Beth Wood: Medicaid audit never said system was ‘broken’

Posted on November 1, 2013 

State Auditor Beth Wood met with the editorial board and some newsroom folks this week to talk about her office’s audit of the state Medicaid program, among other things. Gov. Pat McCrory has cited the audit as one reason the state refused to expand Medicaid coverage to almost 500,000 North Carolinians, saying it proved the system is “broken.”

Wood said emphatically that “broken” is not a word she or anyone in her office used.

We spent a good bit of time just chatting about Wood’s childhood years growing up on a farm near Kinston. She had plenty of experience helping with crops, including tobacco, playing every role in harvesting the leaf. A fear of heights kept her from being the “high man” in the barn when it came time to hang tobacco, but she was the “low man” aplenty, which means all the dust and dirt fell on her.

She was working as a dental hygienist when she decided to go back to school at ECU. Working herself through school was hard on her, but her father, she said, always told her she could be anything she wanted to be.

“Being the farmer’s daughter, I didn’t get to sit back and be lazy. I had to set an example for the other kids working. I got Pell grants. The hardest time I ever had was those two and a half years. I just about killed myself. Six weeks before I graduated, I almost quit because I thought I just couldn’t take it anymore. It was my friends and family who supported me and took care of me. I promised God, if you help me get through this, I’d help the next kid in my shoes.”

Here are my notes. They are NOT verbatim.

On the problems with the new NCTracks system at DHHS:

I think our letters to the General Assembly were pretty self-explanatory from the NCTracks perspective. I hope people see the entire picture of what went on with that. We put out an audit in 2011 about all the issues with the new Medicaid computer system and all the problems being had. Then we had the administration who just wants to delay and ask for more money, delay and ask for more money. Then we get into the new management and now all of the sudden we’re going from delay and more money to this thing is going to be ready July 1. We went and we looked at that system. What are the risks that the system is ready to go live? We believe we put out important things, like the business processes are supposed to be tested. There were more than 800 tests; 135 failed; 285 were never tested. We brought that to the attention of the new management. All along the way, state policy says when you put in a project like this you will have an independent validation of the testing that gets done. We found that in March and reported to DHHS that the vendor wasn’t doing independent validation. They were just using reports from the company doing the project.

Hewlett-Packard had a clause in their project that when you’re done with us, you must give us 60 days notice. The plan was to give Hewlett-Packard notice like Feb. 28 or in March. My staff was saying if you give them that notice that you’re done you don’t have any choice but to go live July 1 no matter what comes down with the system.

I was in a meeting where the secretary was present, the CIO was present. They said no, it’s a formality of the contract that we must let them know 60 days in advance we’re done with you July 1. We’ve discussed with them if something comes up before July 1 and we still need them. July 1 is not a drop dead date.

Our office as we move along in an audit, we have issue sheets. We discuss the sheets with whoever we’re auditing. If they can bring evidence to refute what we have, the issue goes away. The July 1 date was on our issue sheet.

We raised the red flags, the risks about the system being able to go live successfully July 1. We were told that July 1 was not a drop dead date. We had a discussion with Hewlett-Packard if you can’t go live, we can extend. It wasn’t a finding, but it was an issue in our work pages.

I was very disappointed that it was presented to the General Assembly that July 1 was a drop-dead date.

I hope everybody understands from the onset to go live there were problems. I don’t care who was in charge. There were problems. We signed a contract with CSC. They said they’d be able to use 72 percent of the code they used in New York for writing North Carolina’s. It turned out to be only 20 some percent of that code. That difference, that’s a lot of code writing. If you take 72 percent of code from a system you know is working, you’re a lot more comfortable. So there were problems from the onset

We also got programming done in Cobol which is antiquated. No one teaches that anymore. You have to go overseas to find anyone proficient with that. There were problems from the onset that North Carolina did not have its arms around. We gave enough evidence that July 1 was not a good go-live date. But we didn’t tell anyone not to. That’s not our job.

The reason is that as of July 1, the feds who are paying 90 percent of the building and 90 percent of the new system, the feds were saying we’re not paying for two systems to run after July 1. The state was going to be stuck with the cost of one or the other. As of July 1, the feds were not going to pay for two parallel systems to run.

