Gov. Pat McCrory and Sec. of Health and Human Services Aldona Wos as they presented reporters with results of the Medicaid program audit. Photo courtesy of N.C. Health News

This story originally appeared here and is published by Carolina Public Press through a content-sharing agreement with N.C. Health News. Read the first in this two-part series here.

By Rose Hoban

As members of the Perdue administration wrapped up work in the fall of 2012, one of the last tasks for Department of Health and Human Services officials was writing responses to an audit of their department that State Auditor Beth Wood had begun in the summer of 2012.

Gov. Pat McCrory and Sec. of Health and Human Services Aldona Wos as they presented reporters with results of the Medicaid program audit. Photo courtesy of N.C. Health News
Gov. Pat McCrory and Secretary of Health and Human Services Aldona Wos as they presented reporters with results of the Medicaid program audit. Photo courtesy of N.C. Health News

DHHS staff had been working with Wood’s team on the audit for months, providing documents and negotiating responses to findings through November and December. Many of the replies provided by DHHS attempted to explain the complexities of the Medicaid program and refuted auditors’ accusations of mismanagement.

But when Pat McCrory became governor and Aldona Wos, his appointee, took over as head of DHHS, the scope of the audit widened. The new officials deleted many of the former staff members’ defenses of their actions.

The resulting audit, delivered to the public on Jan. 31, painted a picture of a department with out-of-control spending, lacking oversight and “broken.” It also called into question the efficacy of the nationally recognized Community Care of North Carolina program that manages care for 1.4 million of the state’s 1.6 million Medicaid patients.

Newly appointed McCrory administration officials accepted Wood’s critiques nearly wholesale.

“It’s not an adversarial situation any longer; it’s a truly collaborative effort to try to improve the services that we provide in the department,” Wos told legislators this week when asked about the audit. “We like having audits in our department. The audits are very helpful for us; they’re insightful, they’re helpful, they’re instructive.”

“We came in January and looked at all our tasks with a new pair of eyes,” Wos said.

Since the audit’s release, McCrory has used its findings as justification for declining an expansion of the Medicaid program that was allowed for under the Affordable Care Act. The governor has also used the audit results as the rationale behind a proposal to invite for-profit managed care companies to run the state’s Medicaid program, even as others around the country praised and imitated Community Care of North Carolina’s not-for-profit model.

Widened scope

In the fall of 2012, Wood’s auditors found four problem areas that elicited responses from DHHS officials. Perdue’s team scrambled to complete those responses before the turnover in administrations, including sending replies to Wood’s staff in November.

In December, the audit still contained those four findings, and emails from DHHS to auditors reiterated those November responses, sometimes in a tone that bordered on testy.

In a document dated Dec. 6, DHHS officials listed the auditor’s findings as they stood at the time; among themselves, they outlined the issues they felt required response (see document, below).

By early January, as new staff arrived, Wood’s office began to present additional problems, some more serious in scope, and by Jan. 10 Wood’s office had returned documents to DHHS with a total of eight findings, arousing some confusion.

Tara Larson, outgoing state clinical operating officer for Medicaid, wrote to the audit supervisor, Laura Bullock, on the day the new findings were sent to DHHS, asking, “I don’t recall the discussion about the additional findings during our meeting in December? Am I off base – I want to make sure we get you everything.”

But officials from the prior administration were already leaving DHHS, unable to add their perspectives or to defend their actions and policies.


Audit Timeline

June 15, 2012 – State budget bill mandates the state auditor’s office to audit the Medicaid program

November 1, 2012 – State Auditor Beth Wood delivers required preliminary report on audit to Joint Legislative Commission on Governmental Operations

November 6, 2012 – Pat McCrory elected governor; Republicans elected to super-majorities in Senate and House of Representatives

November 27, 2012 – DHHS returns, writes initial responses to findings sent by state auditor’s office

December 18, 2012 – Outgoing DHHS returns revised responses to four auditor findings on budget overruns, financial projections, administrative costs and problems with communication and reporting of Medicaid program

January 5, 2013 – Pat McCrory takes oath of office to become North Carolina’s governor

January 9, 10, 2013 – DHHS officials return responses to original, additional audit findings

January 14, 17, 18, 20 – Succeeding edits to audit response

January 22, 2013Steckel markup of audit response removes many departmental explanations of prior actions, creates edit that accepts most of the state auditor’s criticisms of the program (see story Oct 8 for document)

January 24, 29, 2013 – Final edits on audit response

January 31, 2013 – Sec. Wos and State Auditor Wood present audit to Gov. McCrory and public

Community Care of North Carolina

On the same day Wood and McCrory were delivering the damning audit to the public, Sen. Richard Burr was in Winston-Salem delivering an award given by national health care executives to Community Care of North Carolina.

