Access Peak

How United Healthcare bought access to the governor, won lucrative contracts with New Mexico and avoided scrutiny in the behavioral health care shakeup

During the heat of her first gubernatorial campaign, Susana Martinez used what would turn out to be, in many ways, a prophetic phrase. She wrote in a Sept. 15, 2010, column that the state had lost its prestige due to the “waste, fraud and abuse” of her predecessor’s administration.

A day before published the column, Martinez attended a meeting at United Healthcare Group's Pennsylvania Avenue office in Washington DC, according to campaign records and a source close to the corporation.

And afterward, the company cut a $25,000 check that would eventually land in the coffers of the state Republican Party's Political Committee, its reports to New Mexico campaign finance regulators show.

The check came, the source says, with a personal thank you note from a United Healthcare vice president named Stephen Heyman to Martinez.

"We enjoyed meeting with you," read the note from the head of the corporation's state government lobbying divison, "and look forward to seeing you again soon in Santa Fe."

With swipes of a pen, an insurance company executive in the nation's capital had given to a state party in New Mexico more money than an adult eligible for Medicaid—the federal program that covers health care costs for low-income individuals—makes in an entire year.

And United Healthcare, thanks to decisions made after Martinez became governor, would be awarded state contracts to oversee taxpayer money that funds mental health services.

"We need a new direction in state government," Martinez proclaimed in the column, "one that has zero tolerance for pay-to-play deals for affluent special interests."

An SFR investigation of the relationship between the Minnesota-based insurance giant and Martinez sheds fresh light on her administration's harsh interpretation of new language issued with the implementation of Obamacare that gave states more leeway to freeze Medicaid payments to health care providers if the state believed "credible allegations of fraud" existed.

On June 24, 2013, in what's become known as the behavioral health care shakeup, the Martinez administration made a stunning accusation: that "credible allegations" existed to show that 15 nonprofits pro-viding mental health services to Medicaid enrollees defrauded the federal program out of $36 million in a three-year period.

State officials refused to show those providers, and the public, the $3 million audit by Public Consulting Group, a Boston firm, used to justify the allegations. New Mexico contracted with five Arizona behavioral health agencies in no-bid deals for almost $18 million to take over the New Mexico services, pending the results of criminal investigations by the attorney general.

Almost two years after that decision, which affected up to 85 percent of the state's behavioral health spending and 30,000 patients being treated for those services, none of those providers have been criminally charged with fraud. Two of them have been cleared of criminal wrongdoing after the attorney general said overpayments of Medicaid cash to providers had been a fraction of what the audit alleged. The review raised questions about some practices but found no criminal fraud. Providers have sued the administration for due process violations in cases that are pending in the First Judicial District Court.

Patients from Santa Fe to Las Cruces directly suffered disruptions in care as a result of the shakeup.

Records show OptumHealth—the United Healthcare subsidiary that's been driving the insurer's profits—led state officials toward the fraud allegations just as it was pitching to sell its new fraud detection products.

Following Martinez' historic election, United Healthcare lobbyists and executives would greet administration officials at some of the finest lodges and restaurants in the nation.

United Healthcare lobbyists and the head of Martinez' Human Services Department had been scheduled for a retreat at Utah's premier ski resort hosted by a political group—and financed in part by United Healthcare's money. A United Healthcare lobbyist dined with Martinez' chief of staff at a steakhouse in Las Vegas, Nev. And the law firm of the man who is now one of the company's New Mexico lobbyists, Mickey Barrnett, also represented Martinez' advisor Jay McCleskey in child-custody hearings as recently as the summer of 2013.

United Healthcare's money seemed ubiquitous. The day after the state accused the 15 providers of fraud, United Healthcare announced that it had invested $22 million in three affordable housing communities across the state, including Stage Coach Apartments in Santa Fe. "These new housing developments are models of how business and community partners are working together with government agencies to help improve the lives of New Mexico families," Martinez said in a United Healthcare press release.

HSD spokesman Matt Kennicott, in response to a detailed list of questions, broadly defended the state's revamp of its Medicaid program, called Centennial Care and administered in part by United Healthcare, by saying that 185,000 new adults have been enrolled in the joint federal-state program.

