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Cash-starved NM agencies file emergency court appeal

July 31, 2013

Eight of 15 New Mexico behavioral health agencies whose Medicaid payments have been held since June 24 based on “credible allegations of fraud” by state Human Services Department (HSD) Secretary Sidonie Squier have appealed a July 25 decision by federal Judge Christina Armijo to the Tenth Circuit Court. Last week, Armijo denied the agencies' request for a temporary restraining order that would have forced New Mexico to reinstate their funding and make available the details of an audit that is said to document millions in waste, fraud, and abuse.

Armijo’s decision stated that the agencies’ request for a temporary restraining order was denied because “plaintiffs have failed to fulfill their heavy burden to establish that they are entitled to the extraordinary remedy” that the TRO and a resumption of payments to them would provide. While Armijo noted that the agencies made a “substantial” case in support of two of the four points necessary to win such an order, she ultimately ruled against the agencies on all four points in the brief containing her decision.

However, in emergency appeal documents filed with the US Tenth Circuit Court on July 29, plaintiffs’ attorney Patric Hooper argued that “something is very rotten in the State of New Mexico’s Medicaid program.” In the appeal, Hooper stated that since the agencies’ initial July 3 filing in Armijo’s court, HSD’s payment stoppage—affecting $ 7 million in 2013 claims so far— has “made it virtually impossible for the organizations to continue to provide services.” It also has forced the closure of one agency and the impending closure of several more.

In the appeal, Hooper alleges that the agencies are being driven out of business. Their vulnerability to cash-flow problems “gave HSD the chance to commandeer their programs by installing five handpicked Arizona organizations to take over Plaintiffs’ businesses.” At the same time, the appeal argues that the agencies continue to suffer harm as referrals dry up, employees are laid off, and the details of alleged fraud remain hidden from view or from reply.  To date, he says that none of the agencies have been given “any meaningful notice or opportunity to discuss any of the specific allegations against them.”

According to an HSD statement, a behavioral health audit by Public Consulting Group (PCG, Boston) justified the June 24 funding cutoff, which involves not only Medicaid payments but all payments from state programs. In her ruling, Judge Armijo indicated that the PCG audit findings were developed based on analysis of 150 randomly selected claims submittals from each of the 15 agencies, as well as audits of selected clinical case files and agency information technology practices. These findings, said HSD, reveal “evidence of endemic and egregious mismanagement, waste of state and federal Medicaid dollars, and in some cases, potential fraud” in the amount of $36 million. 

In testimony to New Mexico lawmakers on July 25, HSD Secretary Squier said that the behavioral health audit targeted senior agency leaders and “billing claims and management processes of the 15 agencies.” HSD has recommended that “the administration” of the agencies being audited should, in the event that the agencies become insolvent, be replaced by “transition management agencies” from five Arizona-based behavioral health providers at a cost of approximately $17 million. The transition of the insolvent agencies would be facilitated by emergency funding provided by HSD following negotiations with agency management. Squier said that clinical and service employees at the 15 agencies were not targets of the fraud action and that these employees are expected to continue forward with the new management entity that receives control at the site.

“Never seen a situation like this”

In comments to Behavioral Healthcare, Hooper stated, “I’ve never seen a situation like this one, when the state Medicaid agency has out-of-state provider organizations lined up in advance, where they are assuming the facilities, employees, and the clients of long-time community providers. It amounts to a government takeover of these businesses,” he said. Unless the Tenth Circuit court reverses the decision, Hooper said that all 15 of the accused agencies face closure or takeover.

Among the 15 agencies affected by the HSD action, Hooper stated, “There’s no problem, no question about the issue of auditing providers, even with unannounced onsite visits.” But this process was different, he said. “The usual course is to audit providers one at a time, then share specifics of any findings in an ‘exit conference’ with the provider.” After that, he continued, “there’s a full-blown hearing.” In this case, providers have been given no specifics, no chance to respond to charges that damage their reputations and to financial pressures that he maintains, will drive many out of business in a matter of weeks, perhaps sooner.

In public statements, HSD has defended its approach, noting that among the regulations associated with the still-new Affordable Care Act is a rule that requires states to halt funding to provider organizations upon discovery of “credible allegations of fraud.”  As the New Mexico Attorney General Office (AGO) noted recently, the determination of what constitutes a credible allegation belongs entirely to the chief Medicaid officer of the state, in this case, Department of Health Secretary Sidonie Squier.

In defiance of a court order, the state AGO also refused to release a complete copy of the PCG audit findings. Instead, a redacted description of the $3 million audit methodology and its key findings were made available.

“Under the ACA, the federal government put more teeth into temporary suspension provisions,” said Hooper, who warned that, despite the statute’s payment suspension language, states have latitude in how they apply it. Based in part on the application of that rule, there have been a lot of problems, “a lot of overkill” involving recent allegations of fraud around the country, he said. 

“A political move?”

“This is not how New Mexico operates,” said Jana Spalding, who served as vice president of consumer and family affairs at OptumHealth New Mexico until November 2012. The funding cutoff is “a political move coming out of the Governor’s office,” she said, adding that “I don’t pretend to know what the motivations are, but it’s draconian to completely stop funding for so many providers. And why all of the secrecy? The providers do not even know what they are accused of doing.”

Spalding asserts that the 15 agencies and CEOs facing fraud allegations were targeted for audits in part because of their local political influence and past ties to Democratic governors. In the runup to the state’s January 2014 launch of Centennial Care—which has contracted the responsibility for administering the state’s Medicaid Expansion to five regionally-based managed care organizations—she maintains that “if you replace fifteen influential agencies with five entities that don’t have any history in New Mexico, it will be easier to tell them what to do.”

In a July 30 Public News Service report, New Mexico state senator Jerry Ortiz Y Pino expressed similar concerns, calling the transition of New Mexico based agencies to out-of-state contractors “an attempt to make sure that the new behavioral health care will be much more profitable for the corporate entities that provide it.”

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