On a brisk day in mid-February, state fraud enforcement attorney Cathy Lockhart got a terse memo from the human resources department at the Texas Department of Insurance and an escort out the door. She had been put on "emergency leave." A few weeks later, the department officially terminated her, citing “secret and clandestine” activity — namely, that she researched how much money had been spent on medical fraud investigations that her supervisor had abruptly spiked.
Shortly before getting fired from the department’s Division of Workers’ Compensation — and ordered to cease all contact with her colleagues — Lockhart had been putting the final touches on enforcement actions against eight doctors accused of fraudulently overbilling and overtreating patients. The cases represented “the first big batch [of doctors] to go to enforcement” in several years, she says. But Commissioner Rod Bordelon, who oversees the workers' comp division, ordered the cases thrown out, she says. “I’m told in January, 'Drop 'em,'” Lockhart says.
Lockhart, along with three other former division employees who have come forward, say the division's staff identified and recommended sanctions for nearly 70 Texas physicians who overbilled and overtreated patients, engaging in such practices as ordering needless surgeries or prescribing unnecessary narcotics. In the process, the former employees say, a relatively small number of rogue doctors cost insurers millions of dollars and, more importantly, placed patients in harm's way. Yet since 2005, division records show, the state has sanctioned just five doctors with removal from the workers’ comp system — and only in cases involving paperwork violations rather than harm to patients. The other cases are said to be pending.
The broken enforcement system, the former employees say, stems from Bordelon's insistence on putting the due process rights of accused doctors ahead of the rights of their allegedly abused patients. That misplaced focus, the employees believe, results in part from political pressure on Bordelon. They cite the example of state Rep. Leo Berman, R-Tyler, who stepped in to quash an investigation targeting one of his campaign contributors, Tyler physician Aaron Calodney. Campaign finance records show that Calodney has given $3,000 to Berman’s campaigns since 2006. The doctor billed insurers $1.9 million in workers’ compensation claims over a two-year period, division records show.
Berman confirms that he intervened on behalf of Calodney, deeming his involvement entirely proper. “I talked to the commissioner,” Berman told The Texas Tribune in an interview Tuesday. “I can talk directly to the commissioner. What I did was point out the fallacies in the letter they sent to Dr. Calodney [informing him of the findings of an investigation]. Initially, [Bordelon] suspended [a request for records that] Calodney was asked to submit, and then he looked at the whole process, and then decided that there was no need to evaluate what [Calodney] was doing."
Asked on May 3 by the Tribune if he received political pressure to drop cases, Bordelon responded by saying, “That’s not true.” Asked about the specific cases he is alleged to have ordered dropped, Bordelon said, “I’m not aware of any particular correspondence on these eight doctors.” On Tuesday, following Berman's characterization of his discussions with Bordelon, the Tribune contacted workers' comp division spokesman John Greeley, seeking another interview with Bordelon. Greeley said Bordelon would not be available on Tuesday. "I don't think we have anything to say," Greeley said.
An internal division document, released under the Texas Public Information Act, shows that nine cases closed by the agency — Calodney's, plus the eight cases Lockhart says she was ordered to drop — cost the division nearly $50,000 to review. The nine doctors the document lists combined to bill insurers $14.7 million in medical care during an oversight period that averaged about 18 months per doctor. Bordelon challenges the numbers in the document, saying he can’t “in any way, shape or form agree [with] or validate” them.
Nonetheless, the allegations of stalled enforcement action have sparked an inquiry by the State Auditor’s Office, records show. An auditor’s letter notified the division in early February that it would seek to “determine whether the Department issues appropriate and consistent disciplinary orders for workers' compensation providers … that have committed violations.”
The Division of Workers' Compensation oversees all workers’ compensation cases in Texas, monitoring medical treatment under insurance policies purchased privately by employers. In addition, it resolves disputes between workers and insurers and between doctors and insurers, and it conducts random samplings of doctors for fraud detection purposes. Before 2007, the state approved all doctors in the workers’ compensation system; now it merely monitors the care of doctors who opt into the system.
Budget documents show the division has spent at least $1.7 million in grant money between 2003 and 2009 to finance investigations of unscrupulous doctors. The grant came from the Texas Mutual Insurance Company, which had an interest in promoting more aggressive investigations of medical fraud. The division projected it could use the money to conduct 50 "medical quality" probes each year. (The agency said it reviewed 124 cases in 2009 but did not immediately provide data for previous years.) Of the hundreds of cases reviewed in the last half-decade, none involving shoddy patient care wound up in court-level enforcement action, according to Lockhart and other former employees.