Medicaid enrollees, he says, "receive care coordination, meaning that each of their individual needs is assessed and met." Since the implementation of Centennial Care, he says, "New Mexico has seen an 84 percent increase in the number of behavioral health care consumers being served."

State officials bristle at the notion that the insurance industry had more sway than New Mexicans in the redesign.

"HSD held seven meetings statewide with more than 674 people in attendance, two tribal consultations with over 229 tribal representatives in attendance, eleven meetings with individual Native American groups or individuals throughout the state, a legislative meeting and hearing, four workgroups that met over 16 hours each with 66 people participating [including advocates]," reads Kennicott's written statement, "and a dedicated phone hotline, email, and snail mail where more than 94 comments were received, including 7 tribal position papers and positions papers from advocate groups."

McCleskey would not comment for this story. A spokesman for the United Healthcare subsidiary OptumHealth only emailed a brief statement after a series of phone conversations and written questions. He said he was also speaking on behalf of United Healthcare.

"Like any company, we regularly meet with our customers to discuss the status of our work and ways we can evolve our partnership to best meet the needs of the people they serve," Optum spokesman Brad Lotterman writes in a statement, after SFR provided the details of the political meetings. "We also work with a wide variety of parties to discuss ways to improve the quality and delivery of health care and to inform policy development."

Both United Healthcare and Martinez' political machine benefited financially as that partnership continued to evolve.


Martinez' redesign of New Mexico's Medicaid program harks back to Gov. Gary Johnson's Medicaid redesign that required federal intervention.

Under Johnson, who served on the Fourth Floor from 1995 to 2003, New Mexico contracted with three insurers to serve as managed care organizations to administer Medicaid cash. The managed care arrangement works like this: The state gives a set monthly payment of Medicaid cash to each insurer so it can cover all its members. A provider treating a Medicaid enrollee bills that insurer for a reimbursement and, ideally, gets paid. The insurers are stewards of the Medicaid money who are tasked to pay for treatments specifically covered by the state-federal program—and only those treatments.

Through the Johnson arrangement, the insurers began denying and delaying coverage to one of the most expensive patient populations in their networks: those receiving behavioral health care treatment.

"The MCOs are in business to make money," even today, says Dan Ranieri, CEO of La Frontera, an Arizona behavioral health care agency that the state shipped into New Mexico as a replacement agency for the accused New Mexico providers. Ranieri claims the original reimbursement rate it negotiated with the four managed care organizations now handling Medicaid had been too low. "Obviously they're going to try to buy those services at the lowest rates possible."

When Richardson took office, New Mexico made unique changes to the delivery of behavioral health services- attracting attention across the nation. In 2005, state officials established what ethnographic researchers who conducted an extensive study on the effort would later call a community—based participatory approach to treat behavioral health care patients.

"People with mental illness felt empowered for the first time to have some say in what is often a system that makes choices for them," says Dede Feldman, a former Democratic state senator who sat on key health committees during her legislative tenure, "not with them."

The state established local behavioral health groups across the state to advise the New Mexico Behavioral Health Purchasing Collaborative—composed of 15 state agencies that provided mental health treatments in various capacities. Officials encouraged patients and others to participate in the local groups, which would advise the decision-making state collaborative about the unique health care needs of each region. Those in a rural area of the state, for instance, might need transportation services to get to far-flung providers.

"It was a great idea," says Cathleen Willging, a senior research scientist at the Pacific Institute for Research and Evaluation, who helped author the ethnographic study about the collaborative system, "a promising model."

Yet research found politics made its way into the local groups. State officials didn't always listen to the recommendations or provide enough financial support for the various administrative tasks they required. Eventually, participation dropped off.

While the statewide collaborative shaped policies and procedures, it contracted with one company under a managed care arrangement to administer Medicaid dollars to behavioral health providers.

The approach kept behavioral health Medicaid services "carved out" from physical health services so the managed care organization would cover only mental health treatments. Ini- tially, from 2005 to 2009, New Mexico entrusted Value Options with the task of administering the money.

State officials, following concerns about Value Option's performance, selected Optum for the roughly $370 million annual contract in an agreement that ran from July l, 2009, through June 30, 2013—days after the state accused the 15 providers of Medicaid fraud.


