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New Mexico fraud probe: 'Web of relationships' tangled 'Rio Grande Seven'

September 11, 2013
by By Dennis Grantham, Editor in Chief
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In recent state legislature testimony, New Mexico HSD attorney Larry Heyeck presented a diagram of "questionable" relationships between NM providers and a for-profit company, Providence Service Corp.

In a seven-hour hearing held by the Behavioral Health Committee of the New Mexico Legislature on September 3, legislators heard important new details about the fraud allegations that state Human Services Department (HSD) officials say required them to freeze Medicaid and state funding to 15 of the state's major behavioral health providers.

In the day's most dramatic testimony, HSD attorney Larry Heyeck sought to highlight the need for investigating waste, fraud, and abuse involving Medicaid dollars in the state’s behavioral health system. He held up a sheet of paper with a diagram said to detail a “web of relationships” linking seven of the 15 audited providers to a for-profit corporation in Arizona (see figure 1).

"This is what's wrong," he said. “This is what we need to investigate.”

According to the diagram, seven of the audited agencies, a group he called "the Rio Grande Seven," were linked by financial and corporate relationships to two organizations - Rio Grande Behavioral Health Services (RGBHS), a New Mexico non-profit, and Rio Grande Management, LLC (RGM), an Arizona-based subsidiary of Providence Service Corp. (NASDAQ: PRSC). Based in Tucson, Providence Service Corp. is a for-profit provider of government-financed contract social services, non-emergency Medicaid and school transportation services, and management services to not-for-profit social services organizations. It has operations in 46 states, many of which are run through wholly-owned local subsidiaries.

The diagram showed a flow of payments from the agencies to RGBHS for administrative services and to RGM for management services. According to Heyeck, these payments exceeded $1 million annually. Six agency CEOs and two agency CFOs, were employees of Providence, who paid their salaries and benefits.

These “related party” transactions came to light as a result of an “enterprise” audit conducted as part of PCG’s $3 million fraud probe, which also included a statistical audit of billing and claims activity. The purpose of the “enterprise” audit was to trace the flow of funding dollars through the audited organizations, and detail any “related party” relationships that might affect the agencies, including financial, business, or ownership ties to other organizations.

Until recently, New Mexico and numerous other states never required such “related party” information as part of their approval processes for Medicaid providers. The information is now being collected as a result of a New Mexico state effort to harmonize its false claims law with that of the federal False Claims Act, a process that New Mexico began in 2008 and concluded in March 2013. The reward for this harmonization, offered by CMS to all states that would update their laws to meet four key anti-fraud requirements, was an additional 10 percent bonus on fraud recoveries, taken from the federal share.

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