Texas Medicaid Dental Fraud: Is the State Partly to Blame?

(August 12, 2014):  Texas Medicaid dental fraud has been an ongoing concern of both federal and state law enforcement agencies. As set out in an August 2014  report titled “Texas did Not Ensure that the Prior Authorization Process was Used to Determine the Medical Necessity of Orthodontic Services,” the U.S. Department of Health and Human Services, Office of Inspector General (OIG), has concluded that an agency of the State of Texas may be at least partially responsible for the millions of dollars in misspent funds resulting from  Texas Medicaid dental fraud.  As OIG has noted, the Texas Health and Human Services Commission (HHSC) is the state agency responsible for administering Medicaid dental health services for eligible beneficiaries.  HHSC administers Medicaid dental health services through the Texas Health Steps Program.  Under this program, Medicaid beneficiaries up to the age of 20 may receive oral care and treatment services.   Orthodontic work qualifies for coverage and payment as long as the services are medically necessary and the dental provider has properly sought and received prior authorization for the orthodontic care to be administered.  Upon review, OIG found that the responsible state agency failed to properly oversee a private contractor that was engaged to assess whether requests for Medicaid dental orthodontic services were, in fact, medically necessary and appropriate. As OIG states in its report:

“The State agency did not ensure that the prior-authorization process was used to determine the medical necessity of orthodontic services under State Medicaid guidelines. In addition, the TMHP dental director did not follow State Medicaid policies and procedures when determining the medical necessity of orthodontic services and reviewing prior-authorization requests.”

As OIG further stated:

“The prior-authorization process is intended to determine medical necessity. Because payments for Medicaid orthodontic services in Texas have risen sharply in recent years, we have identified this area as vulnerable to fraud, waste, and abuse.

HHSC, the state agency responsible for administering the Medicaid dental program, contracted with a private contractor known as the Texas Medicaid & Healthcare Partnership (TMHP) to determine whether the proposed orthodontic services identified by Medicaid dental providers were, in fact, medical necessary.  If TMHP determined that the orthodontic services were medically necessary, the contractor would qualify the proposed services for prior authorization.

I.  Background – The Medicaid Dental Prior Authorization Process for Orthodontic Services:

Under Texas’ Medicaid dental program, orthodontic services were only found to be medically necessary in situations where the treatment procedures were needed to correct severe handicapping malocclusion and related conditions[1].  Prior to providing orthodontic services to qualified Medicaid beneficiaries, Texas Medicaid dental providers were required to seek and obtain prior authorization from TMHP. As HHSC’s contract with TMHP reflects, processing these requests included determining the medical necessity of orthodontic services.  The contract also required TMHP employ knowledgeable and professional medical personnel to process requests for prior authorization that are received from Texas Medicaid dental providers.

Under the prior-authorization process, Texas Medicaid providers were required to send their requests to perform orthodontic services directly to TMHP.  Each request for prior authorization was required to be accompanied by patient dental records such as an orthodontic treatment plan, x-rays, facial photographs, and a Handicapping Labio-lingual Deviation Index (HLD)[2].  Upon receipt, TMHP’s reviewers were required to perform an assessment of each dental patient’s HLD scores and determine whether the proposed dental services could be issued prior authorization.. .

II.  Purpose of OIG’s Audit of the Texas Medicaid Dental Program:

In recent years, payments for Medicaid orthodontic services in Texas have risen sharply.  For example, Texas Medicaid payments for orthodontic services amounted to $6.5 million in 2003.  In only seven years (2010), Texas Medicaid expenditures for orthodontic services had soared to over $220.5 million, an increase of more than 3,000%.  In light of these staggering figures, OIG tagged this program as potentially vulnerable to health care fraud, waste, and abuse.  OIG undertook a review to determine whether the HHSC ensured that the prior authorization process was used to determine the medical necessity of orthodontic services under State Medicaid guidelines.