“Where successful health care innovation is taking place and cutting-edge thinking is being applied to wellness and prevention, we want to shine a spotlight,” the Healthcare Leadership Council’s Mary Grealy said of CCNC in presenting the award.

“The collaboration of providers, the focus that comes from the Community Care network towards those chronic diseases, means that we can just manage them better,” Burr said in his presentation. “[CCNC can] reduce the costs, and we drastically change the health outcomes of patients.”

But back in Raleigh, Wood was citing CCNC for not achieving savings goals mandated by the General Assembly. She wrote in the audit that, “The State expected to save $90 million per year with CCNC during [fiscal years] 2012 and 2013, but fell $39.5 million short of its goal in 2012.”

Throughout the previous fall, DHHS officials had moved to defend CCNC from Wood’s allegations of mismanagement during fiscal year 2012, which ended on June 30, 2012.

In written responses to the audit, DHHS officials touted CCNC’s design and outcomes and pointed out that some of the changes requested by the legislature – which were intended to save $90 million a year – would require federal approval, a process that can take months.

The delay in federal approval would then delay CCNC’s efforts to achieve the entire mandated savings during 2012.

Referring to CCNC’s inability to deliver quick budget savings, outgoing DHHS Sec. Al Delia asked in a November email to other departmental officials, “[D]id anyone in the Auditor’s Office read a newspaper or watch the news during that period of time? This was common knowledge!”

Eventually, DHHS officials assured legislators that CCNC would be able to achieve $180 million in savings over the biennium, meeting legislators’ goals, albeit late.

“There were numerous discussions with DHHS and [the Office of State Budget and Management] regarding the situation,” DHHS officials wrote in a November draft.

The draft elaborated on the fact that the Division of Medical Assistance, which administers the state’s Medicaid program, had “worked in collaboration with CCNC to forecast the expected savings that would be achieved in aggregate for [fiscal years] 2012 and 2013.

“In addition, the Secretary discussed the forecasts with Legislative leadership, at which point the decision was made not to implement actions to further reduce rates or optional services, as the forecast reflected an expectation that at least $180 million would be achieved over the biennium budget period.”

Early drafts of the audit response also noted that weekly budget progress reports, including CCNC budget numbers, were being delivered to the Office of State Budget and Management as of July 2012 in order to track compliance with legislative-approved reductions.

Nonetheless, Wood cited the department for poor communications with OSBM about these budget matters and faulted CCNC and DMA for not reaching mandated budget goals.

As government turned over in January, DHHS officials continued to defend CCNC. A section of a Jan. 15 draft of the audit rebuttal included a pointed disagreement with Wood’s suggestion that the state bring in medical researchers to study the program “to determine whether the CCNC model saves money and improves health outcomes.”

“The Department already engages such researchers,” these drafts read. “Currently, [the Division of Medical Assistance] annually engages a national actuarial consulting firm with extensive experience in the health care and health insurance industries to apply actuarial science to determine what savings have occurred as a result of the Community Care of North Carolina (CCNC) program. DMA also participates in the Healthcare Effectiveness Data and Information Set (HEDIS) report, which is used by Health Maintenance Organizations and Health Insurance companies nationally in comparing clinical outcomes and processes. DMA will utilize the results of the researchers’ studies as part of its annual review of CCNC performance.”

But in a draft dated Jan. 22, incoming Medicaid head Carol Steckel deleted all that language, as shown in a tracked-changes version of the document. That draft read, “The Department agrees with this recommendation [to hire medical researchers to study CCNC].”

The final audit, presented Jan. 31, eliminated any DHHS defense of CCNC.

Months later, in the state budget, lawmakers allocated $100,000 to “engage nationally recognized medical researchers to perform a scientifically valid study based upon actual data to determine whether the Community Care of North Carolina (CCNC) model saves money and improves health outcomes.”

“I firmly stand by whatever I signed in January,” Wos told legislators this past week.

Read more

Read the documents cited in this report here.

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