- The Washington Times - Wednesday, May 3, 2006

Federal authorities have begun a criminal investigation of Maximus Inc. in the wake of a lawsuit claiming that the Reston-based consulting giant overcharged the government tens of millions of dollars while working for the District’s foster care agency, unsealed court records and other official files show.

The investigation follows a federal False Claims Act lawsuit that says Maximus lacked proper documentation for most of the more than $30 million in Medicaid claims the company prepared for the D.C. government, starting in 1999.

In February, Maximus disclosed to the Securities and Exchange Commission that it had received a subpoena from the criminal division of the U.S. Department of Justice pertaining to the company’s work preparing Medicaid claims for the D.C. government. The company received more than $3 million for its work for the D.C. Child and Family Services Agency, according to the lawsuit.

Maximus has declined to comment on the focus of the investigation beyond what it disclosed to the SEC.

However, previously sealed court records show that federal authorities began a probe as far back as 2004 into claims in a 2003 lawsuit against the company by Benjamin Turner, a former employee who says Maximus fired him in 2002.

According to Mr. Turner, Maximus was hired to help the city recoup federal Medicaid funds for services for foster children in the D.C. Child and Family Services Agency (CFSA).

Under the deal, Maximus pocketed 10 cents of every Medicaid dollar it helped the city recoup, eventually netting the company more than $3 million for at least $30 million in Medicaid claims it prepared, according to the lawsuit.

Mr. Turner, who says in the lawsuit that he worked on the billing project, says the Medicaid billing was “grounded in fraud.”

“After obtaining confirmation that such services were not performed through a CFSA computer search, and in the majority of instances after contacting the social workers who confirmed the services were not performed, Maximus nevertheless created files that indicated services were performed and used such information to demand Medicaid pay for services not rendered,” the lawsuit states.

Maximus declined to comment on the substance of complaint, saying it has not been served with the lawsuit and that public records show the suit was dismissed from Alexandria federal court in June 2005.

Mr. Turner and his attorneys, the U.S. Attorney’s Office and the D.C. Office of the Attorney General also had no comment.

Within days of the lawsuit’s dismissal in Alexandria, filings in Mr. Turner’s case show that the suit was filed in D.C. federal court June 21, 2005. Records filed by Mr. Turner’s attorney, Candace McCall, show that federal authorities wanted to prosecute the case in the District.

No records of the case appear on the public docket in the District. False Claims Act complaints usually are kept under seal until dismissal or the government decides whether to take over the case, according to legal experts.

In April 2005, Justice Department attorney Diana J. Younts stated in Alexandria court filings that the government wasn’t finished investigating Mr. Turner’s case. She said authorities were unable to decide whether to intervene in the case by a court-ordered May 2, 2005, deadline.

“However, the government’s investigation will continue,” Miss Younts wrote.

The timeline in Mr. Turner’s lawsuit suggests that federal authorities are “taking the matter very seriously,” said Stephen M. Kohn, chairman of the board of directors for the National Whistleblower Center.

“This is consistent with a very serious federal investigation into potential fraud,” Mr. Kohn said.

Industry leader

Founded in 1975, Maximus is one of the country’s largest government consulting companies. The publicly traded company employs more than 5,000 workers and reported revenue of more than $640 million last year.

Jason Kupferberg, an analyst for New York-based UBS Securities who follows Maximus, said the company has a good reputation in the industry.

“Anytime a company is in the business of doing work for the government, there’s always a lot of scrutiny. It’s not uncommon from time to time for investigations and subpoenas and other legal matters to arise,” Mr. Kupferberg said.

“They certainly can never be taken lightly,” he added. “But it is premature to jump to any conclusions regarding the potential outcome of this situation.”

Maximus derives nearly 80 percent of its revenue from state and local contracts covering a broad range of government services, including tracking down deadbeat parents, managing child welfare programs and implementing public retirement benefit systems.

The company finds itself in the wake of a management shake-up.

It announced last week the firing of Chief Executive Lynn Davenport, citing unspecified conduct toward a former female employee. The company’s former chief financial officer, Richard A. Montoni, was appointed to take over as chief executive officer.

Earlier this year, Mr. Montoni spoke to analysts briefly about the D.C. investigation, saying it’s not clear whether Maximus would incur more than $500,000 it recently set aside for legal costs in connection with the probe.

“Obviously, we have to wait to see … the results of the process, but this is our best estimate for at least the foreseeable future,” Mr. Montoni said of the legal costs.

Billing review

Maximus hired Mr. Turner in March 1999 to direct its human services division and assigned the health care consultant to its “revenue maximation” project for the CFSA — which some employees dubbed “Operation Lightning Rod,” according to the former employee’s lawsuit. At the time, the CFSA oversaw about 3,000 D.C. foster children.

According to the lawsuit, Mr. Turner conducted a billing review and found nearly 80 percent of the foster children for whom Maximus prepared Medicaid claims had no record of actually having received services, according to the lawsuit.

“CFSA was overwhelmed with work, and the files of children coming into the system or to be assigned to a different social worker due to social worker turnover would sit for months, untouched, in office cubicles,” the lawsuit states.

“These foster children were not receiving any services at all. [Mr. Turner] saw hundreds of such files over a period of about one year,” the suit states.

According to the lawsuit, Maximus relied heavily on court records to piece together information it needed to bill Medicaid after officials found “a massive lack of data to support the majority of invoices.”

“Maximus would get the Medicaid number and name of each child from the court records, match the names to the Medicaid file, and invoice from there,” the lawsuit says.

Those invoices were based on court records of children to be assigned to CFSA, not on actual services delivered, the lawsuit notes.

The lawsuit says Mr. Turner told Maximus officials about “mounting problems in collecting past data” but that “there was little response except a retort that Maximus would not be paid unless and until invoices went out.”

A CFSA spokeswoman declined to comment on the suit, but said the agency is reviewing its Medicaid operations.

“It’s handled in-house right now, but we have a contractor in there in an attempt to help us do it better,” CFSA spokeswoman Mindy Good said. “We’re in the process of putting in place a business unit that would take care of those kinds of things.”

For much of the timeframe outlined in Mr. Turner’s lawsuit, the District’s foster care agency was under receivership.

“We have federal audits every year,” Miss Good said. “The federal agencies are not just going to give you money unless they can verify services.”

Mr. Turner’s whistleblower lawsuit states that his health worsened, he suffered psychological problems and that he was ultimately fired for complaining about the company’s billing practices.

Maximus declined to comment on Mr. Turner’s employment.

In response to questions about the company’s work for CFSA, Maximus referred to its Securities and Exchange Commission disclosures.

In quarterly SEC filings since late 2004, the company has said it was cooperating in a federal probe “primarily relating to the preparation and submission of Medicaid claims” pertaining to the company’s work for the District.

“We are fully cooperating with the U.S. Attorney’s Office in producing documents in response to the subpoena and making employees available for interviews, and we have initiated an internal review of this matter through independent outside legal counsel,” the company said in a recent SEC filing.

Lawrence Mitchell, law professor at George Washington University Law School and a corporate governance expert, said the update in the latest SEC filing, which contains new details about the involvement of the Justice Department’s Criminal Division, shows Maximus is getting more information about the probe.

“This suggests to me that they’re doing their own internal investigation, they’re learning more and that they’re telling shareholders, ‘Here’s what we know right now,’” Mr. Mitchell said.

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