furnishing services, the promjses were material. lntervenors expected performance o f these promises. Intervenors rel ied on Xerox. Further, Xerox promised that its subsequent payments to lntervenors (after the services had actually been delivered) were made because the services had been, in fact, properly approved as medically necessary. Each prior authorization approval represents a separate violation of the Jaw if Xerox's approval was issued illegally and/or in violation of its contractual obligations. Plea in Intervention Page 7 of26 *178 Xerox actively concealed its potentially illegal activity. 20. X erox withheld the truth regarding its prior authorization program. In an attempt to publicly appear consistent with NHIC's prior authorization process, Xerox continued to require that dental providers (such as Intervenor) submit all supporting documentation for each HLD score sheet. lt is now believed that, incredibly. Xerox did nothing with that documentation. other than assure that it had been subm itted by the provider. It is believed that Xerox's specialists were instructed to forward to its dental director on ly those requests that had scored below the threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some provider justification attached. As a result, only I 0% of the orthodontic prior authorization requests were actually forwarded to Xerox 's one licensed dentist. Xerox's actions were calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox knew that its actions were entirely incons istent with the Letter and spirit of its o bligations. Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving services without detem1 ining their medical necessity, but Xerox's deception also exacerbated the problem by failing to give providers guidance regarding the proper standard for medical necessity, thus causing these providers substantia l damages. 21 . For the past ten years, Xerox has continued to publicly represent to the world that it was fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was fulfi lling its duties to the State, Xerox had its contract with HH SC repeatedly renewed from 2004 through the present. Each year that Xerox had its contract renewed, it represented that it would fu lfi ll its contractual obligations and abide by Texas law requiring that decisions about medical necessity be rendered only by licensed dentists. Xerox made those representations knowing that it had not done so in the past, and had no intent ion of changing its procedures to do so in the Plea in Intervention Page 8 of26 *179 future. The Frew decision magnifies Xerox's acts. 22. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to implement a corrective action plan that increased the Medicaid reimbursement rates to all dental providers. That plan was required pursuant to the Frew case [4]
, which was a 1993 class-action lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that they prevented indigent children from receiving timely, comprehensive health care. 23. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707 million ($1.8 billion in state and federal funds combined) to increase medical and dental reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists to become Medicaid providers. It worked. The state raised payment rates for dental services, and, as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to 63 .4% in 2010. As expected indeed, as intended spending on Texas's dental services increased dramatically. 24. Although the number of prior approval requests increased by 240% between 2007 and 20 l 0, Xerox continued to employ only one dentist. That dentist was neither tasked with nor responsible for supervising the clerical specialists that were issuing the approvals. 25. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper for the approval and payment of orthodontic services. Although the Texas Legislature had [4] Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir. 2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and a.fl'd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins, 401 F. Supp. 2d 619 (E.D. Tex. 2005) ajj'd sub nom. Frazar v. Ladd, 457 F.3d 432 (Slh Cir. 2006); Hawkins v. Frei!', 549 U.S. 1118. 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007). Plea in Intervention Page 9 of26 *180 increased funding to attract dentists into the Medicaid program, all of the budgeted funds were required to be spent only on medically necessary services. The Office of Inspector General seeks recovery from Medicaid providers. In early 201 I, a series of news stories began highlighting the large amount of money 26. being spent on orthodontics in Texas. In July 2011, the Federal government notified Texas of its intent to audit whether Texas' prior authorization process was ensuring that only medically necessary or1hodontic cases were being approved and paid. With the prospect of a federal clawback action looming against Texas because of Xerox's prior authorization failures, the Texas Office of Inspector General (hereinafter "State") took a drastic step. Beginning in 2011, the State generated a list of the top Medicaid 011hodontic billers and placed them on " payment hold." Intervenor was one of those providers. 27. Given lntervenors' proxim ity to some of the state's poorest ch ildren, and the mandates of the Frew decision, Intervenor served a large Medicaid patient population. Because it served a large Medicaid population, it submitted a large number of prior authorization requests to Xerox from 2004 through 20 11 . 28. lntervenors did not know that Xerox was failing to perfonn a true and accurate review for medical necessity. lntervenors rel ied on Xerox 's prior authorization approvals to confinn that dentists' analysis was proper and consistent with Medicaid standards and requirements. 29. Again unbeknownst to lntervenors, State audits in 2008 and 2012 concluded that most, if not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater (indicating medical necessity) had n ot been actually "evaluated" at all by Xerox. These State audits made the Federal government's pending audit especially dangerous to Texas, because the 2008 and 2012 audits were admissions that Xerox had been approving and paying claims that Plea in Intervention Page 10 of26 *181 may not have met the federal standards for prior authorization. Thus the State, through the Attorney General, concluded that a true finding of medical necessity had in reality not occurred. The Attorney General claimed that billing for services that are not necessary is fraud, despite Xerox's prior authorization approvals. 30. Lt is now believed that rather than prosecute Xerox for its failure lo properly evaluate dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox. This protection included the State failing to allow TMHP to hire additional medically licensed staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the Attorney General took immediate action against the providers, the Attorney General refused to hold Xerox accountable for its orthodontic "approvaJs," its repeated contractual failures, or its violation of State law. Instead, the Attorney General made fraud allegations against each of the top 25 dental providers, including Intervenor, which has caused more injury and damages to lntervenors. Stated d ifferently, Xerox issued its approvals through a process that gutted the State's belief in the accuracy o f Xerox's decision, and the Texas Attorney General punished the providers instead of Xerox. 31. Because the acts/omissions of Xerox so undermined the process, the State eventuallyinstituted a " payment hold" against Intervenor. A payment hold temporarily freezes future Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid program. The payment hold against intervenor was issued pursuant to wbat the State called a "credible allegation of fraud " regarding Intervenor's orthodontic prior authorization requests. The State placed a 100% payment hold against Intervenor's orthodontic billings. 32. At the time the Attorney General began prosecuting Intervenor and similarly situated Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to Plea in Intervention Page 11 of26 *182 authorize orthodontic services and paym ents. The Attorney General knew that the State's audits of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State, violating its own State-approved policies and procedures, and violating State law. Nevertheless, the Attorney General continued to only prosecute dental providers like the Intervenor~ the Attorney General refused to hold Xerox responsible. [n fact, in one shameless and brazen demonstration of State' s unwavering protection of Xerox, the Deputy Director of Texas' Office of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious they were outside the course and scope of Xerox's agency with State. 5 Upon information and belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing the State's culpability would subject the State to a federal clawback for hundreds of millions of dollars. Instead, the State and the Attorney General pointed at the dental providers. 33. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for over 6 years, became too much to hide. Three months after some providers filed suit against Xerox, and following a series of news stories questioning why Xerox had not suffered for its failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed approximately 100 days earlier by similarly situated providers. The State's claims in this fraud lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were improper. 34. As a result of the payment hold, Intervenor was required to make significant financial concessions and changes to its business. Intervenor a lso engaged legal counsel to defend itself s Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a dental provider for following Xerox's instructions to provide braces to the provider's patientS. The idea that the State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox. Plea in Intervention Page 12 of26 *183 from the State's claims, at a significant expense that continues today. 35. The State's allegations against [ntervenor are rooted in two assumptions. First, the State assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is, Xerox approved Intervenor's requests without knowing whether approval was actually proper. Because Xerox is not a party to Intervenor's administrative case, lntervenor is prevented from determining whether Xerox did, in fact, perform a proper review of Intervenor's prior authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question, and finally determine whether Xerox reviewed Intervenor's requests as required by its contract and the law. 36. Regarding the State's second assumption, the State alleges some of Intervenor's requests were approved when, in fact, they should have been denied. intervenor denied that assertion in the administrative case, and Intervenor continues to deny that claim here. All services provided to Intervenor's patients were actually medically necessary, regard less o f what Xerox decided and in any event under Medicaid guidelines once the authorization was approved, Intervenor was required to provide the services. 37. The State continues to aggressively fight any allegation or affirmative defense that could result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action A. Intervenors' Claims Against Xerox Common Law Fraud (Fraudulent Misrepresentation and Fraudulent foducement) Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 38. herein. Xerox 's prior authorization approvals were fa lse representations made to Intervenor. It is Plea in Intervention Page 13 of26 *184 believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew that it was approving requests without a proper medical review, and/or because it approved the prior authorization requests without any knowledge of their truth . It is believed Xerox intended for Intervenor to rely on the approvals as a prerequisite for providing the requested services. Approval was material because it was a mandatory prerequisite for payment. Intervenor actually and justifiably relied on Xerox's fraudulent approvals. 39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in the same or simi lar manner, and led Intervenor to believe that their requests were consistent with Medicaid standards and requirements. 40. Xerox's fraudulent approvals caused injury to Intervenor. As a resu lt of Xerox's actions, intervenor submitted requests for payment and Xerox actually paid for those services, Lntervenor was placed on payment hold, Intervenor is forced to defend itself in an administrative payment hold hearing, and [ntervenor is facing administrative claims by HHSC for repayment (including claims for treble damages and attorney fees). Intervenor's reputation and business have suffered severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of the Xerox-State of Texas Contract 41. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper, thorough and legal review of prior authorization requests for the purpose of determining medical necessity. To that end, Xerox should have employed a licensed dentist. 42. Xerox was an agent of the State of Texas engaged specifically for the purpose of Plea in Intervention Page 14 of26 *185 determining medical necessity. The third party beneficiaries of that Xerox-State of Texas contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic services that were medically necessary. Intervenor was responsible for actually delivering the orthodontic services that Xerox had deemed medicaJly necessary. Thus, Intervenor was a third party beneficiary that relied on Xerox's approvals. 43. Xerox breached its contract by, inter alia, fai ling to provide qualified staff; possibly violating Texas law; permitting non-dentists to make determinations of medical necessity; and issuing medical opinions without conducting a reasonable and prudent examination of evidence. The breaches were material, and recurred across many different Medicaid patients and for many years. 44. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary intelligence should have anticipated that issuing a decision without actually reviewing or considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy, it was foreseeable that the State would demand repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because the services were medically necessary and reimbursable under Texas Medicaid law. 45. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages that would have given the lntervenors the benefit of the bargain by putting them in as good a Plea in Intervention Page 15 of26 *186 position as they would have been in if the contract had been performed. Intervenor seeks reliance interest damages to restore the expend itures Intervenor made in reliance on Xerox's contract with the state and the approvals that Xerox made under that contract. Intervenor also seeks damages for its restitution interest to restore money sought by the Office of the Inspector General from Intervenor. Such damages would put the Cntervenors in as good a position as it would have been in if the contract had been properly fulfilled. In add ition, Intervenor seeks liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses cont inue today. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel) 46. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute promissory estoppel. 47. Xerox's prior authorizations constitute promises to Intervenor in numerous ways. Because prior authorization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, and foreseeably relied on Xerox's promises. 48. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appl iances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact-namely, demonstrate tbat the services were medically necessary and Plea in Intervention Page 16 of26 *187 properly reimbursable under Texas Medicaid law. lntervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately caused by Xerox' s promises. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Hiring/Negligent Supervision 49. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negl igent hiring and/or negligent supervision. Xerox was required to render medical diagnoses. To that end, Xerox was required by law to employ a licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by law to properly supervise its employees to make sure diagnoses were made only by licensed dentists. 50. Xerox knew or should have known that decisions regarding medical necessity can only be rendered by licensed personnel. Texas Occupations Code section 25 1.003 defines the practice of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a person may not practice dentistry without a license; section 264.151 makes it a third-degree felony to practice dentistry without a license. 51. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox 's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly Plea in Intervention Page 17 of26 *188 been determined to be medically necessity wou ld precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because those services were medically necessary and were reimbursable under Texas Medicaid Jaw. 52. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing the cost of services for each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. intervenor has suffered exemplary damages because Xerox's conduct was grossly negligent, outrageous and malicio us, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligence 53. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render medical diagnoses. To that end, Xerox bad a duty to employ a licensed dentist to render a diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel had appropriate education, training and experience to render such a finding. Xerox had a duty to review the supporting prior authorization documentation (such as x-rays and photos) to determine whether the requested services were medically necessary. 54. Xerox's actions breached the standard of care because Xerox: failed to provide prior Plea in Intervention Page 18 of26 authorization staff that were properly licensed, qualified and experienced dental professionals; *189 violated the law, specifically the Dental Practice Act, by permitting non-dentists to make determinations of medical necessity, and; issued medical opinions (prior authorizations) without conducting a reasonable and prudent exam ination of evidence. 55. Xerox' s actions proximately caused Intervenor's injury. lntervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying f ntervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact. 56. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. fntervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Dr. Navarro has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation 57. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligent misrepresentation. Xerox ' s actions constitute Plea in Intervention Page 19 of26 *190 misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization approval was a prerequisite to furnishing services, these representations guided and cont rolled Intervenor's responses. intervenor justifiably relied on these representations. Further, Xerox represented that its prior authorization approvals were dispositive of medical necessity; Intervenor expected that, once approved, no further inquiry into the medical necessity of the serv ices would be required. Further, Xerox represented that its subsequent payments to Interven or (after the services had actually been delivered) were made because services had been, in fact, properly approved as medically necessary. 58. Xerox did not exercise reasonable care or competence in making its determ inations and representations. Xerox knew or should have known that its representations were fa lse. 59. Because prior authorization was a prerequisite to furnis hing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, foreseeably, and justifiably rel ied on Xerox's representations. 60. Intervenor suffered a nd continues to suffer signi ficant damage. fn tervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox 's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, loss of credit, and loss of goodwill. All of these dam ages were directly and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property 61. Intervenor re-alleges and incorporates the above facts and a11egations as if fully set out Plea in Intervention Page 20 of26 herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduc iary *191 property which would entitle Intervenors to unlimited punitive damages. B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity 62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. For a number of reasons, the State has waived sovereign immunity for claims by Intervenor, including the facts that the State brought, threatened and/or has taken civil and/or administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise 63. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein . In the alternative, former Deputy Inspector General Jack Stick has stated publicly that acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's agency relationship with the State. Assuming same to be true, then the State conspired with Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from Intervenor but not Xerox, and conspired to fal sely accuse Intervenor of fraud/crime. 64. The State conspired with Xerox to a llow Xerox to violate its various contractual duties. The State perm itted Xerox to process as many prior authorizations as possible without the required clinical dental revi ew and without using medically knowledgeable personnel. The State conspired wi th Xerox to allow Xerox to violate State and Federal law. The State and Xerox created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations submitted by the dentists. The conspiracy was committed with the intent to shift blame from the State and its agent, improperly blame the lntcrvenors, and enrich the State and Xerox. By recouping money from providers that were not actually to blame, the State and Xerox hoped to Plea in Intervention Page 21 of26 limit their own liability in the event of a Federal clawback action, and/or respond to unflattering *192 news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the party to blame the dentist providers for their own improper acts and omissions is a proximate cause of the injury to Intervenors.
Not Liable for Illegal Acts of Third Party 65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. As alleged by the State in Section VIII paragraph 46 of the State's petition, Xerox has committed or is about to commit unlawful acts. The iUegal acts of Xerox in failing to provide proper prior authorization review in rubber stamping the doctors prior authorization requests is not the fault of the doctors. The doctors are not responsible for or liable to the State for the illegal acts of a third party for which the doctors had no control; the State should not withhold money from the lntervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract 66. lntervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Intervenors are a direct or third party beneficiary of the contract with Xerox and the State of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox and/or reviewing the work product of Xerox. This breach by State, which allowed non- perfonnance by Xerox, has created the pretext by which the State affinnatively sued Intervenors for repayment. To the extent that the State has withheld money and/or made claims for damages against lntervenors based on the contracts in question, the State has waived immunity and is liable up to those amounts plead.
Conversion 67. Jntervenor re-alleges and incorporates the above facts and allegations as if fully set out Plea in Intervention Page 22 of26 herein. State and Federal law required Intervenor to request prior authorization for orthodontic *193 services. Those prior authorization requests were approved by Xerox, which required Intervenors to provide the services. The State has unilaterally made a decision to that, based on the acts and omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor on a payment hold. To the extent that Intervenor has provided services for which Intervenor should be paid, and money which has been earmarked by the State for that payment but withheld, the State has converted the funds. In addition, the States' acts/omissions are a violation of the Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under the pretext of a payment hold.
VI. Damages 68. Intervenors have suffered and are entitled to recover damages including, but not limited to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion 69. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent hiring, negligence, and gross negligence. Xerox's actions have subjected Intervenor to unnecessary civil and administrative legal action, and that, in turn has caused additional injury. Xerox's actions have required Intervenor to perform Xerox's job after-the-fact, by proving to the State that the orthodontic services rendered were medically necessary and appropriate for reimbursement. The State's actions have harmed Intervenor because the state's conspiracy to improperly blame the dentists has resulted in meritless legal claims against the Intervenors and conversion of the Intervenor's property. Plea in Intervention Page 23 of26
VIII. Jury Demand *194 70. Intervenors respectfully request a trial by jury. IX. Request for Disclosure 71. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State disclose, within 50 days of the service of this request, the information or material described in Rule 194.2. 72. Wherefore, premises considered, Intervenors MAN & CFN Ortho, PLLC, Navarro Orthodontix of Irving, PC, Navarro Orthodontix of Ft. Worth, PLLC, Navarro Orthodontix of McAllen, PLLC, Navarro Orthdontix of Edinburg, PLLC, Navarro Orthodontix, PC and Dr. Carlos F. Navarro pray that upon final bearing of the cause, judgment be entered jointly and severally against the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and post judgment interest at the legal rate, costs of court, and other such relief to which the Intervenors may be entitled. Plea in Intervention Page 24 of26
Respectfully.submitted, *195 RIGGS, ALESHIRE & RAY, P.C. 700 Lavaca, Suite 920 Austin, Texas 78701 (512) 457-9806 (Telephone) (512) 457-9866 (Fax) jray@r-alaw.com
Isl Hart Green wl permission by J Ray E. Hart Green Texas Bar No. 08349290 Mitchell A . Toups Texas Bar No. 20151600 WELLER, GREEN, TOUPS & TERRELL, L.L.J>. Post Office Box 350 Beaumont, Texas 77704-0350 (409) 838-0101 (Telephone) (409) 832-8577 (Fax) hartgr@wgttlaw.com matoups@wgttlaw.com
ATTORNEYS FOR INTERVENORS
MAN & CFO ORTHO, PLLC, NAVARRO ORTHODONTIX OF IRVING, PC, NAVARRO ORTHODONTIX OF FT. WORTH, PLLC, NAVARRO ORTHODONTIX OF EDINBURG, PLLC, NAVARRO ORTHODONTIX, PC, AND DR.CARLOSF.NAVARRO
Plea in Intervention Page 25 of26
CERTIFICATE OF SERVICE
*196 I hereby certify that a true and correct copy of the foregoing Plea in Intervention was served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on the following: Eric J.R. Nichols Beck Redden 515 Congress Avenue, Suite 1750 Austin, Texas, 78701 ENICHOLS@beckredden.com Attorney for Xerox Defendants Raymond Winter Chief, Civil Medicaid Fraud Division Assistant Attorney General Office of the Attorney General P.O. Box 12548 Austin, Texas 78711-2548 raymond. winter@texasattomeygeneral.gov Attorney for the Plaintiff State of Texas Plea in Intervention Page 26 of26
CAUSE NO. D-1-GV-14-000581
*197 § RGV SMILES BY ROCKY L. SALINAS, IN THE DISTRICT COURT § DDS, PA, AND DR. ROCKY SALINAS,
INTERVENORS, § § vs.
§
§
THE STATE OF TEXAS, § PLAINTIFF, § § 53rd JUDICIAL DISTRICT § VS. § XEROX CORPORATION; XEROX § STATE HEALTHCARE, LLC; ACS § § STA TE HEALTHCARE, LLC, A XEROX § CORPORATION
DEFENDANTS. § TRAVIS COUNTY, TE XAS PLEA IN INTERVENTION TO THE HONORABLE JUDGE OF SAID COURT: NOW COMES, RGV Smiles by Rocky L. Salinas, DDS, PA and Dr. Rocky Salinas, hereinafter lntervenors, and file this Plea in Intervention, and in support hereof, would respectfully show the Court the following:
I. Parties and Service Pl aintiff~ State of Texas, has appeared in this action and may be served with a notice of 1. this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0. Box 12548, Austin, Texas 78711-2548. 2. Defendant Xerox Corporation is a corporation organized under the laws of New York has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Plea in Intervention Page I of25 Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit. *198 Defendant Xerox Corporation acquired Defendant ACS in 20 l 0. On information and belief, ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012. Defendants are referred to hereinafter as "Xerox Defendants." RGV Smiles by Rocky L. Salinas, DDS, PA, (hereinafter RGV) is a Texas professional 3. association, and an approved Medicaid provider, with its principal place of business listed as 805 N. Cage, Pharr, Texas 78577. RGV can be served through the undersigned counsel.
Dr. Rocky Salinas [1] is a licensed Texas dentist, approved Medicaid provider, and the 4. owner ofRGV. Dr Salinas can be served through his undersigned counsel.
II. Jurisdiction and Venue 5. This Court has subject-matter jurisdiction in that the amounts soui:,rht by lntervenors from all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this court. lntervenors affirmatively plead that this suit is not governed by the expedited-actions process in TEXAS RULE OF CIVIL PROCEDURE 169 because intervenors seek monetary relief over $100,000. 6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immun ity and is subject to Intervenors' claims; b) This Court has j urisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in this petition in whole or part in Texas.
7. Venue is proper in Travis County under TRCP § 15.020 because this suit involves a " major transaction"; Venue is permissive under TRCP § 15.035(a) because lntervenor asserts claims for breach of contract. Venue is proper pursuant to TRCP § 15.02 because alJ or a [1] For the sake of simplicity, the Intervenors will be collectively referred to as "RGV" unless expressly noted. Plea in Intervention Page 2 of25 substantial part of the events or omissions giving rise to the claim occurred in Travis County. *199 Many of the unlawful acts committed by the State and Xerox Defendants were committed in Travis County, including the making of false statements and misrepresentations of material fact.
ill. Intervenors' Interest in the Suit 8. lntervenors RGV Smiles and Dr. Rocky Salinas have a judicial interest in the matters and controversy in this litigation. The relationship between Intervenors, the State as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of j udicial economy and j ustice, all claims be bound and subsumed into one cause of action. Upon information and belief: Intcrvenors were initially sued by the State in a qui Lam action wherein the State alleged that lntervenors defrauded the State. The State has elected to pursue its remedies against the lntervenors in an administrative bearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the State. lntervenors have claims against both the State and Xerox. It is assumed that Xerox will have claims against the State, and perhaps allege claims against the Intervenors. All of the different parties' claim s are inextricably intertwined, as they relate to Tntervenors' submission of prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the State' s handling and oversight of its agent Xerox in Xerox's performance of its contractual and legal duties, and State's subsequent legal action against the Intervenors for services approved by Xerox.
