DHHS is under criminal investigation by the federal government for allegedly overpaying employees without a bid process, and, simply, mismanaging and overspending our Medicaid tax dollars. See blog.
When I first started writing this blog, I opined that the federal investigation should be broadened. While I still believe so, the results of broadening the scope of a federal investigation could be catastrophic for our Medicaid providers and recipients. So I am metaphorically torn between wanting to shine light on tax payer waste and wanting to shield NC Medicaid providers and recipients from the consequences of penalties and sanctions on NC DHHS. Because, think about it, who would be harmed if NC lost federal funding for Medicaid?
[BTW, of note: These subpoenas were received July 28, 2015. Aldona Wos announced her resignation on August 5, 2015, after receipt of subpoenas. The Subpoenas demand an appearance on August 18, 2015, which, obviously, has already passed, yet we have no intel as to the occurrences on August 18, 2015. If anyone has information, let me know.]
Does this criminal investigation go far enough? Should the feds investigate more Medicaid mismanagement over and above the salaries of DHHS employees? What are the potential consequences if NC is sanctioned for violating Medicaid regulations? How could a sanction affect providers and recipients?
DHHS’ employees are not the only highly compensated parties when it comes to our Medicaid dollars! It is without question that the contracts with vendors with whom DHHS contracts contain astronomically high figures. For example, DHHS hired Computer Sciences Corporation (CSC) to implement the NCTracks software for $265 million. Furthermore, there is no mention of the lack of supervision of the managed care organizations (MCOs) and the compensation for executives of MCOs being equal to that of the President of the United States in the Subpoenas.
The subpoenas are limited in scope as to documents related to hiring and the employment terms surrounding DHHS employees. As I just said, there is no mention of violations of bid processes for vendors or contractors, except as to Alvarez & Marsal, and nothing as to the MCOs.
Specifically, the subpoena is requesting documents germane to the following:
- Les Merritt, a former state auditor who stepped down from the North Carolina State Ethics Commission after WRAL News raised questions about potential conflicts of interest created by his service contract with DHHS;
- Thomas Adams, a former chief of staff who received more than $37,000 as “severance” after he served just one month on the job;
- Angie Sligh, the former director of the state’s upgraded Medicaid payment system who faced allegations of nepotism and the waste of $1.6 million in payments to under-qualified workers for wages, unjustified overtime and holiday pay in a 2015 state audit;
- Joe Hauck, an employee of Wos’ husband who landed a lucrative contract that put him among the highest-paid workers at DHHS;
- Alvarez & Marsal, a consulting firm overseeing agency budget forecasting under a no-bid contract that has nearly tripled in value, to at least $8 million;
Most likely, the penalties imposed would be more civil in nature and encompass suspensions, recoupments, and/or reductions to the federal matching. Possibly a complete termination of all federal matching funds, at the worst.
42 CFR Part 430, Subpart C – of the Code of Federal Regulations (CFR) covers “Grants; Reviews and Audits; Withholding for Failure To Comply; Deferral and Disallowance of Claims; Reduction of Federal Medicaid Payments”
The Center for Medicare and Medicaid Services (CMS) is charged with the oversight of all 50 states’ management of Medicaid, which makes CMS very busy and with solid job security.
CMS may withhold federal funding, although reasonable notice and opportunity for a hearing is required (unlike the reimbursement suspensions from providers upon “credible” (or not) allegations of fraud).
If the Administrator of a hearing finds North Carolina non compliant with federal regulations, CMS may withhold, in whole or in part, our reimbursements until we remedy such deficiency. Similar to health care providers’ appeals, if the State of North Carolina is dissatisfied with the result of the hearing, NC may file for Judicial Review. Theoretically, NC could go all the way to the U.S. Supreme Court.
Other penalties could include reductions of (1) the Federal Medical Assistance Percentage; (2) the amount of State expenditures subject to FFP; (3) the rates of FFP; and/or (4) the amount otherwise payable to the state.
As a reminder, the penalties listed above are civil penalties, and NC is under criminal investigation; however, I could not fathom that the criminal penalties would differ far from the civil allowable penalties. What are the feds going to do? Throw Wos in jail? Highly unlikely.
