Updated on: June 7, 2016

Breaking Bad: Counting the Costs in the New Mexico Behavioral Health Disaster

By Edward M. Roche, PhD, JD and Knicole Emanuel, Esq.
Original story posted on: June 6, 2016

  The CEO of Hogares, Nancy Jo Archer, dedicated over 40 years of her life to the company and the behavioral health consumers it served in New Mexico.

Now, Hogares is nonexistent. Her life’s work is over. Unfortunately, her story is not unique. Fifteen behavioral healthcare providers in New Mexico have suffered similar irreparable harm. 

Between October, 2012 and the present, the state of New Mexico suffered one of the worst public health disasters in the history of the United States, and, sadly, it was self-inflicted. This disaster has caused 15 behavioral healthcare providers to cease providing health services, constituting 87.5 percent of such providers in the state. More than 15,000 people, representing half of the mental health population of the state, have suffered from loss or serious interruption of their services. 

The number actually could be in the hundreds of thousands, because in New Mexico, 2 million people receive Medicaid services. More than 1,600 healthcare providers have lost their jobs. For the 15 behavioral health providers, the losses up to this point have amounted to more than $140 million.

There is more. The subcontractors that supplied these clinics are estimated to have lost approximately $75 million.  And this does not include the costs to the state of approximately the same amount. The losses to the five companies that were brought in to replace the New Mexico companies have run as high as $15.5 million each.

It is difficult to speculate on the cost of the damages to the impoverished citizens who lost their services. But by a review of numerous jury awards, we can estimate that cost at $19.5 billion, although we know these people never will see a penny, even if they are still alive. So by adding up all of these figures, we can estimate the total cost of this disaster to have been somewhere between $350 million and $19.9 billion, if you include the damages to the people cut off from their services. 

This tragedy happened because of what many would characterize as complete incompetence on the part of the government of New Mexico. And the ironic thing is that it was completely unnecessary.  

The behavioral health disaster in New Mexico started on June 24, 2013, when the State accused all 15 of the aforementioned providers of credible allegations of fraud and stopped all Medicaid and state-funded payments to the entities that supplied services for drug abuse, PTSD, anxiety disorders, suicide counseling, and other crucial health matters. Ostensibly, the State suspended all payments based on an audit conducted by Public Consulting Group (PCG).

The providers adversely affected by these actions included TeamBuilders Counseling, LLC., Partners in Wellness, Inc., Presbyterian Medical Services, Inc., Hogares, Inc., Youth Development, Inc., Pathways, Inc., Border Area Mental Health, Counseling Associates, Families and Youth, Inc., Southwest Counseling Center, The Counseling Center, Valencia Counseling Service, Southern New Mexico Human Development, Easter Seals El Mirador, and Service Organization for Youth, Inc. Providers such as Easter Seals El Mirador spoke up and warned of the potential disruption.

The providers were forced to drain their accounts to continue to provide services after the payment suspension. The State threatened that if they ceased providing services, despite not getting paid, they would be sued for breach of contract. One by one, each provider ran out of money and closed. The State forced them to sell all assets to the aforementioned five Arizona companies for pennies on the dollar. The providers were not allowed to negotiate the terms.

After June 24, 2013, several months passed before all accounts were dry. A few of the providers were operating pharmacies, and these were shuttered also, causing disruption to the ability of patients to get refills. Within a month, Casa de Corazon in Taos had let go 32 workers, leaving 65 autistic children without care. 

Calls for release of the PCG audit report were rejected. Even the state’s auditor was denied access. The providers remained in the dark as they watched their companies wither away. It was impossible for them to defend themselves when all of the evidence was being kept secret. 

A comprehensive review of the law by experts showed that although the State claimed it was required to suspend payments, in fact this is not required by federal regulations. There is a “good cause” exception to suspending payments if the suspension would adversely affect Medicaid recipients. Each provider requested a good cause exception. Each good cause exception request was denied without explanation. It was clear that the State planned to keep the suspensions in effect.

By August, the government was moving around money so as to enable payment of the new replacement companies. It then forked out $18 million in a no-bid process to hire those companies to take over – Agave Health Inc., Valle Del Sol, La Frontera Inc., Southwest Network, Inc., and Turquoise Health and Wellness, Inc. But it was a move these Arizona companies would regret. 

The layoffs of healthcare workers continued. TeamBuilders Counseling Services was preparing to shut down and stopped taking referrals for children and teens from the New Mexico Children, Youth and Families Department. 

Transparency became a much-discussed public policy issue. Organizations such as the New Mexico Foundation for Open Government continued to press for public disclosure of the audit. Two newspapers, New Mexico in Depth and the Las Cruces Sun-News, filed a lawsuit to get a copy of the audit findings. The Governor started receiving letters from citizens to release the information from the audit, all to no avail.

It was becoming clear to everyone that the State had taken these actions without the slightest idea of what to do as a backup plan. The entire behavioral health sector was disrupted. This was made bitterer by the release of documents showing that the auditor, PCG, had billed out its employees for as high as $279 per hour. In a state where 22 percent of the child residents live in poverty, these numbers were galling. 