IV. Facts What is Prior Authorization? 9. Texas Medicaid requires that orthodontic services be independently and obj ectively scrutinized before the State consents to treatment and payment Prior authorization is the Plea in Intervention Page 3 of25 mechanism the State uses to determine the medical necessity of non-emergency orthodontic *200 items/services prior to delivery of those items/services. Pursuant to Texas Health and Human Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will pay for orthodontic services:
Orthodontic services for cosmetic reasons only are not a covered Medicaid service. Orthodontic services must be prior authorized and are limited to treatment of severe handicapping malocclusion and other related conditions as described and measured by the procedures and standards published in the [TMPPM 2
] . 25 TEX. ADMrN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance to the orthodontic provider that, absent an intervening disqualifying factor, the delivery of the requested orthodontic service has been deemed by Xerox to be medically necessary, and therefore approved by the State. I 0. The prior authorization process is straightforward. Texas Medicaid requires that a dental provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his profess ional opin ion of the patient on a Handicapping Labio-lingual Deviation index (HLD) score sheet. Xerox knew providers relied entirely on the prior authorization process because approval was a mandatory prerequisite to providing orthodontic services and being paid. Once Xerox issued its prior authorization decision, the decision was not appealable by the provider. l I. The HLD scoring system combines a number of treatable orthodontic conditions into an index. HLD score sheets use a mix of objective and subjective conditions to detennine whether a Medicaid patient qualifies for orthodontic services. The fact that the HLD score sheet requires both objective and subjective findings highlights the importance of Xerox performing a thorough [2] "TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides valuable guidance to Medicaid providers. Plea in Intervention Page 4 of25 prior authorization review. *201 The History of Orthodontic Prior Authorization. 12. The process for reviewing and approving orthodontic prior authorization requests pre- dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage fnsurance Corporation (NHIC) was responsible for reviewing prior authorization requests before Xerox assumed the contract in January 2004. Starting January I, 2004, Xerox acted as an independent contractor, and was a contracted agent of the State, under the contract with HHSC. Xerox was responsible for reviewing each orthodontic service request, and Xerox was further charged with the responsibility to grant or deny each prior authorization request per the program requirements. The result was that Xerox had the final say in determining the medical necessity of each request for orthodontic services. 13. Prior to assuming the NHIC contract, and for a period of time after assuming the contract from NHlC, Xerox received training from NHTC personnel regarding tbe proper method for receiving and processing orthodontic prior authorization requests. NHIC personnel explained how and why the review of each prior authorization submission was important, and walked Xerox through the process. Despite its training from NHIC, Xerox had no intention of following the prior authorization system that had been in place for years, nor did Xerox intend to otherwise meet the prior authorization requirements set out in its contract, the TMPPM and required by state law. Xerox rejects its contractual responsibilities. 14. When Xerox took over the contract in 2004, it immediately abandoned the prior authorization review process that bad been setup by NHIC. Xerox never intended to fulfill its orthodontic prior authorization responsibilities to HHSC. From 2004 to 2011, Xerox continually Plea in Intervention Page 5 of25 m isrepresented that it was acting in compliance with its contractual duties. *202 15. It is now known that Xerox failed to adequately staff their prior authorization division with knowledgeable medical professionals. Xerox employed only one licensed dentist from 2004 through 20 11, which was far short of the manpower necessary to handle the review o f tens of thousands of orthodontic prior authorization requests every year. Xerox could not reasonably have expected to hand le such a w orkload by employing only one dentist. Xerox potentia lly commits thousands of violations. 16. It is be lieved Xerox allowed "dental specialists"-unliccnsed, unq uali fied individuals- to render prior author ization opinio ns regarding the med ical necessity of requested orthodontic services. The "dental specialist" approvals were not reviewed or ratifi ed by Xerox's licensed dental d irector or another qualified dental professional. These actions not only violated Xerox's contractual obligations, they may have also violated other Texas law such as the Dental Practice Act. 3
It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior authorization approvals/medical opinions in violation of Texas law. L 7. Xerox w as paid by the state for each prio r authorization decision that was made. It is believed that Xerox employed unlicensed " specialists," rather than licensed Texas dentists, as a pro fit generating measure. 18. From January 2005 through February 2012, lntervenor subm itted prior author ization requests, as required, to Xerox for a determ ination of medical necessity. Unbeknownst to Intervenor, Xerox 's dental specialists-not the dental d irector-approved almost all of Intervenor's requests. Xerox's prior authorization approvals were promises that: [3] Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth and mouth. Section 256.00 I states that a person may not practice dentistry without a license. Thus, state law requires that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section 264.15 1 prescribes penalties for certain violations of the Dental Practice Act. Plea in Intervention Page 6 of25
a) the requested orthodontic services were med ically necessary, and/or *203 b) the approval had been issued by a licensed dentist, and/or c) the approval was an actual and legitimate dental diagnosis, and/or d) the requested orthodontic services were allowable under Texas law and as permitted
by Medicaid pol icy, the TMPPM, and HHSC rules, and/or e) a proper, thorough and legal review had been made, and/or f) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervening disqualification (such as the patient's ineligibility). 19. Because Xerox was charged with determining medical necessity, and because prior authorization approval was a mandatory prerequisite to furnishi ng services, the promises were material. lntervenors expected performance of these promises. lntervenors relied on Xerox. Further, Xerox promised that its subsequent payments to lntervenors (after the services had actually been delivered) were made because the services had been, in fact, properly approved as medically necessary. Each prior authorization approval represents a separate violation of the law !f Xerox's approval was issued illegally and/or in violation of its contractual obligations. Xerox actively concealed its potentially illegal activity. 20. Xerox withheld the truth regarding its prior authorization program. In an attempt to publicly appear consistent with NHIC's prior authorization process, Xerox continued to require that dental providers (such as lntervenor) submit all supporting documentation for each HLD score sheet. It is now believed that, incredibly, Xerox did nothing with that documentation, other than assure that it had been submitted by the provider. lt is believed that Xerox' s specialists were instructed to forward to its dental director only those requests that had scored below the th reshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some Plea in Intervention Page 7 of25 provider justification attached. As a result, only J 0% of the orthodontic prior authorization *204 requests were actually fotwarded to Xerox's one licensed dentist. Xerox's actions were ca lculated to make Xerox appear comp liant with its contract and HHSC policies, while Xerox knew that its actions were entirely inconsistent with the letter and spirit of its obligations. Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving services without detennining their medical necessity, but Xerox's deception also exacerbated the problem by failing to give providers guidance regarding the proper standard for medical necessity, thus causing these providers substantial damages. 21. For the past ten years, Xerox has continued to publicly represent to the world that it was fulfi lling its contractual and legal responsibil ities. Based on Xerox's representations that it was fu lfilli ng its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004 through the present. Each year that Xerox had its contract renewed, it represented that it would fu lfill its contractual obligations and abide by Texas law requiring that decisions about medical necessity be rendered only by licensed dentists. Xerox made those representations knowing that it had not done so in the past, and had no intention of changing its procedures to do so in the future. The Frew decision magnifies Xerox's acts. 22. Jn September 2007, after fifteen years of litigation on the subject, Texas was ordered to implement a corrective action plan that increased the Medicaid reimbursement rates to all dental providers . That plan was required pursuant to the Frew case 4
, which was a 1993 class-action •Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert , 300 F.3d 530 (5th Cir. 2002) rev'd sub nom. Frew ex rel Frew v. Hawkins, 540 U.S. 431 , 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and afj'd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F .3d 444 (5th Cir. 2004); Frew v. Hawkins, 401 F. Supp. 2d 619 (E.D. Tex. 2005) affd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v. Frew, 549 U.S. 1118, 127 S. Ct. 1039, 166 L. Ed. 2d 714 (2007). Plea in Intervention Page 8 of25 lawsuit against the .HHSC alleging that Texas' Medicaid reimbursement rates were so low that *205 they prevented indigent children from receiving timely, comprehensive health care. 23. In response to Frew's corrective action plan, the 2007 Texas Legislature allocated $707 million ($1.8 billion in state and federal funds combined) to increase medical and dental reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists to become Medicaid providers. It worked. The state raised payment rates for dental services, and, as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to 63.4% in 2010. As expected indeed, as intended spending on Texas's dental services increased dramatically. 24. Although the number of prior approval requests increased by 240% between 2007 and 201 O, Xerox continued to employ only one dentist. That dentist was neither tasked with nor responsible for supervising the clerical specialists that were issuing the approvals. 25. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper for the approval and payment of orthodontic services. Although the Texas Legislature had increased fund ing to attract dentists into the Medicaid program, all of the budgeted fonds were required to be spent only on medically necessary services. The Office of lnspector General seeks recovery from Medicaid providers. 26. In early 2011, a series of news stories began highlighting the large amount of money being spent on orthodontics in Texas. In July 2011, the Federal government notified Texas of its intent to audit whether Texas' prior authorization process was ensuring that only medically necessary orthodontic cases were being approved and paid. With the prospect of a federal clawback action looming against Texas because of Xerox's prior authorization failures, the Plea in Intervention Page 9 of25 Texas Office of Jnspector General (hereinafter "State") took a drastic step. Beginning in 2011, *206 the State generated a list of the top Medicaid orthodontic billers and placed them on " payment hold." Intervenor was one of those providers. 27. Given Intervenors' proximity to some of the state's poorest children, and the mandates of the Frew decision, lntervenor served a large Medicaid patient population. Because it served a large Medicaid population, it submitted a large number of prior authorization requests to Xerox from 2004 through 201 l. 28. lntervenors did not know that Xerox was faili ng to perform a true and accurate review for medical necessity. Intervenors relied on Xerox 's prior authorization approvals to confirm that dentists' analysis was proper and consistent with Medicaid standards and requirements. 29. Again unbeknownst to lntervenors, State audits in 2008 and 2012 concluded that most, if not almost all, of the prior authorization requests for patie nts with HLD scores of 26 or greater (indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State audits made the Federal government' s pend ing aud it especially dangerous to Texas, because the 2008 and 2012 audits were admissions that Xerox had been approving and paying claims that may not have met the federal standards for prio r authorization. T hus the State, through the Attorney General, concluded that a true finding of medical necessity had in reality not occurred. T he Attorney General claimed that billing for services that are not necessary is fraud, despite Xerox's prior authorization approvals. 30. It is now believed that rather than prosecute Xerox for its fai lure to properly evaluate dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox. This protection included the State failing to allow T MHP to hire additional medically licensed staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the Plea in Intervention Page 10 of25 Attorney General took immediate action against the providers, the Attorney General refused to *207 hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its violation of State law. Instead, the Attorney General made fraud allegations against each of the top 25 dental providers, includ ing Intervenor, which has caused more injury and damages to lntervenors. Stated differently, Xerox issued its approvals through a process that gutted the State's belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the providers instead of Xerox. 31. Because the acts/omissions of Xerox so undermined the process, the State eventuallyinstituted a "payment hold" against Intervenor. A payment hold temporarily freezes future Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid program. The payment hold against Intervenor was issued pursuant to what the State called a "credible allegation of fraud" regarding Intervenor's orthodontic prior authorization requests. The State placed a 100% payment hold against Intervenor's orthodontic billings. 32. At the time the Attorney General began prosecuting Intervenor and similarly situated Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to authorize orthodontic services and payments. The Attorney General knew that the State's audits of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State, violating its own State-approved policies and procedures, and violating State law. Nevertheless, the Attorney General continued to only prosecute dental providers like the lntervenor; the Attorney General refused to hold Xerox responsible. In fact, in one shameless and brazen demonstration of State's unwavering protection of Xerox, the Deputy Director of Texas' Office of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious Plea in Intervention Page 11 of25 they were outside the course and scope of Xerox's agency with State. 5 Upon information and *208 belief, the State and the Attorney General protected Xerox. for over 6 years fearing that revealing the State's cuJpability would subject the State to a federal clawback for hundreds of millions of dollars. [nstead, the State and the Attorney General pointed at the dental providers. 33. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for over 6 years, became too much to bide. Three months after some providers filed suit aga inst Xerox, and following a series of news stories questioning why Xerox had not suffered for its failures, the Attorney General reversed course. On May 9, 20 14, the State, through the Texas Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed approximately I 00 days earlier by similarly situated providers. The State's claims in this fraud lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were improper. 34. As a result of the payment hold, Intervenor was required to make significant financial concessions and changes to its business. Intervenor also engaged legal counsel to defend itself from the State's cla ims, at a s ignificant expense that continues today. 35. The State's allegations against intervenor are rooted in two assumptions. First, the State assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is, Xerox approved Intervenor's requests without knowing whether approval was actually proper. Because Xerox. is not a party to Intervenor's administrative case, rntervenor is prevented from determining whether Xerox did, in fact, perform a proper review of In tervenor's prior authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question, s Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox. Plea in Intervention Page 12 of25 and finally detennine whether Xerox reviewed Intervenor's requests as required by its contract
.
and the law.
*209 36. Regarding the State's second assumption, the State alleges some of rntervenor's requests were approved when, in fact, they should have been denied. Intervenor denied that assertion in the administrative case, and Intervenor continues to deny that claim here. All services provided to Intervenor's patients were actually m edically necessary, regardless of what Xerox decided and in any event under Medicaid guidelines once the authorization was approved, Intervenor was required to provide the services. 37. The State continues to aggressively fight any allegation or affirmative defense that could result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action A. Intervenors ' Claims Against Xerox Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement) 38. Intervenor re-a lleges and incorporates the above facts and allegations as if fully set out herein. Xerox's prior authorization approvals were fa lse representations made to Intervenor. It is believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew that it was approving requests without a proper medical review, and/or because it approved the prior authorization requests without any knowledge of their truth. It is believed Xerox intended for Intervenor to rely on the approvals as a prerequisite for providing the requested services. Approval was material because it was a mandatory prerequisite for payment. Intervenor actuaJly and justi fiably relied on Xerox's fraudulent approvals. 39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in Plea in rntervention Page 13 of25 the same or similar manner, and led Intervenor to believe that their requests were consistent with *210 Medicaid standards and requirements. 40. Xerox's fraudulent approvals caused injury to Intervenor. As a result of Xerox's actions, Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor was placed on payment hold, Intervenor is forced to defend itself in an administrative payment hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including claims for treble damages and attorney fees). Intervenor's reputation and business have suffered severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of the Xerox-State of Texas Contract 4 l. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper, thorough and legal review of prior authorization requests for the purpose of determining medical necessity. To that end, Xerox should have employed a licensed dentist. 42. Xerox was an agent of the State of Texas engaged specifically for the purpose of determining medical necessity. The third party beneficiaries of that Xerox-State of Texas contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic services that were medically necessary. Intervenor was responsible for actually delivering the orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third party beneficiary that relied on Xerox's approvals. 43. Xerox breached its contract by, inter a/ia, failing to provide qualified statl; possibly violating Texas law; permitting non-dentists to make determinations of medical necessity; and Plea in Intervention Page 14 of25 issuing medical opinions without conducting a reasonable and prudent examination of evidence. *211 The breaches were material, and recurred across many different Medicaid patients and for many years. 44. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor' s injuries. Xerox's actions were foreseeable in that a person of ordinary intelligence should have anticipated that issuing a decision without actually reviewing or considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy, it was foreseeab le that the State would demand repayment, and/or would require Intervenor to independently do Xerox's j ob after the fact by proving that payment was proper because the services were medically necessary and reimbursable under Texas Medicaid law. 45. Intervenor suffered and continues to suffer sign ificant damage. Intervenor seeks damages that would have given the lntervenors the benefit of the bargain by putting them in as good a position as they would have been in if the contract had been performed. Intervenor seeks reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's contract with the stale and the approvals that Xerox made under that contract. Intervenor also seeks damages for its restitution interest to restore money sought by the Office of the Inspector General from Intervenor. Such damages would put the lntervenors in as good a position as it would have been in if the contract had been properly fulfilled. [n addition, intervenor seeks liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal Plea in Intervention Page 15 of25 counsel to defend itself from the State's charges, and those legal expenses continue today. *212 Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. Intervenor seeks recovt::ry of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel) 46. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute promissory estoppel. 47. Xerox's prior authorizations constitute promises to Intervenor in numerous ways. Because prior authorization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substant ially, and foreseeably relied on Xerox's promises. 48. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel lo defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact-namely, demonstrate that the services were medically necessary and properly reimbursable under Texas Medica id law. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately caused by Xerox's promises. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Hiring/Negligent Supervision 49. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out Plea in Intervention Page 16 of25 herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was *213 required to render medical diagnoses. To that end, Xerox was required by law to employ a licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by law to properly supervise its employees to make sure diagnoses were made only by licensed dentists. 50. Xerox knew or should have known that decisions regarding medical necessity can only be rendered by licensed personnel. Texas Occupations Code section 251.003 defines the practice of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a person may not practice dentistry without a license; section 264.151 makes it a third-degree felony to practice dentistry without a license. 51. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because those services were medically necessary and were reimbursable under Texas Medicaid law. 52. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing the cost of services for each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and Plea in Intervention Page 17 of25 those legal expenses continue today. Intervenor suffered and continues to suffer significant *214 damage to its reputation, business, referral base, earnings and earning power. Intervenor has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligence 53. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel had appropriate education, training and experience to render such a finding. Xerox had a duty to review the supporting prior authorization documentation (such as x-rays and photos) to detennine whether the requested services were medically necessary. 54. Xerox's actions breached the standard of care because Xerox: failed to provide prior authorization staff that were properly licensed, qualified and experienced dental professionals; violated the law, specifically the Dental Practice Act, by permitting non-dentists to make determinations of medical necessity, and; issued medical opinions (prior authorizations) without conducting a reasonable and prudent examination of evidence. 55. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, lntervenor relied entirely on Plea in Intervention Page 18 of25 Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary *215 intelligence should have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact. 56. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has engaged legal counsel to defond itself from the State's charges, and those legal expenses continue today. Dr. Salinas has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 57. herein. Xerox's actions constitute negligent misrepresentation. Xerox's actions constitute misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization approval was a prerequisite to furnishing services, these representations guided and controlled Intervenor' s responses. Intervenor justifiably relied on these representations. Further, Xerox represented that its prior authorization approvals were dispositive of medical necessity; Intervenor expected that, once approved, no further inquiry into the medical necessity of the services would be required. Further, Xerox represented that its subsequent payments to Intervenor (after the services had actually been delivered) were made because services had been, Plea in Intervention Page 19 of25 in fact, properly approved as medically necessary. 58. Xerox did not exercise reasonable care or competence in making its determinations and *216 representations. Xerox knew or should have known that its representations were false. 59. Because prior authorization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, foreseeably, and justifiably relied on Xerox's representations. 60. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approve-el. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property 61. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary property which would entitle lntervenors to unlimited punitive damages. B. Intervenors' Claims Against The State of Texas
Waiver of Sovereign Immunity 62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. For a number of reasons, the State has waived sovereign immunity for claims by Intervenor, including the facts that the State brought, threatened and/or has taken civil and/or Plea in Intervention Page 20 of25 administrative action against Intervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise *217 63. Inteivenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's agency relationship with the State. Assuming same to be true, then the State conspired with Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime. 64. The State conspired with Xerox to allow Xerox to violate its various contractual duties. The State permitted Xerox to process as many prior authorizations as possible without the required clinical dental review and without using medically knowledgeable personnel. The State conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations submitted by the dentists. The conspiracy was committed with the intent to shift blame from the State and its agent, improperly blame the lntervenors, and enrich the State and Xerox. By recouping money from providers that were not actually to blame, the State and Xerox hoped to limit their own liability in the event of a Federal clawback action, and/or respond to unflattering news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the party to blame the dentist providers for their own improper acts and omissions is a proximate cause of the injury to Intervenors.
Not Liable for Illegal Acts of Third Party 65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. As alleged by the State in Section Vlll paragraph 46 of the State's petition, Xerox has Plea in Intervention Page 21 of25 committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide proper prior authorization review in rubber stamping the doctors prior authorization requests is *218 not the fault of the doctors. The doctors are not responsible for or liable to the State for the illegal acts of a third party for which the doctors had no control; the State should not withhold money from the Intervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract 66. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. lntervenors are a direct or third party beneficiary of the contract with Xerox and the State of Texas. The State of Texas has breached terms o f the contract by failing to supervise Xerox and/or reviewing the work product of Xerox. This breach by State, which allowed non- performance by Xerox, has created the pretext by which the State affirmatively sued lntervenors for repayment. To the extent that the State has withheld money and/or made claims for damages against Lntervenors based on the contracts in question, the State has waived immunity and is liable up to those amounts plead.
Conversion 67. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. State and Federal law required lntervenor to request prior authorization for orthodontic services. Those prior authorization requests were approved by Xerox, which required Intervenors to provide the services. The State has unilaterally made a decision to that, based on the acts and omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor on a payment hold. To the extent that Intervenor has provided services for which Intervenor shou ld be paid, and money whlch has been eannarked by the State for that payment but withheld, the State has converted the funds. In addition, the States' acts/omissions are a violation of the Plea in Intervention Page 22 of25 Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under the pretext of a payment hold.
*219 VI. Damages 68. Intervenors have suffered and are entitled to recover damages including, but not limited to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees and expenses, interest, punitive/exemplary damages, and attorney fees.
VU. Conclusion 69. Xerox's actions have hanned Intervenor because Xerox committed fraud , negligent hiring, negligence, and gross negligence. Xerox's actions have subjected fntervenor to unnecessary civil and administrative legal action, and that, in tum has caused additional injury. Xerox's actions have required Intervenor to perform Xerox's job after-the-fact, by proving to the State that the orthodontic services rendered were medically necessary and appropriate for reimbursement. The State's actions have banned Intervenor because the state's conspiracy to improperly blame the dentists has resulted in meritless legal claims against the lntervenors and conversion of the Intervenor's property.
VIIl. Jury Demand 70. Intervenors respectfully requests a trial by jury. IX. Request for Disclosure 71. Under Texas Rule of Civil Procedure 194, Intervenor requests that Plaintiff the State disclose, within 50 days of the service of this request, the information or material described in Rule 194.2. Plea in Intervention Page 23 of25 72. Wherefore, premises considered, Intervenors RGV Smiles by Rocky L. Salinas, DDS, PA *220 and Dr. Rocky Salinas pray that upon final hearing of the cause, judgment be entered jointly and severally against the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and post judgment interest at the legal rate, costs of court, and other such relief to which the lntervenors may be entitled.
Respectfully .submitted, J son Ray Texas Bar No. 240 RIGGS, ALESlilRE & RAY, P.C. 700 Lavaca, Suite 920 Austin, Texas 78701 (512) 457-9806 (Telephone) (512) 457-9866 (Fax) jray@r-alaw.com
/s/ Hart Green w/ permission by J Ray E. Hart Green Texas Bar No. 08349290 Mitchell A. Toups Texas Bar No. 20151600 WELLER, GREEN, TOUPS & TERRELL, L.L.P. Post Office Box 350 Beaumont, Texas 77704-0350 (409) 838-0101 (Telephone) (409) 832-8577 (Fax) hartgr@wgttlaw.com matoups@wgttlaw.com ATTORNEYSFORINTERVENORS RGV SMILES BY ROCKY L. SALINAS, DDS, PA AND DR. ROCKY SALINAS
Plea in Intervention Page 24 of25
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing Plea in Intervention was *221 served via e-mail and certified mail, return receipt requested on this l Sth day of May, 2014 on the following: Eric J.R. Nichols Beck Redden 515 Congress A venue, Suite 1750 Austin, Texas, 7870 l EN ICHOLS@beckredden.com Attorney for Xerox Defendants Raymond Winter Chief, Civil Medicaid Fraud Division Assistant Attorney General Office of the Attorney General P.O. Box 12548 Austin, Texas 787 11-2548 raymond. winter@texasattorneygeneral.gov Attorney for the Plaintiff State of Texas Plea in Intervention Page 25 of25
CAUSE NO. D-1-GV- 14-000581
§ WESTMORELAND DENT AL, PA, IN THE DISTRICT COURT *222 WESTMORELAND DENTAL OF GARLAND, § § PC, WESTMORELAND DENTAL AND ORTHODONTICS, PA, AND SCOTTIE H. § NGUYEN, DDS §
lNTERVENORS, § § vs.
§
§
THE STATE OF TEXAS, § PLAINTIFF, § § 53•d JUDICIAL DISTRICT vs.
§
§ §
XEROX CORPORATION; XEROX STATE HEALTHCARE, LLC; ACS § STATE HEALTHCARE, LLC, A XEROX § CORPORATION § TRAVIS COUNTY, TEXAS
DEFENDANTS. § PLEA IN INTERVENTION TO THE HONORABLE JUDGE OF SAID COURT: NOW COMES, Westmoreland Dental, PA, Westmoreland Dental of Garland, PC, Westmoreland Dental and Orthodontics, PA, and Scottie H. Nguyen, DDS, hereinafter Intervenors, and file this Plea in Intervention, and in support hereof, would respectfully show the Court the fo llowing:
I. Parties and Service l . Plai ntiff, State of Texas, has appeared in this action and may be served with a notice of this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0 . Box 12548, Austin, Texas 78711-2548. 2. Defendant Xerox Corporation is a corporatio n organized under the laws of New York has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State Plea in Intervention Page 1 of25 Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation *223 organized under the laws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox Corporation acquired Defendant ACS in 2010. On information and belief, ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012. Defendants are referred to hereinafter as "Xerox Defendants." 3. Westmoreland Dental, PA, Westmoreland Dental of Garland, PC, Westmoreland Dental and Orthodontics, PA (hereinafter Westmoreland) are approved Medicaid providers, and can be served through the undersigned counsel.
Dr. Scottie H. Nguyen [1] is a licensed Texas dentist, approved Medicaid provider, and the 4. owner of Westmoreland. Dr Nguyen can be served through his undersigned counsel.
