HBA-SEB H.B. 1670 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 1670 By: Maxey Pensions and Investments 3/19/1999 Introduced BACKGROUND AND PURPOSE The Employee's Retirement System of Texas (ERS) administers the uniform group insurance program (UGIP) for most state employees. The UGIP includes Health Select of Texas, Health Select Plus, and 16 fully-insured health maintenance organizations. In exploring potential fraud and overpayments in UGIP, the comptroller's office sampled claims in hospital services, medical and professional services, and prescription drugs. The comptroller's office estimated that 10.5 percent, or $51.6 million, of the state's UGIP claims for fiscal year 1997 may have been overpayments or fraudulent. H.B. 1670 creates and implements measures to detect overpayments and fraud in claims processed through ERS and provides for administrative penalties in cases of fraud. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the board of trustees of the Employees Retirement System of Texas and the commissioner of insurance in SECTION 1.01 (Section 4F, Article 3.50-2 (Texas Employees Uniform Group Insurance Benefits Act)) of this bill. SECTION BY SECTION ANALYSIS ARTICLE 1. POWERS AND DUTIES OF THE EMPLOYEES RETIREMENT SYSTEM OF TEXAS SECTION 1.01. Amends Article 3.50-2, V.T.C.S. (Texas Employees Uniform Group Insurance Benefits Act) by amending Section 4B and by adding Sections 4D, 4E, 4F, and 4G, as follows: Sec. 4B. New title: ADJUDICATION OF CLAIMS; FRAUDULENT CLAIMS. (a) Makes no change. (b) Redesignated from Subsection (a)(1). (c) Requires the executive director of the Employees Retirement System of Texas (executive director, ERS) to take action against a health care provider under Section 4D of this Act if the executive director determines that the health care provider has obtained payments under any program provided under the authority of this Act through a fraudulent insurance act. (d) Makes conforming changes. (e) Redesignated from Subsection (b). (f) Redesignated from Subsection (c). Makes conforming changes. (g) Redesignated from Subsection (d). Makes a conforming change. (h) Redesignated from Subsection (e). (i) Redesignated from Subsection (f). (j) Requires the board of trustees of ERS (trustee) to maintain a toll-free telephone number for the receipt of complaints regarding fraudulent insurance acts by participants or health care providers. Requires the trustee to provide participants with information regarding the telephone number during each annual enrollment period and to periodically notify employees of the telephone number by including information with employee pay statements. (k) Requires the executive director to implement annual training classes for appropriate members of the trustee's staff, contractors, or administering firms who process medical claims in order to assist those persons in identifying potential misrepresentation or fraud in the operation of the uniform group insurance program (UGIP). Authorizes the executive director to contract with the Health and Human Services Commission or with a private entity for the operation of the training classes. (l) Requires each carrier and each health care provider who participates in UGIP, as a condition of that participation, to cooperate fully in any investigation of a fraudulent insurance act that is conducted by the executive director of the Texas Department of Insurance (TDI), including providing to the trustee timely access to patient medical records determined by the trustee to be necessary for the investigation. Entitles the trustee access to patient medical records for the limited purpose provided by this subsection and provides that it is a "governmental agency" for the purposes of Section 5.08, Medical Practice Act (Physician-Patient Communication), notwithstanding any other law regarding confidentiality of patient records. Provides that a medical record submitted to the trustee is confidential and is not subject to disclosure under Chapter 552, Government Code (Public Information). Sec. 4D. FRAUDULENT INSURANCE ACTS BY PROVIDERS. (a) Requires the executive director to investigate each complaint alleging a fraudulent insurance act made by an annuitant, an employee, a health care provider, or a carrier regarding a health care provider participating in a health benefit plan operated in UGIP. (b) Requires the executive director to terminate an investigation if the executive director determines that the complaint in unfounded. Requires the executive director to refer a complaint to the trustee for appropriate sanctions or administrative action if the complaint warrants further action. Requires the executive director to provide information regarding the complaint and the action taken to TDI and the affected carrier. (c) Provides that sanctions against a health care provider may include exclusion from participation as a provider in the program, withholding of payments to be made to the provider during the pendency of the investigation, recoupment of unauthorized payments from future payments made to the provider, and restrictions on provider reimbursement. (d) Provides that administrative actions against a health care provider may include peer review of claims, required participation of the provider in educational programs conducted by the trustee or TDI regarding insurance fraud, required prior authorization for claims, review of payments made to the provider before and after health care services are provided, and referral to the appropriate licensing agency for further disciplinary action. (e) Requires the executive director to use fraud detection software to identify suspicious provider billing patterns in the claims history files of the system. Requires the executive director to report the results of the use of the software to the trustee and the