III.  What did OIG Find With Respect to Texas Medicaid Dental Fraud?

As OIG report details, a number of programmatic deficiencies ultimately led to a break down in the prior authorization process.  These deficiencies generally fall within the following two categories:

• HHSC Did Not Ensure that the Prior-Authorization Process was Used to Determine Medical Necessity.

OIG determined that HHSC (the state agency responsible for administering the Medicaid dental program), did not ensure that TMHP properly reviewed each request for prior authorization, prior to issuing their approval that the requested orthodontic services be administered. The TMHP dental director was generally the only person qualified to make a determination of medical necessity.  However, OIG found that prior authorization “analysts” processed all requests for prior authorization of orthodontic services without review by the dental director or another licensed dentist.  THMP’s authorizations analysts would forward requests to the dental director only if the HLD score was lower than 26, the patient was under the age of 12[3], or the patient had special circumstances.

The TMHP dental director claimed that the prior-authorization process was “loose”.  It (incorrectly) depended on the individual provider to determine the medical necessity of treatment.  Moreover, TMHP’s prior-authorization director argued that, on the basis of the contractor’s interpretation of its contract and on the fact that the Medicaid Manual did not require dental molds to be submitted with the provider request for prior authorization, not every request for prior authorization had to be reviewed by a licensed dentist.

Nevertheless, the audit concluded that, by automatically approving requests for prior authorization, TMHP did not appropriately research, analyze, evaluate, or ensure that all medical facts were considered and documented before determining medical necessity.

• HHSC Did Not Ensure that the TMHP Dental Director Followed Medicaid Policies and Procedures on Determining the Medical Necessity.  

As noted above, the HHSC’s contract with TMHP required that every request for prior authorization must be reviewed in order to determine whether the proposed services were truly medically necessary. However, OIG’s audit found that HHSC did not ensure that the TMHP dental director followed Medicaid policies and procedures on determining the medical necessity of orthodontic services and reviewing prior-authorization requests.

Instead of using “Medicaid criteria” to approve prior authorization requests, the TMHP dental director simply used his “professional judgment.”  While this may be used to treat moderate malocclusion, Medicaid will only reimburse providers who treat severe handicapping malocclusion. Ultimately, OIG’s report indicated that TMHP’s dental director made final determinations of medical necessity in only 10% — 20% of the orthodontic requests for prior authorizations, and did so without using the requisite Medicaid criteria.

Overall, the report emphasizes that the two deficiencies occurred because HHSC did not ensure that its contractor properly reviewed the medical necessity of each request for prior authorization and did not ensure that the TMHP dental director followed Medicaid policies and procedures. As a result, TMHP may have approved requests for orthodontic services that were not medically necessary.

IV. OIG’s Recommendations and HHSC’s Response:

Based on its findings, OIG strongly encouraged HHSC to provide proper oversight of the orthodontic prior-authorization process.  This would better ensure that:

• This process would be used to determine medical necessity, and

• Personnel making the prior-authorization decisions followed the appropriate State Medicaid policies and procedures.

In its written response, the state only partially agreed with OIG’s report findings.  While HHSC  agreed that the orthodontic prior-authorization process was not used to determine the medical necessity of orthodontic services and that TMHP’s dental director was not using Medicaid guidelines to determine medical necessity, HHSC argued that TMHP’s deficiencies were not due to a lack of State agency oversight. The State agency provided information on actions that it had taken to address our recommendations, including transitioning Medicaid recipients to managed care, terminating TMHP’s contract, and hiring a dental director to monitor the dental program.

V.  Is the State Responsible for a Portion of the Alleged Instances of Texas Medicaid Dental Fraud?

Despite HHSC’s assertions to the contrary, OIG’s report firmly lays the responsibility for the deficiencies identified at the feet of the state.  As the report reads:

“Although TMHP failed to properly use the prior-authorization process to determine the medical necessity of orthodontic services, the State agency is ultimately responsible for contractor compliance.”