Q: Is there any difference between being a public auditor vs. a private auditor?

A: I don’t really see any difference. As a private auditor, when we put out an audit and it had findings, a lot of the times, the organization would fire us. And they could. I thought there should be some way to prevent that. And that happened with counties we audited. When you go in and get a contract, usually a three-year contract, one-year renewable for two more years, I found out if we went out and did a great job and had findings, they fired us.

If we put out an audit with findings now, people still want to fire you. The pressure is to do less than what the standards require us to do.

I do have enough auditors. When I came into office as the budget cuts started to happen, my staff would say, we just can’t do our job with any less people. As the budget cuts happened and we were made to look at ourselves and decide what are we doing that is nonvalue-added to the audit. We used a consulting firm, with standards going to risk-based auditing, spending most of the time where the high risks are. Risk-based auditing standards came out a few years ago. What you want to do is audit the heck out of everything somewhere you know you got the pieces that are important. Do risk-based audits where you have high risks and then do the analytics.

I had a firm telling me we can show you how to audit in less time and have more findings because you’re going where a high risk of findings are. I just laughed. There’s no way I can spend less time on an audit and have more findings. They were exactly right. They showed us how to do it.

With the new standards, we were trying to pile on new stuff with all the stuff we’ve always done. The idea is to cull out stuff that’s not necessary, that doesn’t add anything to the audit. We took a hard look and found we didn’t really need all the auditors we had. We took eight or 10 auditors in the financial division and gave them back to the General Assembly.

I can always use auditors in different divisions of the office. I can always use more IT auditors and they gave us two this session. And I always can use more performance auditors. The financial auditors out there are doing mandated audits. We have no choice. I have auditors out there auditing federal funds. That’s mandated we have to do it. No choice.

We’re required to audit at least 50 percent of the $23 billion. Because of risk assessment, we’re auditing more like 70.

If you start piling on performance audits on top of that, now agencies are inundated with auditors. I’m not sure it doesn’t start to make state government inefficient if we’re in there all the time.

One of the reasons I wanted to be state auditor, I was in that office 10 years and put out a bunch of audits and state government never changed.

We have four audit divisions. Only one had deadlines and budgets. Now my performance group has deadlines and budgets, my IT group has deadlines and budgets and my investigative group has them.

Q: Investigative?

A: State statute requires we have a hotline for any state or federal monies that might be misappropriated. They call into us. We take down those tips and go out and investigate. We get more than 200 a year.

Those tips are not public record. If you’ve got someone who’s just mad at somebody and they call in a tip, a lot of times the court of public opinion will convict them no matter what my investigation shows. We publish nothing that’s not substantiated. We neither confirm or deny until we go through and substantiate. If we don’t substantiate, we don’t talk about it.

Q: Were you ever going to change parties?

A: I was never going to change parties. Ever. I believe the Democratic Party has the right programs in place. I don’t believe we’ve been as responsible as we should. I’ve got too many audits out there that say something different. Republicans might be more fiscally responsible, but they don’t believe in any of the programs. I’m sitting where I need to sit.

Q: Any pressure put on you to do certain audits?

A: No, it’s been more the opposite. There’s been pressure to not do something. Once you’ve been doing an investigation and people get wind of when findings are going to come out, there’s more pressure not to publish.

Q: Did you ask for Paul Newby, a Republican, to swear you in?

You don’t pick who swears you in. It is assigned. He swore me in in 2009. I did not have a clue if he was a Republican or a Democrat. I don’t care who’s what. I’ve just got a job to do.

I have to say Judge Newby was kind to me. I didn’t know what I was going to do, how to do it. He was very kind to me. It probably wasn’t till two or three years later I found out he was a Republican. Call me naive, guys, but I don’t care about the politics. We’ve got a job to do. People ask me on the campaign trail whether I’m a Republican or a Democrat. I tell them I’m a CPA. We audit the blue dollars and the red dollars. I don’t care who you are. If you’re wasting my tax dollars, quit it. Quit it.

