Under Ken Paxton, Texas’ civil Medicaid fraud unit is falling apart

By Vianna Davila, The Texas Tribune and ProPublica

"Under Ken Paxton, Texas’ civil Medicaid fraud unit is falling apart" was first published by The Texas Tribune, a nonprofit, nonpartisan media organization that informs Texans — and engages with them — about public policy, politics, government and statewide issues.

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For years, an elite team of lawyers at the Texas attorney general’s office went toe-to-toe with some of the biggest pharmaceutical companies in the world, on a mission to weed out fraud and abuse in the Medicaid system.

And the team was wildly successful, securing positive press for the attorney general’s office and bringing in money for the state — lots of it. In a little more than two decades, the Civil Medicaid Fraud Division has helped recover a whopping $2.6 billion. Of that, $1 billion went to the state’s general fund, which pays for critical services like education and health care.

The cases the team handled weren’t necessarily the kind to rouse the conservative base of Texas Attorney General Ken Paxton, who gained prominence for his efforts to overturn the 2020 presidential election and for regularly suing the Biden administration. But still, they were legal victories Paxton touted amid a host of scandals that have dogged him since he was first elected in 2014.

“Paxton Recovers $26 Million for the State of Texas, Medicaid Program,” read one 2021 press release from his office, after the Civil Medicaid Fraud Division settled with the pharmaceutical manufacturer Apotex for reporting high drug prices to the state’s Medicaid program.

He praised the team again last fall, a couple of months after state senators acquitted him in a widely watched impeachment trial in which Paxton faced allegations of corruption and bribery.

“Our Civil Medicaid Fraud Division has done an outstanding job holding these pharmaceutical companies accountable,” a November news release quoted Paxton saying, about a lawsuit his office had filed against pharmaceutical giants Pfizer Inc. and Tris Pharma Inc. The suit accuses the companies of giving an ADHD drug to children on Texas Medicaid, despite evidence the substance had failed quality control tests. (Pfizer said in a statement it believes the state’s case has no merit; a spokesperson for Tris said the company does not comment on pending litigation.)

But over the last year, the team of lawyers responsible for pursuing this and other big lawsuits like it has shrunk to its smallest size since Paxton took office.

Nearly two-thirds of the lawyers who were on the team a year ago have quit. Despite some replacements, the division is down from 31 attorneys last January to 19 at the beginning of this year, according to an analysis of staffing records by ProPublica and The Texas Tribune. Together, those departing lawyers represented a combined 180 years of experience with the attorney general’s office.

The departures followed the ouster of the Civil Medicaid Fraud Division’s longtime and beloved chief, Raymond Winter, in November 2022. What precisely led to his departure was not made clear to his team. A December 2022 email from an associate deputy attorney general to the agency’s head of human resources, obtained by the news organizations, said Winter was notified that “a decision was made to change leadership” in the division. Winter was given the option to take a demotion and serve in either the agency’s Transportation Division or its Law Enforcement Defense Division. He instead chose to retire, the email said.

However, a former attorney from the division said agency higher-ups told Winter if he didn’t resign or take the demotion, he’d be fired. The attorney, like the multiple former Civil Medicaid Fraud attorneys interviewed for this story, asked ProPublica and The Texas Tribune not to use their name for fear of professional retaliation.

The news organizations spoke to 10 attorneys who worked in the division with Winter. They said his ouster came as a shock. Months earlier, Winter had received a $5,000 bonus “for consistently performing at a level of excellence,” a manager wrote, according to his employee file, which the news organizations obtained through a public information request. Gov. Greg Abbott has since appointed Winter to be the state’s inspector general.

Several attorneys said the exodus that followed Winter’s ejection is a sign of a state agency at a crisis point. The 19 lawyers who left the division last year constitute a significantly higher number than the seven who departed in 2022, one of whom moved to another unit within the attorney general’s office, the news organizations found.

The attorney general’s office did not respond to multiple interview requests or written questions.

