Texas AG Sues Xerox, Alleges Fraud - Analyst Blog

The Texas Attorney General's office filed a lawsuit against state contractor Xerox Corporation ( XRX ), looking to recover hundreds of millions of dollars that the company allegedly squandered away for unnecessary Medicaid claims.

In addition, the state's Medicaid agency, the Health and Human Services Commission (HHSC), has decided to prematurely abort Xerox's five-year claims administration contract reportedly worth about $759 million.

The Lawsuit

The lawsuit charges Xerox of showing incompetency in performing medical reviews required by the contract, jeopardizing taxpayers' funds. Xerox has allegedly allowed corrupt dentists to provide expensive treatment for thousands of poor children who did not meet the government's stringent criteria for the costly dental work.

Medicaid covers treatment only when a child's teeth are so badly aligned as to cause difficulty in eating or breathing. The state says that Xerox did not review requests for braces properly before doling out state funds.

As damages, the Attorney General's office is seeking twice the state's losses as compensation from Xerox, along with interest, legal charges and civil penalties. Some legal experts estimate that the lawsuit could cost Xerox up to $2 billion in damages and penalties.

Allegations of Medicaid dental fraud in Texas have been escalating. According to federal auditors, by 2010, the outlay for the state's Medicaid program for dental and orthodontic work exceeded that of nine other most populous states of the nation, combined.

Xerox's Statement

In response to the lawsuit, Xerox declared that the claims are misdirected and the dentists who exploited the system should be held accountable instead. The company denied committing any fraudulent activity and asserted that it has always maintained complete transparency in its operations.

Moving Forward

While it is disappointed with HHSC's decision to drop Xerox as Medicaid provider, the company has assured uninterrupted service to the underprivileged and underserved Medicaid beneficiaries in Texas during the transition period.

The state will perform a competitive bidding process to select a new contractor. State officials have selected Accenture LLP, the leading subcontractor under Xerox, to handle Medicaid claim processing during the transitional phase.

Xerox currently holds a Zacks Rank #4 (Sell). Other better-ranked stocks in the Computer & Technology sector that are worth a look include Hewlett-Packard Co. ( HPQ ), Canon Inc. ( CAJ ) and Pitney Bowes Inc. ( PBI ). All three of these stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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