Q: You don’t think your presence at the governor’s press conference on the failure to expand Medicaid lent credence to the argument that Medicaid was so broken it couldn’t withstand expansion?

A: The way our audits work is you can respond to my findings and if in early stage, if you can bring me evidence we are wrong, the finding goes away totally. If you cant, I’m going to print what we have evidence to support. If we do that, and you still want to get into your response and say this is wrong and that’s wrong, I’m going to take your arguments and show you and the world that you didn’t know what you’re talking about. I’ve got my facts before I put out an audit.

Q: So Carol Steckel was correct to change the report?

We had that conversation with Lanier Cansler. (DHHS assistant secretary) Dan Stewart likes to talk about how Medicaid is so complex, it’s so big, it’s so convoluted, but he can’t give you facts to refute my findings. I told Lanier our staff can’t come to whether this is a finding or it isn’t, but he couldn’t come up with any evidence that it wasn’t.

Q: But it was said our Medicaid operations cost is one of the highest in the country.

A: Every state Medicaid is very different.

Q: Why did you invalidate the argument of the Perdue administration that said we’ve done other calculations that show where North Carolina might be in line with other states and take the chart ...?

A: Where did the chart come from? Nobody knows where the chart came from. Because it doesn’t exist.

We hired subject matter experts to be a part of Medicaid, to be a part of this audit that the General Assembly asked us to look at. There were four areas we were asked to look at in June or July 2012. We needed subject matter experts to come and help with this subject. One of three who came in was the former head of the Center for Medicaid and Medicare out of Atlanta, where North Carolina and other states do all reporting of all Medicaid expenses. The experts we sent down there, they all have CMS experience

So I’ve got the subject matter expert who was head of the CMS working diligently in North Carolina. I’ve got the Medicaid experts on my team to perform this audit. They are the ones that decided how this was supposed to be reported in this audit report. They understand what goes into this audit, they saw stuff that Dan Stewart was trying to run through as an excuse. Nobody else has determined that the way Stewart was trying to report the numbers is the way to report it.

If you look at what Dan Stewart tried to use, there are parts that say nobody, nobody, nobody should use this for analytical purposes. The report (he used) says none of these numbers have been audited. This is all self-reported. None of this is even claimed to be correct. If there’s an error in this report and you try to use it for analysis, you’re going to have a problem in your analysis.

Everyone was jumping up in arms about a report someone pulled out of the sky.

He had one pulling in this and calling it administration costs and another doing something else. There are qualifications all through these reports Dan tried to use that said none of this information is audited.

Nobody’s proven it. Nobody’s verified it, and you have the Medicaid experts on my side of the table saying here is how administrative costs are supposed to be reported.

Q: But then our Community Care has been called a model for the nation. How do you reconcile Community Care being called a model if it also has high administrative costs?

A: If you ever thought Medicaid expansion was going to happen in the state of North Carolina, that is not correct. It was never going to happen in North Carolina. The governor gave four reasons why they didn’t expand Medicaid. My report was only one of four, and it was not sitting at the top. I think it would not have mattered if I did the audit or didn’t do the audit. He still had his three other reasons.

Q: So how do you feel when the governor consistently refers to the audit as evidence Medicaid is broken?

A: I would love for you to go into my audit so we’re all talking about administrative costs in North Carolina. The fact that we are higher than eight other states is a piece that other people have jumped on. Why doesn’t anyone care that DHHS doesn’t oversee or manage administrative costs? That there’s no accountability for the administrative costs? The administrative cost is a piece. The audit finding was a lack of accountability.

Q: So you were saying you need to change how you oversee it, but in terms of money wasted, you weren’t saying that. In terms of actual malfeasance, your findings weren’t of that nature.

A: You’re exactly right. That is not what my audit says. I can take you through about 10 points that ... my audit, the whole thing about how we denigrated them, all these things my audit supposedly says, you won’t find that stuff in my audit.

We came to two things about CCNC. One of them is a simple statement. The General Assembly said go find us $90 million in savings, and they didn’t do that. Y’all are going to have to deal with the politics. I’m dealing with the facts.

There’s never been ever been any attempt over there (at DHHS) to try to ... I just got through an example telling you about my staff saying we can’t do it with any less people, so I‘m not sure with dealings we’ve had over there that they’ve done the same assessments of themselves.

