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(Hereinafter referred to as caISD" or "District"), Plaintiff in

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CAUSE NO. 2010-DCL-4929
BROWNSvaLEINDEPENDENT
SCHOOL DISTRICT
Plaintiff,
vs.
HEALTHSMARTBENEnTS
SOLUTION, INC. formally
AAG AMERICAN
ADMINISTRATIVE GROUP and
DAVID HALL, Individually,
dba
DAVID HALL MARKETING AND
DEVELOPMENT COLONIAL
LIFE/MONARCH MANAGEMENT,
AND HEALTHSMART PREFERRED
CARE dba HEALTHSMART
PREFERRED CARE IT L.P.,
TED PARKER, Individually
Defendants.
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l07th JUDICIAL DISTRICT
CAMERONCOUNTY,TEXAS
PLAINTIFF, BROWNSVILLE INDEPENDENT SCHOOL DIsTRICT'S
FIRST AMENDED PETITION
BROWNsvaLE
INDEPENDENT
SCHOOL
DISTRICT
(Hereinafter
referred to as caISD" or "District"), Plaintiff in the above styled and numbered
case states a cause of action at common law for breach of contract, Deceptive
Trade Practices, Fraud, Fraud in the Inducement, Civil Conspiracy, Negligence
and Gross Negligence against Defendants, HealtlrSmart Benefits Solution, Inc,
formally AAG American Administrative Group (Hereinafter referred to as
"HealthSmarf')
and
Defendant, David Hall, Individually, dba David Hall
Marketing and Development Colonial Life/Monarch Management (Hereinafter
referred to as "Hall"),Defendant HealthSmart Preferred Care dba HealthSmart
Preferred Care Il, L.P. (Hereinafter referred to as "HealthSmart Preferred Care
Ir') and Ted Parker, Individually (Hereinafter referred to as "Parker"].
I.
DISCOVERYLEVEL
Discovery in this litigation is intended to be conducted under Level 3,
Texas Rule of Civil Procedure 190.0.
n.
Plaintiff, Brownsville
PARTIES
Independent
School
District,
is
a
political
subdivision of the State of Texas, namely a public school district entirely
located in Cameron County with its principal office at 1900 E. Price Road,
Brownsville, Cameron County, Texas.
Defendant, Hea1thSmart is a Corporation incorporated under the laws of
the State of illinois and may be served with process by serving its Registered
Agent in the State of Texas as follows:
Prentice Hall, 211 E. 7th Street, Suite 620, Austin, Texas 78701
Defendant, David Hall is an individual and a resident of Cameron
County, Texas and may be served at his principal place of business as follows:
David Hall Marketing and Development Colonial
Management, 611 E Loop 499, Harlingen Texas 78550
Life/Monarch
Defendant, Hea1thSmart Preferred Care dba HealthSmart Preferred Care
II, L.P. is a Texas Limited Partnership and may be served as follows:
Corporation Service Company dba CSC - Lawyers Incorporating Service
Company, 211 E. 7tlJ Street, Suite 620, Austin, Texas 78701
Defendant, Ted Parker is an individual and a resident of the State of
Texas and may be served with process at:
222 W. Las Colinas Boulevard, Suite 600N, Irving, Texas 75039
Service of citation on Defendants is requested via a private processor
server.
P1ain1:iff, BISD's First Amended Pet:i:t:i.on
Page 2 of 12
m.
JURISDICTION
AND VENUE
The Court maintains jurisdiction of the parties by virtue of the PlaintifPs
status as a political subdivision of the State of Texas and by virtue Defendants
Hall's and Parkers residency in the State of Texas.
jurisdiction
The Court maintains
over HealthSmart by virtue of HealthSmart's
substantial
and
continuous contacts with the State of Texas including maintaining a principal
place of business at 222 W. Las Colinas Boulevard, Suite 600N, Irving, Texas
75039. The Court maintains jurisdiction over HealthSmart Preferred Care Il as
a result of its status as a Texas Limited Partnership.
Venue is proper in Cameron County, Texas by virtue of Plaintiff and
Defendant Hall being residents of Cameron County. Additionally, the contract
was approved, executed, entered and substantially performed in Cameron
County as evidenced in HealthSmart's actions in maintaining a part-time
employee at Plaintiff's Employee Benefits Department.
All or a substantial
amount of the events and actions alleged occurred in Cameron County.
IV.
FACTS
BISD maintains a self-funded Employee Health Benefit Plan (Plan). BISD
contracts with Third Party Administrators (TPA)to administer the Plan on
behalf of BISD. On October 1, 2007 Plaintiff BISD entered into a contract with
Defendant HealthSmart regarding the Plan.
