Search for lost insurance money nears end

Thursday, Dec. 27, 2001 | 9:36 a.m.

CARSON CITY -- Another unhappy chapter is nearing its end in the turmoil that rocked the 55,000-member state health insurance program and cost the state hundreds of thousands of dollars in 1996-97.

"It wasn't a pretty picture," said Solicitor General Tony Clark, who has handled the civil suit for the past few years against the owners of a private company that mishandled thousands of medical claims of state workers.

The directors of the state Public Employees Benefits Program, which now runs the insurance system, will vote Jan. 3 to end the state's suit in Las Vegas against Frank and Susan Rousseau and their company, L&H Associates.

L&H was hired to process claims for payments from doctors, hospitals and other medical officials who treated state workers and their dependents. But the system in 1996 and early 1997 broke down, and those who provided the treatment didn't get paid for as long as eight or nine months.

The state fired L&H, and the company sued, seeking millions of dollars in damages. Because of the late payments, lack of payments and the multitude of errors, the state lost discounts it received for paying bills within 30 days.

The system was so jumbled, the state waived the deductible that employees had to pay before the insurance benefits kicked in.

In the midst of the confusion, Mary Ferris, an employee of L&H Associates, embezzled an estimated $600,000 from the system, officials say. Prosecutors say she set up dummy corporations that billed the state for medical services that were never performed.

The FBI recovered $430,000 of the money that was not spent, said Clark, who works for the state attorney general's office, said. The state also collected $52,000 from two bonds, for a total of $482,000.

Ferris went to prison, and the state probably will not collect any more money, he said.

Both of the Rousseaus filed personal bankruptcy and lost their two homes.

"Any debts went by the boards," Clark said.

Bankruptcy proceedings are still under way against the L&H Associates in Fresno, Calif. But Clark said the assets are estimated at about $200,000, with millions of dollars in claims. The state has filed claims, but Clark said he does not expect to regain much.

Rousseau had also been indicted but not convicted in Will County, Ill., on four counts of felony theft involving workers' compensation plans, Clark said.

The Rousseaus said they lost millions of dollars in the collapse of their company. They reportedly live in Arizona but could not be found for comment.

Rousseau purchased L&H Associates, a California company, in January 1995, and in July 1996 bought CoreSource Inc., which had been processing the medical claims for state workers in Nevada.

Late in 1996 L&H Associates fell behind in paying bills, and by January 1997 the company had a backlog of 34,000 unpaid claims. Auditors visited its offices and found unprocessed claims haphazardly stuffed in boxes rather than entered into the computer system, inadequate staffing and poor telephone systems and mailroom operations.

Auditors then discovered a 30 percent rate of errors on a sample of bills they examined. In May 1997 L&H locked out the state Division of Insurance Examiners when inspectors came.

The state then terminated the contract and hired UICI, a Texas company, to start processing the claims.

In September 1997 state Insurance Commissioner Alice Molasky-Arman revoked L&H's license and fined the company $4,000. A spokeswoman for the agency said Wednesday the fine has never been paid.