United Healthcare, one of the largest publicly traded insurance companies in the US, is a leader of the so-called Medicaid managed care market. United Healthcare companies have also faced more sanctions than other Medicaid managed care companies, logging at least $2.4 million for 11 fines imposed in seven states in a three-year period, according to the Kaiser Foundation.

Compare those fines to United Healthcare Group's 2014 profits of $5.6 billion, and it's easy to see that state government-issued sanctions haven't always fundamentally threatened the Fortune 500 company's bottom line.

Kaiser's data doesn't include sanctions New Mexico imposed against Optum. Just six months after Optum scored the behavioral health Medicaid contract, the state fined it $1 million. Behavioral health providers alleged it hadn't been processing their claims in time—sometimes taking months to reimburse them for services.

Problems with Optum didn't stop there.

On Dec. 29, 2010, Optum sent an alert to providers that it would be "enhancing" its electronic billing claims system through which the providers requested Medicaid reimbursements. The alert was vague.

But just weeks later, providers discovered its implications: Optum began cutting payments to them for outpatient services for the mentally ill meant to help them with life-coping skills. Optum's imposition of "clinical triggers"—demanding that providers justify the services before being paid for them—had been unilateral.

Officials went as far as saying Optum misled them about the change that resulted in denial of more than $200,000 in claims. Optum initially fought a state-imposed sanction to stop the action. But it eventually agreed to pay up.

"Under OptumHealth, people had tremendous difficulties getting paid, particularly when they first got on the scene," says Willging, referring to behavioral health care providers.

Providers also say Optum wasn't always the most diligent auditor.

"OptumHealth came to see us to conduct an audit, once, twice," during the years that it administered the state's cash, says Patsy Romero, chief operating officer of Santa Fe's Easter Seals El Mirador.

"The monitoring shall include regular provider reviews," reads the Optum contract, as well as "on-site audits to determine provider compliance with clinical and non-clinical requirements."

Optum spokesman Lotterman wouldn't address that charge but defends the company using a familiar phrase: "We consistently fulfilled our contractual responsibilities, including helping people get the most appropriate care and reporting potential instances of fraud, waste and abuse to the state for further investigation."


Martinez' campaign, in the spirit of transparency, would release a list of the private donors to a committee that financed the governor's inaugural celebrations. The usual benefactors, like energy companies, contributed. Yet one donor that had never appeared on her campaign reports made a hefty contribution: United Healthcare, donating the committee's self-imposed $25,000 limit.

A month later, The Centers for Medicare & Medicaid Services announced a new regulation to give states more leeway in accusing providers of committing "credible allegations of fraud." In Washington DC, the insurance industry continued its lobbying efforts to support legislation that would strengthen anti-fraud efforts for both private insurance plans and public ones like Medicaid.

The administration began to gear up to fundamentally revamp its Medicaid program. In New Mexico, as a group of patients, providers and advocates convened a Behavioral Health Expert panel that would make recommendations on those changes, state officials solicited advice from the more powerful corridors of the healthcare industry.

In August 2011, emails show, the head of the Human Services Department, Sidonie Squier, planned on attending the Republican Governors Association's Health Care Policy Summit in Washington DC with 80 "professional peers" from the health care world. They would stay at the Ritz Carlton and discuss topics like "the overarching burdensome regulatory environment" during sessions that mixed state human service department officials with industry representatives like health insurers.

The RGA raises and spends unlimited amounts of cash from its corporate and individual benefactors, like United Healthcare, to help elect GOP governors. Contributing members get a return on investment from that support in the form of access to the politicians.

Hurricane Irene caused the RGA to reschedule the summit, but its policy committee still organized a survey for state officials to assist in the association's "networking efforts" with RGA members.

On Aug. 24, Dan Derksen, the director of the New Mexico Office for Health Care Reform, sent New Mexico's responses to an RGA official. He copied Squier and Martinez chief of staff Keith Gardner on the email. One discussion topic listed on the sheet?

"Fraud, waste and abuse."

The results of the RGA's questionnaire to state officials would be a Republican Governors Association Public Policy Committee task force paper on Medicaid. States should be given more responsibility in rooting out Medicaid fraud, according to the paper, instead of relying on federal contractors that simply engage in "pay and chase"—trying to find fraud after Medicaid reimbursements have already been paid to providers.

