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Border Area Mental Health, Inc. v. United Behavioral Health, Inc.

United States District Court, D. New Mexico

August 2, 2018

BORDER AREA MENTAL HEALTH, INC., COUNSELING ASSOCIATES, INC., EASTER SEALS EL MIRADOR, FAMILIES & YOUTH, INC., HOGARES, INC., SOUTHWEST COUNSELING CENTER, INC., SOUTHERN NEW MEXICO HUMAN DEVELOPMENT, INC., TEAMBUILDERS COUNSELING SERVICES, INC., THE COUNSELING CENTER, INC., and VALENCIA COUNSELING, INC., Plaintiffs,
v.
UNITED BEHAVIORAL HEALTH, INC. and UNITED HEALTHCARE INSURANCE COMPANY, INC., d/b/a OPTUMHEALTH NEW MEXICO, PUBLIC CONSULTING GROUP, INC., ELIZABETH A. MARTIN, ANDREW SEKEL, TIMOTHY S. MILLER, and JOHN DOES 1-10, Defendants.

          MEMORANDUM OPINION AND ORDER

          MARTHA VÁZQUEZ UNITED STATES DISTRICT JUDGE.

         THIS MATTER comes before the Court on the Motion to Dismiss All Claims Against It filed by defendant Public Consulting Group, Inc. (“PCG”). [Doc. 7]. The Court, having considered the motion, briefs, and relevant law, and being otherwise fully informed, finds that the Motion is well-taken and will be granted.

         BACKGROUND

         Defendant United Behavioral Health, Inc. is a foreign corporation that does business on a national basis and is authorized to do business in New Mexico. [Complaint, Doc. 1-1 at ¶ 2]. Defendant United HealthCare Insurance Company, Inc. is a foreign insurance company that does business on a national basis and is authorized to and is doing business in New Mexico. Id. at ¶ 3. Defendants United Behavioral Health, Inc. and United HealthCare Insurance Company, Inc. conducted business in New Mexico through a “d/b/a/, ” Defendant Optum Health New Mexico (“OHNM”) (collectively “United”). Id. at ¶ 4.

         In 2009, United entered into a “Statewide Contract” with the New Mexico Human Services Department (“HSD”) and its 16-member Inter-Agency Behavioral Health Purchasing Collaborative (“Collaborative”) to act as New Mexico's “Statewide Entity” to establish, operate, manage, and pay for delivery of behavioral health and substance abuse services to children, families and adults enrolled through the Collaborative's various programs. Id. at ¶ 12. Pursuant to the Statewide Contract, from July 1, 2009, through June 30, 2013, United was to serve as the “Statewide Entity” to administer the delivery of behavioral health services to individuals enrolled in and eligible to receive services under the Collaborative's agency programs. Id. at ¶ 14. In turn, United, in its capacity as the Statewide Entity, entered into contracts with numerous healthcare providers, including Plaintiffs, to provide the necessary behavioral health and/or substance abuse health care services to the individual enrollees. Id. at ¶ 15.

         An express provision of the Statewide Contract obligated United to employ a person to be its dedicated Statement Contract Compliance Officer. Id. at ¶ 22. United was prohibited from assigning or delegating this key management function. Id. United's designated Compliance Officer responsible for exercising key management functions was indicted on May 28, 2014, for alleged criminal misconduct relating to allegations of falsifying records. Id. at ¶ 23. The allegations of the Complaint arise from incidents occurring from 2009 through 2012. Id.

         Plaintiffs allege that United mismanaged its Statewide Contract and, in order to cover up its mismanagement, accused its healthcare providers, including Plaintiffs, of engaging in institutional fraud. Id. at ¶¶ 35, 43. Plaintiffs further allege that in 2012, United knew that HSD's newly-designed behavioral health services delivery model under New Mexico Centennial Care would be the subject of procurement in 2012 and become effective January 1, 2014. Id. at ¶ 40. Under the new Centennial Care Model, United would no longer be the Statewide Entity for delivery of all behavioral health and substance abuse services for the Collaborative. Id. United wanted new contracts with HSD after its Statewide Contract expired on June 30, 2013. Id. Plaintiffs allege that in order to achieve its New Mexico contract and company revenue goals, United needed an exit strategy from its Statewide Contract that would expire June 30, 2013. Id. at ¶ 41. As one component of United's strategy, United sought and received, effective September 4, 2012, a six-month extension on its Statewide Contract through December 31, 2013. Id. at ¶ 42. Another component of United's strategy was to cover up its defective data and claims processing system and its mismanagement of state and federal money by blaming its subcontracted providers, including Plaintiffs, for billing errors that United characterized as “institutional fraud.” Id. at ¶ 43.

         On or about October 25, 2012, Defendant Elizabeth A. Martin, the Chief Executive Officer of OHNM, made a written proposal to the Collaborative representing that United could solve the made-up “institutional fraud” problem by terminating United's existing contracted “bad actors, ” including Plaintiffs, and substituting Arizona providers to “assume wholesale management” of New Mexico's behavioral health services. Id. at ¶¶ 5, 44.