II. Jurisdiction and Venue 5. This Court has subject-matter jurisdiction in that the amounts sought by Intervenors from all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this court. Intervenors affirmatively plead that this suit is not governed by the expedited-actions process in TEXAS RULE OF CIVIL PROCEDU RE 169 because intervenors seek monetary relief over $100,000. 6. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenors' claims; b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in this petition [1] For the sake of simplicil:y, the lntervenors will be collectively referred to as "Westmoreland" unless expressly noted. Plea in Intervention Page 2 of25
in whole or part in Texas. 7. Venue is proper in Travis County under TRCP §15.020 because this suit involves a *224 "major transaction"; Venue is permissive under TRCP § 15.035(a) because Intervenor asserts claims for breach of contract. Venue is proper pursuant to TRCP §15.02 because all or a substantial part of the events or omissions giving rise to the claim occurred in Travis County. Many of the unlawful acts committed by the State and Xerox Defendants were committed in Travis County, including the making of false statements and misrepresentations of material fact.
III. lntervenors' Interest in the Suit 8. Intervenors Westmoreland Dental, PA, Westmoreland Dental of Garland, PC, Westmoreland Dental and Orthodontics, PA, and Scottie H. Nguyen, DDS have a judicial interest in the matters and controversy in this litigation. The relationship between Intervenors, the State as the Plaintiff and the Xerox Defendants is a tripartite arrangement necessitating that, in the interest of jud icial economy and justice, all claims be bound and subsumed into one cause of action. Upon information and belief, Intervenors were initially sued by the State in a qui tam action wherein the State alleged that Intervenors defrauded the State. The State has elected to pursue its remedies against the lntervenors in an administrative hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the State. lntervenors have claims against both the State and Xerox. It is assumed that Xerox will have claims against the State, and perhaps allege claims against the Intervenors. All of the different parties' claims are inextricably intertwined, as they relate to Intervenors' submission of prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and legal duties, and State's subsequent legal action against the Intervenors for services approved by Plea in Intervention Page 3 of25 Xerox.
IV. Facts *225 What is Prior Authorization? 9. Texas Medicaid requires that orthodontic services be independently and objectively scrutinized before the State consents to treatment and payment. Prior authorization is the mechanism the State uses to detennine the medical necessity of non-emergency orthodontic items/serv ices prior to delivery of those items/serv ices. Pursuant to Texas Health and Human Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it w ill pay for orthodontic services:
Orthodontic services for cosmetic reasons only are not a covered Medicaid service. Orthodontic services must be prior authorized and are limited to treabnent of severe handicapping malocclusion and other related conditions as described and measured by the procedures and standards published in the [TMPPM [2]
]. 25 TEX. ADMJN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance to the orthodontic provider that, absent an intervening disqualify ing factor, the delivery of the requested orthodontic service has been deemed by Xerox to be medically necessary, and therefore approved by the State. 10. The prior authorization process is straightforward. Texas Medicaid requires that a dental provider send documentation (x-rays, cephalographs, photos, etc.) regarding the patient's orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his professional opinion of the patient on a Handicapping Labia-lingual Deviation index (HLD) score sheet. Xerox knew providers relied entirely on the prior authorization process because approval was a mandatory prerequisite to providing orthodontic services and being paid. Once [2] "TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides valuable guidance to Medicaid providers. Plea in Intervention Page 4 of25 Xerox issued its prior authorization decision, the decision was not appealable by the provider. 11. The HLD scoring system combines a number of treatable orthodontic conditions into an *226 index. HLD score sheets use a mix of objective and subjective conditions to determine whether a Medicaid patient qualifies for orthodontic services. The fact that the HLD score sheet requires both objective and subjective findings highlights the importance of Xerox perfonning a thorough prior authorization review. The History of Orthodontic Prior Authorization. 12. The process for reviewing and approving orthodontic prior authorization requests pre- dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage 1nsurance Corporation (NHIC) was responsible for reviewing prior authorization requests before Xerox assumed the contract in January 2004. Starting January l, 2004, Xerox acted as an independent contractor, and was a contracted agent of the State, under the contract with HHSC. Xerox was responsible for reviewing each orthodontic service request, and Xerox was further charged with the responsibility to grant or deny each prior authorization request per the program requirements. The result was that Xerox had the final say in determining the medical necessity of each request for orthodontic services. 13. Prior to assuming the NHIC contract, and for a period ohime after assuming the contract from NHIC, Xerox received training from NHIC personnel regarding the proper method for receiving and processing orthodontic prior authorization requests. NHIC personnel explained how and why the review of each prior authorization submission was important, and walked Xerox through the process. Despite its training from NHIC, Xerox had no intention of following the prior authorization system that had been in place for years, nor did Xerox intend to otherwise meet the prior authorization requirements set out in its contract, the TMPPM and required by Plea in Intervention Page 5 of25 state law. Xerox rejects its contractual responsibilities. *227 14. When Xerox took over the contract in 2004, it immediately abandoned the prior authorization review process that had been setup by NHIC. Xerox never intended to fulfill its orthodontic prior authorization responsibilities to HHSC. From 2004 to 20 L I, Xerox continually misrepresented that it was acting in compliance with its contractual duties. 15. It is now known that Xerox failed to adequately staff their prior authorization division with knowledgeable medical professionals. Xerox employed only one licensed dentist fro m 2004 through 2011, which was far short of the manpower necessary to handle the review of tens of thousands of orthodontic prior authorization requests every year. Xerox could not reasonably have expected to handle such a workload by employing only one dentist. Xerox ootentially commits thousands of violations. 16. It is believed Xerox allowed "dental specialists"-unliccnsed, unqualified individuals- to render prior authorization opinions regarding the medical necessity of requested orthodontic services. The " dental specialist" approvals were not reviewed or ratified by Xerox's licensed dental director or another qualified dental professional. These actions not only violated Xerox's contractual obligations, they may have also violated other Texas law such as the Dental Practice Act. 3
lt is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior authorization approvals/medical opinions in violation of Texas law. 17. Xerox was paid by the state for each prior autho rization decision that was made. It is bel ieved that Xerox employed unlicensed "specialists," rather than licensed Texas dentists, as a [3] Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditions of the human teeth and mouth. Section 256.001 states that a person may not practice dentistry without a license. Thus, state law requires that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section 264. 151 prescribes penalties for certain violations of the Dental Practice Act. Plea in Intervention Page 6 of25 profit generating measure. 18. From January 2005 through February 20 12, Intervenor submitted prior authorization *228 requests, as required, to Xerox for a determination of medical necessity. Unbeknownst to intervenor, Xerox's dental specialists-not the dental director-approved almost all of Intervenor's requests. Xerox's prior authorization approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or b) the approval had been issued by a licensed dentist, and/or c) the approval was an actual and legitimate dental diagnosis, and/or d) the requested orthodontic services were allowable under Texas law and as permitted
by Medicaid policy, the TMPPM, and HHSC rules, and/or e) a proper, thorough and legal review hod been made, and/or t) future orthodontic services would be properly reimburseable to lntervenors, absent
some intervening disqualification (such as the patient's ineligibility). 19. Because Xerox. was charged with determining medical necessity, and because prior authorization approval was a mandatory prerequisite to furnishing services, the promises were material. lntervenors expected performance of these promises. Jntervenors relied on Xerox. Further, Xerox promised that its subsequent payments to Intervenors (after the services bad actually been delivered) were made because the services had been, in fact, properly approved as medically necessary. Each prior authorization approval represents a separate violation of the law if Xerox's approval was issued illegally and/or in violation of its contractual obligations. Xerox actively concealed its potentially illegal activity. 20. Xerox withheld the truth regarding its prior authorization program. In an attempt to publicly appear consistent with NHIC's prior authorization process, Xerox continued to require Plea in Intervention Page 7 of25 that dental providers (such as I.ntervenor) submit all supporting documentation for each HLD score sheet. It is now believed that, incredibly, Xerox did nothing with that documentation, other *229 than assure that it had been submitted by the provider. lt is believed that Xerox's specialists were instructed to forward to its dental director only those requests that had scored below the threshold for orthodontic services (i.e. below 26 points on the HLD score sheet), or had some provider justification attached. As a result, only I 0% of the orthodontic prior authorization requests were actually forwarded to Xerox's one licensed dentist. Xerox's actions were calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox knew that its actions were entirely inconsistent with tbe letter and spi rit of its obligations. Effectively, then, Xerox 's actions not only damaged the Medicaid program directly by approving services without determining their medical necessity, but Xerox's deception also exacerbated the problem by failing to give providers guidance regarding the proper standard for medical necessity, thus causing these providers substantial damages. 21. For the past ten years, Xerox bas continued to publicly represent to the world that it was fulfilling its contractual and legal responsibilities. Based on Xerox's representations that it was fulfilling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004 through the present. Each year that Xerox had its contract renewed, it represented that it would fulfill its contractual obligations and abide by Texas law requiring that decisions about medical necessity be rendered on ly by licensed dentists. Xerox made those representations knowing that it had not done so in the past, and had no intention of changing its procedures to do so in the future. The Frew decision magnifies Xerox's acts. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to 22. Plea in Intervention Page 8 of2S implement a corrective action plan that increased the Medicaid reimbursement rates to all dental providers. That plan was required pursuant to the Frew case [4]
, which was a 1993 class-action *230 lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that they prevented indigent children from receiving time ly, com prehensive health care. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707 23. million ($1.8 billion in state and federal funds combined) to increase medical and dental reimbursement rates. The increase in dental reimbursement rates was intended lo entice dentists to become Medicaid providers. It worked. The state raised payment rates for dental services, and, as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to 63 .4% in 20 I 0. As expected indeed, as intended spending on Texas's dental services increased dramatically. 24. Although the number of prior approval requests increased by 240% between 2007 and 20 I 0, Xerox continued to employ on ly one dentist. That dentist was neither tasked with nor responsible for supervising the clerical specialists that were issuing the approvals. 25. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox was the sole entity responsible for overseeing this increase, because it was the sole gatekeeper for the approval and payment of orthodontic services. Although the Texas Legislature had increased funding lo attract dentists into the Med icaid program, all o f the budgeted funds were required to be spent only on med ically necessary services. The Office o f Inspector General seeks recovery from Med icaid providers. [4] Frew v. Gilbert, 109 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F.3d 530 (5th Cir. 2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431, 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and affd in part, appeal dismissed in part sub nom. Frazar v. Hawkins, 376 F.3d 444 (5th Cir. 2004); Frew v. Hawkins, 401 F. Supp. 2d 619 (E.D. Tex. 2005) afj'd sub nom. /•razor v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v. Frew, 549 U.S. 1118, 127 S. a. l039, 166 L. Ed. 2d 714 (2007). Plea in Intervention Page 9 of25 26. In early 2011, a series of news stories began highlighting the large amount of money being spent on orthodontics in Texas. In July 201 l, the Federal government notified Texas of its *231 intent to audit whether Texas' prior authorization process was ensuring that only medically necessary orthodontic cases were being approved and paid. With the prospect of a federal clawback action looming against Texas because of Xerox's prior authorization failures, the Texas Office of Inspector General (hereinafter "State") took a drastic step. Beginning in 2011, the State generated a list of the top Medicaid orthodontic billers and placed them on " payment hold." Intervenor was one of those providers. 27. Given Intervenors' proximity to some of the state's poorest children, and the mandates of the Frew decision, lntervenor served a large Medicaid patient population. Because it served a large Medicaid population, it submitted a large number of prior authorization requests to Xerox from 2004 through 20 l l. 28. Intervenors did not know that Xerox was failing to perform a true and accurate review for medical necessity. lntervenors relied on Xerox's prior authorization approvals to confirm that dentists' analysis was proper and consistent with Medicaid standards and requirements. 29. Again unbeknownst to Intervenors, State audits in 2008 and 2012 concluded that most, if not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater (indicating medical necessity) had not been actually "evaluated" at all by Xerox. These State audits made the Federal government's pending audit especially dangerous to Texas, because the 2008 and 2012 audits were admissions that Xerox had been approving and paying claims that may not have met the federal standards for prior authorization. Thus the State, through the Attorney General, concluded that a true finding of medical necessity had in reality not occurred. The Attorney General claimed that billing for services that are not necessary is fraud, despite Plea in Intervention Page 10 of25 Xerox's prior authorization approvals. 30. It is now believed that rather than prosecute Xerox for its failure to properly evaluate *232 dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox. This protection included the State failing to allow ™HP to hire additional medically licensed staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the Attorney General took immediate action against the providers, the Attorney General refused to hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its violation of State law. Instead, the Attorney General made fraud allegations against each of the top 25 dental providers, including Intervenor, which has caused more injury and damages to Intervenors. Stated differently, Xerox issued its approvals through a process that gutted the State's belief in the accuracy of Xerox's decision, and the Texas Attorney General punished the providers instead of Xerox. 31. Because the acts/omissions of Xerox so undermined the process, the State eventuallyinstituted a "payment hold" against intervenor. A payment hold temporarily freezes future Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid program. The payment hold against Intervenor was issued pursuant to what the State called a "credible allegation of fraud" regard ing Intervenor's orthodontic prior authorization requests. The State placed a 100% payment hold against Intervenor's orthodontic billings. 32. At the time the Attorney General began prosecuting Intervenor and similarly situated Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to authorize orthodontic services and payments. The Attorney General knew that the State's audits of Xerox in 2008 and 2012 had concluded that Xerox was violating its contract with the State, violating its own State-approved policies and procedures, and violating State law. Nevertheless, Plea in Intervention Page 11 of 25 the Attorney General continued to only prosecute dental providers like the Intervenor; the Attorney General refused to hold Xerox responsible. In fact, in one shameless and brazen *233 demonstration of State's unwavering protection of Xerox, the Deputy Director of Texas' Ot1ice of the Inspector General testified in a hearing that Xerox's acts and omissions were so egregious they were outside the course and scope of Xerox's agency with State. 5 Upon infonnation and belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing the State's culpability would subject the State to a federal clawback for hundreds of millions of dollars. Instead, the State and the Attorney General pointed at the dental providers. 33. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for over 6 years, became too much to hide. Three months after some providers filed suit against Xerox, and following a series of news stories questioning why Xerox had not suffered for its failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas Attorney General, filed this lawsuit against Xerox for fraud, basically mirroring the suit filed approximately 100 days earlier by similarly situated providers. The State's claims in this fraud lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were improper. 34. As a result of the payment hold, Intervenor was required to make significant financial concessions and changes to its business. Interv enor also engaged legal counsel to defend itself from the State's claims, at a significant expense that cont inues today. 35. The State's allegations against Intervenor are rooted in two assumptions. First, the State assumes Intervenor's prior authorization requests were not properly vetted by Xerox; that is, [5] Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that the State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox. Plea in Intervention Page 12 of25 Xerox approved Intervenor's requests without knowing whether approval was actually proper. Because Xerox is not a party to Intervenor's admin istrative case, Intervenor is prevented from *234 determining whether Xerox did, in fact, perform a proper review of Intervenor's prior authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question, and finally determine whether Xerox reviewed Intervenor's requests as required by its contract and the law. 36. Regarding the State's second assumption, the State alleges some of Intervenor's requests were approved when, in fact, they should have been denied. Intervenor denied that assertion in the administrative case, and Intervenor continues to deny that claim here. All services provided to Intervenor' s patients were actually medically necessary, regardless of what Xerox decided and in any event under Medicaid guidelines once the authorization was approved, Intervenor was required to provide the services. 37. The State continues to aggressively fight any allegation or affinnative defense that could result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action A. Intervenors' Claims Against Xerox Common Law Fraud (Fraudulent Misrepresentation and Fraudulent inducement) 38. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's prior authorization approvals were false representations made to Jntervenor. It is believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew that it was approving requests without a proper medical review, and/or because it approved the prior authorization requests without any knowledge of their truth. It is believed Xerox intended Plea in Intervention Page 13 of25 for Intervenor to rely on the approvals as a prerequisite for providing the requested services. Approva1 was material because it was a mandatory prerequisite for payment. Intervenor actually *235 and justifiably relied on Xerox's fraudulent approvals. 39. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in the same or similar manner, and led Intervenor to believe that their requests were consistent with Medicaid standards and requirements. 40. Xerox's fraudulent approvals caused injury to Intervenor. As a result of Xerox's actions, Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor was placed on payment hold, Intervenor is forced to defend itself in an administrative payment hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including claims for treble damages and attorney fees). Intervenor's reputation and business have suffered severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, cou1t costs, and attorney fees.
Breach of the Xerox-State of Texas Contract 41. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper, thorough and legal review of prior authorization requests for the purpose of determining medical necessity. To that end, Xerox should have employed a licensed dentist. 42. Xerox was an agent of the State of Texas engaged specifically for the purpose of determining medical necessity. The third party beneficiaries of that Xerox-State of Texas contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic services that were medically necessary. Intervenor was responsible for actually delivering the Plea in Intervention Page 14 of25 orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a thlrd party beneficiary that relied on Xerox's approvals. *236 43. Xerox breached its contract by, inter a/ia, failing to provide qualified staff; possibly violating Texas law; permitting non-dentists to make determinations of medical necessity; and issuing medical opinions without conducting a reasonable and prudent examination of evidence. The breaches were material, and recurred across many different Medicaid patients and for many years. 44. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing serv ices, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary intelligence should have anticipated that issuing a decision without actually reviewing or considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and reliability of the decision. Once the State assumed that Xerox's approvals were not trustworthy, it was foreseeable that the State would demand repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving thal payment was proper because the services were medically nece ssary and reimbursable under Texas Medicaid law. 45. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages that would have given the lntervenors the benefit of the bargain by putting them in as good a position as they would have been in if the contract had been performed. Intervenor seeks reliance interest damages to restore the expenditures lntervenor made in reliance on Xerox' s contract with the state and the approvals that Xerox made under that contract. Intervenor also Plea in Intervention Page 15 of25 seeks damages for its restitution interest to restore money sought by the Office of the Inspector General from Intervenor. Such damages would put the Intervenors in as good a position as it *237 would have been in if the contract had been properly fu lfi lled. In addition, Intervenor seeks liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Breach of Contract (Promissory Estoppel) 46. Intervenor re-alleges and incorporates the above facts and a llegations as if fully set out herein. In the alternative, Xerox's actions constitute promissory estoppel. 47. Xerox 's prior authorizations constitute prom ises to Intervenor m numerous ways. Because prior authorization was a prerequisite to furnishing services, and because Xerox was tbe entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, and foreseeably relied on Xerox's promises. 48. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Tntervenor has been required to do Xerox's job after the fact-namely, demonstrate that the services were medicaUy necessary and properly reimbursable under Texas Medicaid law. Intervenor has incun-ed benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately caused by Xerox's promises. Plea in Intervention Page 16 of25 Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
*238 Negligent Hiring/Negligent Supervision Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 49. herein. Xerox's actions constitute negligent hiring and/or negligent supervision. Xerox was required to render medical diagnoses. To that end, Xerox was required by law to employ a licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by law to properly supervise its employees to make sure diagnoses were made only by licensed dentists. 50. Xerox knew or should have known that decisions regarding medical necessity can only be rendered by licensed personnel. Texas Occupations Code section 251 .003 defines the practice of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a person may not practice dentistry without a license; section 264.151 makes it a third-degree felony to practice dentistry without a license. 51. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelJigence should have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because those services were medically necessary and were reimbursable under Texas Plea in Intervention Page 17 of25 Medica id law. 52. Intervenor suffered and continues to suffer significant damage. Intervenor suffered *239 reliance damages by investing the cost of services for each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. Intervenor has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. intervenor has suffered exemplary damages because Xerox's conduct was grossly negligent, outrageous and malic ious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligence 53. Intervenor re-alleges and incorporates the above facts and allegations as if fu lly set out herein. Xerox 's actions constitute negligence and gross negl igence. Xerox was required to render medical diagnoses. To that end, Xerox bad a duty to employ a licensed dentist to render a diagnosis supporting or denying medical necessity. Xerox had a duty to assure that the personnel had appropriate education, training and experience to render such a finding. Xerox had a duty to review the supporting prior authorization documentation (such as x-rays and photos) to determine whether the requested services were medically necessary. 54. Xerox's actions breached the standard of care because Xerox: failed to provide prior authorization staff that were properly licensed, qualified and experienced dental professionals; violated the law, specifically the Dental Practice Act, by permitting non-dentists to make determinations of medical necessity, and; issued medical opinions (prior authorizations) without Plea in Intervention Page 18 of25 conducting a reasonable and prudent examination of evidence. 55. Xerox's actions proximately caused Intervenor 's injury. Intervenor's injuries were *240 caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Tntervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying In tervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact. 56. Intervenor suffered and continues to suffer s ignificant damage to its reputation, business, referral base, earnings and earning power. [ntervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Dr. Nguyen bas suffered inconvenience and loss of enjoyment of life in that he has had to dedicate s ignificant mental and personal capital to doing Xerox's job. Intervenor has suffered exemplary damages because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. [ntervenor seeks recovery of actual and exemplary damages, inlerest, court costs, and attorney fees.
Negligent Misrepresentation 57. lntervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negligent misrepresentation. Xerox's actions constitute misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization approval was a prerequisite to furnishing services, these representations guided and controlled lntervenor's responses. Intervenor justifiably relied on these representations. Further, Xerox Plea in Intervention Page 19of25 represented that its prior authorization approvals were dispositive of medical necessity; Intervenor expected that, once approved, no further inquiry into the medical necessity of the *241 services would be required. Further, Xerox represented that its subsequent payments to Intervenor (after the services had actually been del ivered) were made because services bad been, in fact, properly approved as medically necessary. 58. Xerox did not exercise reasonable care or competence in making its determinations and representations. Xerox knew or should have known that its representations were false. 59.
Because prior authorization was a prerequisite to furnish ing services, and because Xerox was the entity charged with djscharging prior authorization duties, Intervenor reasonably, substantially, foreseeably, and justifiably relied on Xerox' s representations. 60. Intervenor suffered and continues to suffer significant damage. Intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact. Intervenor bas incurred benefit of the bargain damages, out-of-pocket damages, lost profits, loss of credit, and loss of goodwi ll. All of these damages were directly and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of actual and exem plary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property 61. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out here in. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary property which would entitle lntervenors to unlimited punitive damages. B. lntervenors' Claims Against The State of Texas Plea in lntervention Page 20 of25
Waiver of Sovereign Immunity 62. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. For a number of reasons, the State has waived sovereign immunity for claims by *242 lntervenor, including the facts that the State brought, threatened and/or has taken civil and/or administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint Enterprise Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 63. herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that acts and om issions of Xerox were so egregious as to be outside the course of scope of Xerox's agency relationship with the State. Assuming same to be true, then the State conspired with Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from Intervenor but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime. 64. The State conspired with Xerox to allow Xerox to violate its various contractual duties. The State permitted Xerox to process as many prior authorizations as possible without the required clinical dental review and without using medically knowledgeable personnel. The State conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations submitted by the dentists . The conspira cy was committed with the intent to shift blame from the State and its agent, improperly blame the Intervenors, and enrich the State and Xerox. By recouping money from providers that were not actually to blame, the State and Xerox hoped to limit their own liability in the event of a Federal clawback action, and/or respond to unflattering news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the party to blame the dentist providers for their own improper acts and omissions is a proximate Plea in Intervention Page21 of25 cause of the injury to lntervenors.
Not Liable for Illegal Acts of Third Party 65. [ntervenor re-alleges and incorporates the above facts and allegations as if fully set out *243 herein. As alleged by the State in Section VUI paragraph 46 of the State's petition, Xerox has committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide proper prior authorization review in rubber stamping the doctors prior authorization requests is not the fau lt of the doctors. The doctors are not responsible for or liable to the State for the illegal acts of a third party for which the doctors had no control; the State should not withhold money from the Intervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract 66. Intervenor rc-aJJeges and incorporates the above facts and allegations as if fully set out herein. lntervenors are a direct or third party beneficiary of the contract with Xerox and the State of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox and/or reviewing the work product of Xerox. This breach by State, which allowed non- performance by Xerox, bas created the pretext by which the State affirmatively sued lntervenors for repayment. To the extent that the State has withheld money and/or made claims for damages against Intervenors based on the contracts in question, the State has waived immunity and is I iable up to those amounts plead.
Conversion 67. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. State and Federal law required Intervenor to request prior authorization for orthodontic services. Those prior authorization requests were approved by Xerox, which required Intervenors to provide the services. The State has unilaterally made a decision to that, based on the acts and Plea in Intervention Page 22 of25 omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor on a payment hold. To the extent that Intervenor has provided services for which Intervenor should be paid, and money which has been earmarked by the State for that payment but withheld, *244 the State has converted the funds. In addition, the States' acts/omissions are a violation of the Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under the pretext of a payment hold.
