State Auditor Exploring Courses of Action Relative to Inspector General Report of $168.6 Million in MCO Over-payments
After More Than a Year of Secrecy and Obscure Budget Maneuvering, the Health Care Authority Owes the Legislature and the the Public an Answer to Why the Agency Has Not Gone After the MCO’s for Repayment of $168.6 in Over-payments.
Last week, The Candle spoke with New Mexico’s State Auditor regarding findings by the U.S. Health and Human Services Office of Inspector General (OIG) that the state of New Mexico should refund the federal government’s share of $168.6 million in overpayments made by the state to Managed Care Organizations.
Questions remain as to why the Health Care Authority (HCA) has banked $120 million of “Incurred But Not Reported” (IBNR) funds while not challenging the MCO’s for recoupment of what the federal OIG has reported should be returned to the federal government as its share of overpayments the state made to the MCOs.
The Candle asked if the use of the IBNR funds in this manner was an allowable accounting practice, and if the HCA should be more transparent.
We also raised the issue of the HCA using the IBNR funds, or other funds not originally appropriated for repaying the federal government, without providing a clear reason and explanation for abandoning any effort to recoup the over-payments from the MCOs.
Auditor Joseph Maestas, wrote in response to questions from The Candle, that his office “is actively exploring appropriate courses of action to ensure the issue is resolved with full transparency and accountability. Updates on further developments will be provided as they become available.”
Maestas also noted that the matter is complex.
(A copy of the auditor’s full statement can be found below, along with other documents related to the OIG report.)
The Legislature is likely going to be called back into a Special Session soon to address matters related to the loss of some federal funds.
Such a Session will be an opportunity for legislators to demand the HCA make an effort to have the MCOs return the over-payment, or publicly explain why the state should take the loss of $120 million – money the state will need to bolster programs like SNAP and other human services.
Two weeks ago, in response to questions from state legislators about the millions of dollars in overpayments by the state to the insurance companies, New Mexico Health Care Authority (HCA) Secretary Kari Armijo stated, “ … it’s a very complicated financial issue, so I’d be happy to kind of talk offline. It probably would put half of you all to sleep.“
Complicated or not, the Armijo and her team has been less than transparent about the HCA actions to resolve the claims made in the OIG report which was made public more than a year ago.
Armijo needs to follow up with the Legislative Health & Human Services Committee and the Legislative Finance Committee with a public explanation of why her agency appears to be letting the MCO’s pocket the $168.6 million, leaving the state holding the bag.
If the HCA has a legitimate reason not to sue the MCO’s or not make any attempt at recouping what the OIG describes as an ill-gotten over-payment, then Armijo has a duty to share it with the Legislature and the people of the state, and not just tuck $120 million aside.
The Secretary told legislators”… we’re very much still in negotiations about that with the federal government. And the federal CMS, which makes the final decision, has not made a final decision.”
What is odd about that assessment by Armijo is that the HCA probably had a better chance of the federal government forgiving the $120 million refund when the Biden administration was still running the U.S. HHS – yet she won’t provide specifics as to when the HCA has met with the feds and or reveal the status of negotiations.
A transcript of Secretary Armijo’s responses to legislators’ questions about the $168.6 million the federal watch dog agency determined should be recouped by the state from the MCOs, can be found at the end of this article.
For more than a year the New Mexico Health Care Authority (HCA) has refused to provide a clear and transparent explanation of what the agency is doing relative to the report released in a May 2024.
As The Candle reported earlier this month, multiple requests for an explanation regarding the HCA’s plans to address the OIG report and findings have been met with silence from Armijo, and her team “has refused to respond in any way.”
In fact, the HCA’s Medicaid Chief Financial Officer, Elisha Walker Moran told The Candle she was not allowed to comment.
But Walker Moran revealed in a document that was provided to the Medicaid Advisory Committee (MAC) at its May meeting, that the HCA was setting aside $120 million from FY 2024 and FY 2025, to use to refund the federal government should it insist that the state owes the money.
Despite the agency’s resistance to be transparent about its plans, The Candle obtained a March 4, 2024, Situation Report from Medical Assistance Division Compliance Officer, in which the officer informed Secretary Armijo and newly appointed Medicaid Director Dana Flannery, “The state may pay the deferral of $119.1M or the state may choose to file an appeal with the U.S. DHHS Departmental Appeals Board (DAB).“
When questioned by legislators after The Candle reporting was released, Armijo was forced to acknowledge what Walker Moran referred to in the May presentation to the MAC members, that despite the HCA claims the state owes no money back to the federal government for allowing hundreds of millions of dollars in ill-gotten overcharges to MCOs, her agency has already set aside $120 million to pay back the federal government using an obscure bookkeeping maneuver.
OIG Rejects State’s Claim it Should Not Have to Refund the Federal Government
The HCA claimed in its responses to the initial draft of the OIG, that the state should not have to pay back the federal government for several reasons including that it would be difficult as two of the four MCOs were no longer providing services to the state.
But the OIG’s final report, after reviewing the HCA (formerly the Human Services Department) responses to the federal watch dog’s initial findings, rejected the excuses, writing, “[a]fter reviewing New Mexico’s comments, we maintain that our findings and recommendations are still valid.”
