# Dr. Behzad Nazari, D.D.S. D/B/A Antoine Dental Center Dr. Behzad Nazari Harlingen Family Dentistry, P.C. A/K/A Practical Business Solutions, Series LLC Juan D. Villarreal D.D.S., Series PLLC D/B/A Harlingen Family Dentistry Group v. State > Texas Court of Appeals, 3rd District (Austin) · August 10, 2015 URL: https://www.frixlaw.com/law-library/cases/4071628 ## Case - **Court:** Texas Court of Appeals, 3rd District (Austin) - **Decided:** August 10, 2015 - **Precedential status:** Published - **Opinion:** Opinion - **Cited by:** 0 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4071628 ## How later opinions describe it (automated extraction) - characterizing a False Claims Act suit as “an action sounding in tort” ## Opinion text 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 IN THE COURT OF APPEALS FOR THE THIRD DISTRICT OF TEXAS AT AUSTIN FILED IN 3rd COURT OF APPEALS DR. BEHZAD NAZARI, D.D.S., ET AL., AUSTIN, TEXAS Appellants, 8/10/2015 4:53:21 PM v. JEFFREY D. KYLE Clerk THE STATE OF TEXAS, Appellee, v. XEROX CORPORATION, XEROX STATE HEALTHCARE, LLC F/K/A ACS STATE HEALTHCARE, LLC, Appellees. On Appeal from the 53rd Judicial District Court of Travis County, Texas, Trial Court Cause No. D-1-GN-14-005380 BRIEF OF APPELLEES BECK REDDEN LLP BECK REDDEN 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) GIBSON, DUNN & CRUTCHER LLP KELLY HART & HALLMAN 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) COUNSEL FOR APPELLEES, XEROX CORPORATION AND XEROX STATE HEALTHCARE, LLC, F/K/A ACS STATE HEALTHCARE, LLC Oral Argument Requested TABLE OF CONTENTS PAGE TABLE OF CONTENTS ...................................................................................................i INDEX OF AUTHORITIES.............................................................................................. ii STATEMENT OF THE CASE ..........................................................................................iv STATEMENT OF JURISDICTION ..................................................................................... v ISSUE PRESENTED........................................................................................................ v STATEMENT OF FACTS ................................................................................................. 1 SUMMARY OF ARGUMENT ........................................................................................... 8 ARGUMENT ................................................................................................................. 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 PRAYER FOR RELIEF .................................................................................................. 16 CERTIFICATE OF SERVICE .......................................................................................... 18 CERTIFICATE OF COMPLIANCE .................................................................................. 19 INDEX OF AUTHORITIES CASE PAGE(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 STATUTES TEX. CIV. PRAC. & REM. CODE § 33.002(a)(1) ......................................................... 14 TEX. HUM. RES. CODE § 36.002 ................................................................................................................. 4 § 36.007............................................................................................................. 4, 5 § 36.052................................................................................................................. 4 OTHER AUTHORITIES 25 TEX. ADMIN. CODE § 33.71 (2015) ................................................................... 2, 3 iii STATEMENT OF THE CASE 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 STATEMENT OF JURISDICTION This Court has jurisdiction under TEX. CIV. PRAC. & REM. CODE § 51.014(a)(8). ISSUE PRESENTED Did the trial court err by dismissing the Dental Group’s third-party claims against Xerox? v STATEMENT OF FACTS 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. 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 TEX. ADMIN. CODE § 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. 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 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. 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 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 TEX. HUM. RES. CODE § 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. 3 See, e.g., Janek v. Harlingen Family Dentistry, P.C., 451 S.W.3d 97 (Tex. App.—Austin 2014, no pet.). 4 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. 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 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 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 SUMMARY OF ARGUMENT 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 Reata Const. Corp. v. City of Dallas, 197 S.W.3d 371, 377 (Tex. 2006). 8 ARGUMENT 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 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 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 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 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. 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 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. TEX. CIV. PRAC. & REM. CODE § 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 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 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. PRAYER FOR RELIEF 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 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 BECK REDDEN LLP State Bar No. 24084975 1221 McKinney St., Ste. 4500 ccowan@beckredden.com Houston, TX 77010 BECK REDDEN LLP (713) 951-3700 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 GIBSON, DUNN & CRUTCHER LLP KELLY HART & HALLMAN 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) COUNSEL FOR APPELLEES, XEROX CORPORATION AND XEROX STATE HEALTHCARE, LLC, F/K/A ACS STATE HEALTHCARE, LLC 17 CERTIFICATE OF SERVICE 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 CERTIFICATE OF COMPLIANCE 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 No. 03-15-00252-CV IN THE COURT OF APPEALS FOR THE THIRD DISTRICT OF TEXAS AT AUSTIN DR. BEHZAD NAZARI, D.D.S., ET AL., Appellants, v. THE STATE OF TEXAS, Appellee, v. XEROX CORPORATION, XEROX STATE HEALTHCARE, LLC F/K/A ACS STATE HEALTHCARE, LLC, Appellees. On Appeal from the 53rd Judicial District Court of Travis County, Texas, Trial Court Cause No. D-1-GN-14-005380 APPENDIX TO BRIEF OF APPELLEES TAB 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 Tab A Order Granting State’s Plea to the Jurisdiction and Motion to Dismiss Third Party Claims 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 STATE 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 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. J-h A~ Signed this.{li day of~' 2015 I Jud~J'h;;lle{osky l I 2 384 Tab B Plaintiff’s Original Petition in Cause No. D-1-GV-14-000581 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. 53 RD JUDICIAL DISTRICT XEROX CORPORATION; XEROX STATE HEALTHCARE,LLC;ACSSTATE HEALTHCARE, LLC, A XEROX CORPORATION, Defendants TRAVIS COUNTY, TEXAS 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 2. Plaintiff is the State of Texas, by and through the Attorney General of Texas ("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. 7111 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. 