Lawsuits seeking public release of the audit findings continued to pile up. In October, under pressure, the government released some highly redacted information on the audit, but only a small amount.

The controversy continued. By March 2014, The Counseling Center of Alamogordo was cleared of any fraud, but the State still claimed that it was owed $343,000 for alleged overpayments. Even after The Counseling Center was cleared of fraud, the State continued by attacking the company with accusations of document noncompliance. It became public knowledge that Counseling never had been allowed to respond to any of the claims in its audit.

In a letter from the Centers for Medicare & Medicaid Services (CMS) dated Dec. 24, 2013, it was reported that New Mexico was servicing 23 percent fewer consumers of behavioral health services, but in some areas of the state, 59 percent of the population had been cut off from such care. CMS strongly criticized the state’s “transition” plan to the new providers.

On Feb. 17, 2014, the state wrote a response to the CMS letter. It admitted that the number of persons receiving behavioral health services was down by about a third. In the appendix to the letter, it showed that a number of contracts for the “transition” to the Arizona providers still were pending. Keep in mind that this is eight months after the suspension. In its table reporting on the number of consumers receiving behavioral health services, more than one-half of the data fields were simply marked “unavailable.” 

The Arizona companies were not happy. In March 2014, Agave Health, Inc. was operating at a substantial loss and was cutting 5 percent off the salaries of 350 employees at 13 outpatient clinics and treatment programs.

In May, another suspended provider, Easter Seals El Mirador, was cleared of any fraud. Furthermore, it turned out that the Attorney General’s office found only four of the sampled claims in the audit to have been improper – a large difference from the 20 originally found by PCG.

In August 2014, Easter Seals then filed suit against the New Mexico Human Services Department, claiming it had acted in bad faith because it continued to withhold funds owed. That is, even after being cleared, the State refused to return the claim payments that it had stopped paying. 

In the litigation, a judge ruled that the audit could be kept secret, but that was quickly appealed in September 2014.

The next month (October), a bill was introduced by the President Pro Tem of the New Mexico Senate that would, going forward, prevent the Human Services Department from cutting off funds before fraud was actually shown, and not merely because there were allegations of fraud. 

A few days later, an email was released showing that the shutdown of the behavioral providers and their replacements had been planned months before the suspensions. In addition, it was revealed that the State did not allow PCG to request additional documentation to substantiate their claims, which was normal protocol for PCG.

Things continued to deteriorate. In January 2015, Turquoise Health and Wellness, one of the Arizona companies, announced that it would cease operations within five weeks. The citizens in Roswell, a small community of 48,000 persons, were wondering what to do. There would be no alternatives available for the mentally ill or drug addicts. The hospital administrators in the area were scrambling for alternatives, but nothing was found. The local court system started to suffer because it was impossible to make any rulings on competency to stand trial, and the number of those cases had doubled. Local law enforcement complained that it had no skills to deal with mental health issues. 

The State’s Attorney General then released another redacted version of the audit report, still with critical details missing. But there was enough information to see that the allegations of fraud charges were melting away. By February 2016, the Attorney General cleared 13 of the 15 original organizations of any wrongdoing. By April 2016, the other two were cleared.

All of this was completely unnecessary. The government of New Mexico was not required to suspend payments to the 15 providers, and it should not have engaged in planning for the suspension more than half a year before the audit was started. This alone suggests to us that the audit was simply an excuse or smokescreen to cover up larger forces at work. And even if all of this had happened, it should not have taken so long to exonerate the providers, a length of time so great that they were destroyed financially, along with all of the employees and subcontractors they supported.

Yet even now, litigation is continuing, because after all of this, still the State refuses to release the hundreds of millions of dollars that it has been holding, despite the exonerations. Instead, the State is accusing, one by one, each of the providers that they owe an alleged overpayment amount to the State.

Just think: these companies’ finances are drained. Except on paper, they are nonexistent. They have no assets. Yet, now, the State is alleging that these entities owe more money to the State. For example, the State has alleged that TeamBuilders owes it over $12 million. 

And, somehow, TeamBuilders is supposed to be able to defend itself? 

About the Authors

Edward Roche is the founder of Barraclough NY LLC, a litigation support firm that helps healthcare providers fight against statistical extrapolations.

Knicole C. Emanuel is a partner in the Raleigh office of Gordon & Rees and a member of the Health Care practice group. For more than 16 years, Ms. Emanuel has maintained a litigation practice, concentrating on Medicare and Medicaid litigation, health care regulatory compliance, administrative law and regulatory law. She understands the intricate Medicare and Medicaid payment system, the unique business of healthcare providers, the overlay of federal and state Medicare and Medicaid rules and regulations, and actions of state agencies that affect the way healthcare entities operate. Ms. Emanuel has tried over 1,000 administrative cases and has appeared before arbitration panels and in various appellate forums.

Contact the Authors

Roche@barracloughllc.com

kemanuel@gordonrees.com

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