Audit: Texas Health and Human Services permitted unallowed costs

Audit HHSC

A recent state auditor report found that the Texas Health and Human Services Commission (HHSC) didn’t ensure that one of its Medicaid provider’s business practices aligned with managed care contract requirements.

HHSC allowed Superior HealthPlan Inc. and Superior HealthPlan Network to report $29.6 million in incentive and bonus payments that were paid to affiliate employees in its financial statistical report, but those costs are not allowed under the HHSC contract with Superior.

The audit said “the disparities between the Commission’s actual business practices and the written contract requirements weakens the Commission’s ability to consistently oversee all of the contracts the Commission has with its other Medicaid Managed Care Organizations.”

Superior provides the Medicaid STAR, STAR+PLUS, STAR Health, and STAR Kids programs to seven service delivery areas in Texas. Superior received total payments of $2.4 billion from HHSC to provide services between Sept. 1, 2015 and Aug. 31, 2016.

A 2017 auditor report of HHSC contracts showed that the department had total contract expenditures of $88 billion for Medicaid, Children’s Health Insurance Program, medical transportation and other administrative programs as of June 1, 2017.

Auditors discovered that Superior included $31.2 million in total unallowable costs — including the questioned $29.6 million in bonuses and incentives — as well as $444,000 in questionable costs. The report points out that including such costs in the financial statistical report affects the calculation of Superior’s net profit, which HHSC used to determine whether Superior owes money to Texas under the experience rebate profit-sharing requirement.

State law requires HHSC to adopt rules that ensure managed care organizations share profits they earn through the Medicaid managed care program.

HHSC did not dispute the auditors’ findings and agreed to act on the report’s recommendations by Sept. 1.

“HHSC will amend the contracts with the [managed care organizations] to clarify the definition of affiliates to be consistent with business practices which have evolved over the last several years. [Financial statistical] reporting will also be amended to show affiliate bonuses as a separate line item.”

In a related issue, auditors dinged HHSC for not including a section in the template for the financial statistical report for managed care organizations to separately report affiliate profits. This despite a HHSC’s cost principles requiring managed care organizations to report and separately identify affiliate profits.

In its response, HHSC said it would “evaluate reporting methodologies that would give the appropriate level of transparency to affiliate transactions without exposing [managed care organizations] proprietary data.”

HHSC said it would also implement this change by Sept. 1.

These issues were rated priority by the state auditor’s office, which means the identified issues could critically affect the audited entity’s ability to effectively administer the programs examined if not quickly addressed.

Johnny Kampis can be reached a [email protected].


  1. DFPS Commissioner Hank Whitman ( as a Texas Ranger) lied under oath in court and in official documents to hide 30 years of corruption for the city of san antonio TX…..DPS, SAPD, BCSO covered up the criminal activity


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