commissioner of insurance at least monthly. Sec. 4E. CLAIMS AUDIT. Requires the executive director to conduct a quarterly audit of health care claims. Requires the executive director to randomly select a specific percentage of claims submitted under UGIP to determine the validity of the claims. Requires the executive director, in performing the audit, to interview employees, annuitants, and dependents either in person or by telephone to ensure that the services were received. Provides that the audit must also include a review of contextual patient information and the patient's medical records. Requires the executive director to refer a fraudulent claim to the trustee and TDI for further investigation. Authorizes the executive director to contract with a private entity for operation of the audit. Sec. 4F. COOPERATION WITH INSURANCE DEPARTMENT; MEMORANDUM OF UNDERSTANDING. Requires the trustee and the commissioner of insurance, by rule, to adopt guidelines and priorities for referring cases of alleged fraudulent insurance acts by health care providers participating in the program. Requires the executive director to maintain a detailed record of those cases, including the total number of cases referred to TDI each fiscal year and, for each specific case, the type of alleged fraudulent insurance act and the date of referral to TDI. Requires the trustee and TDI to enter into a memorandum of understanding regarding the processing of referrals of suspected fraudulent insurance acts in UGIP and the payment of the costs of prosecution of fraud cases. Sec. 4G. ADMINISTRATIVE PENALTY. (a) Authorizes the trustee to impose an administrative penalty on a participant or health care provider who commits a fraudulent insurance act in obtaining a benefit or a payment under this Act. (b) Prohibits the amount of the administrative penalty from exceeding $10,000. Provides that each day a violation occurs is a separate violation for the purposes of imposing a penalty. Requires the amount to be based on specific facts about the violation. (c) Authorizes the enforcement of a penalty to be stayed during the time the order is under judicial review if the person pays the penalty to the clerk of the court or files a supersedeas bond with the court in the amount of the penalty. Authorizes a person who cannot afford to pay the penalty to stay the enforcement by filing an affidavit in the manner required by the Texas Rules of Civil Procedure, subject to the right of the board to contest the affidavit as provided by those rules. (d) Authorizes the attorney general to sue to collect the penalty. (e) Requires 50 percent of an administrative penalty to be deposited in the employees life, accident, and health insurance and benefits fund established under Section 16 of this Act. Authorizes that amount to be spent by the trustee in investigating and prosecuting fraudulent insurance acts committed against the state employees uniform group benefits program. Requires the remainder of the administrative penalty to be remitted to the comptroller for deposit in the general revenue fund. (f) Provides that a proceeding to impose the penalty is considered to be a contested case under Chapter 2001, Government Code (Administrative Procedure). SECTION 1.02. Amends Section 815.510, Government Code, to require ERS to include in its report at the end of each fiscal year a description of the activities conducted during the preceding fiscal year and TDI under Sections 4B, 4D, 4E, and 4F, Texas Employees Uniform Group Insurance Benefits Act, to combat fraudulent insurance acts by health care providers in the operation of the state employees health benefits program. Provides that this report is the only periodic report of investments required to be made by ERS other than a report required by the General Appropriations Act. Makes conforming changes. ARTICLE 2. POWERS AND DUTIES OF TEXAS DEPARTMENT OF INSURANCE SECTION 2.01. Amends Chapter 1, Insurance Code, by adding Article 1.64, as follows: Art. 1.64. ADMINISTRATIVE ACTIONS AGAINST INSURANCE FRAUD IN GROUP INSURANCE PROGRAM FOR STATE EMPLOYEES. Requires TDI, through the insurance fraud division and in cooperation with ERS, to bring an administrative action against a health care provider who commits a fraudulent insurance act regarding UGIP that results in unauthorized payments to the provider. Authorizes the commissioner of insurance to impose an administrative penalty under Article 1.10E (Administrative Penalties) in an amount not to exceed $10,000, plus twice the amount of the inappropriate amount. Requires 50 percent of an administrative penalty to be deposited in the TDI operating fund established under Article 1.31A (State Board of Insurance Operating Fund). Authorizes that amount to be spent by TDI in investigating and prosecuting fraudulent acts committed against statefunded health care programs. Requires the remainder of the administrative penalty to be remitted to the comptroller for deposit in the general revenue fund. ARTICLE 3. QUI TAM ACTION SECTION 3.01. Amends Chapter 1, Insurance Code, by adding Article 1.65, as follows: Art. 1.65. ACTION BY PRIVATE PERSON. Sec. 1. ACTION BY PRIVATE PERSON AUTHORIZED. Authorizes a private person to bring a civil action for a fraudulent insurance act committed in violation of Section 4B, Texas Employees Uniform Group Insurance Benefits Act, for the person and for the state. Requires the action to be brought in the name of the state. Provides that a person is liable for the amount of loss incurred by UGIP or a carrier who participates in the program as a result of the loss, plus an amount equivalent to the amount of the administrative penalty that may be assessed under the Texas Employees Uniform Group Insurance Benefits Act if the person commits a fraudulent insurance act with respect to a claim under that