The headline the New Mexico Human Services Department trumpeted in June 2013 was eye-popping: An audit of 15 health organizations found nearly $36 million in potential overbilling and possible Medicaid fraud.
But the state-commissioned audit, released Jan. 29 by new Attorney General Hector Balderas, does nothing to provide definitive proof that the 15 organizations defrauded Medicaid, the government's health insurance program for the low-income, including those who are mentally ill or struggle with addiction.
The audit does offer some striking numbers. And it raises more questions for the administration of Gov. Susana Martinez about how it found "credible allegations of fraud" against all 15 organizations – a decision that threw into chaos the state's behavioral health system and affected tens of thousands of New Mexicans including people who are mentally ill or struggling with addiction.
According to the 400-page audit — parts of which have already been released -- nearly $34 million of the $36 million in potential overbilling and possible Medicaid fraud the state said the 2013 audit had found started with $42,500 in questionable claims the auditor flagged among all 15 organizations over a 3.5-year period.
Using a statistical formula, Public Consulting Group Inc., the Massachusetts firm the Human Services Department chose to perform the audit, extrapolated from that $42,500 that there might be close to $34 million in questionable claims given how much the 15 organizations had charged Medicaid over that 3.5–year period.
PCG, however, never followed up with each of the 15 organizations to double check its preliminary findings, a common practice for auditors. That means the audit's findings were preliminary and not necessarily accurate. Indeed, investigations into two of the 15 organizations have found over the past year that the extrapolated estimates in the audit weren't accurate.
Despite that, using the audit results and other data it has never shared publicly, the Human Services Department accused each of the 15 organizations of "credible allegations of fraud." It also froze Medicaid funding flowing into their coffers, meaning many lost revenue.
As a result, over the past 19 months, most of those organizations have shut their doors without ever hearing what they were accused of.
Earlier last month, a Santa Fe judge ruled that HSD had denied due process of one of the 15 providers accused of fraud that operates in Northern New Mexico. The judge ordered the department to hold a hearing that would allow Santa Fe-based Easter Seals El Mirador to hear the specific allegations against it for the first time — and give the provider a chance to respond to those claims.
Meanwhile, tens of thousands of the organizations' clients found themselves caught up in a chaotic transition as the state brought in five companies from Arizona to try to fill the void created when New Mexico organizations shut their doors.
Southeastern New Mexico might soon find itself going through a second chaotic transition.
Turquoise Health and Wellness, one of the companies brought in to take over for the accused New Mexico organizations, will cease operations March 31.
Turquoise offers mental health services to Medicaid patients in cities including Roswell, Carlsbad, Clovis and Tucumcari. It is unclear what entity will take over services for Turquoise. That has left local officials groping for help.
Fighting fraud with more precision
In releasing the audit Thursday, Balderas, who has been on the job less than a month, said the approach New Mexico took in rooting out Medicaid fraud was harmful.
"New Mexico needs to learn how to target waste, fraud and abuse in a way that does not harm its own citizens," Balderas said during a midday news conference he called to release the audit.
A spokesperson for HSD on Thursday defended the agency's actions in 2013. Matt Kennicott wrote in an e-mail that it was important to remember that the agency reached the "credible allegation of fraud" threshold by using the PCG audit, another report and "rampant over billing, along with a lengthy set of whistleblower allegations."
Earlier in the week, prior to the report's release, the governor sounded a similar note, saying "We're required by law to protect the dollars that go to people who are in need and not to have those Medicaid dollars taken by greedy people for themselves."
So far, however, investigators have found no Medicaid fraud. In 2014, Balderas' predecessor as attorney general, Gary King, cleared two of the 15 organizations of fraud allegations – The Counseling Center of Alamogordo and Easter Seals El Mirador.
The AG's office has completed an investigation into a third organization – Service Organization for Youth (SOY) of Raton – but it is not ready yet to reveal its findings, Balderas said, adding his office must communicate the findings to the organization first.
While the audit does not offer conclusive evidence that there is probable cause to believe that the accused organizations committed Medicaid fraud, there is no assurance fraud won't be found.
Balderas' agency has ongoing investigations into four of the 15 organizations and has yet to start scrutinizing another eight, the AG said.
Balderas has asked lawmakers to allocate $1 million so his office can complete those investigations in the next six to eight months. Without that money, finishing all the investigations could take years, he said.