The OIG concluded that, “implementing our first two recommendations is financially advantageous to the State. In addition to the refunding of Federal funds, implementing our first two recommendations, which are supported by the MCO contract requirements, would return almost $50 million in overpaid State funds.“
State Auditor’s Statement Regarding Report that New Mexico Overpaid MCOs $168.6 Million:
“The Office of the State Auditor (OSA) is aware of potential overpayments totaling $168.6 million in capitation payments made by the New Mexico Health Care Authority (HCA) to Managed Care Organizations (MCOs) providing Medicaid coverage between 2014 and 2018.
“This issue was raised by the U.S. Department of Health and Human Services Office of Inspector General (OIG), which has formally requested that the State of New Mexico reimburse the federal share of these funds.
“The OSA recognizes the complexity of this matter and is aware of ongoing communications between HCA and the federal OIG.
“In response, the OSA is actively exploring appropriate courses of action to ensure the issue is resolved with full transparency and accountability. Updates on further developments will be provided as they become available.”
Transcript of Questions and Comments From Representative Joanne Ferrary and LHHS Chairwoman Liz Thomson, and Responses from HCA Secretary Kari Armijo
Monday, August 18, 2025 – Legislative Health & Human Services Committee Meeting
Representative Joanne J. Ferrary asks:
“Thank you, Madam Chair and thank you Madam Secretary.
“It’s been in the news lately, about the $168 million in overpayments to managed care. And I was wondering why we’re, um, forgiving them, and the $119 million that the Feds want back, and then the $50 million that was overcharged.
“Couldn’t we use that money to help pay, and for, you know, what we’re losing, especially for SNAP, and also to shore up you know BeWell, members?”
Secretary Kari Armijo responds:
“Madam Chair, Representative, I don’t believe that was in the news, I think it was in a blog.
“And it isn’t accurate, so I just want to really kind of be super clear.
“There … there is a … there was an Office of Inspector General audit of the agency’s capitation payments and reconciliations, that goes back to about 2014, and I think that’s what is being referred to.
“Uh, there, under that, the Federal Office of Inspector General calculated that we owed about $119 million, I believe.
“Um, however we’re very much still in negotiations about that with the federal government. And the federal CMS, which makes the final decision, has not made a final decision.
“So, that is very much in flux.”
“And of course, I don’t think it’s an over-payment.
“Our position is that we owe zero, and that it’s really an incorrect finding.
“And it’s a very complicated financial issue, so I’d be happy to kind of talk offline.
“It’s, probably would put half of you all to sleep.
“But it is really about reconciliations and, um, recoupments, uh, related to our Community Benefit program, and it goes back more than a decade, so it’s kind of a complicated finding.
“I just … I don’t really think it’s an apples to oranges kind of comparison, and I think the information was a little bit inaccurate, um, yeah.
Representative Joanne J. Ferrary states:
“Okay, well thank you, Madam Chair and Madam Secretary, for that explanation.
“Because I’m sure if there were funds that we could recoup, that we would put them to better use than just letting the MCOs have them.”
Secretary Kari Armijo responds:
“Madame Chair, Representative, of course, I think a big part of that financial burden actually would be general fund, and so I don’t think it’s fair to say that it’s overpayments.
“And like I said, our position is that there’s zero.
“Um, and many of those MCOs, some of them don’t even, aren’t even in the New Mexico market.
“We’ve, we don’t have relationships with them now, so it’s, how you get money back from an exited MCO, it’s kind of a complicated scenario.
“So, we’ll work through it.
“I’m happy to provide you all with updates and information, but, um, you know, our position really is to try and protect the state against $119 million, uh, finding or hit.
“Um, so that’s really what we’re coming from, and we don’t think that it’s an accurate finding, so.
Representative Joanne J. Ferrary states:
“Thank you for that explanation. Thank you, Madam Chair.”
Chairwoman Liz Thomson states:
“So, just on that, on that issue, um if it turns out that it is an over-payment, can’t we take companies that we don’t have a relationship with to Court, or the ones we do, for that matter?
“I mean, it’s not really a lost cause, is it?”
Secretary Kari Armijo responds:
“Madam Chair, Uh, maybe not.
“I think, uh we have actually been looking at the contract, and I, I mean, to be, to be fair, we are preparing in case we have to pay this back.
“I mean, we are, we do have a plan.
“We’ve been working with the LFC.
“It’s been pretty transparent in terms of our budgets and our projection.
“Um, because it is a risk to the budget.
“But I think we are trying to figure out.
“There’s usually sort of a run out on financial liabilities, and so we’re really kind of researching that.
“But, you’re not wrong, Madame Chair, that there could be some liabilities for old, if there was an over-payment.”
Chairwoman Liz Thomson states:
“Okay, thank you.”
U.S. Department Health and Human Services Office of Inspector General Audit Engagement Letter to New Mexico Human Services Department, March 3, 2020.
Situation Report from MAD Compliance Officer to HCA Secretary and MAD Director Regrading Impact of Community Benefit Capitation Payment Audit – March 4, 2024
Audit Report the New Mexico Should Refund Almost $120 Million for Medicaid Nursing Facility Level-of-Care Managed Care Capitated Payments. May 8, 2024
Medical Assistance Division – Handout for Medicaid Advisory Committee (see slide 28) with Reference to HCA Setting Aside $120 million for Audit Finding. May 5, 2025
Transcription of HCA Secretary Kari Armijo’s Response to Questions About OIG Audit Findings from Representative Joanne J. Ferrary and Chair Elizabeth “Liz” Thomson, at LHHS Meeting in Gallup, New Mexico August 18, 2025.
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