VI. Damages 68. lntervenors have suffered and are entitled to recover damages including, but not limited to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion 69. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent hiring, negligence, and gross negligence. Xerox's actions have subjected Intervenor to unnecessary civil and administrative legal action, and that, in tum has caused additional injury. Xerox's actions have required Intervenor to perform Xerox's job after-the-fact, by proving to the State that the orthodontic services rendered were medically necessary and appropriate for reimbursement. The State's actions have harmed Intervenor because the state's conspiracy to improperly blame the dentists has resulted in meritless legal claims against the lntervenors and conversion of the Intervenor's property.
VIII. Jury Demand 70. Intervenors respectfully requests a trial by jury. IX. Request for Disclosure Plea in Intervention Page 23 of25 71. Under Texas Rule of Civil Procedure 194, Intervenors request that Plaintiff the State disclose, within 50 days of the service of this request, the infonnation or material described in Rule 194.2. *245 72. Wherefore, premises considered, Intervenors Westmoreland Dental, PA, Westmoreland Dental of Garland, PC, Westmoreland Dental and Orthodontics, PA, and Scottie H. Nguyen, DDS pray that upon final hearing of the cause, judgment be entered jointly and severally against the Plaintiff the State of Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and post judgment interest at the legal rate, costs of court, and other such reliefto which the Tntervenors may be entitled.
Respectfully .submitted, J son Ray Texas Bar No. 240 05 RIGGS, ALESHIRE & RAY, P.C. 700 Lavaca, Suite 920 Austin, Texas 78701 (512) 457-9806 (Telephone) (512) 457-9866 (Fax) jray@r-alaw.com
/s/ Hart Green w/ pennission by J Ray E. Hart Green Texas Bar No. 08349290 Mitchell A. Toups Texas Bar No. 20151600 WELLER, GREEN, TOUPS & TERRELL, L.L.P. Post Office Box 350 Beaumont, Texas 77704-0350 ( 409) 838-0 I 0 I (Telephone) (409) 832-8577 (Fax) hartgr@wgttlaw.com matoups@wgttlaw.com
Plea in Intervention Page 24 of25
ATTORNEYS FOR INTERVENORS, WESTMORELAND DENTAL PA, WESTMORELAND DENT AL OF GARLAND,
PC, WESTMORELAND DENTAL AND
ORTHODONTICS, PA, AND SCOTTIE H.
NGUYEN,
*246 DDS
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing Plea in Intervention was served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on the fo llowing: Eric J .R. Nichols Beck Redden 515 Congress Avenue, Suite 1750 Austin, Texas, 7870 I EN IC HOLS@beckredden.com Attorney for Xerox Defendants Raymond Winter Chief, C ivil Medicaid Fraud Division Assistant Attorney General Office of the Attorney General P.O. Box 12548 Austin, Texas 787 11-2548 raymond. winter@texasattomeygeneral.gov Attorney for the Plaintiff State of Texas Plea in Intervention Page 25 of25
CAUSE NO. D-t-GV-14-000581 VICTOR M. ZURITA, DDS § IN THE DISTRICT COURT § INTERVENOR, § *247 vs.
§
§
THE STATE OF TEXAS, § PLAINTIFF, § § 53rt1 JUDICIAL DISTRICT vs.
§
§ §
XEROX CORPORATION; XEROX STATE HEALTHCARE, LLC; ACS § STATE HEALTHCARE, LLC, A XEROX § § CORPORATION §
DEFENDANTS. TRAVIS COUNTY, TEXAS PLEA IN INTERVENTION
TO THE HONORABLE JUDGE OF SAID COURT:
NOW COMES, Victor M. Zurita, DDS, hereinafter Intervenor, and file this Plea in Intervention, and in support hereof, would respectfully show the Court the fo llowing: I. Parties and Service 1. Plaintiff, State of Texas, has appeared in this action and may be served with a notice of this Plea by sending a copy to its attorney, the Attorney General of Texas, Greg Abbott, at P. 0 . Box 12548, Austin, Texas 78711-2548. 2. Defendant Xerox Corporation is a corporation organized under the laws of New York has agreed to accept service with process upon its Attorney in this suit. Defendant Xerox State Health Care, LLC, f/k/a ACS State Healthcare, LLC (misnamed by the State of Texas as ACS State Healthcare, LLC, a Xerox Corporation is a wholly-owned subsidiary of Xerox Corporation o rganized under the l aws of the State of Delaware with Texas offices at 2828 N. Haskell Ave., Dallas, Texas 75204, and has agreed to accept service with process upon its Attorney in this suit. Plea in Intervention Page l of25 Defendant Xerox Corporation acquired Defendant ACS in 2010. On information and belief, ACS State Healthcare, LLC, changed its name to Xerox State Healthcare, LLC, on April 1, 2012. Defendants are referred to hereinafter as "Xerox Defendants." *248 3. Victor M. Zurita. DDS is a licensed Texas dentist, approved Medicaid provider. Victor M. Zurtita, DDS can be served through his undersigned counsel.
II. Jurisdiction and Venue 4. This Court has subject-matter jurisdiction in that the amounts sought by lntervenor from all parties (both Plaintiff and Defendants) are in excess of the minimal jurisdiction limits of this court. Intervenor affirmatively pleads that this suit is not governed by the expedited-actions process in TEXAS RULE OF CIVIL PROCEDURE 169 because Intervenor seeks monetary relief over $100,000. 5. This Court has jurisdiction over all parties in this petition because:
a) The State has waived sovereign immunity and is subject to Intervenor's claims; b) This Court has jurisdiction over Xerox Defendants because each Defendant does
business in the State of Texas and committed the unlawful acts alleged in th is petition in whole or part in Texas.
6. Venue is proper in Travis County under TRCP § 15.020 because this suit involves a " major transaction"; Venue is pennissive under TRCP §15.035(a) because Intervenor asserts claims for breach of contracL Venue is proper pursuant to TRCP § 15.02 because all or a substantial part of the events or omissions giving rise to the claim occurred in Travis County. Many of the unlawful acts committed by the State and Xerox Defendants were committed in Travis County, including the making of false statements and misrepresentations of material fact. Plea in Intervention Page 2 of25
m. Intervenor's Interest in the Suit 7. Intervenor has a judicial interest in the matters and controversy in this litigation. The relationship between Intervenor, the State as the Plaintiff and the Xerox Defendants is a tripartite *249 arrangement necessitating that, in the interest of judicial economy and j ustice, all claims be bound and subsumed into one cause of action. Upon information and belief, Intervenor was initially sued by the State in a qui tam action wherein the State alleged that Intervenor defrauded the State. The State has elected to pursue its remedies against the Intervenor in an administrative hearing. Now, the State has sued Xerox in State Court on the same facts, alleging that Xerox has committed fraud against the State. Intervenor has claims against both the State and Xerox. It is assumed that Xerox will have claims against the State, and perhaps allege claims against the Intervenor. All of the different parties' claims are inextricably intertwined, as they relate to Intervenor's submission of prior authorization requests to Xerox, the handling of those claims by the Xerox Defendants, the State's handling and oversight of its agent Xerox in Xerox's performance of its contractual and legal duties, and State's subsequent legal action against the lntervenors for services approved by Xerox.
IV. Facts What is Prior Authorization? 8. Texas Medicaid requires that orthodontic services be independently and objectively scrutinized before the State consents to treatment and payment. Prior authorization is the mechanism the State uses to determine the medical necessity of non-emergency orthodontic items/services prior to delivery of those items/services. Pursuant to Texas Health and Human Services Commission (hereinafter "HHSC") rules, Texas Medicaid greatly restricts when it will pay for orthodontic services: Plea in Intervention Page 3 of25
Orthodontic services for cosmetic reasons only are not a covered Medicaid service. Orthodontic services must be prior authorized and are limited to treatment of severe handicapping malocclusion and other related cond itions as described a nd measured by the procedures and standa rds published in the [TMPPM [1]
]. *250 25 Tux. ADMTN. CODE §33.71 (emphasis added). Prior authorization is a statement of assurance to the orthodontic provider that, absent an interven ing disqualifying factor, the deli very of the requested orthodontic service has been deemed by Xerox to be med ically necessary, and therefore approved by the State. 9. The prior authorizatio n process is straightforward. Texas Medicaid requires that a dental provider send docwnentation (x-rays, cephalographs, photos, etc.) regarding the patient's orthodontic condition to Xerox for review. In addition, the orthodontic provider submits his professional opinion of the patient on a Handicapping Labio-lingual Deviation index (HLD) score sheet. Xerox knew prov iders relied entfrely on the prior authorization process because approval was a mandatory prerequisite to providing orthodontic serv ices and being paid . Once Xerox issued its prior authorization decision, the decision was not appealable by the provider. 10. The HLD scoring system combines a number of treatable orthodontic conditions into an index. HLD score sheets use a mix of objective and subjective conditions to determine whether a Medicaid patient quali fies for orthod ontic serv ices. The fact that the HLD score sheet requires both objective and subjective findings highl ights the importance of Xerox performing a thorough prior authorization review. The History of Orthodontic Prior Authorization. l l. The process for reviewing and approving orthodontic prior authorization requests pre- dates the defendant Xerox's handling of Medicaid claims processing. The National Heritage [1] "TMPPM" is the Texas Medicaid Provider Procedures Manual, which is issued yearly by the HHSC and provides valuable guidance to Medicaid providers. Plea in Intervention Page4 of25 Insurance Corporation (NHIC) was responsible for reviewing prior authorization requests before Xerox assumed the contract in January 2004. Starting January I, 2004, Xerox acted as an independent contractor, and was a contracted agent of the State, under the contract with HHSC. *251 Xerox was responsible for reviewing each o rthodontic service request, and Xerox was further charged with the responsibility to grant or den y each prior authorization request per the program requirements. The result was that Xerox had the final say in determining the medical necessity of each request for orthodontic services. 12. Prior to assuming the NHIC contract, and for a period of time after assum ing the contract from NHIC, Xerox received training from NHIC personnel regarding the proper method for receiving and processing orthodontic prior authorization requests. NH TC personnel explained how and why the review of each prior authorization submission was important, and walked Xerox through the process. Despite its training from NHIC, Xerox had no intention of following the prior authorization system that had been in place for years, nor did Xerox intend to otherwise meet the prior authorization requirements set out in its contract, the TMPPM and required by state law. Xerox rejects its contractual responsibilities. 13. When Xerox took over the contract in 2004, it immediately abandoned the prior authorization review process that had been setup by NHIC. Xerox never intended to fulfill its orthodontic prior authorization responsibilities to HHSC. From 2004 to 2011, Xerox continually misrepresented that it was acting in compliance with its contractual duties. 14. It is now known that Xerox failed to adequately staff their prior authorization division with knowledgeable med ical professionals. Xerox employed only one licensed dentist from 2004 through 2011, which was far short of the manpower necessary to handle the review of tens of Plea in Intervention Page 5 of25 thousands of 01t hodontic prior authorization req uests every year. Xerox could not reasonably have expected to handl e such a workload by employing only one dentist. Xerox potentially commits thousands of violations. *252 15. It is believed Xerox allowed "dental specialists"-unlicensed, unquali fied individuals- to render prior authorization opinions regarding the medical necessity of requested orthodontic services. The "dental specialist" approvals were not reviewed or ratified by Xerox's licensed dental director or another qualified dental professional. These actions not only violated Xerox's contractual obl igations, they may have also violated other Texas law such as the Dental Practice Act.2 It is believed these unlicensed Xerox "specialists" rendered tens of thousands of prior authorization approvals/medical opinions in violation of Texas law. 16. Xerox was paid by the state for each prior authorization decision that was made. It is believed that Xerox em ployed unlicensed "specialists," rather than licensed Tex.as dentistc;, as a profit generating measure. 17. From January 2005 through February 2012, lntervenor submitted prior authorization requests, as required, to Xerox for a determ ination of medical necessity. Unbeknownst to Intervenor, Xerox's dental specialists-not the dental director- approved almost all of lntervenor's requests. Xerox's prior authorizat ion approvals were promises that:
a) the requested orthodontic services were medically necessary, and/or b) the approval had been issued by a licensed dentist, and/or c) the approval was an actual and legitimate dental diagnosis, and/or d) the requested orthodontic services were allowable under Texas law and as permitted [2] Texas Occupations Code §251.003 prevents unlicensed individuals from diagnosing conditioDs of the human teeth and mouth. Section 256.001 state.s that a person may not practice dentistry without a license. Thus, state law requi res that opinions regarding medical necessity of orthodontic treatment must be made by licensed dentists. Section 264.151 prescribes penalties for certain violations of the Dental Practice Act. Plea in Intervention Page 6 of 25 by Medicaid po licy, the TMPPM, and HHSC rules, and/or
e) a proper, thorough and legal review had been made, and/or f) future orthodontic services w ould be properly reimburseable to lntervenor, absent some
*253 intervening disqualification (such as the patient's ineligibility). 18. Because Xerox was charged with determining medical necessity, and because prior authoriz ation approval was a mandatory prerequisite to furnishing services, the promises were material. Intervenor expected perfonnance of these promises. Intervenor relied on Xerox. Further, Xerox promised that its subsequent payments to Intervenor (after the services had actually been delivered) were made because the services had been, in fact, properly approved as medically necessary. Each prior authorizat ion approval represents a separate violation of the law if Xerox's approval was issued illegally and/or in violation of its contractual obl igations. Xerox actively concealed its potentially illegal activity. 19. Xerox withheld the truth regarding its prior authorization program. ln an attempt to publicly appear consistent with NHIC 's prior authorization process, Xerox continued to require that dental providers (such as Intervenor) submit all supporting documentation for each HLD score sheet. It is now believed that, incredibly, Xerox did nothing with that documentation, other than assure that it had been submitted by the provider. It is believed that Xerox's specialists were instructed to forward to its dental director only those requests that had scored below the threshold for orthodontic services (i .e. below 26 points on the HLD score sheet), or had some prov ider justification attached. As a resu lt, only I 0% of the orthodontic prior authoriz.ation requests were actually forwarded to Xerox's one licensed dentist Xerox's actions were calculated to make Xerox appear compliant with its contract and HHSC policies, while Xerox knew that its actions were entfrely inconsistent with the letter and spirit of its obligations. Plea in Intervention Page 7 of25 Effectively, then, Xerox's actions not only damaged the Medicaid program directly by approving services without detennining their medical necessity, but Xerox's deception also exacerbated the problem by failing to give providers guidance regarding the proper standard for medical *254 necessity, thus causing these providers substantial damages. 20. For the past ten years, Xerox has continued to publicly represent to the world that it was fulfi lling its contractual and legal responsibi lities. Based on Xerox's representations that it was fulfilling its duties to the State, Xerox had its contract with HHSC repeatedly renewed from 2004 through tbe present. Each year that Xerox had its contract renewed, it represented that it would fulfill its contractual obligations and abide by Texas law requiring that decisions about medical necessity be rendered only by licensed dentists. Xerox made those representations knowing that it had not done so in the past, and had no intention of changing its procedures to do so in the future. The Frew decision magnifies Xerox 's acts. In September 2007, after fifteen years of litigation on the subject, Texas was ordered to 21. implement a corrective action plan that increased the Medicaid reimbursement rates to all dental providers. That plan was required pursuant to the Frew case 3
, which was a 1993 class-action lawsuit against the HHSC alleging that Texas' Medicaid reimbursement rates were so low that they prevented indigent children from receiving timely, comprehensive health care. In response to Frew 's corrective action plan, the 2007 Texas Legislature allocated $707 22. million ($1.8 billion in state and federal funds combined) to increase med ical and dental [3] Frew v. Gilbert, I 09 F. Supp. 2d 579 (E.D. Tex. 2000) vacated sub nom. Frazar v. Gilbert, 300 F .3d 530 (5th Cir. 2002) rev'd sub nom. Frew ex rel. Frew v. Hawkins, 540 U.S. 431 , 124 S. Ct. 899, 157 L. Ed. 2d 855 (2004) and ajfd in parl, appeal dismissed in part sub nom. Frazar v. llawki11s, 316 F.3d 444 (5th Cir. 2004); Frew v. Hawkins, 401 F. Supp. 2d 619 (E.D. Tex. 2005) affd sub nom. Frazar v. Ladd, 457 F.3d 432 (5th Cir. 2006); Hawkins v. frew, 549 U.S. 1118, 127 S. a. 1039, 166 L. Ed. 2d 7 14 (2007). Plea in Intervention Page 8 of25 reimbursement rates. The increase in dental reimbursement rates was intended to entice dentists to become Medicaid providers. It worked. The state raised payment rates for dental services, and, as a result, the number of dentists participating in Medicaid increased from 45.4% in 2007 to *255 63.4% in 2010. As expected indeed, as intended spending on Texas's dental services increased dramatically. 23. Although the number of prior approval requests increased by 240% between 2007 and 20 I 0, Xerox continued to employ only one dentist. That dentist was neither tasked with nor responsible for supervising the clerical specialists that were issuing the approvals. 24. By 2010, orthodontic spending under Texas' Medicaid program had skyrocketed. Xerox was the sole entity responsible fo r overseeing thi s increase, because it was the sole gatekeeper for the approval and payment of orthodontic services. Although the Texas Legislature had increased fu nding to attract dentists into the Medicaid program, all of the budgeted funds were required to be spent only on medically necessary services. The Office of Inspector General seeks recovery from Medicaid providers. 25. In early 2011, a series of news stories began highlighting the large amount of money being spent on orthodontics in Texas. ln July 2011, the Federal government notified Texas of its intent to audit w hether Texas' prior authorization process was ensuring that only medically necessary orthodontic cases were being approved and paid. With the prospect of a federal cl awback action looming against Texas because of Xerox's prior authorization failures, the Texas O ffice of Inspector General (hereinafter "State") took a drastic step. Beginning in 20 I l, the State generated a list of the top Medicaid orthodontic billers and placed them on " payment hold." lntervenor was one of those providers. 26. Given Intervenor's proximity to some of the state's poorest chi ldren, and the mandates of Plea in Intervention Page 9 of25 the Frew decision, Intervenor served a large Medicaid patient population. Because it served a large Medicaid population, it submitted a large number of prior authorization requests to Xerox from 2004 through 20 I I .
*256 Intervenor did not know that Xerox was fa iling to perform a true and accurate review for 27. medical necessity. lntervenor relied on Xerox's prior authorization approvals to confirm that dentists' analysis was proper and consistent with Medicaid standards and requirements. 28. Again unbeknownst to Intervenor, State audits in 2008 and 2012 concluded that most, if not almost all, of the prior authorization requests for patients with HLD scores of 26 or greater (indicating medical necessity) bad not been actually "evaluated" at all by Xerox. These State audits made the Federal government's pending audit especially dangerous to Texas, because the 2008 and 2012 audits were admissions that Xerox had been approving and paying claims that may not have met the federal standards for prior authorization. Thus the State, through the Attorney General, concluded that a true finding of medical necessity had in reality not occurred. The Attorney General claimed that billing for services that are not necessary is fraud, despite Xerox's prior authorization approvals. It is now believed that rather than prosecute Xerox for its failure to properly evaluate 29. dentists' prior authorization requests, the State and the Texas Attorney General protected Xerox. This protection included the State failing to allow TMHP to hire additional medically licensed staff, and in 2008-2009 telling TMHP to continue its prior authorization practices. Although the Attorney General took immediate action against the providers, the Attorney General refused to hold Xerox accountable for its orthodontic "approvals," its repeated contractual failures, or its violation of State law. Instead, the Attorney General made fraud allegations against each of the top 25 dental providers, including Intervenor, which has caused more injury and damages to Plea in Intervention Page 10 of25 Intervenor. Stated differently, Xerox issued its approvals through a process that gutted the State's belief in the accuracy of Xerox's decis ion, and the Texas Attorney General punished the providers instead of Xerox. *257 30. Because the acts/omissions of Xerox so undermined the process, the State eventually instituted a " payment hold" against intervenor. A payment hold temporarily freezes future Medicaid payments to a provider, despite the provider's ongoing participation in the Medicaid program. The payment hold against Intervenor was issued pursuant to what the State called a "credible allegation of fraud" regardi ng Intervenor's orthodontic prior authorization requests. The State placed a I 00% payment hold against Intervenor's orthodontic billings. 31. At the time the Attorney General began prosecuting Intervenor and similarly situated Medicaid providers, it knew Xerox, not Intervenor, had the sole authority and responsibility to authorize orthodontic services and payments. The Attorney General knew that the State's audits of Xerox in 2008 and 20 l 2 had concluded that Xerox was violating its contract with the State, violating its own State-approved pol icies and procedures, and violating State law. Nevertheless, the Attorney General continued to only prosecute dental providers like the Intervenor; the Attorney General refused to hold Xerox responsible. In fact, in one shameless and brazen demonstration of State 's unwavering protection of Xerox, the Deputy Director of Texas' Office of the Inspector Genera! testified in a hearing that Xerox's acts and omissions were so egregious they were outside the course and scope of Xerox' s agency with State. [4] Upon in fonnation and belief, the State and the Attorney General protected Xerox for over 6 years fearing that revealing the State's culpability would subject the State to a federal clawback for hundreds of millions of [4] Incredibly, that testimony came in an administrative proceeding in which the State was seeking $8 million from a dental provider for following Xerox's instructions to provide braces to the provider's patients. The idea that !he State could not hold Xerox responsible for its contractual obligations because Xerox had done such a poor job that it was acting outside of its contract is a novel and imaginative reason not to prosecute Xerox. Plea in Intervention Page 11 of25 dollars. Instead, the State and the Attorney General pointed at the dental providers. 32. Ultimately, the evidence of Xerox's failures, and the State's refusal to correct Xerox for over 6 years, became too much to hide. Three months after some providers filed suit against *258 Xerox, and following a series of news stories questioning why Xerox had not suffered for its failures, the Attorney General reversed course. On May 9, 2014, the State, through the Texas Attorney General, fil ed this lawsuit against Xerox for fraud, basically mirroring the suit filed approximately I 00 days earlier by similarly situated providers. The State's claims in this fraud lawsuit include admissions that the State knew as early as 2006 that Xerox's actions were improper. 33. As a result of the payment hold, Intervenor was required to make significant financial concessions and changes to its business. Intervenor also engaged legal counsel to defend itself from the State 's claim s, at a significant expense that continues today. 34. The State's allegations against Intervenor are rooted in two assumptions. First, the State assumes Intervenor' s prior authorization requests were not properly velted by Xerox; that is, Xerox approved Intervenor's requests without knowing whether approval was actually proper. Because Xerox is not a party to Intervenor's administrative case, Intervenor is prevented from detennining whether Xerox did~ in fact, perform a proper review of Intervenor's prior authorization requests. By intervening in this lawsuit, Intervenor seeks to address that question, and finally detennine whether Xerox reviewed Intervenor's requests as required by its contract and the law. 35. Regarding the State's second assumption, the State alleges some of Intervenor's requests were approved when, in fact, they should have been denied. Intervenor denied that assertion in the administrative case, and Intervenor continues to deny that claim here. All services provided Plea in Intervention Page 12 of25 to Intervenor's pat ients were actually medically necessary, regardless of what Xerox decided and in any event under Medicaid guidelines once the authorization was approved, Intervenor was required to provide the services. *259 36. The State continues to aggressively fight any allegation or affirmative defense that could result in Xerox being held accountable for its part in these HLD scoring cases, despite the State's contentions in the District Court case to the contrary. Damages continue to accrue.
V. Causes of Action A. Intervenor's Claims Against Xerox Common Law Fraud (Fraudulent Misrepresentation and Fraudulent Inducement) 37. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herei n. Xerox's prior authorization approvals were false representations made to Intervenor. It is believed Xerox knowingly issued these prior authorizations to Intervenor because Xerox knew that it was approving requests without a proper medical review, and/or because it approved the prior authorization requests without any knowledge of their truth. It is believed Xerox intended for Intervenor to rely on the approvals as a prerequisite for provid ing the requested services. Approval was material because it was a mandatory prerequisite for payment. Intervenor actually and justifiably relied on Xerox's fraudulent approvals. 38. Xerox's approvals induced Intervenor to continue to grade subsequent HLD requests in the same or sim ilar manner, and led Intervenor to believe that their requests were consistent with Medicaid standards and requirements. 39. Xerox's fraudu lent approvals caused injury to Intervenor. As a result of Xerox's actions, Intervenor submitted requests for payment and Xerox actually paid for those services, Intervenor was placed on payment hold, Intervenor is forced to defend itself in an administrative payment Pica in Intervention Page 13 of25 hold hearing, and Intervenor is facing administrative claims by HHSC for repayment (including claims for treble damages and attorney fees). Intervenor's reputation and business have suffered severe injury. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, *260 and attorney fees.
