Smile Magic dental clinics agree to $4.5M settlement in Texas Medicaid fraud case

Four clinics of Texas' Smile Magic chain have agreed to pay $4.5 million to settle Medicaid fraud charges. The whistleblower lawsuit claimed the clinics used paid recruiters to target parents in grocery store parking lots and at bus stops with offers of money and gift cards to bring their kids to the clinics.

The settlement resolves the Medicaid fraud allegations in a lawsuit filed in 2014 by the Texas Health and Human Services Commission's Office of Inspector General (HHSC-OIG), as well as two whistleblower suits.

The settlement is a fraction of the more than $19 million in Medicaid fraud detailed in the lawsuit. The complaint accused the chain and owner Everett Chad Evans, DDS, of defrauding the Texas Medicaid program of more than $19 million between February 2010 and September 2012 by performing unnecessary or excessive dental services on young children, failing to get treatment consent from parents, upcoding of services, and billing Medicaid for dental services that were never done.

The HHSC-OIG suit said most of the claims for orthodontic treatment lacked required documentation and did not qualify for Medicaid coverage. The state put Smile Magic on a Medicaid payment hold in March 2013.

"Ultimately, this case had to be settled to end an exhaustive financial and time-consuming process that sadly eclipsed two years without our Texas small business' day in court," Dr. Evans said in emailed comments to DrBicuspid.com. He noted the resignations of former HHSC Inspector General Doug Wilson and HHSC's chief counsel, Jack Stick, in December 2014, saying their forced ouster reflects "problems in the current due process for medical providers."

Gov. Rick Perry requested Wilson's resignation after the Texas state auditor said it was launching an investigation into no-bid contracts brokered by Wilson. Stick reportedly was being investigated for his role in helping Austin data analytics firm 21CT secure a $110 million contract to investigate Medicaid fraud.

One of the whistleblower lawsuits was filed by Amy Smith, a former human resources director at Smile Magic who reported the situation to state authorities.

"While the settlements are a step toward remedying the Medicaid fraud problem, too often they're insufficient to really fix the problem," Dallas plaintiff's attorney Dan Hargrove, who represented Smith, told DrBicuspid.com. "These settlements can be viewed by other defendants as merely the cost of doing business."

He praised the work of OIG and the state Office of the Attorney General (OAG) for their help in recovering Texas taxpayers' money.

"What OIG and OAG uncovered during their review of Smile Magic's billing practices was a chain of dental clinics that apparently viewed a young, vulnerable patient population as cogs in the wheel of a sophisticated profit-making operation," added Ketan Kharod, Hargrove's co-counsel.

The Texas Dentists for Medicaid Reform echoed Dr. Evans complaint about the "lack of due process for dental Medicaid providers" in an email to DrBicuspid.com, saying Smile Magic was forced to settle the case to avoid bankruptcy.

OIG and OAG declined to comment on the settlement.

Texas has been rocked by allegations of fraud by dentists and orthodontists accused of bilking the state Medicaid program out of tens of millions of dollars. A previous OIG investigation found $6 billion in fraud and waste in the Medicaid program from 2004 to 2011.

After Texas raised dental reimbursement rates in 2007, the number of dentists participating in Medicaid increased from 45.4% to 63.4% in 2010, and claims increased by 240% between 2007 and 2010.

HHSC did not ensure that the prior-authorization process was used to determine the medical necessity of orthodontic services under state Medicaid guidelines, according to a 2014 report by the U.S. Office of Inspector General for the U.S. Department of Health and Human Services.

A report by HHSC revealed that in 2010, Texas orthodontists charged Medicaid as much for services as the rest of the U.S. combined. The state spent $705 million on Medicaid orthodontics between 2008 and 2011; orthodontics reimbursements in 2009 alone totaled nearly 75% of the rest of the U.S. combined, the report said.

The state OAG has racked up more than $1 billion in Medicaid fraud recoveries over the past 10 years. Of that, the state has recovered more than $400 million since 2002 resulting from its Medicaid fraud investigations.