EDS Settles Texas Dispute, Refunds $3.4 Million

Electronic Data Systems Corp. has agreed to pay Texas $3.4 million to settle out of court a grand jury investigation into whether a subsidiary of the company overcharged the state for processing Medicaid claims.

In return, the Travis County district attorney's office agreed to close a grand jury investigation into the accounting practices of National Heritage Insurance Co. of Austin, Texas, which is located in Travis County, and drop all charges related to the matter.

EDS of Plano, Texas, also will pay a $250,000 penalty and pay $232,000 to cover costs related to the investigation. The terms of the settlement were outlined in a June 7 statement by the Travis County district attorney's office.

The settlement was the most expeditious way to conclude the matter, said Gus Friedlander, EDS' senior vice president and general counsel, who said the settlement would benefit both sides.

NHIC and EDS said better communication with the Texas Department of Health regarding the calculation of overhead expenses could have decreased the misunderstandings that led to the grand jury inquiry, according to the statement.

The grand jury investigation centered on the methodology used by EDS and NHIC to include marketable securities and cash in the formula that calculated the allocation of general and administrative expenses for state fiscal years 1999 and 2000, the district attorney's office said.

"The settlement dollars represent the difference between the amounts billed and those amounts which would have been billed if marketable securities and cash had not been included," said Ken Smalling, an EDS spokesman.

"We allowed a portion of it to be characterized as a 'contract penalty' so we could conclude these issues," he said.

The terms of the settlement were reviewed and approved by the Travis County Grand Jury, which agreed that no charges would be filed against NHIC, EDS or any individual of the companies.

The district attorney's office said it plans to return to EDS all documents, data tapes and other material seized during the investigation.