Breach of the Xerox-State of Texas Contract 40. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute a breach of Xerox's contract with the State for the benefit of Intervenor. Xerox's contract with the state required that it conduct a proper, thorough and legal review of prior authorization requests for the purpose of determining medical necessity. To that end, Xerox should have employed a licensed dentist. 41. Xerox was an agent of the State of Texas engaged specifically for the purpose of determining medical necessity. The third party beneficiaries of that Xerox-State of Texas contract were Medicaid patients and Intervenor. The patients were entitled to receive orthodontic services that were medically necessary. Intervenor was responsible for actually delivering the orthodontic services that Xerox had deemed medically necessary. Thus, Intervenor was a third party beneficiary that relied on Xerox's approvals. 42. Xerox breached its contract by, inter alia, failing to provide qualified staff; possibly vio lating Texas law; permitting non-dentists to make determinations of medical necessity; and issuing medical opinions without conducting a reasonable and prudent examination of evidence. The breaches were material, and recurred across many different Medicaid patients and for many years. 43. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior Plea in Intervention Page 14 of25 authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that a person of ordinary *261 inteUigence should have anticipated that issuing a decision w ithout actually reviewing or considering the evidence (x-rays, photos, models, etc.) would eviscerate the credibility and rel iability of the decision. Once the State assumed that Xerox's approvals were not trustworthy, it was foreseeable that the State would demand repayment, and/or wou ld require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because the services were medically necessary and reimbursable under Texas Medicaid law. 44. Intervenor suffered and continues to suffer significant damage. Intervenor seeks damages that would have g iven the Intervenor the benefit of the bargain by putting them in as good a position as they would have been in if the contract had been performed. Intervenor seeks reliance interest damages to restore the expenditures Intervenor made in reliance on Xerox's contract with the state and the approvals that Xerox made under that contract. Intervenor also seeks damages for its restitution interest to restore money sought by the Office of the Inspector General from Intervenor. Such damages would put the Intervenor in as good a position as it would have been in if the contract had been properly fulfilled. ln addition, Intervenor seeks liquidated damages as set out in the Xerox-State of Texas contract. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profits, loss of credit, and loss of goodwill. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees. Plea in lntervention Page 15 of25
Breach of Contract (Promissory Estoppel) 45. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. In the alternative, Xerox's actions constitute promissory estoppel. *262 46. Xerox's prior authorizations constitute promises to Intervenor in numerous ways. Because prior autho rization was a prerequisite to furnishing services, and because Xerox was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, and foreseeably relied on Xerox's promises. 47. Intervenor suffered and continues to suffer significant damage. intervenor suffered reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. lntervenor has engaged legal counsel lo defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact-namely, demonstrate that the services were medically necessary and properly reimbursable under Texas Medicaid law. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, lost future profit s, loss of credit, and loss of goodwill. All of these damages were directly and/or proximately caused by Xerox's promises. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Hiring/Negligent Supervision 48. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Xerox's actions constitute negl igent hiring and/or negJigent supervision. Xerox was required to render medical diagnoses. To that end, Xerox was required by law to employ a licensed dentist to render a diagnosis regarding medical necessity. Xerox was also required by law to properly supervise its employees to make sure diagnoses were made only by licensed Plea in Intervention Page 16of25 dentists. 49. Xerox knew or shou ld have known that decisions regarding medical necessity can only be rendered by licensed personnel. Texas Occupations Code section 251.003 defines the practice *263 of dentistry to include a diagnosis of the human mouth and/or teeth; section 256.001 states that a person may not practice dentistry without a license; section 264.151 makes it a third-degree felony to practice dentistry without a license. SO. Xerox's actions proximately caused Intervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necessity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or would require Intervenor to independently do Xerox's job after the fact by proving that payment was proper because those services were medically necessary and were reimbursable under Texas Medicaid law. 5 1. lntervenor suffered and continues to suffer significant damage. intervenor suffered reliance damages by investing the cost of services for each Medicaid patient that Xerox approved. Interven or has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor suffered and continues to suffer significant damage to its reputation, business, referral base, earnings and earning power. lntervenor has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox's job. intervenor has suffered exemplary damages Plea in Intervention Page 17 of25 because Xerox's conduct was grossly negligent, outrageous and malicious, and such conduct should be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
*264 Negligence Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 52. herein. Xerox's actions constitute negligence and gross negligence. Xerox was required to render medical diagnoses. To that end, Xerox had a duty to employ a licensed dentist to render a diagnosis supporting o r denying medical necessity. Xerox bad a duty to assure that tbe personnel had appropriate education, training and experience to render such a finding. Xerox had a duty to review the supporting prior authorization documentation (such as x-rays and photos) to determine whether the requested services were medically necessary. 53. Xerox's actions breached the standard of care because Xerox: fai led to provide prior authorization staff that were properly licensed, qualified and experienced dental professionals; violated the law, specifically the Dental Practice Act, by perm itting non-dentists to make determinations of medical necessity, and; issued medical opinions (prior authorizations) without conducting a reasonable and prudent examination of evidence. 54. Xerox 's actions proximately caused [ntervenor's injury. Intervenor's injuries were caused-in-fact by Xerox's actions, and they were foreseeable. Because Xerox 's prior authorization was a necessary prerequisite to providing services, Intervenor relied entirely on Xerox's determinations regarding medical necess ity; thus, Xerox's actions were the direct factual cause of Intervenor's injuries. Xerox 's actions were foreseeable in that any person of ordinary intelligence should have anticipated that paying Intervenor for services that have not properly been determined to be medically necessity would precipitate a demand for repayment, and/or Plea in Intervention Page 18 of25 would require Intervenor to independently do Xerox 's job after the fact. 55. Intervenor suffered and continues to suffer sign ificant damage to its reputation, business, referral base, earnings and earning power. Intervenor has engaged legal counsel to defend itself *265 from the State's charges, and those legal expenses continue today. Victor M. Zurita, DDS has suffered inconvenience and loss of enjoyment of life in that he has had to dedicate significant mental and personal capital to doing Xerox 's job. Intervenor has suffered exemplary damages because Xerox's conduct is grossly negligent, outrageous and malicious, and such conduct shou ld be penalized so that it is deterred in the future. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Negligent Misrepresentation Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 56. herein. Xerox 's actions constitute negligent misrepresentation. Xerox's actions constitute misrepresentations to Intervenor in numerous ways. Because, inter alia, prior authorization approval was a prerequisite to fam ishing serv ices, these representations guided and controlled Intervenor's responses. intervenor justifiably relied on these representations. Further, Xerox represented that its prior authorization approvals were dispositive of medical necessity; Intervenor expected that, once approved, no further inquiry into the medical necessity of the services would be required. Further, Xerox represented that its subsequent payments to Intervenor (after the services had actually been delivered) were made because services had been, in fact, properly approved as medically necessary. 57. Xerox did not exerci se reasonab le care or competence in making its determinations and representations. Xerox knew or should have known that its representations were false. 58. Because prior authorization was a prerequisite to furnishing services, and because Xerox Plea in Intervention Page 19 of25 was the entity charged with discharging prior authorization duties, Intervenor reasonably, substantially, foreseeab ly, and justifiably relied on Xerox's representations. 59. Intervenor suffered and continues to suffer significant damage. lntervenor suffered *266 reliance damages by investing time, labor, equipment, and orthodontic appliances in each Medicaid patient that Xerox approved. Intervenor has engaged legal counsel to defend itself from the State's charges, and those legal expenses continue today. Intervenor has been required to do Xerox's job after the fact. Intervenor has incurred benefit of the bargain damages, out-of-pocket damages, lost profits, loss of credit, and loss of goodwi ll. All of these damages were directly and/or proximately cause by Xerox's negligent misrepresentations. Intervenor seeks recovery of actual and exemplary damages, interest, court costs, and attorney fees.
Gross Negligence I Misapplication of Fiduciary Property 60. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. Plaintiffs plead Xerox committed gross negligence and/or the misapplication of fiduciary property which would entitle Intervenors to unlimited punitive damages. B. lntervenors' Claims Against T he State of Texas
Waiver of Sovereign Immunity Intervenor re-alleges and incorporates the above facts and allegalions as if fully set out 6 1. herein. For a number of reasons, the State has waived sovereign immunity for claims by lntervenor, including the facts that the State brought, threatened and/or has taken civil and/or administrative action against lntervenors, and because the State has filed suit against Xerox.
Conspiracy/Joint E nterprise Intervenor re-alleges and incorporates the above facts and allegations as if fully set out 62. herein. In the alternative, former Deputy Inspector General Jack Stick has stated publicly that Plea in Intervention Page 20 of25 acts and omissions of Xerox were so egregious as to be outside the course of scope of Xerox's agency relationship with the State. Assuming same to be true, then the State conspired with Xerox to breach the contract or allow the breach to continue, conspired to withhold funds from *267 Interven or but not Xerox, and conspired to falsely accuse Intervenor of fraud/crime. 63. The State conspired with Xerox to allow Xerox to violate its various contractual duties. The State pennitted Xerox to process as many prior authorizations as possible without the required clinical dental review and without using medically knowledgeable personnel. The State conspired with Xerox to allow Xerox to violate State and Federal law. The State and Xerox created a scheme to rubber stamp and/or allow no legitimate review of prior authorizations submitted by the dentists. The conspiracy was committed with the intent to shift blame from the State and its agent, improperly blame the Intervenors, and enrich the State and Xerox. By recouping money from providers that were not actually to blame, the State and Xerox hoped to limit their own liability in the event of a Federal clawback action, and/or respond to unflattering news reports of Texas' payments for Medicaid braces. This agreement and ensuing acts of the party to blame the dentist providers for their own improper acts and omissions is a proximate cause of the injury to lntervenors.
Not Liable for Illegal Acts of Third Party 64. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. As alleged by the State in Section VUJ paragraph 46 of the State's petition, Xerox has committed or is about to commit unlawful acts. The illegal acts of Xerox in failing to provide proper prior authorization review in rubber stamping the doctors prior authorization requests is not the fault of the doctors. The doctors are not responsible for or liable to the State for the Plea in Intervention Page 21 of25 illegal acts of a third party for which the doctors had no control; the State should not withhold money from the Tntervenors because of the illegal acts of Xerox complained about by the State.
Breach of Contract *268 65. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. lnterven.ors are a direct or third party beneficiary of the contract with Xerox and the State of Texas. The State of Texas has breached terms of the contract by failing to supervise Xerox and/or reviewing the work product of Xerox. This breach by State, which allowed non- performance by Xerox, has created the pretext by which the State affirmatively sued Intervenors for repayment. To the extent that the State has withheld money and/or made claims for damages against lntervenors based on the contracts in question, the State has waived immunity and is liable up to those amounts plead.
Conversion 66. Intervenor re-alleges and incorporates the above facts and allegations as if fully set out herein. State and Federal law required intervenor to request prior authorization for orthodontic services. Those prior authorization requests were approved by Xerox, which required Intervenors to provide the services. The State has unilaterally made a decision to that, based on the acts and omissions of Xerox, the Intervenor should not have been paid; the State then placed Intervenor on a payment hold. To the extent that Intervenor has provided services for which Intervenor should be paid, and money which has been earmarked by the State for that payment but withheld, the State has converted the funds. In addition, the States' acts/om issions are a violation of the Texas Constitution Section 9 in that the acts/omissions constitute a seizure of money held under the pretext of a payment hold. Plea in Intervention Page 22 of25
VI. Damages lntervenors have suffered and are entitled to recover damages including, but not limited 67. to loss of use of funds sequestered by the State, actual damages, damage to reputation, damage to business, damage to earnings and earning power, inconvenience, loss of enjoyment of life, fees *269 and expenses, interest, punitive/exemplary damages, and attorney fees.
VII. Conclusion 68. Xerox's actions have harmed Intervenor because Xerox committed fraud, negligent hiring, negligence, and gross negligence. Xerox's actions have subjected Intervenor to unnecessary civil and administrative legal action, and that, in tum has caused additional inj ury. Xerox's actions have required Intervenor to perform Xerox 's job after-the-fact, by proving to the State that the orthodontic services rendered were medically necessary and appropriate for reimbursement. The State's actions have harmed Intervenor because the state's conspiracy to improperly blame the dentists has resulted in meritless legal claims against the Intervenor and conversion of the Intervenor's property.
VID. Jury Demand 69. Intervenor respectfully requests a trial by jury. IX. Request for Disclosure 70. Under Texas Rule of Civil Procedure 194, Lntervenor requests that Plaintiff the State disclose, within 50 days of the service of this request, the information or material described in Rule 194.2. 71. Wherefore, premises considered, Intervenor Victor M. Zurita, DDS pray that upon final hearing of the cause, judgment be entered jointly and severally against the Plainti ff the State of Plea in Intervention Page 23 of25 Texas and Defendant Xerox State Healthcare, LLC for damages, together with pre-judgment and post judgment interest at the legal rate, costs of court, and other such relief to which the Intervenor may be entitled.
*270 J son Ray Texas Bar No. 240 05 RIGGS, ALESHIRE & RAY, P.C. 700 Lavaca, Suite 920 Austin, Texas 7870 I (512) 457-9806 (Telephone) (512) 457-9866 (Fax) jray@r-alaw.com
/s/ Hart Green w/ permission by J Ray E. Hart Green Texas Bar No. 08349290 Mitchell A. Toups Texas Bar No. 2015 l 600 WELLER, GREEN, TOUPS & TERRELL, L.L.P. Post Office Box 3 50 Beaumont, Texas 77704-0350 ( 409) 838-0 l 0 l (Telephone) (409) 832-8577 (Fax) hartgr@wgttlaw.com matoups@wgttlaw.com ATTORNEYS FOR INTERVENOR VICTOR M. ZURITA, DDS
Plea in Intervention Page 24 of25
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing Plea in Intervention was served via e-mail and certified mail, return receipt requested on this 15th day of May, 2014 on the following: *271 Eric J.R. Nichols Beck Redden 515 Congress A venue, Suite 1750 Austin, Texas, 7870 I ENICHOLS@beckredden.com Attorney for Xerox Defendants Raymond Winter Chief, Civil Medicaid Fraud Division Assistant Attorney General Office of the Attorney General P.O. Box 12548 Austin, Texas 78711-2548 raymond.winter@texasattorneygeneral.gov Attorney for the Plaintiff State of Texas Plea in Intervention Page 25 of25
Tab E *272 Xerox’s Original Answer to Defendants’ Original Third Party Petition 2/9/2015 8:11:28 AM Velva L. Price District Clerk
CAUSE NO. D-l-GN-1 4-005380 Travis County
D-1-GN-14-005380
THE STATE OF TEXAS, § INTHEDISTRJCTCOURTOF § § Plaintiff, v. § §
DR. BEHZAD NAZARI, D.D.S. D/B/A § *273 § ANTOINE DENTAL CENTER, et. al.
§ 53RD JUDIC IAL DISTRICT Defendants/Third Party § § Plaintiffs,
§ v. § §
XEROX CORPORATION, et al. § § TRAVIS COUNTY, TEXAS § Third-Party Defendants. XEROX'S ORIGINAL ANSWER TO DEFENDANTS' ORIGINAL THIRD PARTY PETITION TO THE HONORABLE JUDGE OF THIS COURT: COME NOW Xerox Corporation, and Xerox State Healthcare, LLC, formerly known as ACS State Healthcare, LLC (collectively the "Xerox Parties") and file this original answer, pursuant to Rule 92 of the Texas Rules of Civil Procedure, in order to respond to the allegations and causes of action asserted in the Original Answer and Third Party Petition filed by Defendants/Third Party Plaintiffs Dr. Behzad Nazari, D.D.S. d/b/a Antoine Dental Center, Dr. Behzad Nazari, Harlingen Family Dentistry, PC a/k/a Practical Business Solutions, Series LLC, Juan D. Villarreal D.D.S., Series PLLC d/b/a/ Harlingen Family Dentistry Group, Dr. Juan Villarreal, Dr. Richard F. Herrscher, D.D.S., M.S.D., P.C., Or. Richard F. Herrscher, M&M Orthodontics, PA, Dr. Scott Malone, Dr. Diana Malone, Michelle Smith, National Orthodontix, Mgmt., PLLC, Dr. John Vondrak, RGV Smiles by Rocky Salinas, D.D.S. PA, and Dr. Rocky Salinas (collectively "Defendants/Third Party Plaintiffs") and any subsequenrly amended or supplemented third party petition . In support thereof, the Xerox Parties would respectfully show the Court as fo llows:
GENERAL DENIAL
Subject to stipulations or admissions that may hereafter be made, the Xerox Parties enter *274 their general denial, pursuant to Rule 92 of the Texas Rules of Civil Procedure, thereby denying each and every, all and singular, of the material allegations made by Defendants/Third Party Plaintiffs, and the Xerox Parties request that each of Defendants/Third Party Plaintiffs be required to prove all charges and allegations by the applicable standard of proof required by the laws of the State of Texas.
AMENDMENT AND SUPPLEMENTATION OF ANSWER
The Xerox Parties reserve their rights to amend and/or supplement their answer pursuant to the Texas Rules of Civil Procedure and orders of the Court.
PRAYER
WHEREFORE, PREMISES CONSIDERED, The Xerox Parties respectfully request that this Court. upon fu ll and final hearing of this matter, eater judgment that Defendants!Third Party Plaintiffs take nothing against the Xerox Parties by way of their claims in this action and for such other relief, both special and general, in law and in equity, to which the Xerox Parties may show themselves to be justly entitled.
2 Respectfully submitted, G IBSON , DUNN & CRUTCHER LLP By: Isl Robert C. Walters
Robert C. Walters State Bar No. 20820300 E-mail: RWalters@gibsondunn.com
*275 2100 McKinney Avenue, Suite 1100 Dallas, Texas 75201 Tel: 214-698-3100 Fax: 214-571-2900 BECK I REDDEN LLP Isl Eric JR. Nichols By:
Eric J.R. Nichols State Bar No. 14994500 E-mail: enichols@beckredden.com Christopher R. Cowan State Bar No. 24084975 E-mail: ccowan@beckredden.com
515 Congress Avenue, Suite 1750 Austin, Texas 7870 l Tel: 512-708-1000 Fax: 512-708-1002
W. Curt Webb State Bar No. 21035900 E-mail: cwebb@beckredden.com Constance H. Pfeiffer E-mail: cpfeiffer@beckredden.com State Bar No. 24046627
1221 McKinney Street, Suite 4500 Houston, Texas 770 l 0 Tel: 713-951-3700 Fax: 713-951-3720
ATTORNEYS
FOR XEROX CORPORA TlON, XEROX STA TE
HEALTHCARE, LLC, F/K/A ACS STATE
HEALTHCARE, LLC
3
CERTIFICATE OF SERVICE
I hereby certify that on this 9th day of February, 2015, I caused a copy of the foregoing to be served to the followi ng counsel via e-mail: Counsel for Plaintiff State of Texas: *276 Raymond Winter Chief, Civil Medicaid Fraud Division Office of the Attorney General P.O. Box 12548 Austin, Texas 78711-2548 E-mail: raymond.winter@texasattorneygeneral.gov Reyno lds Brissenden Assistant Attorney General Office of the Attorney General P.O. Box 12548 Austin, Texas 7871 1~2548 Email: reynolds.brissenden@texasattomeygeneral.gov Cou11sel for Defendantsnhird-Party Plaintiffe: Jason Ray R iggs, Aleshire & Ray, P.C. 700 Lavaca, Suite 920 Austin, Texas 7870 l E-mail: jray@r-alaw.com E. Hart Green Weller, Green, Toups & Terrell, L.L.P. Post Office Box 350 Beaumont, Texas 77704-0350 E-mail: harlgr@wgttlaw.com
ls/Christopher R. Cowan Christopher R. Cowan 4 Tab F
Xerox Corporation and Xerox State Healthcare, LLC
*277 f/k/a ACS State Healthcare, LLC’s Mandamus Petition
ACCEPTED 03-15-00401-CV 5900102 THIRD COURT OF APPEALS AUSTIN, TEXAS 7/1/2015 1:29:01 PM JEFFREY D. KYLE No. __________________
CLERK
I N THE T HIRD C OURT OF A PPEALS A USTIN , T EXAS I N RE X EROX C ORPORATION AND X EROX S TATE H EALTHCARE , LLC F / K / A ACS S TATE H EALTHCARE , LLC,
Relators.