The subpoena was addressed to:
NC DHHS, attention the Custodian of Records. In NC, public records requests go to Kevin V. Howell, Legal Communications Coordinator, DHHS.
But is the federal government’s criminal investigation of DHHS too narrow in scope?
If we are investigating DHHS employees’ salaries and bid processes, should we not also look into the salaries of DHHS’ agents, such as the salaries for employees of MCOs? And the contracts’ price tags for DHHS vendors?
Turning to the MCOs, who are the managers of a fire hose of Medicaid funds with little to no supervision, I liken the MCOs’ current stance on the tax dollars provided to the MCOs as the Lion, who hunted with the Fox and the Jackal from Aesop’s Fables.
The Lion went once a-hunting along with the Fox, the Jackal, and the Wolf. They hunted and they hunted till at last they surprised a Stag, and soon took its life. Then came the question how the spoil should be divided. “Quarter me this Stag,” roared the Lion; so the other animals skinned it and cut it into four parts. Then the Lion took his stand in front of the carcass and pronounced judgment: The first quarter is for me in my capacity as King of Beasts; the second is mine as arbiter; another share comes to me for my part in the chase; and as for the fourth quarter, well, as for that, I should like to see which of you will dare to lay a paw upon it.”
“Humph,” grumbled the Fox as he walked away with his tail between his legs; but he spoke in a low growl:
Moral of Aesop’s Fable: “You may share the labours of the great, but you will not share the spoil.”
At least as to DHHS employees’ salaries, the federal government is investigating any potential mismanagement of Medicaid funds due to exorbitant salaries, which were compensated with tax dollars.
Maybe this investigation is only the beginning of more forced accountability as to mismanaging tax dollars with Medicaid administrative costs.
One can hope…(but you do not always want what you wish for…because the consequences to our state could be dire if the investigation were broadened and non compliance found).
Let us quickly contemplate the possible consequences of any of the above-mentioned penalties, whether civil or criminal in nature, on Medicaid recipients.
To the extent that you believe that the reimbursement rates are already too low, that medically necessary services are not being authorized, that limitations to the amount services are being unduly enforced…Imagine that NC lost our federal funding completely. We would lose approximately 60% of our Medicaid budget.
All our “voluntary” Medicaid-covered services would, most likely, be terminated. Personal care services (PCS) is an optional Medicaid-covered service.
With only 40% of our Medicaid budget, I could not imagine that we would have much money left to pay providers for services rendered to Medicaid recipients after paying our hefty administrative costs, including overhead,payroll, vendor contracts, MCO disbursements, etc. We may even be forced to breach our contracts with our vendors for lack of funds, which would cause us to incur additional expenses.
All Medicaid providers could not be paid. Without payments to providers, Medicaid recipients would not receive medically necessary services.
Basically, it would be the next episode of “Fear the Walking Dead.”
Hopefully, because the ramifications of such penalties would be so drastic, the federal government will not impose such sanctions lightly. Sanctions of such magnitude would be a last resort if we simply refused to remedy whatever deficiencies are found.
Otherwise, it could be the zombie apocalypse, but the Lion’s would be forced to share.
My mom taught me a song when I was young called, “A Hole in the Bucket.” It is a maddening song about a lazy husband named Henry who begins the song telling his wife Liza that “There’s a hole in the bucket, dear Liza, dear Liza….” To which Liza sings, “Then fix it, dear Henry, dear Henry…”
The song continues with Henry singing excuses and impediments to his ability to fix the hole in the bucket and Liza explaining to Henry how to overcome these excuses. The song goes around and around until, in order to fix the bucket, Henry would have to sharpen an ax on a stone that “is too dry,” and the only way to wet the stone is with the bucket that has a hole. “There’s a hole in the bucket…” And the songs starts anew and can be sung continuously, never-ending.
My husband and daughter audibly groan when I begin such song.
And you can’t blame them! It is discouraging and frustrating when something is caught in a never-ending circle with no end and no conclusion. It is human nature to try to resolve issues; it is also ingrained in Americans’ minds that hard work yields results. When hard work yields nothing but a big, fat goose-egg, it is exacerbating.