Paxton’s agency has been beset by operational struggles in recent years. Last year, ProPublica and the Tribune reported on Paxton’s repeated refusals to defend state agencies in court. Austin-based television station KXAN disclosed how dysfunction in the office’s Crime Victims’ Compensation unit has resulted in significant payment delays to crime survivors. The Associated Press has covered the agency’s decision to drop human trafficking and child sexual assault cases because investigators lost track of a victim, as well as numerous other attorneys quitting because of internal dysfunction.

Paxton himself has been the subject of a whistleblower lawsuit filed by his former lieutenants, as well as a securities fraud investigation ongoing since before he was elected attorney general. Paxton recently moved to settle the whistleblower lawsuit, saying he no longer contests the facts, as part of his ongoing effort to avoid testifying in the case. He has pleaded not guilty in the securities fraud case, which is set to go to trial in April.

The attorney general has so far survived these personal and professional challenges, becoming even more emboldened since his impeachment acquittal in September. Days after his reinstatement, he publicly pledged to help unseat some of the lawmakers who voted to impeach him and has supported numerous primary challengers to sitting Republican legislators.

The personnel losses in the Civil Medicaid Fraud Division carry a different consequence because it is one of the departments at the attorney general’s office that generates money. In fiscal year 2000, the team’s first in existence, lawyers there helped bring in a little more than $5 million in recoveries. A decade later, the division regularly had years when it helped bring in more than $100 million. In fiscal year 2012, when Abbott was still attorney general, the division helped recoup more than $400 million in wasted Medicaid dollars. (The civil division is distinct from the attorney general’s Medicaid Fraud Control Unit, which conducts criminal investigations into fraud and abuse allegations against Medicaid health care providers.)

Besides the money that went to the state general fund, Paxton’s office also benefited, getting to keep a portion of attorney’s fees from its cases, money that goes to the agency as a whole. In fiscal year 2023, the division helped collect more than $14 million in those fees, almost triple the Civil Medicaid Fraud division’s annual budget, according to records ProPublica and the Tribune obtained through a public information request. The previous year, Civil Medicaid Fraud collected more in attorney’s fees than all other attorney general divisions combined.

Without the full crop of lawyers, achieving those kinds of wins will be significantly harder, former lawyers for the division said.

“When a lawyer who’s been there for years and has handled multiple lawsuits and built relationships with the feds, with other states, all of that — when that walks out the door, you start over, and that is not easily regained,” said Margaret Moore, a former Travis County district attorney who previously worked in the division under Winter.

Medicaid fraud cases can take years to complete, and money from legal settlements coming in this year is most likely the result of cases investigated and litigated under Winter’s leadership, a former attorney said. So it is too soon to know how the division’s ability to secure financial settlements will be affected by the loss of so many experienced attorneys. Last fiscal year, however, the Civil Medicaid Fraud Division opened only 56 cases, the lowest number since at least 2013, according to a review of annual reports jointly issued by the attorney general’s office, the Texas Health and Human Services Commission and the Office of Inspector General. The next lowest number of civil Medicaid fraud cases filed in that time frame was 73, in fiscal year 2022.

Winter declined to be interviewed for this story. The Office of Inspector General, which he now leads, regularly works with the attorney general’s Civil Medicaid Fraud unit on investigations. In a statement, Winter called the Civil Medicaid Fraud Division a “valued partner” and said that together they will “continue to aggressively fight Medicaid fraud using all available tools under the law.”

Medicaid fraud litigation is complex and requires a sharp understanding of state and federal law. The attorneys regularly take on big pharmaceutical companies with deep pockets. Often, the state faces off against multiple white-shoe law firms in a single case.

Another former Civil Medicaid Fraud attorney, who left the division last year, predicted it could take a decade to rebuild the unit because of the institutional knowledge that was lost.

“As a Texas citizen who happens to know more about the shady things that pharmaceutical companies and other entities do because of my job, I do feel less safe as a citizen knowing that CMF is not what it used to be and does not have the ability to hold those entities accountable in the way that they were,” she said.