Hea1thSmart was to administer
the Plan on behalf of BISD which includes the responsibilities of providing a
Preferred
Provider
Organization
(PPO), adjudicating
claims,
providing
prescription services, paying claims and other services such as coordinating
benefits, pursuing BISD's subrogation rights and providing diseased employee
management services. The bulk of the total expenses of the Plan to BISDis the
payment of the claims to the medical providers.
The fixed costs of the Plan
which include the administrative fee paid to the TPAand Stop-Loss insurance
Plai.nt:iff, BISD's First Amended Petition
Page 3 of 12
purchased to limit BISD's exposure, represent between 10 and 15 percent of
the total costs of maintaining the Plan. Approximately 85 percent of the costs
of maintaining the Plan are the net payments to the medical providers.
The most important component of the contractual relationship between
BISD and HealthSmart is the provision of the PPO. The PPO has in place
contracts with medical providers which allow for discounts to be provided to
members of the PPO.
Therefore, the most important part of the services
provided by the TPA is the available discounts provided by the PPO. The
greater the PPO discounts, the greater the savings to BISD.
Prior to contracting with HealthSmart on October 1, 2007 BISD's Plan
was administered by Mutual of Omaha.
Total Plan costs to BISD in previous
contract years were as follows:
Mutual of
Omaha
Mutual of
Om.aha
(2004-2005)
Mutual of
Omaha
(2005-2006)
Omaha
Mutual of
$26,400,789.00
$29,709,312.00
$31,760,569
(2006-2007)
Hea1thSmart
Hea1thSmart
(2007-2008)
(2008-2009)
$37,665,462.00
$43,449,912.00
(2003-2004)
$28,528,381.00
As noted in the above chart, BISD's Plan cost increased substantially
during the 2 years that the Plan was administered by HealthSmart. The 20082009 total of $43 449,912.00 does not include approximately 2.5 million in
7
additional claims that were discovered by BISD to exist, potentially payable to
Valley Baptist Health Systems and undisclosed by HealthSmart prior to
HealthSmart's departure as BISD's TPA at the end of the second contract
period in September 30, 2009.
costs
for 2008-2009
total
This has the potential of making total plan
approximately
$46
million an
increase
of
approximately of $14.5 million during the 2 year contract with HealthSmart.
Plaintiff, BISffs First Amended Petition.
Page 4 of 12
Alarmed by the substantial increase during HealthSrnart's 2 year tenure,
and subsequent discovery of the undisclosed claims by Valley Baptist Health
Systems, BISD secured the services of Claims Technologies Incorporated (CTI},
an independent out of state specialty audit firm to audit the previous 4 years of
BISD's Plan in order to provide an explanation for the substantial rise in Plan
costs. CTIconcluded its assigned audit functions in August of2010.
CTI determined that in 2006-2007, the final year in Mutual of Omaha's
role as TPAfor BISO, the Provider Discounts were 42.5 percent. As a result of
Mutual of Omaha withdrawing from the health administration business in
Texas in 2007 BISD solicited proposals for a new TPA. During this period of
time HealthSmart represented
to BISD that it would match or beat the
discounts which were provided by Mutual of Omaha in 2007.
this
representation
by HealthSmart,
the
TPA contract
As a result of
was awarded to
HealthSmart. CTI's findings determined that during HealthSmart's first year
the discounts provided by its PPO, HealthSmart Preferred Care II, were 40.5
percent, 2 percent less than the 42.5 percent provided by Mutual of Omaha the
previous year. Each percentage point represents approximately $700,000.00 in
savings to BISD, therefore, during the first year of HealthSmart's tenure there
were additional costs to the Plan of almost $1.5 million as a direct result of
HealthSmart's failure to meet its promised discounts.
The second year of
HealthSmart's tenure 2008-2009, HealthSmart began to make representations
to BISD that it was bringing "Plan savings" to BISO of over 66 percent.
This
was an intentional misrepresentation by Hea1thSmart in an attempt to bolster
its position in order for BISO to renew its contract in 2008-2009. Hea1thSmart
was adding the deductibles, co-payments and co-insurance payments of the
employees, plus any Plan disallowed charges to its formula to arrive at this new
"Plan savings" of 66 to 67 percent. This representation by HealthSmart served
to cause BISO to renew the HealthSmart's contract for 2008-2009.
effective discount as determined by
en
The
for the 2008-2009 period in fact
Plai.n.tiff, BISD's First Amended Petition
Page 5 of 12
declined to 36.1 percent, approximately 7.5 percent less that in Mutual of
Omaha's final year.
This resulted in additional Plan costs to BISD of $5.3
million for 2008-2009.
As a result of the 2 year performance by HealthSmart and HealthSmart
Preferred Care II, BISD solicited proposals for TPA services for the 2009-2010
year. HealthSmart submitted a proposal and engaged in a campaign to retain
its contract which included a continuation of its representation of large Plan
savings, openly disparaging BISD's independent insurance consultant with
statements that later proved to be false and obtaining information on the
proposals surreptitiously then acting on that information by attempting to exparte the Interim Superintendent and Board members and providing responses
regarding the consultant's recommendation to Board members prior to the
consultant's report being officiallyreleased.