Referring to the money spent on oversight — and lost through unchecked fraud — Lockhart says: “We might as well just be lighting million dollar bills. Because [enforcement efforts are] for nothing. Nothing.”
"The normal process"
Bordelon acknowledges the low number of enforcement actions but defends the division’s handling of cases. “There’s no holdup,” Bordelon says. “It’s the normal process. You understand doctors obviously have due process rights. If you issue an enforcement decision, you’re going to end up having to pursue that. There’s normal discovery, the hearing itself, appeals that will take months and, in some cases, much longer.”
As for the dropped cases against the eight doctors, Bordelon blames procedural errors by staff in the division’s Office of the Medical Advisor, which conducts investigations. In a breach of agency protocol, Bordelon says, staffers “hand-picked” particular doctors to investigate rather than choosing them at random from excessive patient complaints or statistical outliers for overbilling, as is standard. He contends that the accused doctors would have beaten the charges anyway by arguing that evidence was improperly obtained.
Whatever the reason, the failure to seriously discipline rogue doctors over a period of several years has resulted in an open revolt by staff. The spiked cases are just a sample of the hundreds of cases reviewed over the years by physician-fraud investigators Bill Nemeth, the worker's comp division's former medical advisor, and Ken Ford, its former assistant medical advisor. Nemeth quit serving as medical advisor in 2007, citing frustration over what he termed a lack of action on valid fraud cases. Ford resigned in March, after the termination of Lockhart and a nurse paralegal, Ronnie Glenn, who also was fired for “clandestine” research, records show. In April, the current medical advisor, Howard Smith, notified Bordelon he would be resigning at the end of May. (Smith declined to comment for this story.) Also leaving is Clark Watts, a doctor and attorney who reviewed cases as a consultant for the division.
Lockhart, Watts, Nemeth and Ford say they left with great disappointment at the lack of enforcement. “You can make a lot of money if you’re a doctor practicing in the workers' comp system, if you are so inclined,” Ford says. “If you’re dishonest, or if you learn how to game a system, there’s lots of money — I mean, millions of dollars to be made.” The agency document that details investigations into the nine doctors showed that, during the one-to-two-year monitoring period, seven of them billed insurers more than $1 million, two billed more than $2 million and one billed $3.2 million.
Legislative will, administrative stall
The current oversight system was largely designed by the Legislature in 2001, then updated with more reform legislation in 2005, through bills that sought to tighten the reins on a system that many feared had become infected with fraud and the resulting dangerous care. Lawmakers and the business lobby believed that physician overutilization — overtreating and overbilling for services — contributed to high premiums. A 2001 report by the Texas Research and Oversight Council on Workers' Compensation showed that 5 percent of Texas doctors were responsible for 70 percent of workers’ compensation billings, a statistic cited as evidence of systemic overuse by a handful of bad actors.
“When I started, Texas ranked highest in cost per claim, which is bad,” says Ford, who came to the medical advisor's office in 2004.
In 2001, lawmakers passed HB 2600, which was carried by state Sen. Robert Duncan, R-Lubbock, in the upper chamber and then-state Rep. Kim Brimer, R-Arlington, on the House side. The bill created a physician-oversight system to be led by what was then called the Texas Workers’ Compensation Commission. The 2001 law also created the Office of the Medical Advisor, led by an M.D., to lead enforcement efforts; it included two separate review panels composed of health professionals from across the state. If the panels recommend a doctor for removal, and the medical advisor signs off, the case gets sent on to the department’s legal and administrative enforcement divisions, where Lockhart worked.
Following the 2001 legislation, Nemeth, an Austin orthopedist, became the first doctor to serve as medical advisor. Over a round of golf three years later, Nemeth convinced the recently retired Ford, a Houston physician, to join the office as an assistant medical advisor. The pair became the only doctors at the agency, and Ford personally examined hundreds of workers when he first started. It didn’t take him long, he says, to find cases of workers’ compensation abuse. The most common abuse Ford saw in his exams and investigations involved doctors ordering needless spinal surgeries or prescribing unnecessary but addictive pain medication that made patients dependent — and kept them coming back for more billable consultations and prescriptions. “It was like a third-world country the way these people were getting treated,” he says, “and it was obvious it was all based on greed.”
