California officials are investigating financial dealings between Ventura County's Medi-Cal health plan and a key outside contractor, Xerox Corp., The Times has learned.
The California attorney general's office has issued a subpoena to Gold Coast Health Plan for records related to its work with a Xerox unit, Affiliated Computer Services. Xerox is a major government contractor for Medicaid and other health programs nationwide.
Records show part of the inquiry focuses on $2.3 million Xerox paid to Gold Coast as part of a 2010 deal to manage its operations, including claims processing, enrollment and customer calls. The five-year contract could be worth more than $60 million to Xerox, according to the health plan.
Since its inception in 2011, Gold Coast has been beset by executive turnover and allegations of financial mismanagement from former employees, medical providers and a community group.
The inquiry could raise questions about how well the California Department of Health Care Services is managing the Medi-Cal program and these county-level plans.
The state agency also works closely with Xerox. In 2010, California awarded Xerox a 10-year contract worth $1.6 billion to handle Medi-Cal fee-for-service claims statewide.
Both Gold Coast and Xerox said they are cooperating with the investigation.
The outside scrutiny comes as the Medi-Cal program deals with a massive expansion of new enrollees. In Ventura County, Gold Coast's enrollment has jumped 33% since Jan. 1 to 160,000 patients. Statewide, an additional 2 million people have applied for Medi-Cal benefits.
Michael Engelhard, Gold Coast's chief executive since 2012, said that health plan board members publicly discussed the contract terms with Xerox and that state Medi-Cal officials were aware of the details. Engelhard said Gold Coast can keep the $2.3 million from Xerox as long as it doesn't cancel its contract before five years.
Xerox said its $2.3 million in "implementation payments" to Gold Coast wasn't unusual.
Previous outside audits haven't revealed significant problems, Engelhard said, adding "we expect this review will yield similar results." Engelhard resigned his position effective Sept. 19 to take an undisclosed new job. He said his departure was unrelated to the investigation.
Mark Geiger, director of the attorney general's Bureau of Medi-Cal Fraud and Elder Abuse, is spearheading the case. A spokesman for Atty. Gen. Kamala D. Harris declined to comment.
Records show the attorney general's office sought documents on Gold Coast's bidding process, bank statements, checks issued to its executives and transactions with Xerox, among other items.
In its July 14 request, the state's lawyers asked the health plan to turn over "all documents and communications recording the use of any payments received from [Affiliated Computer Services]."
Anthony Cava, a spokesman for Medi-Cal, said that the agreement between Gold Coast and Xerox "did not need DHCS approval, and that the department was not involved in the contract discussions."
In April, a state Medi-Cal audit faulted Gold Coast for outsourcing too much operational control to Xerox, failing to provide appropriate oversight and making decisions "in spite of conflicts of interest."
The health plan said it addressed the state's concerns.
Gold Coast is an independent public entity run by the 11-member Ventura County Medi-Cal Managed Care Commission. It was created as part of a move to put more Medi-Cal patients into managed care and shift them away from the conventional fee-for-service system.
A federal whistle-blower suit filed under seal in 2011 by two former Gold Coast employees touched on some of the same areas now under examination by the attorney general.
That suit accused Gold Coast of misleading state officials about the readiness of the health plan's computer system and failing to follow state bidding rules with Xerox.
In a statement, Xerox defended the Gold Coast contract as "usual in our industry."
The company said "these payments help Gold Coast offset costs and assist in a more efficient and effective implementation."
Federal prosecutors declined to join the former employees' whistle-blower suit and most of the allegations were dropped. All that remains is a whistle-blower-retaliation claim by Donald Gordon, a former project manager at Gold Coast.
His lawyer, Abram Zinberg, said the case is slated for arbitration.
In June, the League of United Latin American Citizens published a report accusing Gold Coast of firing employees without cause, fostering a hostile and discriminatory workplace and dismissing staff concerns about shoddy financial practices.
In response, the health plan's board created a committee to look into those claims.
Gold Coast's fiscal health has improved in the last two years. A state monitor was assigned in 2012
because the health plan was at risk of becoming insolvent. California regulators removed the monitor last fall.
"We addressed the big items facing us two years ago and the plan is on a strong footing going forward," Engelhard said.
Nationwide, Xerox offers a wide range of services from health plan enrollment and call centers to processing medical claims and paying providers. Xerox handles much of that work for Gold Coast.
Xerox's healthcare business also faces legal challenges elsewhere. Texas officials canceled the company's Medicaid claims administration contract in May after concluding that Xerox paid out hundreds of millions of dollars for unnecessary dental work.
Xerox said it will defend itself vigorously in the Texas case.
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