CTI further discovered in its audit that HealthSmart was overcharging
the District approximately $15,000.00 a month for its disease management
service.
The contract
called for a fee of $2.49 per diseased member.
HealthSmart was charging this fee for every employee of BISD. The number of
identified diseased
employees was approximately 1,700 yet HealthSmart
charged its fee on approximately 7700 employees resulting in $15,000.00
monthly overcharge.
This gross deviation was first discovered by BISD's
insurance consultant and confirmed by CTL
Additionally, HealthSmart and HealthSmart Preferred Care IT, the PPO
contracted
by HealthSmart
were under
the
same
corporate
umbrella.
HealthSmart engaged in gross deviations from accepted industry customs and
practices by renegotiating discounts with the PPO and charging an access fee
in addition to a 30 percent fee on the "'savings'"on a claim by claim basis.
HealthSmart and HealthSmart Preferred Care II were essentially dealing
Plaintiff,
BISD's First Amended Petition.
Page 60f 12
beneath its corporate umbrella and basically paying itself twice at the expense
ofBISD.
Additionally, CTI confirmed that
prescription
payable to BISD by the contracted prescription
rebate
checks made
service, ScriptCare were
negotiated by HealthSmart and the funds withheld for an unreasonable time by
HealthSmart and later submitted to BISD only upon inquiry by the insurance
consultant during the period of time that Health.Smart was attempting to retain
the contract in August 2009.
During the 2 year period of time in which HealthSmart was BISD's TPA,
David Hall acted as the local agent for Hea1thSmart. He was listed specifically
in the contract as Broker of Record with a fee payable to him of $2.00 per
employee per month
or approximately $15,400.00
approximately $184,800.00 a year.
per month averaging
During this period of time David Hall
actively worked with BISD and in concert with HealthSmart and HealthSmart
Preferred Care II to promote the misrepresentations of the available discounts
and touted on behalf of Defendants, the gross misrepresentation of the alleged
66
percent
"Plan
savings."
David Hall
actively
supported
these
misrepresentations due to the substantial commission that he received under
the contract.
Defendant Parker at all times relevant during the contract period
between the Plaintiff and the Defendants substantially owned and controlled
HealthSmart and Hea1thSmart Preferred Care ITand was responsible for all
major decisions made by these Defendants.
Parker maintained the sole
authority to allocate funds and resources of the Defendants between the
respective entities and for his personal benefit with a result of HeaIthSmart and
Hea1thSmart Preferred Care ITbeing the alter egos of Parker.
Plain:ti.ff, BISD's First Amended Petition
Page 7of12
v.
TEXAS DECEPTIVE TRADE PRACTICES ACT
(DTPA)
BISD is a consumer as defined in Section 17.45(4}of the DTPA. It is a
subdivision of the state of Texas. Defendants committed false, misleading and
deceptive acts or practices in their representations to BISD in regards to the
services provided, the costs of the
services and in the execution and
performance in the delivery of the services in violation of the DTPASection
17.46 as follows:
I.
causing
confusion
or
misunderstanding
as
to
the
source,
sponsorship, approval, or certification of goods or services;
2.
representing that goods or services have sponsorship, approval,
characteristics, ingredients, uses, benefits, or quantities which
they do not have;
3.
representing that goods or services are of a particular standard,
quality, or grade;
4.
disparaging the goods, services, or business of another by false or
misleading representation of facts;
5.
failing to disclose information concerning goods or services which
was known at the time of the transaction if such failure to disclose
such information was intended to induce the consumer into a
transaction into which the consumer would not have entered had
the information been disclosed;
Plaintiff BISD seeks relief· under Section 17.50(a}(I)(A)and (B) and
17.50(a)(3). Plaintiff states that Defendants' acts were a producing cause of
economic damages and that Defendants acted knowingly or intentionally in
committing the alleged acts and further that Defendant's acted unconscionably
in regards to Plaintiff.
Plaintiff,
BISIYs First Amended Petition
Page 8 of 12
Plaintiff BISD seeks economic damages as provided by the DTPAin
excess of the minimum jurisdictional amounts of the Court.
VI.
ALTER EGO (pARKER)
As stated above, Parker substantially owed and controlled Defendants,
Hea1thSmart and HealthSmart Preferred Care II and other entities under the
Hea1thSmart umbrella.
