Auditors cite costly lapses by contractor overseeing behavioral health claims in Maryland

State auditors released a scathing report Friday detailing lapses in hiring and monitoring the company contracted to oversee payments to providers of mental health and addiction treatment for the state’s low-income residents.

The troubled system has drawn numerous complaints for the past two years from behavioral health care providers who have had difficulty submitting claims for new and existing clients at a time of heightened need during the coronavirus pandemic.


The audit confirmed many of the complaints about the system’s dysfunction and also detailed problems with the initial vetting of the contractor, hired by the Maryland Department of Health. The issues cost the state millions in potential additional federal funds and millions more in damages due that health officials failed to collect.

The routine audit, sent to state lawmakers, does not name the contractor, but centers on the Minnesota-based company Optum, a subsidiary of the managed care giant UnitedHealth Group. Optum won a $198.2 million, 5-year contract to manage the state’s behavioral health payments beginning in January 2020, with a possible two-year extension.


After problems with the transition and with claims from providers mounting, state health officials pressed Optum to make more than $1 billion in estimated payments through June 2021 to providers who participate in Medicaid, the state-federal health program for low-income people. That led to more issues with collecting overpayments and ensuring claims weren’t improperly denied, a process that continues.

The auditors noted that some problems cited in past audits have been addressed, but multiple issues remain or are unexplained, including how the state officials even approved the contractor without ensuring its claims processing system functioned prior to launch.

Along the way, the health officials failed to monitor and conduct their own audits and hired an IT consultant for a $19.8 million contract without proper bidding.

The actions, auditors said, cost the state $28.8 million in extra federal funding it could have obtained if things were running properly. The auditors also said the state officials failed to assess up to $20.5 million in damages permitted by the contract for the vendor’s “ongoing failure to provide an operational system or comply with specific requirements.”

The audit response, signed by Maryland Health Secretary Dennis Schrader, agreed with most of the findings, and detailed new processes and other fixes to address shortcomings on this and future contracts.

One disagreement where the department stood firm was not assessing the damages, saying officials were “concerned that such actions would discourage the [contractor] from resolving noted defects and may lead to litigation with an uncertain outcome.”

This brought a rebuke from auditors, who said that was contrary to state law.

In the end, the audit acknowledged that the people ultimately affected by the behavioral health turmoil were those suffering from behavioral health disorders.


“Although not specifically quantifiable, several identified deficiencies potentially impacted the effective and efficient delivery of health care to a vulnerable and needy population,” the auditors wrote.

The audit prompted sharp criticism of the state health department from Sen. Clarence Lam, Senate chair of the Joint Audit and Evaluation Committee, who said he’s heard from providers who have stopped offering services because of the problems.

“This contract with Optum has been a massive debacle for the state from inception until today,” Lam said in a statement.

“When incompetence and mismanagement cost the state hundreds of millions of dollars, someone at the Maryland Department of Health should be held responsible,” he said. “The level of waste and ineptitude uncovered by this audit is disgusting and an indictment of the current broken leadership at the department.”

Lam took specific issue with the audit’s finding that the department did not properly vet Optum and its subcontractors before awarding the contract.

The audit said health officials didn’t obtain references or contact the subcontractors, though another state had told the department Optum “struggled to manage detailed patient claim data and recommended that any agreement include the ability to assess daily penalties for missed deadlines.”


The health officials nonetheless reassured a state panel set to approve the contract when panel members expressed concerns.

Also concerning, Lam said, was the waste and loss of taxpayer dollars. He cited the audit’s finding that more than $220 million in estimated payments remains to be substantiated or recovered, as well as the loss of federal matching funds and the refusal to collect damages.

The audit committee, he said, plans to hold a hearing on the matter.

Separately, a joint briefing on Optum is scheduled for Nov. 1 in the House Appropriation’s Health and Social Services Subcommittee and the House Health and Government Operations Committee.

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In a statement, Optum said its portal is now functional and processing nearly all claims —76,000 since September — within 14 days. It’s paying out an average of $36 million a week to providers.

“While we recognize that the system did not live up to expectations in January 2020, we have worked closely with the state and provider community to address those issues,” the statement read. “Since August 2020, the Optum authorization and claims platform has been performing within industry standards and is quickly and accurately authorizing and paying providers for the care they deliver to Marylanders.”


Further, Chase Cook, a spokesman for the health department, said the agency “has already made significant changes to our internal procurement process and is moving forward with additional organizational changes.”

However, Shannon Hall, executive director of the Community Behavioral Health Association of Maryland, a trade association representing 108 mental health and addiction treatment providers, said there has been significant damage done. The audit “sheds light on the havoc that Optum’s many failures have caused, but hopefully points to available solutions.”

She said that means exercising contract oversight by a new state administration. Gov. Larry Hogan ends his second and final term in January.

Hall said the “real world implications” of the problems has meant providers, which rely on Medicaid to operate, have to dedicate extra staff to follow up on claims that are supposed to be automated. Some have laid off or diverted staff from providing care.

“This means that in the middle of an unprecedented mental health care crisis, thousands of Marylanders are unable to receive the care they need,” she said.