*278 Original Proceeding from the 53rd District Court, Travis County, Texas, Trial Court Cause No. D-1-GV-14-000581 The Honorable Stephen Yelenosky, Presiding P ETITION FOR W RIT OF M ANDAMUS B ECK R EDDEN LLP B ECK R EDDEN LLP Eric J.R. Nichols Constance H. Pfeiffer State Bar No. 14994900 State Bar No. 24046627 enichols@beckredden.com cpfeiffer@beckredden.com Gretchen Sween 1221 McKinney St., Ste. 4500 State Bar No. 24041996 Houston, TX 77010 gsween@beckredden.com Tel: 713.951.3700 Christopher R. Cowan Fax: 713.951.3720 State Bar No. 24084975 ccowan@beckredden.com
515 Congress Ave., Ste. 1900 Austin, TX 78701 Tel: 512.708.1000 Fax: 512.708.1002 G IBSON , D UNN & C RUTCHER LLP K ELLY H ART & H ALLMAN LLP
Robert C. Walters C. Andrew Weber State Bar No. 20820300 State Bar No. 00797641 rwalters@gibsondunn.com andrew.weber@kellyhart.com
2100 McKinney Ave., Ste. 1100 301 Congress, Ste. 2000 Dallas, TX 75201 Austin, TX 78701 Tel: 214.698.3100 Tel: 512.495.6451 Fax: 214.571.2900 Fax: 512.495.6930
C OUNSEL FOR R ELATORS Oral Argument Requested I DENTITY OF P ARTIES AND C OUNSEL Relators (Defendants in the Trial Court): Xerox Corporation; Xerox State Healthcare, LLC f/k/a ACS State Healthcare, LLC
*279 Counsel for Relators: Eric J.R. Nichols (SBN 14994500) enichols@beckredden.com Gretchen Sween (SBN 24041996) gsween@beckredden.com Christopher R. Cowan (SBN 24084975) ccowan@beckredden.com B ECK R EDDEN LLP 515 Congress Avenue, Suite 1900 Austin, TX 78701 Constance H. Pfeiffer (SBN 24046627) cpfeiffer@beckredden.com B ECK R EDDEN LLP 1221 McKinney Street, Suite 4500 Houston, TX 77010 Robert C. Walters (SBN 20820300) rwalters@gibsondunn.com G IBSON , D UNN & C RUTCHER LLP 2100 McKinney Avenue, Suite 1100 Dallas, TX 75201 C. Andrew Weber (SBN 00797641) andrew.weber@kellyhart.com K ELLY H ART & H ALLMAN LLP 301 Congress, Ste. 2000 Austin, TX 78701
Respondent: Honorable Stephen Yelenosky Judge, 345th District Court Travis County Courthouse P.O. Box 1748 Austin, TX 78767 *280 Tel: 512.854.9374
Real Party in Interest (Plaintiff in the Trial Court): The State of Texas Counsel for Real Party in Interest The State of Texas: Raymond Winter (SBN 21791950) Chief, Civil Medicaid Fraud Division raymond.winter@texasattorneygeneral.gove Reynolds B. Brissenden (SBN 24056969) Managing Attorney, Civil Medicaid Fraud Division reynolds.brissenden@texasattorneygeneral.gov Assistant Attorneys General Civil Medicaid Fraud Division P.O. Box 12548 MC 056-1 Austin, TX 78711 Tel: 512.935.1709 Fax: 512.499.0712
R EQUEST FOR O RAL A RGUMENT Relators request the opportunity to present oral argument. ii T ABLE OF C ONTENTS Page I DENTITY OF P ARTIES AND C OUNSEL ........................................................................... i R EQUEST FOR O RAL A RGUMENT ................................................................................ ii *281 T ABLE OF C ONTENTS ................................................................................................ iii I NDEX OF A UTHORITIES ............................................................................................... v S TATEMENT OF THE C ASE .......................................................................................... xi S TATEMENT OF J URISDICTION .................................................................................. xii I SSUE P RESENTED ..................................................................................................... xii S TATEMENT OF F ACTS ................................................................................................. 1 S UMMARY OF THE A RGUMENT .................................................................................... 9 A RGUMENT ............................................................................................................... 10
I. T HE T RIAL C OURT E RRED IN ITS L EGAL C ONCLUSIONS . ...................... 10 A. Chapter 33 Applies to Claims “Based on Tort.” ....................... 11 1. Chapter 33 broadly applies to torts, with limited exceptions. ...................................................................... 11 2. A TMFPA claim is a statutory tort that is not excepted from Chapter 33. .............................................. 13 3. The State’s arguments to the contrary are unpersuasive. .................................................................. 16 4. The trial court rejected the State’s arguments but erred for different reasons. ...................................... 18 B. The State Seeks “Recovery of Damages” Within the Scope of Chapter 33. ................................................................. 21 iii 1. The State is seeking recovery of damages. ..................... 22 2. The trial court failed to recognize that the State
is seeking damages. ........................................................ 23 C. Refusing to Apply Chapter 33 Was an Abuse of Discretion. ................................................................................. 24 *282 1. The trial court improperly denied Xerox leave
to designate responsible third parties. ............................ 25 2. The trial court improperly struck Xerox’s third- party claims. .................................................................... 26 II. T HERE I S N O A DEQUATE R EMEDY BY A PPEAL . .................................... 27 A. Appellate Remedies Are Held Inadequate in This Context. ..................................................................................... 28 B. Appellate Remedies Are Inadequate in This Case. .................. 31 C ONCLUSION AND P RAYER FOR R ELIEF .................................................................... 35 R ULE 52.3(J) C ERTIFICATION .................................................................................... 36 C ERTIFICATE OF S ERVICE .......................................................................................... 37 A PPENDIX
Order Granting Motion to Strike Petitions in Intervention and Plea to the Jurisdiction .....................................................................................Tab A Order Denying The Xerox Parties’ Motion for Leave to Designate Responsible Third Parties ........................................................................ Tab B Order Granting State’s Plea to the Jurisdiction and Motion to Dismiss Third Party Claims ..................................................................... Tab C
iv I NDEX OF A UTHORITIES C ASES P AGE ( S ) In re Altec Indus., Inc. ,
No. 10-12-00207-CV, 2012 WL 2469542 (Tex. App.—Waco June 22, 2012, orig. proceeding)(mem. op.) ................................................................... 25, 30, 34
*283 In re Arthur Andersen, LLP , 121 S.W.3d 471 (Tex. App.—Houston [14th Dist.] 2003, orig. proceeding) ............................................................ passim
In re Brokers Logistics, Ltd. , 320 S.W.3d 402 (Tex. App.—El Paso 2010, orig. proceeding) ................................................................................. 30, 34
Casa Ford, Inc. v. Ford Motor Co. , 951 S.W.2d 865 (Tex. App.—Texarkana 1997, pet. denied) ................................................................................................ 30
Davis v. Estridge , 85 S.W.3d 308 (Tex. App.—Tyler 2001, pet. denied) .......................................................................................... 12, 16
Del Lago Partners, Inc. v. Smith , 307 S.W.3d 762 (Tex. 2010) .............................................................................. 17 Dugger v. Arredondo , 408 S.W.3d 825 (Tex. 2013) ....................................................................... passim Elston v. City of Panhandle , 50 S.W.2d 1090 (Tex. 1932) .............................................................................. 19 Eslon Thermoplastics v. Dynamic Sys., Inc. , 49 S.W.3d 891 (Tex. App—Austin 2001, no pet.) ...................................................................................................... 27
F.F.P. Operating Partners, L.P. v. Duenez , 237 S.W.3d 680 (Tex. 2007) ....................................................................... passim In re Frank Kent Motor Co. , 361 S.W.3d 628 (Tex. 2012) (orig. proceeding) ................................................................................................ 10
v In re Greyhound Lines, Inc ., No. 05-13-01646-CV, 2014 WL 1022329 (Tex. App.—Dallas Feb. 21, 2014, orig. proceeding) (mem. op.) .............................................................................. 25
Grogan v. Garner ,
498 U.S. 279 (1991) ............................................................................................ 16
*284 Harlingen Family Dentistry, P.C. v. Tex. Health & Human Servs. Comm’n ., 452 S.W.3d 479 (Tex. App.—Austin 2014, pet. filed) ................................................................................................... 15
Huie v. DeShazo , 922 S.W.2d 920 (Tex. 1996) (orig. proceeding) ................................................ 10 Issacs v. Bishop , 249 S.W.3d 100 (Tex. App.—Texarkana 2008, pet. denied) ................................................................................................ 11
JCW Elecs., Inc. v. Garza , 257 S.W.3d 701 (Tex. 2008) ....................................................................... passim Jones v. Ray , 886 S.W.2d 817 (Tex. App.—Houston [1st Dist.] 1994, orig. proceeding) ................................................................ 20, 29
United States ex rel. Jordan v. Northrop Grumman Corp. , No. CV 95-2985, 2002 WL 35454612 (C.D. Cal. Aug. 5, 2002) ..................................................................................... 14
In re Lewis Casing Crews, Inc. , No. 11-14-00137-CV, 2014 WL 3398170 (Tex. App.—Eastland July 10, 2014, orig. proceeding) (mem. op.) .................................................................. 25, 30, 34
In re Masonite , 997 S.W.2d 194 (Tex. 1999) .............................................................................. 33 Nabors Well Servs., Ltd. v. Romero , 456 S.W.3d 553 (Tex. 2015) ............................................................................ 1, 2 vi In re Oncor Elec. Delivery Co. , 355 S.W.3d 304 (Tex. App.—Dallas 2011, orig. proceeding) ................................................................................. 25, 31
Parker v. Highland Park, Inc. , 565 S.W.2d 512 (Tex. 1978) ................................................................................ 1 Pemex Exploracion y Produccion v. BASF Corp. , *285 2011 WL 9523407 (S.D. Tex. Oct. 20, 2011) .................................................... 12 PPG Indus., Inc. v. JMB/Hous. Ctrs. Partners Ltd. P’ship , 146 S.W.3d 79 (Tex. 2004)................................................................................. 15 In re Prudential Ins. Co. of Am. , 148 S.W.3d 124 (Tex. 2004) (orig. proceeding) .................................... 27, 28, 33 Reata Const. Corp. v. City of Dallas , 197 S.W.3d 371 (Tex. 2006) .............................................................................. 21 Sec. Trust Co. of Austin v. Lipscomb Cnty , 180 S.W.2d 151 (Tex. 1944) .............................................................................. 21 Shipp v. Malouf , 439 S.W.2d 432 (Tex. App.—Dallas 2014, pet. denied) .................................................................................................. 4
Shoemake v. Fogel, Ltd. , 826 S.W.2d 933 (Tex. 1992) .............................................................................. 27 In re Smith , 366 S.W.3d 282 (Tex. App.—Dallas 2012, orig. proceeding) ................................................................................. 25, 31
Smith v. Sewell , 858 S.W.2d 350 (Tex. 1993) .............................................................................. 20 In re State , 355 S.W.3d 611 (Tex. 2011) .............................................................................. 33 State v. Naylor , No. 11-0114, 2015 WL 3852284 (Tex. June 19, 2015) ..................................... 20 Stewart Title Guar. Co. v. Sterling , 822 S.W.2d 1 (Tex. 1991)................................................................................... 19 vii Sw. Bank v. Info. Support Concepts, Inc ., 149 S.W.3d 104 (Tex. 2004) ........................................................................ 11, 18 In re Team Rocket, L.P. , 256 S.W.3d 257 (Tex. 2008) (orig. proceeding) .......................................... 27, 33 In re Tex. Educ. Agency , 441 S.W.3d 747 (Tex. App.—Austin *286 2014, orig. proceeding) ....................................................................................... 10
Texas Dep’t of Corr. v. Herring , 513 S.W.2d 6 (Tex. 1974)................................................................................... 20 Texas v. Merck & Co. , 385 F. Supp. 2d 604 (W.D. Tex. 2005) .............................................................. 22 In re Unitec Elevator Servs. Co. , 178 S.W.3d 53 (Tex. App.—Houston [1st Dist.] 2005, orig. proceeding) ...................................................................... 31
United States v. Hero , No. 78 CIV-4587, 1981 WL 1982 (S.D.N.Y. July 27, 1981) .................................................................................... 14
United States v. RePass , 688 F.2d 154 (2d Cir. 1982) ............................................................................... 14 United States v. Temple , 299 F.2d 30 (7th Cir. 1962) ................................................................................ 14 Villarreal v. Wells Fargo Brokerage Servs., LLC , 315 S.W.3d 109 (Tex. App.—Houston [1st Dist.] 2010, no pet.) ............................................................................... 11, 12
Walker v. Packer , 827 S.W.2d 833 (Tex. 1992) (orig. proceeding) ................................................ 10 Werner v. KPMG LLP , 415 F. Supp. 2d 688 (S.D. Tex. 2006) ................................................................ 13 United States ex rel. Westmoreland v. Amgen, Inc. , 738 F. Supp. 2d 267 (D. Mass. 2010) ................................................................. 14 viii Wortham v. Walker , 128 S.W.2d 1138 (Tex. 1939) (orig. proceeding) .............................................. 21 R ULES & S TATUTES
31 U.S.C.
§ 3729(a)(1)(A) ................................................................................................... 14 § 3729(a)(1)(G) ................................................................................................... 14
42 U.S.C.
*287 § 1320a-7b .......................................................................................................... 16 § 1320a-7b(g) ...................................................................................................... 16
25 T EX . A DMIN . C ODE § 33.71 (2015) ....................................................................... 3 T EX . C IV . P RAC . & R EM . C ODE
§ 33.001 ............................................................................................................ xi, 1 § 33.002(a)(1) .............................................................................................. xii, 11 § 33.002(c) .................................................................................................... 11, 15 § 33.002(c)(1) ....................................................................................................... 2 § 33.002(c)(3) ....................................................................................................... 2 § 33.003 ............................................................................................................... 13 § 33.003(a) .................................................................................................... 17, 21 § 33.004(f) ........................................................................................................... 25 § 33.004(g) .......................................................................................................... 25
T EX . C IV . P RAC . & R EM . C ODE § 33.011 .................................................................. 21 § 33.011(6) .......................................................................................................... 24 § 41.002(d)(3) ..................................................................................................... 15
T EX . G OV ’ T C ODE § 22.221(b) ................................................................................ xii ix T EX . H UM . R ES . C ODE § 36.002 ................................................................................................................. 5 § 36.002(1) .......................................................................................................... 13 § 36.007 ................................................................................................................. 5 § 36.052 ................................................................................................................. 5 § 36.052(a)(1) ......................................................................................... 17, 22, 23 § 36.052(a)(3)(A) ................................................................................................ 24 *288 § 36.101 ............................................................................................................... 26 § 36.106 ............................................................................................................... 26 § 36.113 ............................................................................................................... 26 § 36.131 ............................................................................................................... 16 § 36.1021 ............................................................................................................. 22
T EX . R. C IV . P. 2 ........................................................................................................................... 27 38(a) .................................................................................................................... 26
O THER A UTHORITIES Act of June 17, 2005, 79th Leg. R.S., ch. 806, 2005 Tex. Sess. Law
Serv. Ch. 806 (West) (codified at T EX . H UM . R ES . C ODE § 36.131) .................. 16 Black’s Law Dictionary (10th ed. 2014) ........................................................... 14, 23 John E. Clark,
The Texas Medicaid Fraud Prevention Statute: Sharp New Teeth for the State and Cash Rewards for Relators Exposing Wrongdoers , 65 T EX . B.J. 120 (2002) ........................................................................................ 5
May 8, 2014 (https://www.texasattorneygeneral.gov/oagnews/release.php?id=47 34) ......................................................................................................................... 5
x S TATEMENT OF THE C ASE Nature of the case This is a civil Medicaid fraud case brought by the State of Texas for damages that allegedly exceed $1 billion. The alleged fraud involves multiple parties, triggering the *289 contribution and fault-allocation scheme of Chapter 33. T EX . C IV . P RAC . & R EM . C ODE § 33.001 et seq. In this lawsuit, the State has sued only Xerox, seeking to recoup from Xerox payments the State made to others. The State has sued the third parties in separate lawsuits.
Respondent Honorable Stephen Yelenosky 345th Judicial District Court of Travis County Respondent’s action : The trial court ruled that Chapter 33 does not apply to the State’s claim. Thus, the trial court: (1) granted the State’s motion to strike Xerox’s third-party claims, Tab A , and (2) denied Xerox’s motion for leave to designate responsible third parties. Tab B . xi S TATEMENT OF J URISDICTION This Court has mandamus jurisdiction under T EX . G OV ’ T C ODE § 22.221(b). I SSUE P RESENTED *290 Chapter 33 broadly applies to “any cause of action based on tort.” T EX . C IV . P RAC . & R EM . C ODE § 33.002(a)(1). Did the trial court erroneously conclude that the State’s statutory fraud claim is not a tort claim subject to Chapter 33?
xii S TATEMENT OF F ACTS This is a fraud suit brought by the State of Texas against two Xerox entities. But the alleged fraud also involves third parties and claims that are intertwined. The State simultaneously accuses Xerox and third-party Medicaid providers of a *291 fraudulent scheme and is suing them in separate lawsuits for the same damages. Choosing to sue in tort, the State has pleaded itself right into Chapter 33.
Chapter 33 sets a broad legislative mandate “Gone is the ‘harsh system of absolute victory or total defeat.’” Nabors Well Servs., Ltd. v. Romero , 456 S.W.3d 553, 559 (Tex. 2015) (quoting Parker v. Highland Park, Inc. , 565 S.W.2d 512, 518 (Tex. 1978)). For more than four decades, the Texas Legislature has required fact-finders to apportion responsibility according to the relative fault of the actors. Id . Plaintiffs cannot put 100% of the liability on a single actor when multiple actors contribute to causing the harm. This directive is so well known that it is often simply called “Chapter 33.” See T EX . C IV . P RAC . & R EM . C ODE § 33.001 et seq.
Chapter 33 “casts a wide net over conduct that may be considered in this determination.” Nabors Well Servs. , 456 S.W.3d at 560. “Whereas the 1987 version had expressly excluded intentional torts, the 1995 amendments removed that exclusion” and now broadly applies to “ any cause of action based on tort.” JCW Elecs., Inc. v. Garza , 257 S.W.3d 701, 704 (Tex. 2008). It likewise applies to statutory torts. Id .
The exceptions to Chapter 33 are very few. “When the Legislature intends an exception to Chapter 33’s broad scheme, it creates specific exceptions for matters that are outside the scope of proportionate responsibility.” Dugger v. Arredondo , 408 S.W.3d 825, 832 (Tex. 2013). The statute excepts claims for *292 workers compensation benefits and for damages arising from methamphetamine manufacturing, for example. T EX . C IV . P RAC . & R EM . C ODE § 33.002(c)(1), (3). No express exception is at issue in this case. When Chapter 33 applies, it sets a clear directive: “fact-finders should consider each person’s role in causing, ‘in any way,’ harm for which recovery of damages is sought.” Nabors Well Servs. , 456 S.W.3d at 560.
Against the backdrop of this broad statutory directive, the State has brought a tort suit for damages and seeks to be relieved of the legislature’s dictates. HHSC contracts for processing of Medicaid claims The Texas Health and Human Services Commission oversees the Texas Medicaid program, which serves low-income Texans. The program includes a process for reimbursing providers for the services provided to eligible children.
HHSC has in recent years hired contractors to assist it in claims processing. R.409. During the time period from 2004 to 2014, HHSC contracted with a private entity to be its fiscal agent and claims processor. R.30. That entity was acquired by Xerox Corporation. R.2.
2 Long known as a brand name for copiers, Xerox now has a business division that provides analytic, consulting, revenue improvement, technological, and business process outsourcing solutions to the healthcare industry worldwide. The Xerox entity that contracted with HHSC is Xerox State Healthcare, LLC. R.2. 1
*293 HHSC contracted with Xerox State Healthcare in 2003 and again in 2010 to provide multiple Medicaid administrative and technical services, including the processing of “prior authorizations” for orthodontic services submitted by the providers. R.7, R.16. The “prior authorization” process requires providers to submit forms, materials, and certifications related to the provider’s diagnosis and the patient’s condition in order to receive prior approval for the orthodontic services. R.131. Instead of performing services first and then submitting the bill for payment, Medicaid “[o]rthodontic services must be prior authorized” before the provider performs the service. 25 T EX . A DMIN . C ODE § 33.71 (2015).
Under the contract, Xerox State Healthcare established the Texas Medicaid & Healthcare Partnership (TMHP), a consortium of Xerox State Healthcare and other subcontractors. TMHP processed hundreds of thousands of prior- authorization requests for orthodontic services over the span of a decade. During that time period, the State alleges that it spent approximately $1.1 billion for orthodontic services to Medicaid-eligible children. R.3, R.131.
1 HHSC first contracted with ACS State Healthcare LLC, which changed its name to Xerox State Healthcare, LLC after it was acquired by Xerox Corporation. R.2. Xerox Corporation and Xerox State Healthcare, LLC are distinct entities with separate legal arguments about the underlying claims; references to them jointly as “Xerox” are solely for ease of reading.
3 HHSC approved the contract and prior authorization policies under which TMHP operated, and it oversaw the work of Xerox State Healthcare (and the other TMHP contractors). R.406-20. In fact, HHSC’s Office of Inspector General conducted a full contract audit of the prior authorization process, and the results *294 were made public in a 2008 report. Id . (OIG audit report). Xerox State Healthcare continued to perform under its contract until May 2014, when the State terminated the contract and simultaneously filed this suit.
Negative publicity prompts the State to cast blame This lawsuit followed a cycle of negative publicity about HHSC and the State’s spending on Medicaid orthodontic services. See, e.g. , R.310-11, 315-16, 357-58, 360-63. 2 A series of “investigative” news reports in 2011 raised questions about the State’s spending on orthodontic services to Medicaid-eligible children and about the medical judgments of orthodontic providers, causing HHSC to second-guess that spending and begin casting blame on others.
HHSC’s Office of Inspector General, led by a now-departed deputy, R.360- 63, R.365-78, made sweeping pronouncements of a vast fraud against the Medicaid program by orthodontic providers across the State. Then, in this lawsuit, filed in May 2014, the State accused Xerox of failing to “catch” the providers’ alleged fraud through the prior authorization process.
2 See e.g. , Shipp v. Malouf , 439 S.W.2d 432, 437–38 (Tex. App.—Dallas 2014, pet. denied) (discussing publicity about Medicaid provider). 4 In a press release that accompanied this lawsuit, the State declared that “Xerox had not been properly reviewing orthodontic claims as required by its contract with the State.” 3 But the lawsuit did not plead a claim for breach of contract.
*295 Instead, the State sued for fraud, taking the view that contract breaches can be cast as “misrepresentations” and “nondisclosures” about how the contract was performed. By doing this, the State has sought to dramatically up the ante. Instead of seeking ordinary contract remedies, the State seeks extraordinary statutory tort remedies—available to it only under the Texas Medicaid Fraud Prevention Act.
The State brings a claim under the Texas Medicaid Fraud Prevention Act The TMFPA defines “unlawful acts,” beginning with knowing misrepresentations and nondisclosures. See T EX . H UM . R ES . C ODE § 36.002. It also provides substantial civil remedies. A person who commits an “unlawful act” can be sued for the amount of payments made “as a result of the unlawful act,” plus double damages, civil penalties for each unlawful act between $5,500 and $15,000, prejudgment interest, and reimbursement of the State’s reasonable attorneys’ fees, expenses, and costs. See id . §§ 36.052, 36.007. When aggregated, these damages claims “can amount to huge sums.” John E. Clark , The Texas Medicaid Fraud Prevention Statute: Sharp New Teeth for the State and Cash Rewards for Relators Exposing Wrongdoers , 65 T EX . B.J. 120, 123 (2002).
3 May 8, 2014 (https://www.texasattorneygeneral.gov/oagnews/release.php?id=4734). 5 The State seeks the same recovery from Xerox and the providers in separate lawsuits The State’s suit against Xerox seeks “all relief possible” under the TMFPA. R.21. This relief includes the value of payments made under the Medicaid *296 program to the Medicaid orthodontic-service providers—not to Xerox. R.21.
Meanwhile, the State has sued the orthodontic-service providers for the same Medicaid payments in separate proceedings and lawsuits. R.156-81, R.286-308. For example, HHSC has issued payment holds and recoupment claims against providers and has brought administrative claims against them. R.320-325, R.534- 606. And the State has also alleged a TMFPA claim against other providers. R.286-308. The providers have likewise sued the State and Xerox in separate lawsuits, all involving the same basic facts and allegations at issue in the State’s suit against Xerox.
As a result, several orthodontic-service providers intervened in this lawsuit, asserting common-law tort claims against both the State and Xerox and seeking to recover for losses incurred as a result of the State’s payment holds. The State moved to strike the intervention, and its motion was granted. R.98-99.
Xerox then invoked its rights as a tort defendant under Chapter 33. It filed a third-party petition suing 27 specific providers for contribution. R66-76. But the State moved to strike the third-party petition, and the motion was granted. Tab A
(R.629).
6 The trial court explained its reasoning: (1) there “is no authority for treating an enforcement action [under the TMFPA] by the State as a statutory tort;” (2) “the civil remedy in the TMFPA is not a damage provision;” and (3) “[i]f [the Xerox Parties] have any right to contribution, it must be pursued in a separate action *297 between alleged wrongdoers.” R.232-33. The trial court further emphasized that the TMFPA does not have a fault-allocation scheme: “There is no comparative fault, joint-and-several liability, contribution, single-satisfaction, or settlement credit in a TMFPA action.” R.232.
Xerox then moved for leave to designate the same providers as responsible third parties. The State opposed the motion on the same grounds as before, and the trial court ruled that Chapter 33 does not apply. R.632-33. The trial court denied Xerox’s motion for leave. Tab B (R.631).
In deference to the trial court, Xerox first sought the court’s permission for an interlocutory appeal. It presented briefing on why immediate appellate review would be appropriate. The trial court declined to certify the issue. R.634.
Xerox now petitions this Court for mandamus relief from the two orders denying it fundamental procedural rights under Chapter 33 afforded to defendants facing tort claims.
7 The providers bring an appeal in Nazari v. State of Texas The issues in this original proceeding are related to the issues before the Court on direct appeal in Nazari v. State of Texas , No. 03-15-00252-CV, in which Medicaid providers filed their opening brief on June 19, 2015.
*298 The various lawsuits between the State, Medicaid providers, and the Xerox entities have all been specially assigned, through the Travis County district court administrative process, to one district judge. The trial court was made aware that the State is seeking the same damages against separate parties in separate lawsuits based on factually related allegations. Yet the trial court has ruled that the defendants in each case cannot bring claims against each other in the same lawsuit:
Consistent with this Court’s rulings in the State’s litigation against Xerox, the Court finds that the State is entitled to bring this action against defendants to the exclusion of other parties.
Tab C (order dismissing providers’ counterclaims against the State and third-party claims against Xerox, on appeal in Nazari v. State of Texas ).
The issues in the Nazari appeal and this proceeding are not identical, but they underscore that the State’s claims against Xerox and the providers are intertwined and that it is not only impermissible but also fundamentally unfair to permit the State to take a divide-and conquer approach.
8 S UMMARY OF THE A RGUMENT The Texas Supreme Court is quite clear about Chapter 33’s broad scope. It honors Chapter 33’s plain language, which applies to “any cause of action based on tort” for “recovery of damages.” It further holds that Chapter 33’s statutory *299 mandates are “not discretionary.” F.F.P. Operating Partners, L.P. v. Duenez , 237 S.W.3d 680, 694 (Tex. 2007).
Chapter 33 applies to the State’s fraud claim against Xerox because it is “based on tort” and seeks “recovery of damages.” The State’s claim is merely a statutory tort, and such torts are subject to Chapter 33 so long as the Legislature has not excepted the statute from Chapter 33’s broad scope. See JCW Elecs., Inc. v. Garza , 257 S.W.3d 701, 704–06 (Tex. 2008). Further, the State has repeatedly acknowledged that it seeks to recover “damages” from Xerox. Chapter 33 squarely applies, and the trial court erred by holding otherwise.
Courts frequently grant mandamus relief from refusals to apply Chapter 33. They recognize that trials without all potentially responsible parties are unfairly skewed. In exceptional cases like this one, with an enormous damage model, multiple parties, and hundreds of thousands of transactions, a trial without all responsible parties is thus “destined to fail in the appellate process.” See In re Arthur Andersen, LLP , 121 S.W.3d 486 (Tex. App.—Houston [14th Dist.] 2003, orig. proceeding). Like many of its sister courts across the state, this Court should grant mandamus relief.