A close-knit team

Winter was the kind of hands-on leader who inspired uncommon admiration among his staff. In his earlier life, he’d been a member of Texas A&M University’s storied Corps of Cadets, then a paratrooper in the Army National Guard, all experiences that seemed to drive home his “team first” philosophy.

And it was a close-knit team in Civil Medicaid Fraud.

In 1999, then-Texas Attorney General John Cornyn, now a U.S. senator, started the unit as a small section inside the agency’s Elder Law and Public Health Division with the goal of stopping abuse of the Medicaid program. To do so, lawyers in the unit would use a state law passed in 1995 that empowered the attorney general’s office to prosecute fraud within the Medicaid system, a state and federal program that provides health care to financially needy individuals.

When Winter first started working on Medicaid fraud cases in 2000, there were only two other people on the team. They had few resources. Cynthia O’Keeffe, who was hired to work for the unit two years later, remembered a defense attorney asking her to send something to him by overnight mail. She told him she couldn’t because her team’s overnight mailing budget was already used up for the year. “He lost his mind,” she remembered. “He thought I was lying to him.”

But that quickly began to change. In 2000, Texas became the first state in the country to go after a pharmaceutical company for improperly reporting drug prices to the Medicaid program, according to a press release the attorney general’s office issued in 2013. This and subsequent lawsuits highlighted how pharmaceutical companies would sometimes misrepresent the prices of their products to the Medicaid program.

In 2003, the Civil Medicaid Fraud unit settled with Dey Inc. for $18.5 million in a drug-pricing case related to albuterol sulfate, which is used to treat asthma. At the time, O’Keeffe couldn’t fathom being part of a settlement for that much money. Then the next year, the division settled another drug-pricing case, this time with Schering-Plough Corp., for $27 million.

As the settlements grew, so did the unit’s reputation across the country, said Lelia Winget-Hernandez, a lawyer who previously worked with the attorney general of Virginia.

Texas Medicaid fraud attorneys were always willing to help and provide Winget-Hernandez guidance when she called with questions about pursuing similar Medicaid fraud lawsuits in her state. “I know they say Texas leads the way and don’t mess with Texas. That [Civil Medicaid Fraud] unit exhibited that all the time,” Winget-Hernandez said.

By 2007, Winter was the unit’s acting chief. The following year, Abbott, who was the state’s attorney general from 2002 to 2014, made it its own division.

The Civil Medicaid Fraud Division landed some of its biggest headlines when its attorneys joined a whistleblower lawsuit against health care behemoth Johnson & Johnson and its subsidiary Janssen Pharmaceutical LLC. The lawsuit accused the companies of fraudulently marketing the schizophrenia drug Risperdal for use in children and adolescents, including those on the Texas Medicaid program, though the U.S. Food and Drug and Administration had not yet approved it for pediatric patients. The Food and Drug Administration had also sent warning letters to the company over the years about its marketing practices and failures to disclose data to doctors about possible side effects of the drug. In children, those included diabetes, permanent uncontrollable movement disorders and the growth of lactating breasts in boys, O’Keeffe said.

The case went to trial in January 2012. In her opening statement to the court, O’Keeffe accused the companies of having engaged in a “systematic looting” of the state’s Medicaid program.

After roughly a week of the plaintiffs’ case, Johnson & Johnson agreed to settle for $158 million, the state’s largest ever Medicaid fraud recovery from a single defendant at the time. As part of the agreement, Johnson & Johnson admitted no wrongdoing.

Tommy Jacks, one of the private attorneys who worked on the case alongside the attorney general’s office, said in a recent interview with ProPublica and the Tribune that it was clear the important role Winter played for his team.

He “led by example, and was just completely trusted by the individuals who worked in the division,” Jacks said.

The team’s successes were a calling card for top-tier legal talent. The Civil Medicaid Fraud unit attracted law school stars and experienced private attorneys willing to take pay cuts in order to work for the state and for a mission they believed in, O’Keeffe said. “They wanted to come and work for us because we were on the right side of cases,” O’Keeffe said. “It was complex, high-profile work, and we were incredibly successful.”