-corningled assets
Parker at his sole discretion, allocated, moved and
of the various entities within the entities and for his
individual benefit and use.
the limited partnership
Plaintiff seeks to pierce the corporate shield and
protections due to Parker individually using and
benefiting from the assets of the various entities.
vn,
BREACH OF CONTRACT
Defendants materially breached Section 4.1 of the contract and Section 7
of the referred Exhibit "A.'" The reference section states as follows:
o Elements Disease Management Services. A fee of $2.49 per
diseased member per month for Q Elements disease management
services. This fee shall remain fixed for the initial term of the
Agreement and, if elected, for each one-year renewal option term
described in Section 1.2 of the Agreement.
Defendants did not charge the fee as per diseased member, as required
by the contract, but rather charged for every employee resulting in substantial
overcharges to BISD.
Defendants oral representations to the Board and Administration acted
as amendments to the contract and Defendants breached the amended
contract by failing to deliver on the discounts as represented.
vm.
FRAUD IN THE INDUCEMENT
Defendants fraudulently misrepresented to BISD the amount of the
discounts available to BISD. Defendants knew that the discounts were not as
represented yet intentionally made claims of equal or superior discounts of the
previous TPA. The intent of the Defendants was that BISD act upon these
Plaintiff, BISD's First Amended Petition
Page 9 of 12
representations
and award the contract.
BISD did in fact rely on the
misrepresentations and awarded the contract to Defendants and as a direct
and proximate cause of this reliance suffered economic damages.
IX.
FRAUD
Defendants, in an effort to renew the contract for the 2008-2009 year,
intentionally misrepresented the discounts by alleging a 66 percent "Plan
savings" with the intent to misinform BISD as to its performance knowing that
the figures provided included deductibles, co-payments, co-insurance and
charges not allowed under the Plan. The intent of the Defendants was that
BISD act upon this information. BISDdid act on this information and renewed
the contract.
BISD suffered economic damages as a direct and approximate
cause of this reliance.
X.
Pleading in
NEGLIGENT MISREPRESENTATION
the
alternative,
Defendants
were negligent
ill
their
misrepresentations to BISDof the available discounts, representations of "Plan
savings," and in servicing the contract. Defendants had a duty to accurately
and professionally service the contract, represent the available discounts and a
duty to report provider discounts in the usual and customary fashion as a
similarly
situated
circumstances.
healthcare
professional
in
the
same
or
similar
Defendants negligently breached the industry's standard of
care and as a direct and proximate cause of that breach, BISD suffered
economic damages.
X. CIVIL CONSPIRACY
HealthSmart, HealthSmart Preferred Care II, Hall and Parker conspired
within the corporation, limited partnership, individual and other unknown
entities to engage in schemes and practices which generated unnecessary costs
and expenses to the Plaintiff and- substantially increased the revenues of the
Pla:iTd:iff,BISIYs First Amended Petition
Page 10 of 12
Defendants.
discounts
entities
This included, but was not limited to, the renegotiation of
between HealthSmart, Health.Smart Preferred Care II and other
owned and
controlled by Parker which generated access and
renegotiation fees for the Defendants.
XI. DAMAGES
As a result of the Defendants action described above Plaintiff suffered
actual economic damages in excess of the minimum jurisdictional amounts of
the Court.
XII.
EXEMPLARY AND PUNITIVE DAMAGES
Defendants' actions in defrauding BISD were committed knowingly
and/or
willfully and/or intentionally and/or maliciously and/or with gross
negligence.
Defendants in the past engaged in a pattern and practice of
aggressively taking over as TPAs for governmental entities and engaging in
knowing, willful, intentional, deceptive or grossly negligent conduct and
deceptive practices resulting in significant increases in Plan costs to the
governmental entities. BISDseeks exemplary and punitive damages as a result
of Defendants' conduct.
XIII.
JURy DEMAND
Plaintiff BISDseeks a trial by jury and has paid the appropriate fee.
XIV.
PRAYER
Plaintiff BISD prays that after a jury trial and judgment on the merits it
be awarded as follows:
I.
Actual economic damages in excess of the minimum jurisdictional
amounts of the Court;
2.
Punitive and exemplary damages
ill
excess of the minimum
jurisdictional amounts of the Court;
Pla:in:tiff, BISD's First Amended Petition
Page 11 of 12
3.
Pre- and post judgment interest as allowed by law;
4.
Allcosts of Court as allowed by law;
5.
Reasonable and necessary attorneys fees; and
6.
Any and all further relief deemed just as allowed by law or in
equity.
Respectfully submitted,
WALSH,
ANDERSON,
GALLEGOS & GREEN, P.C.
BROWN,
103 E. Price Road, Suite A
Brownsville, Texas 78521
Telephone: (956) 541-6555
Facsimile: (956) 542-2786
By:
\~~o,,~~
Migt(e~A~afia
State .~o~
17529450
ATTORNEY FOR DEFENDANT,
BROWNSVILLE INDEPENDENT
SCHOOL DISTRICT
Plai.n:tiff, BISIYs First Amended Petition
Page 12 of 12
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