9 A RGUMENT “Mandamus relief is proper to correct a clear abuse of discretion when there is no adequate remedy by appeal.” In re Frank Kent Motor Co. , 361 S.W.3d 628, 630 (Tex. 2012) (orig. proceeding); see In re Tex. Educ. Agency , 441 S.W.3d 747, *300 750 (Tex. App.—Austin 2014, orig. proceeding). Both prongs are satisfied here. I. T HE T RIAL C OURT E RRED IN ITS L EGAL C ONCLUSIONS .
Whether Chapter 33 applies to a claim is a matter of statutory construction
and thus a question of law. See F.F.P. Operating Partners, L.P. v. Duenez , 237 S.W.3d 680, 683 (Tex. 2007). “A trial court has no ‘discretion’ in determining what the law is or applying the law to the facts.” Walker v. Packer , 827 S.W.2d 833, 840 (Tex. 1992) (orig. proceeding). This is true even when addressing questions of first impression. “[T]he trial court’s erroneous legal conclusion, even in an unsettled area of law, is an abuse of discretion.” Huie v. DeShazo , 922 S.W.2d 920, 927-28 (Tex. 1996) (orig. proceeding).
This case presents a paradigmatic scenario for bringing contribution claims and designating responsible third parties. Factually intertwined fraud claims against multiple parties resulted in the same alleged injury. Yet the trial judge held that the State’s TMFPA claim does not sound in “tort” or seek “damages.” R.232. Each of these conclusions is incorrect. The State is bringing a tort claim for damages, which squarely triggers Chapter 33.
10 A. Chapter 33 Applies to Claims “Based on Tort.” 1. Chapter 33 broadly applies to torts, with limited exceptions. Chapter 33 applies to “any cause of action based on tort.” T EX . C IV . P RAC . & R EM . C ODE § 33.002(a)(1). It applies to intentional torts. See, e.g. , JCW Elecs., *301 Inc. v. Garza , 257 S.W.3d 701, 704–06 (Tex. 2008); Issacs v. Bishop , 249 S.W.3d 100, 116–17 (Tex. App.—Texarkana 2008, pet. denied) (fraud). And it applies to statutory torts, so long as the tort statute does not include its own separate fault- allocation scheme. E.g. , Sw. Bank v. Info. Support Concepts, Inc ., 149 S.W.3d 104, 107 (Tex. 2004) (Chapter 33 does not apply where tort statute has separate fault-allocation scheme); Villarreal v. Wells Fargo Brokerage Servs., LLC , 315 S.W.3d 109, 124–25 (Tex. App.—Houston [1st Dist.] 2010, no pet.) (synthesizing rule for statutory torts in light of Garza and Southwest Bank ).
The exceptions to Chapter 33 are very few. “When the Legislature intends an exception to Chapter 33’s broad scheme, it creates specific exceptions for matters that are outside the scope of proportionate responsibility.” Dugger v. Arredondo , 408 S.W.3d 825, 831 (Tex. 2013) (citing Duenez , 237 S.W.3d at 690– 91). The Legislature expressly excepts certain claims in Chapter 33 itself, or it creates a separate fault-allocation scheme. See T EX . C IV . P RAC . & R EM . C ODE § 33.002(c) (“This chapter does not apply to . . . .”); Sw. Bank , 149 S.W.3d at 107. Unless the Legislature excepts a claim, then Chapter 33—by its plain terms— applies to “any cause of action based on tort.”
11 Following these rules, courts have held that Chapter 33 applies to statutory tort claims under: the Wrongful Death Act, Dugger v. Arredondo , 408 S.W.3d 825, 831 (Tex. 2013); *302 the Dram Shop Act, Duenez , 237 S.W.3d at 689; UCC-based implied warranty claims, Garza , 257 S.W.3d at 702; the Texas Securities Act, Villarreal , 315 S.W.3d at 124; the Texas Trust Act, id .; and the Texas Theft Liability Act, Pemex Exploracion y Produccion v. BASF
Corp. , 2011 WL 9523407, at *13 (S.D. Tex. Oct. 20, 2011). The lone outlier is a 2001 Tyler Court of Appeals decision holding that Chapter 33 does not apply to a claim under the Fraud in Real Estate and Stock Transactions statute. See Davis v. Estridge , 85 S.W.3d 308, 312 (Tex. App.— Tyler 2001, pet. denied). Because Davis predated the supreme court’s recent guidance in Garza and Southwest Bank , the First Court of Appeals rejected its holding as unpersuasive:
Since Davis , the Texas supreme court has held that Chapter 33 applied to a statutory tort claim in JCW Electronics, Inc. v. Garza , 257 S.W.3d 701, 705–06 (Tex. 2008). Moreover, the express language of section 33.002(a) provides that Chapter 33 applies “to any action based in tort.”
Villarreal , 315 S.W.3d at 125 n.7. In light of Duenez , Garza , and Dugger , courts now recognize that Chapter 33 broadly includes statutory torts as well.
12 2. A TMFPA claim is a statutory tort that is not excepted from Chapter 33. No one can dispute that “fraud” is a tort. And “fraud” is the TMFPA’s middle name. The Texas Medicaid Fraud Prevention Act merely codifies a *303 particular species of fraud against the State. The statute generally requires the plaintiff to prove that the defendant “knowingly ma[de] or cause[d] to be made a false statement or misrepresentation of a material fact.” T EX . H UM . R ES . C ODE § 36.002(1). In this case, the State alleges that Xerox “knowingly made or caused to be made false statements or misrepresentations of material facts.” R.19, ¶39. These allegations plainly sound in tort.
In Garza , the supreme court explained that “[a]lthough the 1995 statute does not define the term ‘tort,’ its meaning is nevertheless clear from section 33.003.” 257 S.W.3d at 704. It encompasses claims for negligence, products liability, and harm caused by conduct or activity “that violates an applicable legal standard.” Id . at 705 (quoting T EX . C IV . P RAC . & R EM . C ODE § 33.003(a)).
The court then held: “The language ‘other conduct or activity that violates an applicable legal standard’” was “clearly broad enough” to encompass a claim for breach of an implied warranty under UCC article 2. Id . The same language in Chapter 33 is likewise broad enough to encompass the State’s statutory fraud claim. See Werner v. KPMG LLP , 415 F. Supp. 2d 688, 703 (S.D. Tex. 2006) (“Texas courts apply Chapter 33 to fraud claims and to statutory tort claims[.]”).
13 Other sources further confirm that a TMFPA claim sounds in tort. Black’s Law Dictionary defines “tort” as: “A civil wrong, other than breach of contract, for which a remedy may be obtained, usu. in the form of damages[.]” Black’s Law Dictionary, Tort (10th ed. 2014). It is undisputed that the State’s TMFPA claim is *304 civil, not criminal. See R.3, ¶7 (the State seeks “civil remedies”). And while the State could have brought its claim in contract, it did not. By choosing to bring its claim in tort, the State must live with all of Texas tort law—including Chapter 33.
The TMFPA’s closest federal analogue is the False Claims Act, 4 which federal courts characterize as authorizing the federal government to bring “tort” claims. United States v. RePass , 688 F.2d 154, 157 (2d Cir. 1982) (“The gravamen of this [False Claims Act] claim is the tort of intentional fraud and misrepresentation.”); United States v. Temple , 299 F.2d 30, 32 (7th Cir. 1962) (characterizing a False Claims Act suit as “an action sounding in tort”). 5 The unanimous recognition that False Claims Act claims sound in tort is a strong basis to hold a TMFPA claim does as well. 6
4 Like the TMFPA, the False Claims Act creates liability for a person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” and permits the government to recover “3 [three] times the amount of damages which the Government sustains because of the act.” 31 U.S.C. § 3729(a)(1)(A), (G).
5 See also United States ex rel. Westmoreland v. Amgen, Inc. , 738 F. Supp. 2d 267, 271- 72 (D. Mass. 2010) (“Since the False Claims Act creates a statutory tort . . . .”); United States ex rel. Jordan v. Northrop Grumman Corp. , No. CV 95-2985, 2002 WL 35454612, at *20 (C.D. Cal. Aug. 5, 2002) (same); United States v. Hero , No. 78 CIV-4587, 1981 WL 1982, at *3 (S.D.N.Y. July 27, 1981) (same).
6 Analogizing to federal decisions interpreting the False Claims Act is helpful in properly characterizing a TMFPA claim as one sounding in “tort” and seeking “damages.” But federal law also has limited utility, as Chapter 33’s scheme for tort claims has no federal counterpart.
14 A TMFPA claim plainly sounds in tort, and the Texas Legislature has not excepted it from the dictates of Chapter 33. The TMFPA does not include provisions for allocating responsibility among parties who caused or contributed to causing the State’s injury, so it has no competing fault allocation scheme. Indeed, *305 the trial court acknowledged this point and embraced it in its letter ruling: “There is no comparative fault, joint-and-several liability, contribution, single-satisfaction, or settlement credit in a TMFPA action.” R.232.
Further, Chapter 33 does not expressly except the TMFPA. See T EX . C IV . P RAC . & R EM . C ODE § 33.002(c) (“This chapter does not apply to . . . .”). The TMFPA is not among the claims that are excluded. By contrast, the exemplary damages provisions in Chapter 41 expressly exclude the TMFPA. See T EX . C IV . P RAC . & R EM . C ODE § 41.002(d)(3) (“Notwithstanding any provision to the contrary, this chapter does not apply to . . . an action brought under Chapter 36, Human Resources Code.”).
The inference is straightforward: when the Legislature intends to exclude a TMFPA claim from general statutes governing civil litigation, it does so expressly. See Dugger , 408 S.W.3d at 831; PPG Indus., Inc. v. JMB/Hous. Ctrs. Partners Ltd. P’ship , 146 S.W.3d 79, 84 (Tex. 2004) (explaining expressio unius est exclusio alterius ); Harlingen Family Dentistry, P.C. v. Tex. Health & Human Servs. Comm’n ., 452 S.W.3d 479, 482 (Tex. App.—Austin 2014, pet. filed) (same). It is undisputed that the TMFPA has not been expressly excluded from Chapter 33.
15 3. The State’s arguments to the contrary are unpersuasive. At first the State sought to avoid Chapter 33 by relying on the 2001 Tyler decision. R.80 (citing Davis v. Estridge , 85 S.W.3d 308, 312 (Tex. App.—Tyler 2001, pet. denied)). The State did not appear to have realized that Davis may be *306 bad law in light of the supreme court’s more recent decisions in Duenez , Garza , and Dugger.
When confronted with the supreme court’s cases, the State switched tacks. The State argued that the TMFPA has its origins in criminal law, and therefore does not sound in tort. R.195 (citing 42 U.S.C. § 1320a-7b). But the State failed to notice that the same statute it cited to support its position indicates that the civil remedies it seeks in this case would be available only through a civil action under federal law. See 42 U.S.C. § 1320a-7b(g). Under federal law, claims to recover damages for overpayments based on false statements for Medicaid reimbursement are “substantive causes of action for fraud.” Grogan v. Garner , 498 U.S. 279, 288 (1991). There is no reason for Texas courts to reach a different result.
Moreover, the Texas Legislature amended the TMFPA in 2005 to remove “Criminal Penalties” from T EX . H UM . R ES . C ODE § 36.131. See Act of June 17, 2005, 79th Leg. R.S., ch. 806, 2005 Tex. Sess. Law Serv. Ch. 806 (West). Whatever criminal origins the TMFPA may have had, it is now exclusively a civil statute.
16 The State also argued that a TMFPA violation is not a statutory tort because “traditional common law notions of reliance and causation are wholly absent from the TMFPA.” R.199. But the State overlooked the TMFPA’s causation standard: the statute makes “a person who commits an unlawful act” liable for the amount of *307 the payment or benefit provided “as a result of the unlawful act.” T EX . H UM . R ES . C ODE § 36.052(a)(1). The TMFPA’s causation requirement is consistent with concluding it is a tort that is subject to apportionment for “causing or contributing to cause in any way the harm for which recovery of damages is sought.” T EX . C IV . P RAC . & R EM . C ODE § 33.003(a).
The State also argued that Chapter 33 does not apply “because under the TMFPA, Xerox can only ever be held responsible for damages resulting from its own conduct” and “can never be held responsible for the actions of third parties.” R.200. This argument is a non sequitur . Black-letter law provides: “There may be more than one proximate cause of an event[.]” Del Lago Partners, Inc. v. Smith , 307 S.W.3d 762, 774 (Tex. 2010). Under the State’s theory of liability, its damages resulted from Xerox’s conduct in combination with the conduct of third parties. R.3, ¶8. That multiple parties allegedly caused the State’s harm is precisely why Chapter 33 applies.
Last, the State argued that it is not “workable” to “mesh” Chapter 33 with the TMFPA, because “the TMFPA does contain its own ‘separate and conflicting legislative fault-allocation scheme.’” R.201. This argument attempts to bring the
17 TMFPA within the holding of Southwest Bank , where the supreme court held that Chapter 33 was displaced where a statute includes “a comprehensive and carefully considered allocation of responsibility among parties to [a] relationship[].” Sw. Bank , 149 S.W.3d at 107. This exacting standard was satisfied in Southwest Bank *308 because the UCC statute had “its own comparative negligence provisions.” Id.
By contrast, the TMFPA does not allocate liability among parties or have comparative fault provisions, and the State has not seriously contended otherwise. The State has pointed only to the TMFPA’s scienter requirements and argued the statute does not “differentiate between the culpability of potential violators, holding a person who acts with reckless disregard equally as liable as a person who acts with actual knowledge or conscious indifference.” R.202.
This observation about scienter is the exact opposite of showing a fault- allocation scheme. It is perfectly acceptable under Chapter 33 to hold persons of different levels of culpability responsible for their share of the harm. Indeed, that is the point. The State cannot manufacture a fault-allocation scheme out of the fact that the TMFPA (like all intentional torts) has a scienter requirement.
4. The trial court rejected the State’s arguments but erred for different reasons. The trial court correctly rejected the State’s arguments and recognized that the TMFPA does not have its own separate fault-allocation scheme. R.232. This conclusion should have bound the trial court to apply Chapter 33 to a statutory tort
18 that “does not undertake a comprehensive fault scheme.” Garza , 257 S.W.3d at 706; see also Dugger , 408 S.W.3d at 831; Duenez , 237 S.W.3d at 689.
However, the trial court did not fully apply the supreme court cases. Instead, the trial court appeared to interpret the lack of a fault-allocation scheme in *309 the TMFPA to mean that those principles do not apply:
Each wrongful actor is liable for a civil remedy . . . in multiples of the State’s actual loss that is undiminished by the civil remedy . . . paid by another actor. … There is no comparative fault, joint-and-several liability, contribution, single satisfaction, or settlement credit in a TMFPA action.
R.232. In short, the trial court read the TMFPA as if Chapter 33 did not exist. Xerox respectfully submits that such a reading is erroneous.
In addition, such an interpretation of the TMFPA is unsound because it would create extraordinary liability unknown to the common law. The bar against double recovery existed long before 1995, when the TMFPA was enacted. See, e.g. , Stewart Title Guar. Co. v. Sterling , 822 S.W.2d 1, 6 (Tex. 1991) (“There is no reason we should allow a windfall double recovery in cases involving multiple defendants when double recovery is clearly prohibited against a single defendant.”); see also Elston v. City of Panhandle , 50 S.W.2d 1090, 1090–91 (Tex. 1932) (“There was but one injury and there can be but one satisfaction of the damages arising from the injury, whether the satisfaction was reached through the act of one or all of the tort-feasors.”).
19 Thus, the notion that the TMFPA permits double recoveries could be created only expressly by a statute’s plain text. See Smith v. Sewell , 858 S.W.2d 350, 354 (Tex. 1993). The TMFPA’s silence regarding contribution, single satisfaction, etcetera cannot be interpreted as expressly permitting a double recovery. See also *310 Jones v. Ray , 886 S.W.2d 817, 822 (Tex. App.—Houston [1st Dist.] 1994, orig. proceeding) (describing “two different judgments for full compensation for the same injuries” as a “nonsensical result”). Instead, the TMFPA’s silence about a comprehensive fault-allocation scheme is precisely why Chapter 33 applies.
Separately, the trial court incorrectly concluded that the State’s claim is brought as an “enforcement action” and thus is not a “statutory tort.” R.232. The State presented no authority for such an argument, and we have found none.
Calling the state’s claim an “enforcement action” seems to contemplate that the State is special, and that when it sues as a plaintiff under the TMFPA the rules apply differently. But the State is bound here by the same rules that apply to private litigants.
The Texas Supreme Court recently reaffirmed: “where the Legislature has given no indication to the contrary the State must abide by the same rules to which private litigants are beholden.” State v. Naylor , No. 11-0114, 2015 WL 3852284, at *6 (Tex. June 19, 2015). “As a general rule, the State litigates as any other party in Texas courts.” Texas Dep’t of Corr. v. Herring , 513 S.W.2d 6, 7 (Tex. 1974).
20 This principle is settled: [W]hen a State enters the Courts as a litigant, it must be held subject to the same rules that govern the other litigants, and abide the consequences of the suit . . . . When a state appears as a party to a suit, she voluntarily casts off the robes of her sovereignty, and stands before the bar of a court of her own creation in the same attitude as an *311 individual litigant; and her rights are determined and fixed by the same principles of law and equity . . . .
Wortham v. Walker , 128 S.W.2d 1138, 1145–46 (Tex. 1939) (orig. proceeding) (internal quotation marks omitted); accord Reata Const. Corp. v. City of Dallas , 197 S.W.3d 371, 377 (Tex. 2006) (“Once it asserts affirmative claims for monetary recovery, the City must participate in the litigation process as an ordinary litigant . . . .”); Sec. Trust Co. of Austin v. Lipscomb Cnty , 180 S.W.2d 151, 159 (Tex. 1944) (“When the state becomes a party to a suit it is subject to the same rules that govern other parties . . . .”). These rules likewise apply here.
In short, there is no basis for concluding that the State’s claim falls outside Chapter 33’s broad scope. B. The State Seeks “Recovery of Damages” Within the Scope of Chapter 33. The proportionate responsibility and contribution provisions of Chapter 33 apply to claims resulting from harm for which “recovery of damages” is sought. T EX . C IV . P RAC . & R EM . C ODE § 33.003(a) (proportionate responsibility); id . § 33.011 (contribution). Here, Chapter 33 also applies because the State seeks recovery of damages.
21 1. The State is seeking recovery of damages. The TMFPA expressly recognizes that its civil remedies include the recovery of “damages”: “In an action under this subchapter, the state or person bringing the action must establish each element of the action, including damages , *312 by a preponderance of the evidence.” T EX . H UM . R ES . C ODE § 36.1021 (emphasis added); see also Texas v. Merck & Co. , 385 F. Supp. 2d 604, 606 (W.D. Tex. 2005) (Yeakel, J.) (“Texas brought suit against Merck for damages and civil penalties pursuant to the [TMFPA].”). There can be no debate that the TMFPA creates liability for “damages.”
The TMFPA permits the State to recover money as compensation in “the amount of any payment or the value of any monetary or in-kind benefit provided under the Medicaid program, directly or indirectly, as a result of the unlawful act, including any payment made to a third party.” Id. § 36.052(a)(1). This provision is plainly a measure of “damages.”
The State’s Original Petition states that it is “seeking civil remedies under the TMFPA.” R.3. It alleges: “As a result of Xerox’s conduct,” the State made “hundreds of millions of dollars in payments.” R.21. It therefore seeks from Xerox “the value of any payments or any monetary or in-kind benefits provided under the Medicaid program, directly or indirectly, as a result of its unlawful acts,
22 [and] two times the amount of those payments.” R.21, ¶43 . This is precisely the language used in Section 36.052(a)(1) of the TMFPA—a damages provision. 7
In fact, the State has repeatedly admitted that it is seeking damages. See R.80, ¶5 (referring to “damages that are awarded to the State in this TMFPA *313 lawsuit”); R.193 (referring to “the State’s theory of damages”); Id. (noting that “amounts unlawfully paid to Xerox as well as amounts unlawfully paid to providers” are “a measure of damages”); R.200 (“Xerox can only ever be held responsible for damages resulting from its own conduct.”); R.205 (describing payments to providers as “one potential measure of damages”); R.133 (disclosures regarding the “amount of damages [that will be] requested by Texas at trial”). The State’s repeated concessions correctly recognize that it has a claim for damages.
2. The trial court failed to recognize that the State is seeking damages. Despite the TMFPA’s plain text and the State’s repeated acknowledgements that it was seeking damages, the trial court concluded that “the civil remedy in the TMFPA is not a damage provision.” R.232. The trial court did not offer reasoning to support this assertion.
7 The ordinary meaning of the word “damages” plainly includes compensation to the State for overpayments. “Damages” refers to “[m]oney claimed by, or ordered to be paid to, a person as compensation for loss or injury.” Black’s Law Dictionary, Damages (10th ed. 2014). “Compensatory damages” are “[d]amages sufficient in amount to indemnify the injured person for the loss suffered.” Black’s Law Dictionary, Compensatory Damages (10th ed. 2014).
23 It is possible the trial court was focused on the State’s claim for civil penalties, wherein it seeks $5,500 to $15,000 for each “unlawful act.” R.21–22; T EX . H UM . R ES . C ODE § 36.052(a)(3)(A). But the alleged basis for the civil penalties sought against Xerox is the alleged misrepresentations about the prior *314 authorization process—not the Medicaid providers’ claims for payment. Xerox seeks to apply Chapter 33 to the State’s damages claims, which seek the amounts of alleged overpayments made to the Medicaid providers. There is no basis for concluding that the alleged overpayments are anything but damages, and thus subject to Chapter 33.
C. Refusing to Apply Chapter 33 Was an Abuse of Discretion. The State’s liability theory presents a classic case for applying Chapter 33.
According to the State, “predatory and unscrupulous dental providers” sought payment for orthodontic services that were outside the scope of Medicaid coverage. R.3. It alleges that Xerox “failed to adequately review the orthodontic prior authorization requests and documentation submitted by providers.” R.4.
The State seeks damages for overpayments made to Medicaid providers— not to Xerox. Even if these overpayments resulted from Xerox’s unlawful acts— which is adamantly denied—the providers “caused or contributed to causing . . . the harm for which recovery of damages is sought.” T EX . C IV . P RAC . & R EM . C ODE § 33.011(6). As a tort defendant facing damages for these allegations, Xerox is entitled to invoke Chapter 33.
24 Based on the trial court’s conclusion that Chapter 33 does not apply, the trial court issued two orders that represent a clear abuse of discretion. 1. The trial court improperly denied Xerox leave to designate responsible third parties. *315 In one order, the trial court improperly denied Xerox’s motion for leave to designate responsible third parties. Tab B . Courts uniformly hold that denying leave to designate responsible third parties without first granting leave to replead is an abuse of discretion. 8 This is because Chapter 33 imposes a mandatory duty on trial courts: “A court shall grant leave to designate the named person as a responsible third party[.]” T EX . C IV . P RAC . & R EM . C ODE § 33.004(f); see Duenez , 237 S.W.3d at 694 (Chapter 33’s statutory mandates are “not discretionary”).
The only basis for denying leave to designate a responsible third party is if the defendant fails to plead sufficient facts concerning the alleged responsibility after an opportunity to replead. T EX . C IV . P RAC . & R EM . C ODE § 33.004(g). That did not happen here. Because Chapter 33 applies, the trial court had no discretion to deny Xerox leave to designate responsible third parties.
8 See, e.g. , In re Lewis Casing Crews, Inc. , No. 11-14-00137-CV, 2014 WL 3398170, at *1 (Tex. App.—Eastland July 10, 2014, orig. proceeding) (mem. op.); In re Greyhound Lines, Inc ., No. 05-13-01646-CV, 2014 WL 1022329, at *3 (Tex. App.—Dallas Feb. 21, 2014, orig. proceeding) (mem. op.); In re Smith , 366 S.W.3d 282, 284 (Tex. App.—Dallas 2012, orig. proceeding); In re Altec Indus., Inc. , No. 10-12-00207-CV, 2012 WL 2469542, at *2 (Tex. App.—Waco June 22, 2012, orig. proceeding)(mem. op.); In re Oncor Elec. Delivery Co. , 355 S.W.3d 304, 306 (Tex. App.— Dallas 2011, orig. proceeding).