A report to the Legislature about the Public Consulting Group audit that triggered the fraud allegations against the providers would later say that in "early 2012 OptumHealth implemented an enhanced software system designed to more efficiently detect potential fraud, waste, and abuse to assist in monitoring providers within its network."

But Romero says that "never did we get denials" of any of the billing codes they'd entered into the new software. She says Optum was "setting up a false sense of security."

In March, around when Optum reportedly began running audits of behavioral healthcare agencies, Squier and Gardner began preparing for a trip to the upscale Deer Valley Resort in Park City, Utah, situated near mountain slopes that local boosters say are host to the "greatest snow on Earth."

More than 50 corporate representatives whose companies contributed $250,000 (the "statesmen level") or $100,000 (the "cabinet level") were invited to listen to speeches from a handful of public officials in Republican gubernatorial administrations during the closed-to-the-press, "very casual and informal" retreat, whose focus, according to the group's records, was "relationship building."

For Sunday evening, the first day of the trip, officials scheduled cocktails followed by a buffet-style dinner at the Empire Canyon Lodge, which offers intimate meals cooked in stone fireplaces. Horse-drawn sleigh rides were available, "before and after the speaking presentation" by then-chairman of the RGA, Virginia Gov. Bob McDonnell.

Reese Edwards, then United Healthcare's Colorado-New Mexico lobbyist, is listed in records as one of the firm's two "statesmen" for the event, meaning the company paid half a million dollars to send two representatives to it.

In an interview in December, after she left her post, Squier said she didn't recall the specifics of the retreat. Cell phone records confirm she was in Park City. It's unclear whether Edwards went.

But Squier made at least one relevant connection. On March 26, 2012, Lee Cowen, a DC lobbyist for Dutko Grayling, emailed Squier, saying it was "great to see you in Utah."

Cowen wanted to know if Squier would be willing to meet with Cowen and David Javdan of a firm called Alvarez & Marsal on April 16 in Santa Fe. Cowen also suggested that Alicia Smith, a consultant on contract with HSD to help it redesign Medicaid, join them "to see if there's some way that A&M might be useful to her efforts to help you with Medicaid reform." (Prior to the Martinez administration, the state had contracted with Smith to monitor Optum after the initial sanctions against the company.)

Alvarez & Marsal is a professional services firm famous for charging Goldman Sachs almost half a billion dollars for managing its bankruptcy after the financial collapse. In 2014, the state of North Carolina awarded the firm a $3.25 million no-bid contract to reorganize its Medicaid program.

When Cowen opened Cowen Consulting in 2012 he listed United Healthcare as a client, yet he writes SFR that United wasn't his client when he asked for the meeting. A year later, he began helping out with Martinez' re-election campaign on the Beltway, hosting $5,200-plate fundraisers.

Monday morning at 11 "works best," Cowen said, replying to Squier. "By the way," he wrote, "on a totally separate matter, does [New Mexico] procure managed care for Medicaid dental separate from Medicaid medical? Or are they lumped together? I forgot to ask you in UT."

Just ten days later, the state submitted its Centennial Care plan to the feds, stressing that it sought to deliver Medicaid money through a "single, comprehensive" system of care with incentives for patients "to take a great sense of personal responsibility for their own health and for accessing the system more effectively" as well as administrative flexibility and simplicity in managing the Medicaid system to drive down its bloating costs without cutting services.

Like Gov. Johnson's plan, this one requested permission for "carved in" behavioral health care with physical health care to better integrate the delivery of services, while calling for transparency in the spending of those funds.

In the coming moths, Squier's HSD unveiled Centennial Care, and on June 5, Susana PAC, a Martinez political action committee, reported that it'd received $10,000 in contributions from United Healthcare. HSD released a request for proposals that called for four insurance companies to manage the $4 billion program in August of 2012.

By October, Optum alerted HSD officials that it had flagged suspicious billing activity of behavioral health providers. In an already widely publicized email to an HSD official, Optum CEO Elizabeth Martin laid out options of how to handle the allegedly unscrupulous behavioral health providers.

"For example," she wrote, "OHNM has in its Arizona network outstanding behavioral health providers with over $200,000 in revenue who could assume wholesale management."

The publication of Martin's email by media outlets in October 2014 caused an uproar because it indicated that state officials had vetted the Arizona agencies before the Boston-based Public Consulting Group even started its audit.

