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Fraud? 15 providers defunded by state; none face charges

July 12, 2013
by Dennis Grantham, Editor-in-Chief
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Controversy reigns in New Mexico, where 15 behavioral health provider organizations—including 11 member organizations of the National Council for Behavioral Health—were de-funded on June 24 by New Mexico’s Human Services Department (HSD) following the department’s finding of “credible allegations of fraud” following what an HSD report called “likely the most rigorous behavioral health audit in state history.”

HSD said that the audit, which was performed by the Public Consulting Group (PCG, Boston) at a cost of $3.0 million between February and June, was “prompted by a pattern of serious concerns that were identified during the first eight months of 2012, which point to the presence of    endemic and egregious mismanagement throughout the state … and in some cases potential fraud.”

According to DHS spokesman Matt Kennicott, the alleged mismanagement of Medicaid behavioral health funds was identified after OptumHealth, which has held the behavioral health managed-care contract since 2009, made a series of improvements to its program-integrity software during 2011. The improvements were required by the state as a condition of OptumHealth’s management contract. Kennicott explained that as those improvements went into place, they uncovered “potential red flags, starting with one provider in the southern part of the state.” Further work, he said, led to the finding of red flags at 15 other providers, which led DHS leaders to “take a look” with the detailed audit process.  PCG was used, Kennicott said, because it was well qualified and was readily available to the state via an existing GSA (governmental services agreement) with the federal government.

On June 24, with the PCG audit in hand—DHS took the unprecedented step of de-funding 15 organizations, 11 of whom are members of the National Council for Behavioral Health, whose membership includes 24 agencies in New Mexico and about 2,000 nationwide. The audit is said to detail $36 million in overpayments to the 15 organizations who together serve some 30,000 of the state’s most seriously mentally ill individuals and, according to DHS, consume about 85% of the state’s $340 million in state Medicaid mental health spending annually.

The huge de-funding, Kennicott acknowledged, “is definitely an extraordinary circumstance.” However, he notes that DHS was compelled to proceed with it under federal law when the New Mexico Attorney General’s office accepted the case, and with it, DHS "credible allegations of fraud" for investigation.

An audit summary report (see attachment) released by HSD details two types of alleged impropriety. In addition to alleged overpayments based on non-compliant claims submitted by the 15 agencies, the audit also contends that at least two executives sought to profit inappropriately. One CEO was said to have negotiated a generous “golden parachute” in the event of termination, while another was accused of profiting by steering agency business toward an entity in which the CEO held a business interest.

“A witch hunt”

In a July 8 blog to National Council members, CEO Linda Rosenberg called the state’s allegations “a tempest in a teapot” and described the state’s investigation and treatment of providers as "an impossible situation." In a subsequent interview with Behavioral Healthcare, she was equally was blunt: “I don’t support fraud or inappropriate behavior. But when the state comes in, licenses these agencies year after year, gives them high marks as providers, then turns around and does this … I’ve never seen a state behave like this. It's like a witch hunt.” She believes that the de-funding order should be lifted immediately.

Rosenberg questioned the HSD’s de-funding decision, saying “if there’s good cause not to suspend [funding], they don’t have to suspend.” She asserts that documentation errors, poor training, complex reporting and compliance requirements, and “even incompetence” — but not fraud — are the likely cause of the high rates of noncompliance and errors that occur in the creation and filing of Medicaid behavioral health claims. The HSD’s own report—a summary of the PCG audit findings, which have not been released (see attachment)—acknowledges that 3-9 percent of Medicaid claims paid fail to meet compliance requirements, but says that the providers under investigation failed to meet compliance standards in 15 percent of their claims. This, says the audit summary, accounts for $36 million that HSD alleges has been overpaid to the 15 agencies being investigated.

“I’ve spoken with the CEOs of these accused organizations, and they’re scared to death. They believe that this will be the end of their careers,” said Rosenberg. She explains that, in her estimation, the state’s tactics have already accounted for the demise of one organization—Carlsbad Mental Health Center—and its former CEO, Noel Clark.

“I didn’t speak out on behalf of Noel Clark last year. I didn’t go out on a limb for him. They accused him of all of the same kinds of things, yet they never brought any charges,” she said.  Following Clark’s resignation from Carlsbad last year, the state asked another agency to serve Carlsbad’s former clients. Kennicott acknowledges the change, but says the investigation involving Carlsbad is “still pending with the AG’s office. These,” he added, “are complicated and complex issues to investigate and resolve.”

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