25 2. The trial court improperly struck Xerox’s third-party claims. In a second order, the trial court improperly struck Xerox’s third-party petition asserting contribution claims against Medicaid providers. Tab A. *316 In urging the court to strike this pleading, the State argued (1) that Chapter 33 does not apply and (2) that the TMFPA bars Xerox from joining third parties. R.78-82. The first argument is already refuted, and the second can be swiftly rejected.
The State argued that Xerox cannot join third parties based on the statutory text in Subchapter C of the TMFPA, which governs “Action[s] By Private Persons,” a.k.a. qui tam actions. See T EX . H UM . R ES . C ODE § 36.101. That subchapter prohibits “interventions” by “other parties” into qui tam or copy-cat actions by other parties based on the same underlying facts as those asserted in a first-filed qui tam action or an existing state action. See id. §§ 36.106, 36.113. But Xerox’s third-party petition is plainly not a “ qui tam action,” and by filing it, Xerox was plainly not seeking to “intervene” in such an action or bring an action under Subchapter C. Sections 36.106 and 36.113 simply do not apply.
Instead, Rule 38(a) allows a defendant to bring into a lawsuit “a person . . . who is or may be liable to him or the plaintiff for all or part of the plaintiff’s claim against him.” T EX . R. C IV . P. 38(a). A Rule 38 third-party claim does not involve an independent theory of recovery; it is a contribution claim derivative of the
26 plaintiff’s claim. See Shoemake v. Fogel, Ltd. , 826 S.W.2d 933, 935 (Tex. 1992); Eslon Thermoplastics v. Dynamic Sys., Inc. , 49 S.W.3d 891, 901-02 (Tex. App— Austin 2001, no pet.). Xerox has a right to bring these third parties into the suit under Rule 38(a), because the rules of civil procedure apply to the State’s claim. *317 See T EX . R. C IV . P. 2 (civil rules of procedure “shall govern the procedure … in all actions of a civil nature” absent exceptions within the rules).
Because Chapter 33 applies to claims seeking damages under the TMFPA, this Court should hold that both rulings constitute an abuse of discretion. II. T HERE I S N O A DEQUATE R EMEDY BY A PPEAL .
“The adequacy of an appellate remedy must be determined by balancing the
benefits of mandamus review against the detriments.” In re Team Rocket, L.P. , 256 S.W.3d 257, 262 (Tex. 2008) (orig. proceeding). The benefits of mandamus review can be critically important, as it allows appellate courts to:
“preserve important substantive and procedural rights from impairment or loss,” “give needed and helpful direction to the law that would otherwise prove elusive in appeals from final judgments,” and “spare private parties and the public the time and money utterly wasted enduring eventual reversal of improperly conducted proceedings.” In re Prudential Ins. Co. of Am. , 148 S.W.3d 124, 136 (Tex. 2004) (orig. proceeding). Indeed, in exceptional cases, mandamus review of significant rulings “may be essential.” Id.
27 A. Appellate Remedies Are Held Inadequate in This Context. The adequacy of appellate remedies depends heavily upon the circumstances.
See id. at 137. A car wreck or slip-and-fall suit presents different considerations from massive fraud cases involving enormous damage models, multiple parties, *318 and hundreds of thousands of transactions. The mandamus proceedings dealing with joinder and responsible third party denials recognize that large, complex and high-stakes cases cannot be tried piecemeal or remedied by ordinary appeal when the defendant has a right to try all the facts in one proceeding.
In another complex fraud suit, the Fourteenth Court of Appeals granted mandamus relief from the denial of leave to join responsible third parties. See In re Arthur Andersen, LLP , 121 S.W.3d 471 (Tex. App.—Houston [14th Dist.] 2003, orig. proceeding). There, the plaintiffs sued Arthur Andersen and certain top executives for fraud related to the collapse of Enron, and Arthur Andersen moved for leave to join Enron employees and major financial institutions as responsible third parties. Id. at 474-75.
After the trial court denied its motion, Arthur Andersen sought mandamus relief. Id. at 476. The court of appeals held that the trial court’s denial of Arthur Andersen’s motion to join the responsible third parties was an “error of law” that constituted an abuse of discretion. Id. at 485.
28 In holding that Arthur Andersen had no adequate remedy on appeal, the court emphasized several points. One , trying complicated cases piecemeal affects a defendant’s substantial rights: A defendant facing complex, intertwined facts “has a substantial right to present the complete set of intertwined facts and issues *319 germane to [its] claims, to one factfinder, in one proceeding, rather than in two separate suits that are all but foreordained to generate, collectively, a decision destined to fail in the appellate process.” Id . at 486 (quoting Jones v. Ray , 886 S.W.2d 817, 822 (Tex. App.—Houston [1st Dist.] 1994, orig. proceeding) (granting mandamus relief from a severance order)).
Two , restricting a complex fraud trial to only a few parties in the alleged scheme is unquestionably harmful, but demonstrating that harm may prove elusive. The absence of the third parties “would likely profoundly affect the conduct and outcome of this suit in ways unlikely to be apparent in the appellate record.” Id . at 486.
Three , when a lawsuit is high-stakes and involves extensive, complicated facts, even one trial takes a serious toll on judicial and public resources. Multiplying that toll by two (or more) is unjustified. “[A]ny separate action against the third parties, or even a successful appeal in this suit, would result in an enormous waste of resources.” Id . An enormous waste of judicial resources is a proper consideration in granting mandamus relief. Id . (citing Jones , 886 S.W.2d at 822 n.9).
29 Four , defendants could potentially lose their contribution rights because the law is not settled on whether contribution claims may be brought after judgment. Id . at 485 (citing Casa Ford, Inc. v. Ford Motor Co. , 951 S.W.2d 865, 877 (Tex. App.—Texarkana 1997, pet. denied), as holding that “Chapter 33 does not permit a *320 tortfeasor subject to a judgment to bring a post-judgment contribution claim against a tortfeasor who was not a party to the primary suit”). This issue has not been decided by this Court or the supreme court. Until it is settled, tort defendants risk substantial losses if they cannot sue for contribution in the primary suit.
Based on these kinds of considerations, courts across the state have held that mandamus relief should be granted because appellate remedies are inadequate when a defendant is denied leave to designate responsible third parties. Some courts focus generally on the tendency of an absent responsible third party to “skew the proceedings” and the unjustified waste of having two trials. See, e.g. , In re Altec Indus., Inc. , No. 10-12-00207-CV, 2012 WL 2469542, at *2 (Tex. App.— Waco June 22, 2012, orig. proceeding) (mem. op.); In re Brokers Logistics, Ltd. , 320 S.W.3d 402, 408 (Tex. App.—El Paso 2010, orig. proceeding) (same).
Other courts have adopted bright-line holdings that a trial court’s improper denial of leave to designate a responsible third party can never be adequately remedied on appeal. See, e.g ., In re Lewis Casing Crews, Inc. , No. 11-14-00137- CV, 2014 WL 3398170, at *1 (Tex. App.—Eastland July 10, 2014, orig. proceeding) (mem. op.) (declining to limit mandamus relief to “extraordinary
30 circumstances”); In re Smith , 366 S.W.3d 282, 289 (Tex. App.—Dallas 2012, orig. proceeding) (“[A]ppeal is ordinarily an inadequate remedy when a trial judge erroneously denies a motion for leave to designate a responsible third party without granting leave to replead.”); In re Oncor Elec. Delivery Co. , 355 S.W.3d 304, 306 *321 (Tex. App.—Dallas 2011, orig. proceeding) (“An improper denial of leave to designate a responsible third party may not be adequately addressed by appeal.”).
The few decisions declining to grant mandamus relief have arisen in the personal injury context. E.g. , In re Unitec Elevator Servs. Co. , 178 S.W.3d 53, 64 (Tex. App.—Houston [1st Dist.] 2005, orig. proceeding) (distinguishing Arthur Anderson “because here, we are not dealing with the complex, intertwined facts surrounding the collapse of a major corporation, but a relatively straightforward personal injury case.”). Small personal injury cases are not analogous here.
B. Appellate Remedies Are Inadequate in This Case. For several reasons, this is an exceptional case. The facts will span nearly a
decade of Xerox State Healthcare’s performance under a contract (2004 to 2014). R7, R.17. During that time, TMHP was the claims processor for hundreds of thousands of prior-authorization requests. R.29. The State alleges that it spent approximately $1.1 billion on orthodontic services for most of these years, and it is claiming not just damages for overpayments but also doubling of damages, civil penalties, fees, interest and costs. R.3-4. The complexity, scale, and stakes of this suit put it in a class of its own.
31 The State admits that its allegations against the providers and Xerox are intertwined: “As a result of the conduct of both Xerox and these providers,” the State claims it was harmed. R.3 (original petition). The State claims that the providers submitted fraudulent requests that Xerox fraudulently approved. The *322 State has thus sued the providers separately for TMFPA claims arising out of the same set of facts. R.156-81, R.286-308.
The State’s fraud theory triggers Xerox’s “substantial right to present the complete set of intertwined facts and issues germane to [its] claims, to one factfinder, in one proceeding, rather than in two separate suits that are all but foreordained to generate, collectively, a decision destined to fail in the appellate process.’” Arthur Anderson , 121 S.W.3d at 486. Having piecemeal trials on the State’s claims would be fundamentally unfair.
The trial court recognized that its rulings would create multiple lawsuits. R.633 (“Separate suits Xerox may bring against third parties will not revisit my ruling - they result from it.”). But the trial court failed to adequately account for the unfairness of piecemeal litigation to the parties, whose claims and defenses would be harmed if not tried in one proceeding before one factfinder. Separate lawsuits “are all but foreordained to generate, collectively, a decision destined to fail in the appellate process.” Arthur Anderson , 121 S.W.3d at 486.
32 Multiple trials and appeals would also be an enormous waste of resources. The State has acknowledged as much when it sought mandamus relief in the supreme court, asking for review of a severance order requiring it to try eight separate lawsuits instead of one. In re State , 355 S.W.3d 611, 615 (Tex. 2011). *323 In granting mandamus relief, the supreme court emphasized that each lawsuit had essentially identical factual issues, such that eight separate trials required the parties to pay “the same lawyers to argue, and the same experts to testify, in eight separate cases, an issue that could be tried once.” Id . at 614.
The supreme court further emphasized that an appeal from these trials would be inadequate because of the “enormous waste of judicial and public resources.” Id. at 615. It noted that it had granted mandamus relief where:
An erroneous venue ruling “subject[ed] taxpayers, defendants and all of the state’s district courts to meaningless proceedings and trials.” Id. (quoting In re Team Rocket, L.P. , 256 S.W.3d 257, 262 (Tex. 2008)); and
An order severing two suits into sixteen had no adequate appellate remedies because there would be “no remedy at all for the irreversible waste of judicial and public resources that would be required here if mandamus does not issue.” Id. (citing In re Masonite , 997 S.W.2d 194, 196 (Tex. 1999)).
Thus, the public interests of the system itself—not to mention the litigants in the lawsuits—provided a sound basis for mandamus relief. Id. ; see also Prudential , 148 S.W.3d at 137 (mandamus relief considers broader public concerns, such as “putting the civil justice system . . . to the trouble of grinding through proceedings that were certain to be ‘little more than a fiction.’”).
33 Further, multiple separate proceedings without all relevant parties would be fundamentally skewed. But showing how the outcomes would have been different would likely prove elusive on appeal. Denying Xerox its right to join or designate the providers as responsible third parties might “skew the proceedings, potentially *324 affect the outcome of the litigation, and compromise the presentation of [Xerox’s] defense in ways unlikely to be apparent in the appellate record.” Brokers Logistics, Ltd. , 320 S.W.3d at 408 (citing Arthur Anderson , 121 S.W.3d at 486). Courts have granted mandamus relief in this context in recognition that the trial would be skewed and it might be too difficult to show harm on appeal in the wake of a jury verdict. See id. ; accord Lewis Casing Crews , 2014 WL 3398170, at *5; Altec Indus. , 2012 WL 2469542, at *2.
Last, the statutory question presented in this case may evade review entirely unless reached by mandamus. No appellate court in Texas has ever decided whether Chapter 33 applies to a claim under the TMFPA. While Xerox sought to certify this issue for permissive interlocutory appeal, the trial court declined to certify it. R.634. And while Xerox believes the ruling is reversible error, it should not be required to face an expensive array of skewed trials without knowing this Court’s view of the issue. Meanwhile, this Court will be reviewing on direct appeal a related issue in the State’s separate lawsuit against the providers, see p. 8 supra , and it would advance both the fairness and efficiency of this entire landscape of lawsuits to ensure that the decisions are consistent.
34 For all of these reasons, the benefits of mandamus review far outweigh any detriments, and Xerox has no adequate remedy on appeal. C ONCLUSION AND P RAYER FOR R ELIEF Xerox respectfully requests that mandamus relief be conditionally granted. *325 The trial court should be directed to vacate its order striking Xerox’s third-party petition and to grant Xerox’s motion for leave to designate responsible third parties under Chapter 33. Xerox prays for any further relief to which it may be entitled.
Respectfully submitted, By: /s/ Eric J.R. Nichols By: /s/ Constance H. Pfeiffer Eric J.R. Nichols Constance H. Pfeiffer State Bar No. 14994900 State Bar No. 24046627 Gretchen Sween B ECK R EDDEN LLP State Bar No. 24041996 1221 McKinney St., Ste. 4500 Christopher R. Cowan Houston, TX 77010 State Bar No. 24084975 Tel: 713.951.3700
B ECK R EDDEN LLP 515 Congress Ave., Ste. 1900 Austin, TX 78701 Tel: 512.708.1000
Robert C. Walters C. Andrew Weber State Bar No. 20820300 State Bar No. 00797641
G IBSON , D UNN & C RUTCHER LLP 301 Congress, Ste. 2000 2100 McKinney Ave., Ste. 1100 K ELLY H ART & H ALLMAN LLP Dallas, TX 75201 Austin, TX 78701 Tel: 214.698.3100 Tel: 512.495.6451
C OUNSEL FOR R ELATORS 35 C ERTIFICATE OF C OMPLIANCE 1. This brief complies with the type-volume limitation of Tex. R. App. P. 9.4 because it contains 8,507 words, excluding the parts of the brief exempted by Tex. R. App. P. 9.4(i).
2. This brief complies with the typeface requirements of Tex. R. App. P. *326 9.4(e) because it has been prepared in a proportionally spaced typeface using Microsoft Word 2007 in 14 point Times New Roman font.
Dated: July 1, 2015. /s/ Constance H. Pfeiffer Constance H. Pfeiffer Counsel for Relators
R ULE 52.3(J) C ERTIFICATION I have reviewed the petition and concluded that every factual statement in the petition is supported by competent evidence included in the appendix or record. /s/ Constance H. Pfeiffer Constance H. Pfeiffer
36 C ERTIFICATE OF S ERVICE I hereby certify that on July 1, 2015, a true and correct copy of the above and foregoing Petition for Writ of Mandamus was forwarded to all counsel of record by the Electronic Service Provider, if registered, otherwise by email, and to Respondent, by hand delivery, as follows:
*327 Raymond Winter Reynolds Brissenden Chief, Civil Medicaid Fraud Division Assistant Attorney General O FFICE OF THE A TTORNEY G ENERAL Office of the Attorney General
P.O. Box 12548 P.O. Box 12548 Austin, TX 78711-2548 Austin, TX 78711-2548 raymond.winter@texasattorneygeneral.gov reynolds.brissenden@texasattorneygeneral.gov Counsel for Real Party in Interest, The State of Texas Jason Ray E. Hart Green
Riggs, Aleshire & Ray, P.C. Weller, Green, Toups & Terrell, L.L.P. 700 Lavaca, Suite 920 Post Office Box 350 Austin, TX 78701 Beaumont, TX 77704-0350 jray@r-alaw.com hartgr@wgttlaw.com
Counsel for Intervenors, Atlas Dental, LP, et al. and Antoine Dental Center, et al. Honorable Stephen Yelenosky Judge, 345th District Court Travis County Courthouse
P.O. Box 1748 Austin, TX 78767 Respondent By: /s/ Constance H. Pfeiffer Constance H. Pfeiffer
37 No. __________________ I N THE T HIRD C OURT OF A PPEALS A USTIN , T EXAS I N RE X EROX C ORPORATION AND X EROX S TATE H EALTHCARE , LLC *328 F / K / A ACS S TATE H EALTHCARE , LLC,
Relators.
Original Proceeding from the 53rd District Court, Travis County, Texas, Trial Court Cause No. D-1-GV-14-000581 The Honorable Stephen Yelenosky, Presiding A PPENDIX TO P ETITION FOR W RIT OF M ANDAMUS T AB A Order Granting Motion to Strike Petitions in Intervention and
Plea to the Jurisdiction B Order Denying The Xerox Parties’ Motion for Leave to Designate Responsible Third Parties C Order Granting State’s Plea to the Jurisdiction and Motion to Dismiss Third Party Claims Tab A Order Granting Motion to Strike Petitions in Intervention and Plea to the Jurisdiction *329 P.003/005 SEP-19-2014 11:59 v~ fl°CiliiS t.iOllOiy, ft;X;:~· CAUSE NO. D-t-GV-14-000581 THE STATE OF TEXAS, § IN THE DISTRlCT COURT § Plaintiff,
§ v.
§
§ § TRAVIS COUNTY, TEXAS
XEROX CORPORATION; XEROX *330 § STATEHEALTHCARE,LLC; ACS HEATHCARE LLC, A XEROX § § CORPORATION, 53Ro JUDICIAL DISTRICT Def end ants. §
ORDRR
GRANTING MOTION TO STIKE PETITIONS IN INTERVENTION ANO PLEA TO THE .roRISDICTION On Monday, September 15, 2014, the Court heard the State of Texas's Motion to Strike Petitions in Intervention and Plea. lo the Jurisdiction. After review and consideration of the motions and the responses thereto, the Court finds that the State of Texas's Motion to Strike Petitions in Intervention and Plea to the Jurisdiction should be GRANTED, and therefore,
TT IS ORDERED that the State of Texas's Motion to Strike Pcticions in Intervention and Plea to the Judsdiction is GRANTED, and all claims asserted by lntervenors (Dr. Stephen Chu; Dr. Richard F. Herrschcr; Atlas Dental, L.L.P.) and Dr. Hicu Huynh; Man & CFN Ortho, PLLC, NavaTt'o Orthordontix of fort Worth, PLLC Navarro Orthodontix of Irving, PC, Navarro Orthordontix of Edinburg, PLLC, Navarro Orthordontix of McAllen. PLLC~ Navarro Onhordontix, PC, and Dr. Carlos F. Nararro; RGV Smiles by Rocky L. Salinas, DDS, PA, and Dr.Rocky Sakinas; Inna Cantu- Thompson, DDS , PC, and Inna CantuThompson; Westmoreland Dental, PA,
P.004/006 SEP-19-201 4 11:69 Westmoreland Dental of Garland, PC Westmoreland Dental and Othodontics, PA. and Scottie H. Nguyen. DDS; and Victor M. Zurita, DDS) in this case are DISMISSED.
SIGNED this l8 [1] h Day ofSeptember2014. *331 Tab B Order Denying The Xerox Parties’ Motion for Leave to Designate Responsible Third Parties
*332 Filed in The District Court of Travis County, Texas
APR 1 5 2015
c2,:o--:r- At M. CAUSE NO. D-1-GV-14-000581 Velva L. Prlce, District Clerk THE STATE OF TEXAS § . IN THE DISTRICT COURT OF § Plaintiff, § § v. § § *333 § TRAVIS COUNTY, TEXAS
XEROX CORPORATION; XEROX § STATE HEALTHCARE, LLC; § ACS HEAL TH CARE LLC, § A XEROX CORPORATION, §
§ Defendants. § 53RD JUDICIAL DISTRICT § ORDER DENYING THE XEROX PARTIES' MOTION FOR LEAVE TO DESIGNATE RESPONSIBLE TIDRD PARTIES On April 15, 2015, the Court heard the Xerox Parties' Motion for Leave to Designate Responsible Third Parties filed on March 13, 2015. A~l parties appeared through their respective counsel and announced ready.
Having considered the Motion, response briefs, and arguments of counsel, the Court ORDERS that the Xerox Parties' Motion for Leave to Designate Responsible Third Parties is DENIED.
Signed thiS JS~y of~ 2015 ~Ll/
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Jud~n Y~nosky , I / Tab C Order Granting State’s Plea to the Jurisdiction and Motion to Dismiss Third Party Claims *334 APR-28-2015 14:22 345TH DISTRICT COURT P.05/06 of Travis county, Texas ;iJ--- Fi\ed in The District Court APR 2 8 201 .
CAUSE NO. D-1-GN-14-005380
§ THE STATE OF TEXAS IN THE DISTRICT COURT OF § Plaintiff, § *335 § v. § § § DR. BEHZAD NAZARI, D.D.S. TRAVIS COUNTY, T~XAS D/B/A ANTOINE DENTAL § CENTER, DR. BEHZAD NAZARI, § DR.WAELKANAAN, § HARLINGEN FAMILY § DENTISTRY, P.C., NIKIA, § § PRACTICAL BUSINESS SOLUTIONS, SERIES LLC, JUAN § D. VILLAREAL D.D.S., SERIES, § PLLC D/B/A HARLINGEN § § FAMILY DENTISTRY GROUP, DR. JUAN VILLAREAL, DR. § VIVIAN TEEGARDIN, RICHARD § § F. HERRSCHER, D.D.S., M.S.D., P.C., DR. RICHARD F. § HERRSCHER, M & M . . § § ORTHODONTICS, PA, DR. SCOTT § MALONE, DR. DIANA MALONE, § MICHELLE SMITH, NATIONAL ORTHODONTIX, MGMT, PLLC, § DR. JOHN VONDRAK, RGV § SMILES BY ROCKY L. SALINAS, § D.D.S. PA, AND DR. ROCKY § SALINAS § SJRD JUDICIAL DISTRICT
§ Defendants. § ORDER GRANTING STATE'S PLEA TO THE JURISDICTION AND MOTION TO DISMISS THIRD PARTY CLAIMS On April 15, 2015, the Court heard the State of Texas's Plea to the Jurisdiction, PJea in Bar and Motion to Dismiss Third Party Claims, filed on January 20, 2015. All parties appeared through their respective counsel and announced ready.
1 APR-28-2015 14:22 345TH DISTRICT COURT P.06/06 D-\-6 r0- l Lf-OiY73 go ~~ e..- i of 2..
Having considered the Pleas, Motion, response briefs, and arguments of counsel,
the Court ORDERS that the State of Texas's Plea to the Jurisdiction is GRANTED. Defendants' counterclaims against the State are DISMISSED with prejudice. The Court *336 further ORDERS that the State of Texas's Motion to Dismiss Third Party Claims is also GRANTED. Consistent with this Court's rulings in the State's litigation against Xerox, the Court finds that the State is entitled to bring this action against defendants to the exclusion of other parties. Defendants' third party claims against Xerox are DISMISSED.
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Signed thi.z.li day of~ 2015 2
TOTAL P.06
NOTES
[1] HHSC first contracted with ACS State Healthcare LLC, which changed its name to Xerox State Healthcare, LLC after it was acquired by Xerox Corporation. Tab B at 2. Xerox Corporation and Xerox State Healthcare, LLC are distinct entities with separate legal arguments; references to them jointly as “Xerox” are solely for ease of reading. 2
[2] The 2008 audit report is publicly available at http://www.tdmr.org/texas-state-audit-report. It is not yet filed as evidence in this case but is cited merely as an uncontested background fact. 3
[3] See, e.g. , Janek v. Harlingen Family Dentistry, P.C. , 451 S.W.3d 97 (Tex. App.—Austin 2014, no pet.). 4
[4] Harlingen Family Dentistry v. ACS State Healthcare, LLC , Cause No. D-1-GN-14-000319; Antoine Dental Center v. ACS , No. D-1-GN-14-000320; M&M et al. v. ACS , D-1-GN-14- 000321; and Dr. Paul Dunn v. ACS , No. D-1-GN-14-000322. 5
[5] See, e.g. , United States v. Campbell , No. CIV.A. 08-1951, 2011 WL 43013, at *10 (D.N.J. Jan. 4, 2011) (citing Mortgages, Inc. v. U.S. Dist. Court of Nev. , 934 F.2d 209 (9th Cir. 1991)); U.S. ex rel. Miller v. Bill Harbert Intern. Const., Inc. , 505 F. Supp. 2d 20, 25 (D.D.C. 2007) (same). 13