Here’s the purpose of our audit. The General Assembly said that every year now for four years we’ve been $145 million overbudget in Medicaid. Tell us how that happened. So I say, you scheduled for $90 million in cuts from CCNC, and they delivered only this.

The other thing we said about CCNC, if you look in these reports, they talk about CCNC and the awards they win. Everyone said you’re saying CCNC is this. (The award) was for managed care. It wasn’t for efficiency. The award was for the managed care concept. Everyone is touting all these savings that managed care saves everybody. Our audit report says there is at least 10 years of actual data where people are being treated paid for by Medicaid not in managed care and people being treated in a managed care organization. Our report said, let’s go get some actual information and see whether all the savings CCNC was projected.

We said, we’ve got actual data. Let’s go take a look. That’s all we said about CCNC.

I’ve said in interviews that ‘broken’ is the governor’s term. I never said it. My audit doesn’t say it. The governor said it was broken before my audit ever came out.

I’m reporting facts. I had the objectives the General Assembly sent me out to do. I met them, and my findings are irrefutable.

If you look, what you’re going to get is, here’s what Dan Stewart said about the numbers, and here’s where you’re wrong. I would never have let his findings go not refuted. He made up stuff. It was bogus information. He took it from a report that said don’t use it for that reason.

I’m passionate about what I do. Don’t misread passion for anger.

The General Assembly just doesn’t believe their (DHHS) numbers.

Q: What will it mean for you if the Commerce Department does indeed start public-private jobs-creating partnerships?

A: I am saving everyone of those articles looking at what other states have found as a problem. On the state side of things, when we try to run something, we don’t have a lot of accountability. On the other side, I have audit after audit when you get private involved, we don’t have contracts, written on our behalf, not their behalf, we do a horrible job of having contracts that what we got and what we paid for are the same thing.

We didn’t monitor the moneys, didn’t make sure what the grant money was supposed to accomplish did. That’s why we went and audited the Rural Center. Is Commerce doing their job? The audit report was no, they are not properly monitoring the money. Then we went and said, let’s go look at the largest recipient of these $87 million dollars and see whether no accountability is a problem at the next level. People jump on the Rural Center, but Commerce was not watching over what it was supposed to be doing.

I would just have a different set of objectives. If North Carolina doesn’t watch over this nonprofit organization, we’re going to have the same write-ups other states have. Whether it’s privatization or the state of North Carolina, it’s just another set of objectives. Are the people getting what they paid for?

They’re going to be nonprofits, 501(c)3, and I absolutely can go in and look at anything they have. And if they try to refuse me, I have subpoena power.

This best effort, Perdue tried it and she just didn’t follow through with it. The best effort I see being made is for state agencies to determine performance metrics so they can say with these dollars what should we be accomplishing and then did we do it?

It appears this administration is honing down on that for every state agency. What you get down to is, here’s what it costs to run that program for a year. Here’s what that program should put out, and here’s what they did. That was tried to be accomplished under the Perdue administration, but it never worked. I audited the effort, and nobody was doing it. We did it. It’s what I needed to manage by.

It appears this administration is making a good effort to put that into place. It will take a couple years.

Q: How does so many exempt, at-will positions affect state government?

A: I believe we’ve determined that those exempt, at-will positions do not have any qualifications to sit in those seats. The civil positions do. I’ve said this to my chief deputy who is also an at-will employee. If I wanted to give that position to my mom, who has no auditing experience, I can do that. With no qualifications attached to those positions, I don’t know that that helps state government. With civil positions, you have minimum qualifications to get into that job.

This administration is learning in order to have people qualified to do jobs well, you have to get these salaries up. They see what we’ve been paying for years and recognize you can’t get good qualified people to run our state at salaries we’re paying out there.

My auditors are making between 80 and 84 percent of market. We’re trying to find people who want their resume to look good, want to be challenged, want to be trained well, have committed to pubic service but we will have you out the door at 5 o’clock.

If you want talented auditors who care about auditing your tax dollars, I need about a million, five to get my salaries to where they need to be.

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