Settlement reached with Felix services provider

By Jennifer Hiller
Advertiser Education Writer

A $1 million settlement announced yesterday marks the first development since May in an investigation of suspected fraud and abuse in connection with the Felix consent decree.

The state attorney general's office reached the settlement with a healthcare company that has provided services to special-needs students on the Big Island. The services were part of the implementation of the federal court order to improve the state's special-education system.

Hawai'i Pacific Health, formerly known as Kapi'olani HealthHawai'i, will pay the state $500,000 over three years and an additional $500,000 after that if it does not cooperate with investigators who want company documents and interviews with employees.

Hawai'i Pacific Health admits no liability and is not subject to state criminal prosecution under the agreement.

"I think it's up to the people to decide why they would commit to this type of settlement," said Sen. Colleen Hanabusa, D-21st (Nanakuli, Makaha).

The agreement was signed in November, but was announced yesterday by the joint Senate-House Felix Investigative Committee. Members said they learned of it at a Saturday meeting with attorneys.

The Department of Health entered a three-year contract with the company in 1996 for $18.2 million over two years for services for 1,500 children on the Big Island. Kapi'olani HealthHawai'i was an umbrella provider of services, contracting with dozens of other companies and individual providers as part of the Big Island Demonstration Project.

A 1998 report from state Auditor Marion Higa said that the state had paid Kapi'olani Health between $2.3 million and $3.5 million for services not rendered, was paying for services before they were provided and was not properly overseeing the contract.

DOH officials at the time decided not to litigate the issue, Higa said.

The Big Island Demonstration Project was turned back to the state in 1998.

Pat Oda, spokeswoman for Hawai'i Pacific Health, said the company will continue to cooperate with the attorney general's office. A company statement said the contract with the state ended more than four years ago and that executive-level personnel in charge of the project have left the company.

"We have been pleased to work cooperatively with the state's attorney general's office to reach this mutually agreed upon settlement, and are happy to close the chapter on this project, which our former health plan had difficulty in managing," the statement read.

The first $250,000 of the settlement will go to the attorney general's office. Of that, $81,200 is intended for the auditor's office for their work in identifying billing problems, although Higa has turned that money over to the state's general fund. The other $250,000 will pay for services to Big Island students, including neurological testing.

If the company complies with the contract and cooperates with the attorney general's office, it will be released from the final $500,000 of the agreement.

Lawmakers relished the settlement yesterday and took to task critics who have questioned the cost of the investigations by the committee and the attorney general, as well as the energy and time put into the work. The investigative committee has had a series of clashes with state agency department heads and plaintiffs attorneys over their investigation. Lawmakers started their inquiry in June 2001.

"We believe this shows there were problems," Hanabusa said. "It also justifies the actions taken."

Plaintiffs attorney Eric Seitz said the agreement with Kapi'olani Health came at a difficult time in implementing the Felix consent decree and was recognized early on as troubled. He questioned the motives of the committee.

"To the extent that they've recouped money, I think that's great for everybody. I don't begrudge them if they've played a role in that," Seitz said. "As far as my criticism of the committee goes, my criticism remains undiminished. I think they talk trash about some wonderful people who have provided great services."

Rep. Scott Saiki, D-22nd (McCully, Pawa'a), co-chairman of the Legislature's Felix Investigative Committee, said the attorney general's office is looking into a dozen other cases.

"As we said last summer, the initial indictment was just the first step," Saiki said.

The single indictment issued so far was against Susan Puapuaga, who worked as a therapeutic aide with the Alaka'i Na Keiki mental health services agency. She was charged in May with 10 felony counts of medical assistance fraud for allegedly billing the state for unprovided services worth $1,800. She pleaded no contest in July.

The attorney general's office has said investigators were looking into billings by at least six other care providers.

The consent decree ended a 1993 lawsuit by the families of Maui student Jennifer Felix and other children that charged the state's special-education services were abysmal and failed to comply with federal law.

The state has struggled since to meet the court's goals and reached a milestone recently as all public school campuses came into provisional or full compliance with the consent decree.

The state has spent more than $1 billion on services to special-education children under the consent decree. Approximately $700 million would have been spent if services had remained at the 1994 level, according to a court monitor's report.

The investigative committee of lawmakers tried repeatedly to subpoena testimony from officials who designed the criteria for meeting consent decree goals and measured the state's progress.

But the subpoenas were quashed by U.S. District Judge David Ezra, who angrily accused lawmakers of harassing court-empowered officials while presenting no evidence of fraud or mismanagement.

But Saturday the legislative committee reauthorized its attorneys to subpoena Judith Schrag, a member of the Felix monitoring panel who recommended a controversial contract to the DOE, among others, and to go to the 9th U.S. Circuit Court of Appeals if necessary.

Reach Jennifer Hiller at jhiller@honoluluadvertiser.com or 525-8084.