shows a red cross with the word Medicaid printed on it, in front of a pile of dollar bills. For Medicaid transformation

By Thomas Goldsmith

State Auditor Beth Wood took another whack Wednesday at North Carolina’s ongoing transition to Medicaid managed care, a process overseen by the N.C. Department of Health and Human Services.

In newly released findings, Wood’s office said that NC DHHS left holes in contract language that should have limited allowable profits for the seven locally run managed care organizations that provide services for Medicaid recipients with severe mental illness, developmental delays or substance-abuse problems.

The state legislature passed laws in 2015 ordering a transition for the rest of the Medicaid program over to managed care operations; starting this year recipients’ physical health care will come under managed care organizations that were chosen last week.

The audit follows the finding by Wood’s office in January that the state paid an extra $439 million between 2015 and 2017 to the locally run agencies that handle Medicaid’s behavioral health care clients. The new findings claim that the contracts for behavioral health services with local management entities/managed care organizations, or LME-MCOs, didn’t clearly protect the state’s interests and failed to comply with requirements of state and federal government.

Specifically, this week’s findings said:

  • “The contracts did not include terms to define or recover excess LME-MCO savings, define unreasonable administrative and service costs, or limit profits from related-party transactions;
  • “The contracts did not contain all federally required provisions. Some provisions lacked sufficient language, were written incorrectly or were missing.”

Under managed care, companies or agencies agree to care for patients in return for a set per-month, per-patient payment. When North Carolina’s transition is complete, more than 2.1 million patients covered by the nearly $14 billion Medicaid program will receive both physical and behavioral health coverage through managed care.

Avoiding Cardinal’s sins

Auditors also referred to unnecessary spending by the LME-MCO Cardinal Innovations that showed up in 2017 findings. This cautionary information included attention-getting numbers such as the $113,505 Cardinal spend on travel to luxury resorts for board retreats, $94,184 spent on board meetings at “high-end venues,” and $7,702 on chartered flights.

The implicit message: no MCO should be able to pay for such amenities with taxpayer dollars intended for low-income people and those with disabilities.


The audit also reported instances in which LME-MCOs turned in expenses in ways that the Centers for Medicare and Medicaid Services do not allow.

“Additionally, LME-MCOs have reported spending approximately $369,000 of Medicaid funds on lobbying contracts throughout FY 2015 and 2016,” the audit said. “Lobbying costs are disallowed according to the federal cost principles.”

HHS Sec. Mandy Cohen responded in the audit that the department agreed with its findings generally. However, Cohen cited additional considerations within her statement.

DHHS would be fine with limiting the profits of PHPs, or the prepaid health providers newly contracted by the department, she said, as long as lawmakers pass legislation to that effect. In addition, DHHS wants to keep necessary leverage so that the plans will manage costs and  “meet or exceed our health outcomes goals,” Cohen wrote.

DHHS is facing pressures, sometimes contradictory, both to be accountable to taxpayers and to make sure the provider organizations are making enough money to pay for recipients’ care and for the hoped-for development of innovative ways of delivering care and improving outcomes, all while making a profit.

Creative Commons License

Republish our articles for free, online or in print, under a Creative Commons license.

Thomas Goldsmith worked in daily newspapers for 33 years before joining North Carolina Health News. Goldsmith is a native Tar Heel who attended the UNC-Chapel Hill, and worked at newspapers in Tennessee...

3 replies on “State Auditor: NC DHHS should limit profits, costs of behavioral health MCOs”

  1. If the LME-MCO is making a profit, does this mean the providers are receiving less funds?? How would the MCO even make a profit? Why can’t Medicaid manage the funds and give the providers more money?

  2. I am a mom of a mentally challenged child,
    I cant get the help my son needs to grow.
    I feel with the right help and support in place he could stay on hos own. When trying to get him placed in a appropriate group home like an AFLH, its a problem. Im told by his MCOs there is no money for
    that placement. I havereaching since he was 18. He is 41 now. I need to know my son will be ok, should i not be around. An AFL home would be better prepare him now. We need money in the mental health system, and we as providers need to be better communicated with by MCO. We need social workers in place to help us as care givers like they use to have. The mental ill clients need more than $66.00/monthly in their allowance. This is a burden to families who really is trying to help with their loved ones care. I’m disabled myself, but for years i have been carrying the burden of paying my son’s life insurance, buying clothes, and give him some money here and there when the $66.00 run out. After all what is $66.00 with the cost of living today? Im 63 yrs old now. I still have not seen that much change to benefit the poor, and mentally ill
    Population. So many of these clients are sent to homes that is not even suppose to take their level care. So many are not even getting their 3 hot meals a day, or getting one on one attention that may need to help them overcome barriers in the real world. If anyone read this and can give me feedback, email me. I will welcome your feed back. We need MONEY POURED INTO MENTAL HEALTH. We as families and caregivers of the mentally challenged need HELP! PLEASE THE SENATORS, GOVERNMENT, REPRESENTATIVES OF OUR STATE TO GIVE MONEY IN THE MENTAL ILL BUDGET. THANKS

Comments are closed.