Texas Justices Appear Willing to Remand Medicaid Fraud Judgment

The Texas Supreme Court seemed inclined to send a $16 million Medicaid fraud judgment back to a trial court rather than let the judgment against Dr. Richard Malouf stand.

Malouf, who founded All Smiles Dental Center, billed the state hundreds of thousands of dollars for services he didn’t perform. He was confused by Medicaid’s often-changing billing procedures and therefore a trial court judge incorrectly granted the state’s motion for summary judgment without a jury trial, his lawyer told the justices.

The state provided incorrect billing guidance that led Malouf to provide false information on over 1,800 Medicaid claims from 2007 to 2010, his lawyer, Lance Cawthon of Snell Law Firm PLLC, said.

Some justices seemed inclined to send the case back to the trial court, this time letting a jury decide the winner.

“This sounds like a great argument for a jury,” Justice Brett Busby said.

Justice Debra Lehrmann agreed, saying, “It sounds like a fact issue.”

Inaccurate Reimbursement Claims

Madelayne Castillo, a former All Smiles employee, in 2012 filed an action alleging violations of the Texas Medicaid Fraud Protection Act against Malouf. The state intervened and consolidated her case with one from a dentist unaffiliated with the company who made similar fraud allegations against Malouf.

A trial court found that Malouf’s reimbursement claims contained services using his Medicaid provider identification but were performed by other orthodontists. Among them were around 1,000 claims submitted after Malouf stopped treating patients at All Smiles and 359 for services provided when Malouf was out of the country.

An appeals court affirmed the trial court’s judgment, awarding the state $1.6 million after interest for unlawful Medicaid payments and $9.2 million in penalties for all violations.

On attorney fees, Castillo was awarded $670,000, and complainant dentist Dr. Christine Ellis received $446,000. The state was awarded $4.6 million in attorney fees, but the appeals court sent the case back to the trial court to re-consider that amount; that issue isn’t resolved.

Must Prove Fraud

Cawthon, said All Smiles had multiple levels of billing and that Malouf had no direct involvement in submitting Medicaid reimbursement claims.

Both sides agree Malouf used his Medicaid provider identification number for claims on services performed by dentists who weren’t registered for the program, but the sides differ on whether the state told Malouf he could do that. He and a member of his billing department testified at trial that an unidentified employee in the Medicaid program said he could, but the state says there’s no evidence that conversation ever took place.

For the state to prove Malouf committed fraud, Cawthon said, it must show not only that he submitted the incorrect Medicaid identification number but also the wrong license type of the treating employee. The state can’t prove the incorrect license type because the reimbursement form doesn’t ask for it, Cawthon said.

That argument seemed to play well with Busby, who said, “it seems like the legislature was very careful using ‘ors’ and ‘ands.’”

The state’s Medicaid program didn’t lose money from Malouf’s alleged fraud, Cawthon said, because the services underpinning the claims were actually performed by dentists who eventually enrolled in the program.

Philip Lionberger of the state’s attorney general’s office, arguing in support of the judgment, theorized Malouf used his own identification number for services performed by other dentists because he didn’t want to wait until those dentists joined the program, which could’ve taken months.

“It was a cash flow issue,” Lionberger said.

Malouf and All Smiles in 2012 paid $1.2 million to the government to resolve allegations that they violated the federal False Claims Act and the Texas Medicaid Fraud Prevention Act.

Justice Jimmy Blacklock didn’t participate in the arguments.

Malouf v. Texas ex rel. Ellis, Tex., No. 22-1046, oral argument 1/31/24.