Kind of like claims in NCTracks…
When NCTracks went live on July 1, 2013, providers immediately began to complain the claims were being erroneously denied and they were receiving no reimbursements. Folks with whom I spoke with were at their wits-ends, spending hours upon hours trying to discern why claims were being denied and what process they could undertake to fix “the hole in the bucket.”
The problem persisted so long and I was contacted by so many providers that I instigated the NCTracks class action lawsuit, which is still pending on appeal, to the best of my knowledge, at my former firm. Although it was dismissed at the Business Court level, I believe it is on appeal. See blog.
Providers complained that, when they contacted CSC’s Help Desk regarding denied claims, the customer service representatives would have little to no understanding of the claims process and instruct them to re-file the denied claims, which created a perpetual cycle of unadjudicated claims.
“It was infuriating!” One provider explained. “It was as if we were caught in the spin cycle with no hope of stopping. I wanted to yell, ‘I’m dry all ready!!'”
“I was spending 20+ a week on NCTracks billing problems,” another said.
To which, I said, “There’s a hole in the bucket, dear Liza, dear Liza.”
Over two years after the “go live” date, the Department has now (finally) informed providers that there is an informal reconsideration review process for denials from CSC.
The September 2015 Medicaid Bulletin states that:
“This article provides a detailed explanation of the N.C. Division of Medical Assistance (DMA) procedures for Informal Reconsideration Review of adverse claim actions (denials, disallowances and adjustments) made by its fiscal agent, CSC.”
The Bulletin provides a 30 day time period during which a provider can appeal a denied claim:
“Time Limit for Submission of Request
- A provider may request a reconsideration review within 30 calendar days from receipt of final notification of payment, payment denial, disallowances, payment adjustment, notice of program reimbursement and adjustments. If no request is received within the respective 30 calendar day period, DMA’s action will become final.”
(emphasis in original).
You must request reconsideration review within 30 calendar days of the final notification. BUT what exactly is “final notification?” The initial denial? The second denial after re-submitting? The third? Or, what if, your claim is pending…for months…is that a denial? When CSC tells you to re-submit, does the time frame in which to file a reconsideration review start over? Or do you have to appeal every single denial for every single claim, even if the claim is re-submitted and re-denied 10 times?
This new informal appeal process is as clear as mud.
Notice the penalty for NOT appealing within 30 days…”DMA’s action will become final.”
This means that, if you fail to appeal a denial within 30 days, then the claim is denied and you cannot request a reconsideration review. Theoretically, there is a legal argument that, once the “final decision” is rendered, even if it were rendered due to you failing to request a reconsideration review, you would have 60 days to appeal such final decision to the Office of Administrative Hearings (OAH). Although, acting as the Devil’s advocate, there is an argument that your failure to request a reconsideration review and taking the appeal straight to OAH is “failing to exhaust your administrative remedies.” See blog. Which could result in your appeal being dismissed for lack of jurisdiction. This goes to show you the importance of having your attorney involved at the earliest juncture, otherwise you could risk losing appeal rights.
Let’s think about the “time limit for submission of request” in a real-life hypothetical.
You keep receiving denials for dialysis claims for no apparent reason. You received 20 denials on September 4, 2015. You contact a CSC customer service representative on September 8, 2015, four days later, due to Labor Day weekend. The customer service representative instructs you to re-file the claims because you must include the initial date of treatment in order to have the claims processed and paid (which was not required with HP Enterprises’ system). Is this the “final notification?” It does not seem so, since you are allowed to re-submit…
You revise all 20 claims to include the first treatment date on the claim and re-submit them on September 9, 2015. Since you re-submitted prior to the September 10th cutoff, you expect payment by September 16, 2015, 12 days after the initial denial.
You receive your explanation of benefits (EOBs) and 5 claims were adjudicated and paid, while 15 were denied again.
You contact CSC customer service and the representative instructs you to re-submit the 15 claims. The rep does not know why the claims were denied, but she/he suggests that you review the claims and re-submit. After hours of investigative work, you believe that the claims were denied because the NPI number was wrong…or the incorrect address was processed…or…
You miss the September 17th cut-off because you were trying to figure out why these claims were denied. you submit them for payment for the September 29th checkwrite date (25 days after the initial denial).
At this point, if any claims are denied, you wouldn’t know until October 6th, 32 days after the initial denial.