When Abbott was still attorney general, job candidates sometimes asked in interviews about the politics of the agency and how that affected their work. “And we would say, ‘Hey, Greg Abbott doesn’t let that get to us,’” O’Keeffe said.

In November 2014, Abbott was elected governor. To replace him as attorney general, voters chose Paxton, another Republican and a state senator from McKinney.

Growing pressure

Paxton’s first election didn’t initially change things in Civil Medicaid Fraud. The team kept securing settlements, and there was still a sense of a separation between the agency’s day-to-day operations and the politics, said Susan Miller, who led the division’s investigative unit from 2007 until 2020. She and her fellow attorneys didn’t have many interactions with Paxton, which was typical of the office.

The atmosphere started to shift sometime after Paxton was elected for a second term in 2018.

The differences were small at first. O’Keeffe, who also became a deputy chief in the unit, recalled higher-ups in the attorney general’s office asking her to meet with a woman whose health care company the Civil Medicaid Fraud Division was investigating, though lawyers had not yet decided whether to pursue the case in court. The woman wanted to know why lawyers were looking into her business. “She made it very clear she wanted me to back off,” O’Keeffe said.

Ultimately, nothing came of the interaction, and O’Keeffe said she doesn’t believe a case was ever filed against the woman’s company. Still, she couldn’t believe leadership at the attorney general’s office would even call such a meeting in the first place because of the potential precedent it could set. Lawyers don’t meet directly with potential defendants because it could influence the course of a case or investigation and because “it gives the person who’s being investigated the impression they are in charge, not you,” O’Keeffe said.

“I thought, ‘Greg Abbott would have never let this happen. John Cornyn would have never let this happen,’” O’Keeffe recalled.

Previously, the team had felt free from political pressure, Miller said. The lawyers were working for Republican attorneys general yet were still able to take on big business. Under Paxton, however, she said the higher-ups started asking more questions about certain cases the attorneys chose to pursue and how long they took. “We had to start justifying things more,” Miller said. O’Keeffe noticed Winter being cut out of discussions about certain matters and that executives weren’t always heeding his legal advice — partly, she believes, because he wasn’t in Paxton’s inner circle.

O’Keeffe left the agency in fall 2019, followed by Miller in August 2020. Shortly after, several of Paxton’s top deputies went to the FBI alleging the attorney general had misused the office in trying to aid his friend and donor, real estate investor Nate Paul. Paul, who now faces multiple charges in federal court that include making false statements to financial institutions, has denied bribing Paxton and pleaded not guilty to the charges.

One of the whistleblowers, David Maxwell Jr., later told Texas House of Representatives investigators that anyone who’d been close to him became a target at the agency — and that included Winter.

Former Texas Ranger David Maxwell Jr. testifies during Texas Attorney General Ken Paxton’s impeachment trial in the state Senate last year. Credit: Bob Daemmrich for The Texas Tribune

Maxwell, a former Texas Ranger, had been the attorney general’s director of criminal law enforcement. Part of Winter’s job with the state, separate from his leadership of the Civil Medicaid Fraud Division, was to defend Maxwell’s ratings of law enforcement officers who were terminated from the attorney general’s office.

Paxton ultimately fired Maxwell and gave him a general discharge, according to court filings, which indicates some kind of work performance problem or disciplinary issue. When Maxwell challenged the rating, wanting to upgrade to honorable discharge, the attorney general’s office asked Winter to defend its decision. Winter declined, according to Maxwell’s February 2023 interview with the House investigators, which was included in exhibits released ahead of Paxton’s impeachment trial. “He refused, and so they fired him,” Maxwell said, according to a transcript of that interview.

Maxwell declined an interview request for this story.

“Paxton has totally devastated the agency with good people that he’s gotten rid of because the criteria to get hired in the executive level is to plead your allegiance to him, not to the agency or not to the law,” Maxwell told the investigators.

Ultimately, Paxton fired four other whistleblowers. Another three of them quit, among them Paxton’s second in command, First Assistant Jeff Mateer. In the aftermath of his top deputies reporting him, Paxton “hired a whole new executive crew,” whistleblower Mark Penley told House investigators, “and sealed off access to the executive floor.”