The state’s failure to properly supervise and / or monitor their outside contractor (TMHP) has been somewhat addressed by the state’s transition of a majority of the state’s Medicaid beneficiaries to a managed care program, thereby limiting TMHP’s medical necessity reviews to only a portion of the eligible Medicaid population.  In May 2014, the HHSC terminated its contract with TMHP.  Moreover, the State of Texas filed a lawsuit against TMHP’s parent company, Xerox, seeking to reclaim millions of dollars that the state alleges were erroneously doled out to Medicaid providers as a result of the contractor’s actions.  There is speculation that the State’s lawsuit, if successful, could result in up to $2 BILLION in damages and penalties.

VI.  Final Comments:

Regardless of whether, the state, its contractor or the participating dental providers are alleged to be at fault,  everyone agrees that the resulting lack of oversight has led to significant problems for everyone involved in the program.   Two years later, Texas health officials appear to have now reined in spending on Medicaid orthodontic services.  The state is now in litigation with dental providers who alleged to have provided orthodontic services that were not medically necessary. 

Because of its enormous size and complexity, Medicaid is susceptible to substantial amounts of waste, fraud, abuse and mismanagement.  While no one can truly determine just how much of Medicaid’s budget consists of waste, fraud, and abuse, it may exceed $100 billion a year.

As this – and previous – audits and investigations indicate, massive fraud  is alleged to have occurred in Texas’ Medicaid dental and orthodontics program over the past few years.  As a result, both Federal and State agencies are taking serious measures to both identify and combat potential abuses within the program.  While this report centered on the Texas contractor hired to review and assess medical necessity of orthodontic claims, it is important to keep in mind that Texas providers are not immune to liability.  Ultimately, even if Texas dental providers argue that they justifiably relied on TMHP’s prior-authorization approvals, Medicaid providers – in particular, orthodontists – must make every effort to ensure that their services and claims meet the applicable Medicaid guidance on qualifications for medical necessity and reimbursement.  Notably, there is ample case-law that has firmly established the rule that a Medicare or Medicaid provider who has been overpaid is still responsible for repaying the overpayment to the government — even if the overpayment occurred because they relied on bad advice provided by a government contractor.  While there are very narrow exceptions to this rule, it will likely be difficult for Texas dental providers to avoid liability if, in fact, medical necessity for orthodontic care cannot be shown.

It is essential that dentists participating in any state Medicaid dental program review their practices to ensure that they are complaint and have preventative measures in place.  As a Texas Medicaid dental provider, have you recently conducted an internal review of your coding and billing practices?  Do you have an effective Compliance Plan in place?  If not, now is the time to do so, prior to being audited by federal or state authorities.   Our firm includes health care attorneys with years of experience dealing with both Medicare and Medicaid auditors who are ready to assist you with your appeals.

Robert W. Liles, M.B.A., M.S., J.D., serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law.  Liles Parker is a boutique health law firm, with offices in Washington, DC, Houston, TX, McAllen, TX and the District of Columbia.  Many of our attorneys have decades of experience working on health law matters and cases.  We represent health care providers and suppliers around the country in connection with Medicare audits by ZPICs and other CMS-engaged program integrity contractors.  The firm also represents health care providers in HIPAA Omnibus Rule risk assessments, privacy breach matters, State Medical Board inquiries and regulatory compliance reviews.  For a free consultation, call Robert at:  1 (800) 475-1906

[1] These conditions are described and measured by the procedures and standards set forth in the Texas Medicaid Provider Procedures Manual (Medicaid Manual). Texas Administrative Code Title 25, part 1, § 33.71; Medicaid Manual, Children’s Service Handbook, Volume 2, § 4.2.24 (2011). The Medicaid Manual allows reimbursement for procedure code D8660 (preorthodontic treatment visit) without prior authorization. Medicaid Manual, Children’s Service Handbook, Volume 2, § 4.2.24.1 (2011).

[2] Texas Medicaid providers use the HLD to determine whether a beneficiary needs comprehensive orthodontics.

The HLD lists 9 conditions that the provider should consider when making a diagnosis.  For each condition, a numerical score is given, and all scores are then totaled.  A score of 26 or above indicates that a beneficiary requires these services.

