News: CJ Exclusives

State audit finds poor oversight of Medicaid managed care groups

State Auditor Beth Wood (CJ file photo)
State Auditor Beth Wood (CJ file photo)

The state’s tax-supported managed care agencies for mental health are a mess.

That’s the gist of an audit released Monday, May 6, by State Auditor Beth Wood. It rebuked the N.C. Department of Health and Human Services’ oversight of seven Local Management Entities/Managed Care Organizations. And it’s the latest report documenting major problems with the system.

Because DHHS failed to monitor the LME/MCOs according to state policies and best practices, it couldn’t ensure services were provided, costs were reasonable, and performance standards were met, among other concerns. The lack of proper reports risks a failure to detect issues that can escalate, increasing costs and jeopardizing quality of care.

“The risk to the State will increase exponentially if the Department of Health and Human Services does not take necessary corrective action to improve its monitoring of managed care organizations,” the audit report stated.

That’s because the state will shift to a managed care model for providing most Medicaid services starting Nov. 1.

Five Managed Care Organizations, formally known as Prepaid Health Plans, will integrate physical and behavioral health care with pharmacy services for most of the state’s 2.1 million Medicaid recipients. The amount of Medicaid funds provided to the MCOs will more than quadruple from $3.2 billion to nearly $13.9 billion in the next few years, the audit report stated.

DHHS Secretary Mandy Cohen agreed with the conclusions and recommendations in a letter attached to the audit report.

“The Department recognizes the need to improve our design of the oversight model for the new Prepaid Health Plans,” Cohen wrote. The Department is instituting a contract management plan that will identify each contracted service, and ensure the proper staff receive, analyze and respond to each item. The plan includes an automated tracking system to document responses.

The department also has hired additional staff with expertise in health plan oversight and contract management, and plans to add other key staff, Cohen said.

The LME/MCOs are a major component of state Medicaid spending. The state paid them $3.2 billion of the total $13.9 billion spend in fiscal year 2018, and $2.6 billion of $13.6 billion in 2017. The agencies get a set amount of money each month per recipient to provide treatment and services for mental health, substance abuse, and intellectual and developmental disabilities.

But DHHS failed to properly monitor to ensure the LME/MCOs were doing their jobs. Among the audit findings, DHHS:

  • Didn’t get encounter data reports based on client visits. Encounter data are used to develop LME/MCO payment rates and measure the quality of services. The Society of Actuaries calls that data “the single most important analytical tool for health plans and health programs” to analyze costs, utilization and trends, evaluate benefits, and determine quality of services.
  • Didn’t obtain staff incident reports that show when providers failed to ensure adequate staff was available to provide services.
  • Didn’t obtain LME/MCO annual budgets. Without the budgets, it’s impossible to know throughout the year if revenues and costs were reasonable and on track.
  • Didn’t get reports showing payments to third party management companies and providers. LME/MCOs can increase profits beyond allowable state limits by using third party providers. The reports are necessary for DHHS to identify excess profits.
  • Failed to document evidence supporting 24 of 26 LME/MCO performance evaluations, and couldn’t provide evidence it consistently evaluated complaints and grievances. As a result, problems could go unnoticed and uncorrected.
  • Didn’t use corrective action plans or assess penalties for identified performance issues such as failure to ensure mental health and substance use patients were getting follow-up visits within seven days of discharge from treatment. Several LME/MCOs didn’t implement recommended corrective actions.


  • civilwar 12

    Does anything ever happen with the audit findings?