In 2005, as part of a larger package of workers’ compensation reforms that the Legislature passed in HB 7, the Texas Workers’ Compensation Commission, along with its Office of Medical Advisor, was converted into the Division of Workers' Compensation at the Texas Department of Insurance. Bordelon, who previously served as executive director of the state's Office of Public Insurance Counsel, became the commissioner in 2008, taking over from Albert Betts, who had run the division since 2005. Both men were appointed by Gov. Rick Perry. It’s unclear whether the 2005 reorganization caused the problems with stalled or dropped cases, but the division has carried out few enforcement actions since the shift.
Betts echoes his successor's contention that necessary due process for accused doctors slowed the progress of fraud probes. “Any enforcement case takes time, and we had to stop the entire process in early '06 due to questions about due process and fairness and selection of doctors,” Betts says. “I vaguely recall some concerns that enforcement took too long. ... I’m sure we all wanted things to move faster than it was.”
Routing out bad doctors
Before the 2005 reorganization, Ford and Nemeth say the Office of the Medical Advisor had successfully unearthed fraud by doctors and levied heavy sanctions. Between September 2001, when the office was created, and December 2004, forty doctors were denied admission into or removed from the state’s workers’ compensation provider list, according to a Houston Chronicle story from January 2005. (The provider list has since been phased out; now any doctor in Texas who is willing can treat workers’ comp patients.)
Among the highest-profile of those investigations was one that targeted the top-paid workers’ compensation doctor in 2002, Houston orthopedic surgeon Eric Scheffey, who was barred from the system in 2003 and later lost his medical license, the Chronicle reported. Administrative law judges found that Scheffey had performed 29 surgeries on 11 patients that were either partly or entirely unnecessary. Two of the patients died after unnecessary back surgeries. Enforcement action was also taken against Houston spine surgeon Mark McDonnell in 2005, also for performing unneeded surgeries and providing substandard care. He was the state’s third-highest-paid workers’ compensation care provider in 2002, collecting $3 million in claims, the Chronicle reported.
Ford and Nemeth recall those years as the time when they were effective — they were actually routing out unscrupulous doctors. But since late 2005, Ford says, he hasn't overseen any removals of bad doctors who were overbilling the system or providing patients unnecessary care, despite review panels finding violations and recommending action.
Asked by the Tribune to respond to that charge, the division provided records of five removals since 2005. Ford says they all involved administrative violations rather than systemic overbilling and patient abuse. "This is like arresting a kid for stealing a Snickers bar but letting the child molester go free," Ford says.
"Shut it down"
Lockhart, a registered nurse and former malpractice litigator, came on board in the fall of 2009 to help speed cases to resolution. “They told me they wanted to move those cases since the agency was under Sunset,” she says, referring to the Sunset Advisory Commission's top-to-bottom review of a state agency’s efficiency and procedures, which each agency undergoes every 12 years on a revolving schedule. Lockhart was charged with taking the physician review panels’ recommendations of sanction to the enforcement level — either by getting settlements from doctors to leave the workers' compensation system on their own or by prosecuting them at hearings before administrative judges at the State Office of Administrative Hearings.
In January of this year — when, Lockhart says, Bordelon ordered her to close the eight cases — she had already negotiated sanctions against most of those doctors, who wanted to avoid full hearings of their cases, she says. “At that point I’ve already got five settlements, some [from doctors] who have even agreed to leave the [workers' comp] system,” she says. “And I’m told they don’t want me to do anything. ”
Bordelon argues that the settlements were not final, and that he hasn’t been able to take action on the questionable doctors because of procedural problems. “Instead of randomly selecting the doctors [for review], in some cases, we were hand-picking the doctors,” Bordelon says. “I determined that the system at that point, for those cases, had been tarnished. And you can’t proceed with those, because all of that is going to get blown out in a hearing, and we would end up losing. It’s compromised every one of those cases, every one of those files. And so the only way to move forward … was to shut it down, clean it up and start all over again.”
The doctor-attorney who has been working as a consultant to the agency disagrees. “He’s getting advice that suggests the process is more important than the matter. The advice is from the legal side,” says Watts, who sits on the agency’s Medical Quality Review Panel. “It’s a misreading of the law to say doctors can claim the evidence against them was obtained improperly.”
Lockhart, the enforcement attorney over those cases, and Ford, who oversaw the investigations of those doctors, say the selection process for those eight doctors was no different than that of many of the other cases that are pending in enforcement and are technically still open. The Office of the Medical Advisor chooses which doctors to investigate based on screened complaints and through statistical audits that identify outliers who bill more than the rest of the health care provider pool. To narrow the field even more, doctors are randomly selected from among the outliers for review by the Medical Quality Review Panel, which was established by statute and is made up of about three-dozen health care professionals from across the state.