In my scenario, when is the final adjudication?
If the answer is that the final adjudication is at the point that the provider tries all possible revisions to the claims and continues to re-submit the claims until he/she cannot come up with another way to re-submit, then there is never final adjudication. As in, the provider could continue various changes to the billing ad nauseam and re-submit…and re-submit…and re-submit…”There’s a hole in the bucket!”
If the answer is that the final adjudication is the initial denial, then, in my scenario, the provider would be required to appeal every single denial, even for the same claim and every time it is denied.
You can imagine the burden to the provider if my second scenario is correct. You may as well hire a full-time person whose only task is to appeal denied claims.
Regardless, this new “Informal Reconsideration Review” purports to create many more questions than answers.
So may rules are enacted with good intentions, but without the “real life” analysis. How will this actually affect providers?
“There’s a hole in the bucket, dear Liza, dear Liza.”
“Then fix it.”
Happy New Year, everyone!!! Hope your New Year’s celebrations were safe and surrounded by friends and family! According to a journalist, the new year did not ring in the Medicaid reimbursements owed by NCTracks. (Obviously I cannot comment on NCTracks’ current status due to the lawsuit we filed on behalf of all physicians in NC).
Here is the following article by Mike Voorheis…
A year after a Wilmington doctor filed a lawsuit, the state still owes his practice more than $100,000 in unpaid or underpaid Medicaid and Medicare services, he says.
Dr. S. Albert Abrons, a family physician, is the first of seven plaintiffs listed in Abrons vs. N.C. Department of Health and Human Services, a class-action suit, (filed by Williams Mullen), that seeks unspecified damages from the state and three other defendants responsible for the development and implementation of NC Tracks, the software that disburses Medicare and Medicaid payments to health care providers.
Problems with the software began immediately in January 2013 and continued for about 14 months, Abrons said. During that time, Abrons and his staff treated thousands of Medicaid patients. Instead of being reimbursed at the higher Medicare rate for primary care services – a provision of the Affordable Care Act – Abrons was reimbursed at the lower Medicaid rate.
That amounted to about $20 per visit, his office manager said, eventually leading to a six-figure deficit.
Abrons said that meant he had to take out loans and couldn’t give raises to his employees when he wanted to.
“The state still owes me and every provider, I presume, enhanced payments for 2013,” Abrons said.
Abrons fought the state to correct numerous errors beyond the reimbursement rates, he said. The harder he pushed, the less receptive DHHS became.
“There was a complete lack of courtesy,” Abrons said. “Those people have no humanity.”
N.C. Rep. Susi Hamilton, D-New Hanover, was also very critical of DHHS’ response.
“The problem clearly starts at the top,” Hamilton said, referring to DHHS Secretary Aldona Wos.
“There is an unwillingness to admit that there are problems. We’ve left several messages and were unable to get a response.”
The state filed a motion to dismiss the lawsuit in July and did not wish to comment further, spokesman Kevin Howell said.
Some organizations have had success in receiving their backlogged reimbursements. Wilmington Health CEO Jeff James said the state does not have extraordinary unpaid bills with his organization.
Elderhaus PACE’s Rick Richards said the state owes the Wilmington organization about $350,000. A plan is in place, he said, to have the debt cleared in the next 90 days.
The lawsuit argues that more than 70,000 providers in North Carolina may have had a claim against the state.
“It’s systemic,” Hamilton said. “It’s not about one physician’s profit margin or bottom line. The more we delay payment for services, the more reluctant the private sector is to provide services to Medicaid or Medicare patients. That’s not acceptable.”
Hamilton said that after 14 months of frustration that she’s grown more optimistic over the past 10 days, since speaker-elect Tim Moore has added his voice to the cause.
But even if Abrons recoups the money that is owed him, Hamilton said, his practice has still been a victim of the state’s mismanagement. Every paper that is resubmitted and every phone call that is made to the state costs money. And that doesn’t include the time and money invested in the lawsuit.
“Time is money,” Hamilton said. “They have experienced a tremendous loss even if they are reimbursed at 100 percent.”
Remember the NCTracks lawsuit? NCTracks Derailed: Class Action Lawsuit Filed!! Computer Sciences Corporation (CSC) is one of the Defendants in that action here in NC.