Among Paxton’s new lieutenants was Brent Webster, a private practice lawyer the attorney general hired to replace Mateer as first assistant. Webster had previously come under scrutiny when working in Williamson County, where he was accused of failing to serve citations in dozens of asset forfeiture cases. Webster told the Austin American-Statesman in 2017 he did so because the office was short-staffed and so he prioritized criminal cases.

His first day with the state, Webster kicked out one of the other whistleblowers, Blake Brickman, from a meeting with Paxton, a lawsuit filed by the whistleblowers alleged. Later, Webster went to Brickman’s office escorted by an armed officer. Other employees complained that the armed officer “was an unprecedented attempt by Mr. Webster to intimidate senior members of OAG staff,” according to an internal whistleblower complaint filed by Brickman in October 2020 that was a precursor to the lawsuit he and others later pursued. Webster has never publicly addressed these allegations.

Unlike his predecessor in the first assistant role, Webster was far less enamored with Winter and his team, according to one attorney who used to work with the Civil Medicaid Fraud Division. Other officials in the agency suspected Webster didn’t appreciate any level of pushback on his ideas, the attorney said. But Winter was direct, the attorney said, and wouldn’t necessarily hold back his legal opinion about a case if he thought it necessary to share it.

Webster did not respond to requests for comment.

Winter did his best to shield the division from politics and turmoil in the executive offices, several attorneys said. But in 2022, the attorney general’s office and the Civil Medicaid Fraud Division joined a whistleblower lawsuit against Planned Parenthood, alleging the sexual health organization had improperly received Medicaid reimbursements while Texas’ challenges to its use of those funds were underway. Two attorneys interviewed by ProPublica and the Tribune said there were disagreements between Winter and the higher-ups about what legal approach to take on the $1.8 billion lawsuit, which threatens to bankrupt Planned Parenthood nationally. Planned Parenthood has called the lawsuit meritless.

One of the attorneys told the news organizations that in the months leading up to Winter’s ouster, there was a building sense of scrutiny, pressure and interference coming from the top of the organization, particularly when it came to the Planned Parenthood litigation. Executives were extremely focused on the case, a lot of resources were devoted to it and the entire tone of the division changed for the worse as a result, the attorney said.

The team kept trying to do its work. Then, in mid-November 2022, a handful of Paxton’s top deputies called the Civil Medicaid Fraud attorneys into a room. Word had already spread that Winter had been pushed out. The deputies confirmed the news. The room filled with an icy silence, but the anger was palpable, attorneys present said.

“Anyone who was being honest with themselves in the moment knew things were about to be really bad,” another former Civil Medicaid Fraud attorney said.

No one was safe

Winter’s departure was a seismic event. If he wasn’t safe, some of the division attorneys agreed, no one was.

By January 2023, six attorneys from the division resigned, three of them on the same day. Four more announced in February that they were quitting. The rest of the departures trickled in throughout the subsequent months and included an investigator, a legal assistant and an office manager. After Paxton’s acquittal but before year’s end, another three attorneys quit.

These reductions will hurt the division’s ability to detect Medicaid waste, said Charles Silver, the McDonald chair in civil procedure at the University of Texas at Austin School of Law.

“That’s the only effect it can possibly have,” Silver said. “The number of potential cases out there greatly exceeds the ability of either the states’ AG departments or the federal government to police it all.”

Some of the departing lawyers followed Winter to his new job at the Office of Inspector General. Others retired or went to work for other state offices.

Now, there are only a handful of attorneys left in the division with experience litigating Medicaid fraud cases.

And the resignations haven’t stopped. On Jan. 17, another Civil Medicaid Fraud attorney quit.

Disclosure: Planned Parenthood, Texas A&M University and University of Texas at Austin have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.

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This article originally appeared in The Texas Tribune at https://www.texastribune.org/2024/01/31/ken-paxton-medicaid-fraud-unit/.

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