"[The office’s] focus since late 2005 has been to protect wealthy doctors who have learned how to game the system and take advantage of injured claimants,” Ford says. “The motives for this protection are open to speculation. Money, political pressure, and career advancement are at the top of the list.”
Doctor “didn’t do anything wrong”
One case that goes beyond speculation is that of Calodney. State Rep. Berman confirms he went to Bordelon on the doctor’s behalf, challenging the merits of the Office of Medical Advisor's investigation. (Division documents confirm an investigation into Calodney but do not detail the specific allegations against him.)
Calodney, who did not return repeated calls seeking comment for this story, is a reliable political donor. In addition to Berman, he has contributed to the campaigns of state Sen. Robert Nichols, R-Jacksonville; Agriculture Commissioner Todd Staples; and Gov. Rick Perry in this election cycle, state records show, and he wrote checks totaling $7,000 to Texas elected officials in 2009. Moreover, while Calodney was under review for allegedly defrauding the workers' compensation system, he was also a gubernatorial appointee, serving on a now-defunct panel overseeing substance abuse.
Nemeth says similar concerns over political pressure on the office caused him to retire from the medical advisor post in 2007. “Although we were able to make some impact initially, it soon became so political that it was clear we were nowhere. [Leadership at the Division of Workers’ Comp] caved into political pressure against the will of the Legislature,” he says, though he did not offer other specific allegations of politicians seeking to influence cases.
Berman, for his part, makes no apology for inserting himself in Calodney’s case. The allegations against the doctor were false, he says.
"Dr. Calodney didn’t do anything,” Berman says. “He had a lot of cases, workers' comp cases, and the reason why he had a lot of workers' comp cases is that he is the only pain management specialist in Smith County that would take those cases.”
Ford believes his effort to bring more attention to the stalled cases led to the firing of Lockhart and Glenn, the nurse paralegal who worked under him. In Lockhart's termination letter, Insurance Department Human Resources Director Patricia David said Lockhart gathered “information regarding the costs of certain audit cases … in a secretive and clandestine manner,” causing the agency to “question its ability to trust” her as an employee. Lockhart says she was simply gathering a cost breakdown of the eight doctors' cases in the course of preparing for enforcement — costs she says the agency could have recovered from the accused doctors in the enforcement phase, had there been one.
Upon hearing the news of Lockhart's and Glenn’s terminations, Ford resigned by e-mail. Later, the doctor Ford reported to — Medical Advisor Howard Smith — sent in his letter of resignation, too. Watts says he tendered his along with Smith’s. In sum, five key employees, including the chief and second-in-command of the medical advisor's office, have chosen to leave or have been sent packing in just three months.
Bordelon declines to specifically address Lockhart’s firing. He attributes the resignations to employees becoming disgruntled over changes he needed to make to improve the office’s performance: “We had a [review] process we were having trouble fulfilling, and I determined we had to make some changes, and some of the doctors were not all that happy with the changes.”
Overseeing the overseers
The tumult comes against a backdrop of scrutiny from outside agencies. In addition to the state auditor’s inquiry, the Sunset Advisory Commission is nearing the final stages of its look at the Workers' Compensation Division. “We certainly saw that cases haven't been moving forward,” says Ken Levine, interim director of the Sunset Commission. “The ‘why’ part is where you start hearing different approaches to that question.”
Bordelon maintains that the agency is doing its job. “We have sanctioned doctors in all sorts of different ways, from fees or fines to warning letters,” he says. “I never say there’s no bad doctors in the system … but I know it’s better than when we discovered some of these problems. The system we have in place now is much more fair and objective.”
Bordelon’s “fair and objective” meant weak and ineffective to several people working under him, who say they have pushed for changes to no avail. In early February, Ford, Watts, Smith and Bill Defoye, another doctor who sat on the Medical Quality Review Panel, penned a memo to Bordelon, arguing that the commissioner shouldn’t tolerate poor patient care for any reason. “If ‘rights’ of the subject doctors are compromised by irregularities in the oversight process, those irregularities should be addressed,” the memo reads. “Those doctors have no ‘rights’ to continue to provide poor care to the injured worker while the process is being addressed.”
Watts and Ford say Bordelon was unmoved by the memo.