Well, Monday CSC was hit with another enormous lawsuit. This one is filed in New York, and the Plaintiff is the U.S. Federal Government.
The feds are accusing CSC of a multi-million dollar Medicaid fraud scheme through its Medicaid billing software CSC implemented in NY.
Here is the press release.
From the complaint: “[T]hese fraud schemes were far from isolated events; instead, they were part and parcel of a general practice at CSC and the City to blatantly disregard their obligations to comply with Medicaid billing requirements.” (Compl. par. 8.)
The feds are seeking treble damages, which permits a court to triple the amount of the actual/compensatory damages to be awarded to a prevailing plaintiff.
According to the lawsuit, CSC has received millions of taxpayer dollars (budgeted for Medicaid) unlawfully and in direct violation of federal billing requirements.
If I were a taxpayer in NY, I would be incensed!!!! If I were a Medicaid recipient of parent of a child receiving Medicaid services, I would be furious!!
Now, take a step back…who is administering our Medicaid billing system here in NC?
This will almost certainly cause the federal government to peer a bit closer at all CSC’s billing software systems in other states…
This just in!!!!
Our State Auditor Beth Wood just released a new audit entitled, “Department of Health and Human Services-NCTRACKS-Federal Government Certification Status.”
More to come…
My law partner Camden Webb and I filed a class action lawsuit today alleging on behalf of medical providers who accept Medicaid in North Carolina.
Williams Mullen Medicaid Litigation Team Files Class Action Lawsuit Against NCTracks
Raleigh, NC. (Jan. 16, 2013) – This morning, Williams Mullen attorneys Knicole Emanuel and Camden Webb filed a class action lawsuit on behalf of Medicaid providers in North Carolina against NCTracks, the system that processes Medicaid claims.
The suit alleges that NCTracks was launched before it was ready to be implemented, and its poor design has resulted in catastrophic losses for health care providers. NCTracks had over 3,200 software errors in the first few months of operation, and payments to Medicaid providers were delayed, unpaid, or “shorted” by over half a billion dollars in the first 90 days. In some instances, providers have decided not to accept Medicaid patients or have even closed their practices, and some of North Carolina’s most needy citizens have suffered a reduction in the health care resources available to them.
“We’re filing on behalf of health care providers, but we’re also serving the low-income Medicaid recipients of North Carolina that rely on these providers to receive care,” said Knicole Emanuel, a Litigation Partner“Since these providers have experienced financial hardship due to NCTracks, many of them are no longer able to serve the state’s most vulnerable population of health care consumers.”
About Williams Mullen
Williams Mullen is an AmLaw 200 law firm that blends the law, government relations and economic development to help grow the business of our clients and the economy of our region across North Carolina, Virginia and Washington, D.C. Our attorneys and consultants strive to help connect clients to opportunities and solutions they need. Putting our clients’ needs first has been the foundation of our approach since the firm was founded 103 years ago. Visit us at www.williamsmullen.com.
Today I tried to think about the worst things that have ever happened in history. I came up with the Holocaust and the Civil War. The Civil War because more Americans died in that one war than all other wars in which America has been involved combined (until the Vietnam War). Roughly 1,264,000 American soldiers have died all America’s wars over history, in aggregate (620,000 in the Civil War and 644,000 in all other conflicts). It was only as recently as the Vietnam War that the amount of American deaths in foreign wars eclipsed the number who died in the Civil War. So, maybe my second horrible thing is war, in general.
Regardless, why was I trying to think of the worst things in history?
Because NCTracks has got to be one of the worst things to happen in North Carolina history to Medicaid providers. Obviously, I am not insinuating that NCTracks is comparable to the Holocaust or wars, in general. But to the Medicaid providers in NC, NCTracks may be as awful as the Holocaust or a war, in general (to those individual providers).
NCTracks’ defectiveness has adversely affected ALL PROVIDERS. It has hit big providers, such as hospitals. (WakeMed recently announced a loss of 2.5 million due to NCTracks), and small providers (I receive 2-5 phone calls daily from small providers who have not received either (a) payment; or (b) correct payment).