         The written proposal suggested that United “import from a neighboring state accredited provider(s) of greater or equal size fully vetted by the State, ” and represented that United's Arizona network of behavioral health providers could assume wholesale management to maintain uninterrupted delivery of behavior health and substance abuse services to United's Enrollees in New Mexico. Id. at ¶ 47.

         Defendant Martin also asked the Collaborative for “legal clarification of who owns the dollars if recovery ensues” over concerns that there was no incentive for United to deal with the made-up “institutional fraud” if United did not get a cut of any recovery. Id. at ¶ 45. On May 13, 2013, United, the Collaborative and HSD executed the Professional Services Contract, Contract Amendment No. 15, which provided that United was entitled to receive up to 40% of all state funds recovered from any United subcontracted provider that United accused of fraud. Id. at ¶ 46.

         The Complaint alleges that in December 2012 and January 2013, United conducted “pre-audit investigations” of several of its subcontracted behavioral health care and substance abuse subcontracted providers and identified what United called “billing errors” by its subcontracted providers, including Plaintiffs. Id. at ¶ 36.

         Based on United's pre-audit summary, in February 2013, HSD contracted with defendant Public Consulting Group, Inc. (“PCG”) to conduct a confidential audit of 15 of United's subcontracted providers, including Plaintiffs, at a cost to New Mexico of $3 million. Id. at ¶ 37. These 15 subcontracted providers constituted approximately 87% of the Collaborative's spending for Medicaid and state-funded non-Medicaid behavioral health and substance abuse services. Id.

         Plaintiffs allege that although the PCG audit was supposed to be confidential between the Collaborative and PCG, United actually participated “in partnership” with PCG to audit United's subcontracted providers. Id. at ¶ 38.

         Based on “information and belief, ” plaintiffs further allege that:

. United, HSD and PCG “agreed to audit the fifteen providers, including Plaintiffs, with the pre-determined outcome that HSD would make a determination that there were ‘credible allegations of fraud' against each of fifteen providers pursuant to 42 C.F.R. § 455.23, which would trigger immediate suspensions of all pending State payments for behavioral healthcare services already rendered and billed by each provider, including Medicaid, CYFD and Department of Corrections payments. Id. at ¶¶ 52-53.
. Defendants knew that suspending payments to the 15 audited providers, including Plaintiffs, under 42 C.F.R. § 455.23 would result in HSD referring the providers to the New Mexico Medicaid Fraud Unit (“MFCU”), which would investigate and cause the suspensions to last indefinitely, thus interfering with the providers' contractual and business relationships with HSD and other state agencies and impair or destroy Plaintiffs ability to continue to operate. Id. at ¶54.
. United, HSD and PCG agreed that PCG would violate standard auditing practices, including but not limited to refusing to allow the audited providers to respond to initial audit findings and provide explanations and further documentation to address initial findings, in order for the PCG audit to support United, HSD and PCG's pre-determined outcome that there were ‘credible allegations of fraud' against the providers, including Plaintiffs.” Id. at ¶ 55.

         Plaintiffs allege that United, HSD and PCG developed a scorecard for each provider, rating them between 1 (“Compliant”) and 4 (“Significant Non-Compliance”), then used scorecards to categorize the providers in Risk Tiers from 1 through 4 in the PCG Audit as follows:

1 “Findings that include missing documents, etc., ” for which PCG recommended, “Provide training and clinical assistance as needed.”
2 “Significant volume of findings that include missing documents” for which PCG recommended “Provide trainings and clinical assistance as needed” and “Potentially embed clinical management to improve processes.”
3 “Significant findings, including significant quality of care findings” for which PCG recommended “Provider training and clinical assistance as needed, ” ‘Potentially imbed clinical management to improve processes, ” and “Potential change in management.”
4 “Credible Allegations of Fraud” for which PCG recommended “Mandatory change in management.”

Id. at ¶ 56.

         The “confidential” final audit report, dated June 21, 2013, found, inter alia, the following:

a. United overpaid fifteen of its subcontracted providers approximately $37.3 million over the period of July 2009 - January 2013. United's overpayment amounted to approximately 15% of the money New Mexico annually paid to United. Id.
b. United's claims processing system was not capable of timely and properly adjudicating provider claims. United's promise to use “best practices” in encounter and claims processing in compliance with federal and state statutory and regulatory schemes was not implemented. Id. at ¶ 38.

         Plaintiffs allege that PCG ranked none of Plaintiffs higher than a 3. Id. at ¶ 57. Although PCG determined that all fifteen of the audited providers failed the audit, it nonetheless concluded that: “PCG's Case File Audit did not uncover what it would consider to be credible allegations of fraud, nor any significant concerns related to consumer safety.” Id. at ¶ 58.[1]

         The Complaint alleges that three days later, on June 24, 2013, it was publically announced that HSD received “credible allegations of fraud” concerning 15 of United's contracted non-profit providers of behavioral health services, including Plaintiffs, “which HSD spun as the providers having actually defrauded the Medicaid program out of $36 million over a three-year period.” Id. at ΒΆ 39. The ...


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