But there's a less-quoted line at the end of the email. It's Martin making a pitch to the HSD official that "in the long term," Optum, whose contract with the state was set to expire, "has the capability" to ensure program integrity for billings.

"Optum's state-of-the-art fraud, waste and abuse detection and prevention capability is a leader in the nation," Martin wrote, "and has been specifically tailored to the NM system."

In December, Optum announced that it had partnered with a North Carolina firm, SAS Institute, to "further enhance its comprehensive health care antifraud, waste and abuse services."

The Tar Heel State had previously hired SAS to audit its own Medicaid providers. After those audits, as in New Mexico, Public Consulting Group followed up with an enterprise audit that the state used to justify freezing payments to accused providers. There, as in New Mexico, PCG's methods of extrapolation faced criticism.

"This was a result somebody already wanted to come to," Bryan Davis, an attorney representing the providers in the lawsuits against HSD, says of New Mexico's allegations against his clients.

Five days before responses to that Centennial Care bid were due, Edwards and Gardner met at an upscale Sin City steakhouse called Botero. Edwards reported on lobbying disclosure forms spending $75 at the steakhouse in "a meeting regarding Medicaid expansion."

In January of 2013, HSD awarded the four Centennial Care contracts to cover Medicaid enrollees. The state announced that United Healthcare would be one of four companies to administer that $4 billion pot of cash. Albuquerque Business First later reported that three insurers who lost filed a protest to the bid saying the state didn't properly score the proposals—even alleging that the HSD scoring sheets that evaluated them had been destroyed.

In May of 2014, the New Mexico attorney general's office secured a ten-count criminal indictment against Optum executive Deborah Gonzales for falsifying Medicaid documents between October 2010 and April 2011. Investigators alleged that she ordered the destruction and alteration of records that documented appeals and grievances from Medicaid clients who had been denied services by Optum—at the same time the state had been scrutinizing its performance, the Albuquerque Journal reported. Gonzales pleaded not guilty on all the fourth-degree felony charges. The case is pending.

HSD officials, meanwhile, had to figure out which contractor would administer non-Medicaid behavioral health money—which had also been Optum's responsibility. In December, seven months after that indictment, state officials extended Optum's nonMedicaid contract.

The 18-month agreement gives Optum the responsibility of handling $29 million in funds to oversee money that goes to programs like outpatient behavioral health care services for New Mexico Correction Department offenders on probation or parole. Optum did not bid on a June 11, 2014, request for proposal issued by HSD for the contract, writes the agency's spokesman, and the two companies that did respond "were disqualified from the bid because they did not meet mandatory requirements" laid out in the request. "To maintain services, Optum received another contract extension because of this," HSD's Kennicott writes, "and HSD is exploring other options."

The 15 New Mexico providers, none of which have been criminally charged as a result of the audit, weren't so lucky. Many are still out of business. A month after the fraud allegations, Martin had a "chance meeting" at a Dallas airport with Lorraine Freedle of Santa Fe-based Teambuilders. Freedle and Martin had a history, both previously attending the governor's inaugural ball using United Healthcare's allocation of tickets.

The shakeup strained that relationship. Martin wrote a July 12 email to HSD officials to recount the airport conversation. She labeled the email as "confidential." Freedle, she said, congratulated Martin on her recent marriage. "I said 'thank you' and began to walk away," Martin wrote. But Freedle touched her arm and asked, "What are you all doing?"

"We have always worked [with you] on claims and getting necessary documentation," Freedle reportedly said. "Why is this different?

"Now you drop in a whole new snoop and sniff system and 15 [providers] are crooks?" Freedle said. "Bullshit. You got it wrong.''
Editor's Note: SFR previously reported that the Behavioral Health Expert Panel "recommended against" HSD carving in the delivery of behavioral health care services with physical healthcare services in its revamp of New Mexico's Medicaid program. While the panel reported "minimal support" to the carve in, it ultimately said in its White Paper that no "consensus" emerged as to whether behavioral healthcare services should be carved into physical healthcare services. HSD's submission to the federal government for the redesign called for more transparency in the funding streams for behavioral healthcare services, as the panel requested, and carved the delivery of those services into physical healthcare. Additionally, PCG did not start auditing work in the state in 2012, as SFR previously reported. Email the author at 

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