Act. Sec. 2. INITIATION OF ACTION. (a) Requires a person bringing an action to serve a copy of the petition and a written disclosure of substantially all material evidence and information the person possesses on the attorney general in compliance with the Texas Rules of Civil Procedure. (b) Requires the petition to be filed in camera and to remain under seal until at least the 60th day after the date the petition is filed. Prohibits the petition from being served on the defendant until the court orders service on the defendant. (c) Authorizes the state to elect to intervene and proceed with the action not later than the 60th day after the date the attorney general receives the petition and the material evidence and information. (d) Authorizes the state to move the court to extend the time during which the petition remains under seal under Subsection (b) for good cause shown. Authorizes such a motion to be supported by affidavits or other submissions in camera. (e) Authorizes an action under this article to be dismissed before the end of the period prescribed by Subsection (b), as extended by Subsection (d), if applicable, only if the court and the attorney general consent in writing to the dismissal and state their reasons for consenting. Sec. 3. ANSWER BY DEFENDANT. Provides that a defendant is not required to file an answer to a petition filed under this article until the 20th day after the date the petition is unsealed and served on the defendant in compliance with the Texas Rules of Civil Procedure. Sec. 4. STATE'S DECISION TO CONTINUE ACTION. Requires the state to notify a court that the state will intervene and proceed with the action or that the state declines to intervene and proceed with the action. Requires the notification to take place not later than the last day of the period prescribed by Section 2(b), as extended by Section 2(d) of this article, if applicable. Sec. 5. INTERVENTION BY OTHER PARTIES PROHIBITED. Prohibits a person other than the state from intervening or brining a related action based on the facts underlying a pending action brought under this article. Sec. 6. RIGHTS OF PARTIES IF STATE INTERVENES AND PROCEEDS WITH ACTION. (a) Provides that if the state proceeds with the action, the state has the primary responsibility for prosecuting the action and is not bound by an act of the person bringing the action. Establishes that the person bringing the action has the right to continue as a party to the action subject to the limitations set forth by this section. (b) Authorizes the state to dismiss the action notwithstanding the objections of the person bringing the action if the attorney general notifies the person that the state has filed a motion to dismiss and if the court provides the person with an opportunity for a hearing on the motion. (c) Authorizes the state to settle the action with the defendant notwithstanding the objections of the person bringing the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all circumstances. Authorizes the hearing to be held in camera on a showing of good cause. (d) Authorizes the court to impose limitations on the person's participation on showing by the state that unrestricted participation during the course of the litigation by the person bringing the action would interfere with or unduly delay the state's prosecution of the case, or would be repetitious or irrelevant, or would be for purposes of harassment. Authorizes the limitations to include limiting the number of witnesses the person may call, the length of the testimony of the witnesses called by the person, the person's cross-examination of witnesses, or the participation by the person in the litigation. (e) Authorizes the court to limit the participation by the person in the litigation on showing by the defendant that unrestricted participation during the course of the litigation by the person bringing the action would be for purposes of harassment or would cause the defendant undue burden or unnecessary expense. Sec. 7. RIGHTS OF PARTIES IF STATE DOES NOT INTERVENE AND PROCEED WITH ACTION. Authorizes a person bringing an action to conduct the action if the state elects not to proceed with the action. Requires the parties to serve the attorney general with copies of all pleadings filed in the action and to send the attorney general copies of all deposition transcripts at the state's expense if the state requests pleadings and deposition transcripts. Authorizes the court to permit the state to intervene at a later date on a showing of good cause without limiting the status and rights of the person bringing the action. Sec. 8. STAY OF CERTAIN DISCOVERY. Authorizes a court to stay a discovery for a period not to exceed 60 days on a showing by the state that the discovery by the person bringing the action would interfere with the state's investigation or prosecution of a criminal or civil matter arising out of the same facts, regardless of whether the state proceeds with the action. Requires the court to hear a motion to stay discovery in camera. Authorizes the court to extend the 60-day period on a further showing in camera that the state has pursued the criminal or civil investigation or proceeding with reasonable diligence and that discovery in the civil action will interfere with the ongoing criminal or civil investigation or proceedings. Sec. 9. PURSUIT OF ALTERNATE REMEDY BY STATE. Authorizes the state to elect to pursue the state's claim through any alternate remedy available to the state, including any administrative proceeding to determine an administrative penalty, notwithstanding Section 1 of this article. Sec. 10. AWARD TO PRIVATE PLAINTIFF. (a) Entitles a person bringing an action under this article, if the state proceeds with the action, to receive at least 10 percent but not more than 25 percent of the proceeds of