71h 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 36.052fd) of the TMFPA and because many of the unlaw'ful 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 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 t h 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 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 A. The Texas Medicaid Orthod.ontic Benefit 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). PLAINTIFF'S ORIGINAi PETl'I ION PAGF. 4 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.e d 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.. . . PLA!NTIFF'S.ORJGIN AL PETfflON PAGES PAC-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. PAC-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. 14. Ln response, Xero}( submitted a proposal 011 August 21, 2002 (''2002 Proposal"). In 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 anETJT!ON PAGE9 $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 Texas Medicaid benefits. ln its management response to the audit findings and 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. 24. In or arouod March, 2009, in response to demands by HHSC for updated P&Ps for all areas of operations, Xerox submitted Dental Prior Authorfaation P&Ps and Werk Jnstructions to HHSC 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 F' S ORIGINAL PETITION PAGE l3 PAC-03 R~tain and retrieve al I PA records in accordance with the State~ 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 Receive1 correctly disposition (i.e. approve, denY.. modify., or determine incomplete). . . . -prior authorization requests for aH services.... PAC-23 Eslablish and maintain State-approved processes and procedures to 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 • 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 authorizatio11 requests. 1• Xerox r~presented that it was meeting HHSC's Busjness Objective of PLAINTl.FF 'S ORIGINAL PETITION PACE IS 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 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 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 of26 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: A. Knowingly or intentionally making or causing to be made a false 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). PLAINTIFF'S ORfGJNAI., PETITION PAGl: 1'7 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: A Knowingly making or causing to be made a false statement or 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 VU. DEFENDANTS' VTOLATlONS OF T HE TEXAS MEDICAID FRAUD PREVENTION ACT;i 38. The State re-alleges and incorporates by reference as set forth her~in the 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. 2 rn August of 2005, applicable provisions of the TMFPA were amended as set forth in 1[~ 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. PLAlNTTFf'S ORIGINAL PETITION J>AGE 19 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 pertaini.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 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 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 ofXerox7 s unlawful acts; B. lwo. times the value of any overpayments made as a result of Xer0x's ur1iawful (lets; C. civil penalties~ 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 PLAINTIFF'S ORlGINAl Pf.1Tf!ON PACE.22 /\ss1st,m1 AUurni.;ys Ot:nernl P.O. Ao\ I2~·lN Auslm. Tc u 787 1t-2548 51 :?l 4 ~9-0 I:! tu\ rro.u t·V. FOR THE s l'ATE OF fE ·"· Pt.ANTIFl- '.\ U U.ilNAI Pl· llK • . lJ ,~, Tab C Office of Inspector General Report dated August 29, 2008 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 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 August 29, 2008 Performance Audir Rep 1\ffflilltecf C\1mpu11.~r Services. August 29. 2008 Performance Aud1t Report Page 1 fMHP Prior Authorization Audit OIG Report No. 08-70-5290319 l -MA·il3 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~rformance Audit Repl)rt TMHP Prior Au(J10riz.atioo Audit OJG Report No. 08· 70-5~9031 l) l -MA-1) ' DETAILED FINDINGS AND RECOMl\ifENDATJONS Finding - Opportunity for Improvement in the Orthodontic Prior Authorization Requests Process An 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 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 researched1 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 L9 l-MA-OJ 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 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 issud 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 ande 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 Tab D Providers’ Plea in Interventions in Cause No. D-1-GV-14-000581 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 § STATE HEALTHCARE, LLC, A XEROX § CORPORATION § DEFENDANTS. § TRAVIS COUNTY, TEXAS 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 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. 4. Dr. Hieu Huynh 1 is a licensed Texas dentist, approved Medicaid provider, and the owner 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 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 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 [TMPPM2]. 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 subj ective fmdings highlights the importance of Xerox performing a thorough prior authorization review. T he Histor y 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 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 Iities 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 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 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 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 lhat had scored below the threshold 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 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 continued 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 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 L0, 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 I0, 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 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 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 I00% 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 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 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 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 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 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 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 felo ny 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. fntervenor 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 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 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 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 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 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/omissions 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 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 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 DENTAL, LP AND DR. RIEU H UYNH Plea in Intervention Page 24 of25 CERTIFICATE OF SERVICE 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 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 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 becau [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/4071628. Public record. Not legal advice.