A while ago I wrote the blog “Why There is Not a Lawsuit Against NCTracks” (paraphrasing my own title). Well, as humans sometimes do, I am recanting my prior opinion as to one factor. I wrote in my prior blog that if providers sued NCTracks, then NCTracks paid the providers, that the lawsuit would no longer have merit…as in, if NCTracks actually paid providers that providers would have no damages (because damages is a criterion for a lawsuit).
I am officially recanting that statement.
People sue manufacturers every day in products liability for defective design.
What are examples of a defective design?
- A defective nail gun that shot through a wall, paralyzing a man in another room;
- A lock-up of a poorly designed braking system that led to the death of a mother and her four children;
- Machines at work — such as saws, presses, packaging machines, come-along chain hoists and other tools — with defective safety features that have blinded or caused hand or arm amputations to users;
- Retractable dog leashes that led to finger amputations;
These examples are courtesy of a law firm in Boston.
A computer system implemented to provide payments to Medicaid providers, but upon implementation, actually causes Medicaid providers to not receive Medicaid reimbursements… Obviously, the very reason NCTracks for which NCTracks was created is defeated.
It would be like me hiring a painter to paint my house. But, instead of painting my house, the painter eggs it.
Issues I have heard of regarding NCTracks:
1. NCTracks fails to correctly reimburse Medicare/Medicaid crossover claims;
2. NCTracks fails to correctly reimburse office visits, assuming that the Medicaid recipients are giving a $5 co-pay, not a $3 co-pay;
3. NCTracks fails to reimburse for immunizations and a well-child visit;
4. NCTracks fails to reimburse for injections and an adult office visit;
5. NCTracks incorrectly determines that a provider’s license has expired and does not reimburse;
6. NCTracks fails to comprehend its own taxonomy codes;
7. NCTracks fails to recognize secondary claims;
8. NCTracks incorrectly suspends provider numbers;
9. NCTracks incorrectly denies claims with multiple NSTs during the same inpatient encounter;
10. NCTracks fails to reimburse for ambulance services.
Design defect? Probably. Holocaust? Probably not (although I am sure it feels like it to all individual providers). War? Probably not (although I am sure it feels like it is to all individual providers).
Regardless, the damages are not just the non-payment of Medicaid reimbursements. Now it may be damages for a design defect…
Now THAT may be a tort!!!
CSC, the Creator of NCTracks, Pays $97.5 Million in Settlement for “False and Misleading Information” Regarding the Company’s Performance as to a Computer Records Contract
You know the magazine Cosmopolitan? Well, back in 1999, Cosmo decided to branch out from magazines and create a Cosmo yogurt. Never heard of it? That’s because Cosmo pulled the yogurt off the market within 18 months of entering the market. Cosmo yogurt was a complete flop. But, still, Cosmo yogurt was on the market for 18 months.
Remember “New Coke?” (I’m showing my age). But back in the late 70s and early 80s, Coca-Cola launched the “New Coke.” It was an utter flop and consumers demanded the original Coke to return.
If it takes 18 months for NCTracks to be “pulled from the market,” a great number of our Medicaid providers will either be (1) out of business; or (2) no longer accepting Medicaid.
It is indisputable (at least if you do not work for the Department of Health and Human Services (DHHS)) that NCTracks is severely OFF-TRACK.
Providers are going out of business because they are not receiving Medicaid reimbursements. Or the reimbursements are below the standard reimbursement rates. There are Medicare and Medicaid crossover problems. Not to mention providers are extremely frustrated with the amount of time they need to devote to NCTracks issues. See September 19, 2013, article by Rose Hoban.
Why has NCTracks been such a failure?
Obviously, I do not have the answer to that haunting question. Believe me, I have heard it all. I’ve heard that McCrory wants NCTracks to fail because NCTracks was past Gov. Perdue’s baby. I’ve heard that McCrory wants NCTracks to fail because then he can privatize Medicaid. I’ve heard that Computer Science Corporation (CSC), the company that writes the computer language for NCTracks is inept. I’ve heard that CSC begged Wos not go “live,” but Wos pushed the go “live” date. I’ve heard that the employees at CSC have no idea what they are doing. I’ve even heard that all the Republican governors have conspired to fo everything in their power to derail the Affordable Care Act (ACA) and this is just one example.
