City of Lubbock Releases HealthSmart Audit


“The audit was part of a city controversy revolving around an “unsatisfactory” report of HealthSmart and a Federal Bureau of Investigation probe into city practices, according to A-J archives.”

Note: To the layman, this article appears to be damaging to HealthSmart. However, there is another side of the story that needs to be told. That’s bad news to most TPA’s in the business who are practicing the same business deals. We will be exploring this in the next few days for the benefit of our readers – Molly Mulebriar

The city of Lubbock was out at least $2 million after a settlement with its former insurance administrator, according to an audit released Tuesday by the city after a lengthy legal battle the Avalanche-Journal spearheaded.

In brief, the audit reveals the city was overcharged by $6 million to $8.9 million as the direct result of administrative errors caused by erroneous fees and “kickbacks” paid to The Parker Group while it managed the city’s health plan from 2004-06.

The City Council approved a $4 million settlement from the group in 2012.

But city leaders at that time would not release an outside firm’s audit of The Parker Group, concerned with the prospect of potential litigation.

On Tuesday, leaders said they were glad the time has come to release the audit and stood by their decision to settle for a loss.

“We are pleased to release this audit,” City Manager James Loomis said in a statement released Tuesday to the A-J. “Multiple courts in Austin and the Texas Attorney General’s Office have ruled the audit is an open record under the Public Information Act.”

Releasing the audit

Last week, the A-J sent the city a letter “respectfully demanding” an audit of Lubbock’s former insurance administrator and, if needed, threatening to take legal action.

The Texas Supreme Court recently refused to hear a case HealthSmart Holdings Inc. initiated, hoping to keep the audit private.

The deadline to ask the court to reconsider passed without HealthSmart filing a motion, so the A-J asked to promptly be furnished a copy of the audit, said the letter from attorney Don Richards, who represents the newspaper.

Councilman Victor Hernandez was the sole council vote against the settlement in April 2012, not because he disagreed with the amount of the settlement, but because the audit would not be released.

Hernandez on Tuesday said he’s pleased the audit is now public.

He believes the city got a fair deal with the settlement, despite the audit’s itemized revelations of The Parker Group’s “substandard administrative services” and hundreds of thousands of dollars in kickbacks from third party vendors.

“You’ve got to take into account the time value of money as opposed to the litigation that literally could have taken years and years and years,” Hernandez said. “I think the city really put its best foot forward and recovered as best as it could.”

Councilman Floyd Price, who voted for the settlement, added: “I’m glad it’s released, but I’m not going to say any more about it.”


The audit was part of a city controversy revolving around an “unsatisfactory” report of HealthSmart and a Federal Bureau of Investigation probe into city practices, according to A-J archives.

The city’s former insurance administrator was contracted in 2003 and maintained the health insurance business for Lubbock’s 6,000 employees from 2004 until 2006 under the auspices of The Parker Group, owned by Ted Parker, now part of the umbrella health group HealthSmart.

HealthSmart’s relationship with the city of Lubbock ended in 2006 amid concerns of improper fees and commissions, though the actual amount is unknown because the audit is still sealed, despite efforts by the A-J and city to release the information.

The city later received a $4 million settlement, putting an end to years of litigation.

Officials with HealthSmart have previously declined comment to A-J Media, but released a statement when the settlement was reached.

“The company’s leaders and its board of directors has substantially changed since the period of time in which this dispute arose,” said Dan Crowley, executive chairman of HealthSmart’s board, in the release. “We are a terrific company today and are pleased we were able to work with the City Council to resolve our differences. We look forward to opportunities in the future to have a positive, constructive relationship with the city.”

The audit details how Sagebrush Solutions, an Addison-based health care auditing firm, collected its information, including evaluating a sampling of city insurance claims managed by The Parker Group.

The audit found The Parker Group’s work with the city had a measured financial accuracy rate of 91.9 percent — “well below industry standards of 99 percent as well as The Parker Group’s 98 percent guarantee to another employer group.”

The estimated total of the city’s overpayments for medical and dental claims is about $5 million, according to the audit.

“This report shows that The Parker Group provided substandard administrative services to the city and took kickbacks from other city vendors, resulting in excess costs to the city of more than $8.9 million.”

Councilwoman Karen Gibson on Tuesday stood by her vote approving the settlement.

“Looking at that audit, it’s unbelievable that we were charged that much,” Gibson said. “I wish we could have gotten more. Given the circumstances, I’m pleased with what we got.”

Both Gibson and Hernandez said they do not believe HealthSmart has cause for legal action against the city for releasing the audit.

“We talked with our attorneys before we released this and they gave us the green light,” Hernandez said.

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About the audit

■ Title: “Audit of The Parker Group Administration of Benefit Plans for the City of Lubbock”

■ What: Audit of Lubbock’s former insurance administrator prepared by Sagebrush Solutions, an Addison-based health care auditing firm.

■ Date completed: March 18, 2010.