Taxpayers may have paid $53 million too much for CHIP

AUSTIN — The state paid more than $53 million in questionable claims to the insurance company that administered the Children’s Health Insurance Program to rural Texans for four years, according to a private audit.

The audit report, obtained by Valley Freedom Newspapers on Tuesday, raises new concerns about the contract between the Texas Health and Human Services Commission and Clarendon National Insurance Co., which has been the subject of scrutiny for at least three years.

The audit found the company may have overcharged the state by as much as 37.66 percent between 2000 and 2004.

Clarendon no longer has the contract and denies it overcharged. But at least one state lawmaker is calling for further investigation. And a lawsuit could be in the off

A 2004 state auditor’s report found Texas overpaid Clarendon $20 million, but the new audit by Davila Buschhorn & Associates suggests the problem was bigger.

State Sen. Judith Zaffirini, D-Laredo, called the findings “disgusting.”

Zaffirini, who sits on the Senate committees on Finance and Health and Human Services, called for further investigation by the Legislature or the Legislative Budget Board.

The report is particularly troublesome considering other problematic contracts the state health commission has entered into in recent years, including the nearly $900 million contract with Accenture that was canceled earlier this year, she said.

“Problems don’t exist in isolation, so if we are dealing with this (Clarendon contract), what else could be happening?” Zaffirini said.

Company disputes findings

A spokesman for Clarendon said in a statement that the company does not agree with the findings and that the company met all its contractual obligations with the state.

Clarendon set up a health-care delivery system that reached 170 counties, including the Rio Grande Valley, and was recognized for being cost-efficient by the state, said Dicky Grigg, an Austin attorney representing the company in negotiations with the state.

“Clarendon provided quality health care to children who would otherwise have gone without proper care and consistently delivered that care in a cost-effective manner,” Grigg said.

The health commission had the private audit performed at the direction of the State Auditor’s Office; however, that office would not comment on the report.

The private auditor did not have some information available, so the commission will have to determine exactly how much Clarendon owes the state.

Contract problematic from the start

The contract between the commission and Clarendon was problematic because of the circumstances when it was negotiated, commission spokeswoman Stephanie Goodman said.

When the commission looked for a company to administer CHIP in rural areas, no one bid.

So when state officials approached Clarendon, they had limited negotiating room, she said

“It was a bad contract, and certainly we want to recover any money out there we could, but the context of it, we just were not in a very strong negotiating position,” Goodman said.

Zaffirini said that’s why a bill she has authored for several sessions would tighten rules for big state contracts and require specific training for state employees who are negotiating them.

She plans to introduce the bill again in 2009, she said.

“Somebody should be held accountable,” she said. “It’s not as though it’s minor.”

The health commission is expected to negotiate a payment with Clarendon. If that fails, the state could consider legal action, Goodman said.

After Clarendon’s contract ended in 2004, the state went through a competitive bid process to find its current provider, Superior HealthPlan, she said.

Clarendon is a U.S. property and casualty insurance company. Its parent company is Germany-based Hannover Re, one of the largest re-insurance companies in the world.

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Elizabeth Hernandez covers the state capital for Valley Freedom Newspapers. She is based in Austin and can be reached at (512) 323-0622.