Questions increase around audit
Over the past year, scrutiny has thrown into question the eye-popping figure of $36 million the state used in 2013 and the thoroughness of the state-commissioned audit itself.
In clearing two of the 15 organizations of fraud allegations last year, AG investigators found documentation the PCG audit described as missing. In other cases, they found individuals who the audit flagged as improperly providing services because of a lack of credentials to have the proper accreditation for their jobs.
And in December, Public Consulting Group told New Mexico In Depth that it didn't follow its normal procedures in New Mexico and let the 15 health organizations have a chance to respond to allegations before its findings were finalized.
The question is why PCG didn't follow its standard practice. Officials aren't saying much. But a PGC spokesperson confirmed last month that it's the company's "standard operating procedure to give providers the opportunity to compile and deliver supporting documentation."
Giving organizations a chance to analyze preliminary findings is a common practice for auditors. Running the information by staff at the targeted organizations gives them the opportunity to refute findings or address misunderstandings. It's a way of ensuring the accuracy of an audit, among other things.
Because PCG didn't follow up with the 15 organizations, it's almost certain the $42,500 in questionable claims PCG flagged in its random audit of claims, and later extrapolated into $34 million in potential overbilling and possible Medicaid fraud, is incorrect.
In addition to the $42,500 in flagged claims that it extrapolated into $34 million in possible overbilling, PCG also flagged another $2 million in claims among the 15 organizations using a different examination method. But because the firm didn't show those preliminary findings to the organizations, giving them a chance to explain, it's difficult to understand their significance.
HSD itself also appears to have resisted efforts to correct the audit's findings.
In a case that highlighted potential problems with the audit, one of the 15 organizations accused of "credible allegation of fraud" told state lawmakers in October that the HSD refused to consider documents that could have cleared it of allegations that it had overcharged the government by as much as $4.3 million.
Presbyterian Medical Services tried to give the files to auditors and state officials as proof that they had properly billed Medicaid for payment.
PCG said it would review the documentation if directed to by HSD, a Presbyterian official told lawmakers. The state agency "did not want to accept those records," he said.
Assessing financial risk
PCG never accused any of the 15 organizations of "credible allegations of fraud" in the audit, leaving that to HSD to determine. The audit shows, however, that PCG ranked the 15 organizations according to risk threat based on several factors.
The Massachusetts firm, with help from HSD, then developed scorecards for each of the 15 audited organizations.
Using those scorecards, PCG then grouped the organizations into risk tiers, with 1 representing the least risk and 4 representing the most.
In its audit, PCG grouped eight of the 15 providers in Tier Two, a category for which the firm recommended the state provide training and clinical assistance as needed and, potentially, embedded clinical management to improve processes, according to the summary.
Hogares Inc. of Albuquerque was one of the organizations ranked in Risk Tier 2. The audit shows PCG had extrapolated $2,902 in questionable Hogares claims into $3.6 million in potential overbilling.
Also ranked in the same Risk Tier Group was Southern New Mexico Human Development, whose $4,922 in flagged claims were extrapolated by PCG into $1.3 million in potential overbilling.
Another in the Risk tier 2 group was Service Organization for Youth, the third organization to have the AG complete its investigation. Despite flagging less than $15,000 of Service Organization's Medicaid claims, PCG wrote that the organization had a significant volume of missing documents, the audit shows.
Still, PCG ranked the Raton organization high on the scorecard. Like all organizations lumped into Risk Tier Group 2, Service Organization for Youth was recommended for training and clinical assistance and potentially embedding clinical management to improve its processes.
The remaining seven organizations were grouped into Tier 3, a sign that PCG had found more serious problems.
These included Border Area Mental Health Services, Counseling Associates Inc., Southwest Counseling Center Inc. and Youth Development Inc., the audit shows.
The firm recommended for organizations in Tier 3 training and clinical assistance as needed; the potential for embedding clinical management to improve processes; and a possible change in management, the audit shows.
But because PCG wasn't able to show each organization its preliminary findings it's difficult to grasp the true significance of the scorecard rankings or the grouping of the organizations into tiers based on threat.
Despite those Tier-2 and Tier-3 rankings for all 15 organizations, HSD referred all 15 to law enforcement and found "credible allegations of fraud."
This report was written by Trip Jennings, New Mexico In Depth's executive director and an award-winning veteran journalist who has worked at newspapers across the nation.