Most likely, none of the above is completely correct…or a small bit of everything. Regardless, the NCTracks system is hurting our providers that accept Medicaid. It should not be a party issue. It is a North Carolina issue. And, just think how popular the administration would be if they came out tomorrow and trashed the whole NCTracks system….Now that would be something!!!
With all that said, I found an interesting tidbit the other day about CSC.
September 9, 2013, CSC settled a lawsuit with its shareholders for $97.5 million. Is this germane to the NCTracks tomfoolery that we are all enduring? Perhaps not…but…perhaps.
Shareholders of CSC (which, BTW, is a BILLION dollar company) brought a class action lawsuit against CSC over alleged false statements about accounting and the company’s performance on a multibillion-dollar contract. Click on “class action lawsuit” to read the Complaint.
A Memorandum filed in support of the Complaint alleged that CSC “made false or misleading statements or omitted to disclose material facts” about internal controls over financial reporting and about CSC’s performance on a $5.4 billion electronic patient records contract with the U.K.’s National Health Service.
The plaintiffs alleged that the false and misleading statements regarding the controls over financial reporting and CSC’s performance on the $5.4 billion contract caused the stock to artificially inflate then plummet when the truth came out.
After reading the Complaint, this is what I gleaned that CSC allegedly did with respect to the electronic patient records contract (sound like what CSC has here in NC?):
Under the National Health Service (NHS) Contract, CSC agreed to build a computerized medical records system and develop the necessary software to create digitized medical records for all UK residents living within the regions covered by the contract.
This is directly from the Complaint…I find it very interesting…(the non-italicized words are mine):
The core component of the NHS Contract—the software system called Lorenzo , [NCTracks] intended to enable the digital medical records system—was to be delivered by 2012 [July 1, 2013]. The significance of the NHS Contract to CSC placed the project squarely in the spotlight of Wall Street analysts. Accordingly, virtually all conference calls between the Company and investors and virtually all public announcements during the Class Period addressed the progress and status of the NHS Contract. Throughout the Class Period, Defendants repeatedly asserted that CSC was “on track” and “making progress” and that the contract remained profitable to the Company. Likewise, CSC and the Individual Defendants continuously denied media reports critical of CSC’s performance of the contract. As analyst reports throughout the Class Period demonstrate, investors believed Defendants. However, Defendants’ representations were false because they had known, at least since May 2008, that CSC could not deliver the Lorenzo system [NCTracks] as promised. The Class Period begins on August 5, 2008, the date of Defendants’ first public misstatements following May 2008. Lead Plaintiff’s investigation has revealed that, as of May 2008, CSC and the Individual Defendants knew that the NHS Contract could not be fulfilled. In early 2008, CSC’s Board of Directors dispatched an internal team of experts to the UK to review progress on the NHS Contract. The team concluded that “from a technology and operational perspective,” CSC could not perform the NHS Contract [NCTracks]. The members of the team were in agreement that CSC simply could not deliver the software necessary to perform under the contract. As such, the contract was a “loser,” and, per Generally Accepted Accounting Principles (“GAAP”), CSC should have recognized a loss on the NHS Contract in 2008. CSC and the Individual Defendants concealed these facts from the public, and have never taken a loss on the contract. In the midst of public scrutiny, the UK Government commenced an investigation through a committee of Parliament with oversight over public spending. The committee reached similar conclusions: CSC could not deliver on the NHS Contract. Indeed, the Parliamentary inquiry revealed evidence that CSC had likely known it could not deliver since 2006.
If I am reading the allegations correctly, the plaintiffs asserted that CSC promised a computer program regarding electronic patient records that CSC knew it could not deliver.
As an aside, CSC’s reported revenue for fiscal year 2011 (ending April 1, 2011) was $16.04 billion, and net income attributable to CSC shareholders was $740 million. CSC common stock is listed and trades on the NYSE under the ticker symbol “CSC.”
Companies deal with marketing/products failures every day. Just look at Cosmo’s yogurt failure. Or Coca-Cola’s “New Coke” flop.
Cosmo pulled the yogurt off the market within 18 months. Consumers demanded that Coca-Cola return to the original Coke recipe.
Could it be possible that CSC has 2 product failures???
The Lorenzo system???