[3] The Medicaid Manual states that orthodontic services are limited to children 12 years of age or older, with some

exceptions. Medicaid Manual, Children’s Service Handbook, Volume 2, § 4.2.24 (2011).

Investigations of Medicaid Dental Fraud in Texas

(July 1, 2014): Law enforcement authorities are actively investigating and prosecuting health care providers for crimes based upon allegations of Medicaid dental fraud in Texas. When looking for fake billing to the Medicaid program, investigators have historically targeted hospitals and doctors, but increasingly dentists have come under watch. In Texas, new measures have been adopted to investigate Medicaid dental fraud.

In response to millions of dollars in dental and orthodontic Medicaid fraud recently uncovered in the state, the Texas legislature passed H.B. 3201, effective September 1, 2013. This law created a new process for investigating complaints against dentists that is similar to the process the Texas Medical Board uses to investigate complaints against physicians. It also adds requirements to the licensing requirements for dentists.

I.  Process for Investigating Complaints Medicaid Dental Fraud in Texas:

H.B. 3201 establishes a new system for dental patients to file complaints and to track Medicaid providers. It also requires that within 60 days of a complaint being received, the Texas State Board of Dental Examiners must complete an investigatory process and make a decision.  Prior to the new regulations, the board had been taking an average of more than 400 days to resolve complaints.

In the past, the seven-member dental board reviewed each case individually with the help of volunteer experts. Under the new process, staff members including dentists, lawyers, investigators, licensing specialists and support staff will review complaints and conduct preliminary investigations to determine if violations occurred.

In cases where an investigation is pursued, complaints involving standard of care are referred to a new expert panel comprising dentists and dental hygienists. The dental board will hear all others investigations. The board will make final decisions on all cases involving alleged violations and will review the staff’s dismissal of other complaints.

II.  Licensing Requirements:

HB 3201 also creates a $55 surcharge added to the cost for dentists who are obtaining or renewing their licenses. These extra funds will allow the dental board to hire new staff members and an expert panel of dentists to review complaints.

Dentists will also be required to submit more information when they apply for a license. When completing their yearly registration before, dentists were only required to list the name of the dental practice, its physical address, hours worked there per week, number of weeks worked per year, the type of practice and the number of hygienists and assistants. Under the new law, registration applicants must include more information on the license holder, whether the dentist is a provider under Medicare, and whether the licensee is affiliated with a dental service organization.

III.  Medicaid Fraud Control Unit of the Office of the Texas Attorney General:

The Texas Attorney General’s Medicaid Fraud Control Unit is also pursuing Medicaid fraud. The department conducts criminal investigations of Medicaid providers who are suspected of cheating the Medicaid Program. The unit employs investigators, auditors and attorneys who conduct investigations and assist in the prosecution of Medicaid providers who defraud the system or abuse the elderly.

IV. Recent Example of Medicaid Dental Fraud in Texas:

Last year, the Medicaid Fraud Unit, in conjunction with the FBI, led an investigation which resulted in a Texas dentist pleading guilty to a Medicaid fraud scheme. The dentist had practiced pediatric dentistry and admitted that he made false and fraudulent statements and entries on patient records, which caused Medicaid to be billed for, and pay, at least $120,000 for services falsely claimed to have been performed. He faced a maximum statutory penalty of five years in federal prison, a $250,000 fine, and restitution. In February of this year, the dentist was sentenced to 18 months in federal prison and was ordered to pay $57,969 in restitution.

V.  Final Remarks:

Especially in light of new legislation, it is essential that dentists participating in any state Medicaid dental programs review their practices to ensure that they are complaint and have preventative measures in place. Federal and state enforcement investigations of possible incidents of dental fraud have steadily increased in recent years, and there is every indication that these efforts will continue to rise.

Robert W. Liles, Esq., serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law.  Liles Parker attorneys represent dentists, orthodontists, and other health care providers around the country in connection with both regulatory and transactional legal projects. For a free consultation, call Robert at:  1 (800) 475-1906.