the action, depending on the extent to which the person substantially contributed to the prosecution of the action, except as provided by Subsection (b). (b) Authorizes a court to award a person bringing an action the amount the court considers appropriate but not more than seven percent of the proceeds of the action if the court finds that the action is based primarily on disclosures of specific information, other than information provided by the person bringing the action, relating to allegations or transactions in a civil or criminal proceeding, in a legislative administrative report, hearing, audit, or investigation, or from the news media. Requires the court to consider the significance of the information and the role of the person bringing the action in advancing the case to litigation. (c) Entitles a person bringing an action or settling a claim under this article to receive an amount that the court decides is reasonable for collecting the civil penalty and damages if the state does not proceed with the action. Prohibits the amount from being less than 25 percent or more than 30 percent of the proceeds of the action. (d) Requires a payment to a person under this section to be made from the proceeds of the action. Entitles a person receiving a payment to receive an amount for reasonable expenses that the court finds to have been necessarily incurred, plus reasonable attorney's fees and costs. Requires expenses, fees, and costs to be awarded against the defendant. (e) Provides that "proceeds of the action" includes proceeds of a settlement of the action. Sec. 11. REDUCTION OF AWARD. Authorizes the court to reduce the share of the proceeds of an action a person would otherwise receive under Section 10 of this article, to the extent the court considers appropriate, if the court finds that the action was brought by a person who planned and initiated the violation on which the action was brought, taking into account the person's role in advancing the case to litigation and any relevant circumstances pertaining to the violation and regardless of whether the state proceeds with the action. Requires the court to dismiss the person from the civil action and prohibits the person from receiving any share of the proceeds of the action if the person bringing the action is convicted of criminal conduct arising from the person's fraudulent insurance act. Provides that a dismissal under this subsection does not prejudice the right of the state to continue the action. Sec. 12. AWARD TO DEFENDANT FOR FRIVOLOUS ACTION. Provides that Chapter 10, Civil Practice and Remedies Code (Sanctions for Frivolous Pleadings and Motions), applies in an action under this article in which the state does not proceed with the action and the person originally bringing the action conducts the action, while Chapter 105, Civil Practice and Remedies Code (Frivolous Claim by State Agency), applies in an action in which the state conducts the action. Sec. 13. CERTAIN ACTIONS BARRED. Prohibits a person from bringing an action under this article that is based on allegations or transactions that are the subject of a pending civil suit or an administrative penalty proceeding in which the state is a party. Prohibits a person from bringing an action that is based on the public disclosure of allegations or transactions in a criminal or civil hearing, in a legislative or administrative report, hearing, audit, or investigation, or from the news media, unless the person bringing the action is an original source of the information. Defines "original source." Sec. 14. STATE NOT LIABLE FOR CERTAIN EXPENSES. Provides that the state is not liable for expenses that a person incurs in bringing an action under this section. Sec. 15. RETALIATION BY EMPLOYER AGAINST PERSON BRINGING SUIT PROHIBITED. Entitles a person to specific amends if the person is discharged, demoted, suspended, threatened, harassed, or discriminated against in any other manner in terms of employment by the person's employer because of a lawful act taken by the person in furtherance of an action under this article. Authorizes a person to bring an action in a district court for the relief provided in this section. ARTICLE 4. TRANSITION SECTION 4.01. Requires ERS to implement the toll-free telephone number required by this Act not later than January 1, 2000. SECTION 4.02. Requires ERS to implement the training classes required by this Act not later than January 1, 2000. SECTION 4.03. Requires the executive director to use fraud detection software not later than September 1, 2000. Requires ERS to analyze the fraud detection program used by the Health and Human Services Commission under Chapter 22, Human Resources Code (General Functions of Department of Human Services), not later than March 1, 2000, for detection of fraud in the Medicaid program. Requires ERS to enter into a memorandum of understanding with the Health and Human Services Commission regarding participation in the fraud detection program and to pay a proportionate share of the operation of the program if ERS determines that participation in the program would result in compliance with the requirement adopted under Section 4D(e) of this Act with less cost and greater efficiency than an independent program. SECTION 4.04. Requires ERS and TDI to enter into the memorandum of understanding required by this Act not later than January 1, 2000. SECTION 4.05. Makes application of an administrative penalty under this Act prospective to conduct that occurs on or after the effective date of this Act. SECTION 4.06. Makes application of Article 1.65, Insurance Code, as added by this Act, prospective to a cause of action that accrues on or after the effective date of this Act. ARTICLE 5. EFFECTIVE DATE; EMERGENCY SECTION 5.01. Effective date: September 1, 1999. SECTION 5.02. Emergency clause.