State Health Department officials told a legislative oversight committee on Tuesday that they declined to pursue serious damages against an underperforming contractor because they feared litigation and the contractor s would walk away, leaving the state to hold the bag.
Members of the Joint Legislative Audit Committee were told that ongoing problems with Optum Maryland had cost the state more than $500 million. But health department officials tried to deflect the issue, saying imposing less severe penalties saved the state millions on the bottom line of the four-year deal.
“It does appear that there have been hundreds of millions of dollars that have been lost to the state, and I think the department’s response was insufficient and such a twist of the truth that it is truly shameful at Cirque du Soleil,” said Sen. Clarence Lam, of D-Baltimore and Howard counties and co-chair of the committee.
Lam called the agency’s demand for savings “nonsense.”
Optum Maryland, a Minnesota-based subsidiary of Optum, was awarded a five-year contract in 2019 to pay Medicaid claims for approximately 260,000 people in Maryland receiving mental health or addiction treatment.
The contract, which expires in 2024 plus a two-year renewal option, cost $198.2 million.
But almost since its inception, the payment system has failed at almost every turn, officials have acknowledged.
And early in Tuesday’s hearing, Maryland Department of Health officials, including Webster Ye, Assistant Secretary for Health Policy, and Assistant Secretary of Health for Health Care Funding and Medicaid Steve Schuh, refused to answer many questions. Instead, the pair relied on written responses provided to the auditors and the committee.
Optum, the lowest bidder and the one that knocked down an incumbent contractor, did not have systems in place to pay service providers quickly and properly, officials said.
The Maryland Insurance Administration found Optium to be non-compliant with prompt payment laws. Optum said he was unaware the law applied to his work in Maryland. The company entered into a consent agreement with the agency to resolve the issues, but admitted no wrongdoing.
Ye acknowledged that the automated system needed to make payments to treatment providers and to seek reimbursements from the federal government had not been properly tested.
Even so, the state refused to impose the severe penalties permitted by the contract for Optum’s non-performance.
Legislative Auditor Greg Hook told lawmakers that the disagreement between his office and the department “deals with a lack of accountability for vendor non-performance and the accountability of state employees when they decide not to.” not assess and collect damages as provided for in state contracts”.
Auditors noted that the agency did not impose penalties on Optum for breach of contract totaling nearly $21 million.
The department could have imposed about $30,000 a day in penalties, according to a response provided by health department officials.
Failure to impose the harshest penalties is against department policy, the auditors said.
Instead, the department withheld nearly $6 million in various payments to Optum.
“We maintain that the state did not lose money,” Ye said.
Schuh, the assistant secretary, agreed.
“I don’t believe there were any casualties,” Schuh said. “We advanced over a billion dollars, as you know. We have worked diligently to raise these funds.
Schuh said all but $140 million has been raised and “by the end of this month, those remaining dollars will all be subject to installment payment plans or claim holdbacks to repay the full amount.” by next summer.”
Lam called the department’s written explanations and responses “alternative facts.”
“If you’re going to tell us the sky is green, I don’t think we can believe it,” Lam said. “We are reviewing an audit report that shows over half a billion dollars in losses to the state.”
Auditors on Tuesday disagreed, providing lawmakers with a chart outlining more than $535 million in contract losses with Optum.
Office accountant and auditor Josh Adler said Health Department officials are concerned Optum is “stopping and running,” meaning the company would stop paying benefits if the state enforces. the contract. He said it was unclear whether the company made the threat.
“I don’t know if it was that explicit, but the department’s position was that they were afraid of this and they didn’t want to be in the position where they didn’t have a contractor and they had to do all the services that the contractor was supposed to do,” Adler said.
“It’s almost, in my mind, too big to fail, and when the contractor isn’t doing well, the department’s position was good, we can’t do it,” Adler said.
Ye, in response to questions from Lam, acknowledged concerns about Optum abandoning the contract if liquidated damages were imposed.
“We believe that imposing damages at this stage is not an effective way to ensure that the state receives a working product for a mission-critical health services system,” Ye said.
This summary included overpayments and uncollected federal funds, denied federal claims, duplicate payments, and wrongfully denied claims.
The vast majority have been characterized as continuing losses, meaning they could increase – perhaps daily – if the agency takes no action.
Nearly $29 million will never be recovered, Adler said.
“Twenty-eight point eight million dollars is gone,” he said. “We don’t understand.”