The New Mexico Attorney General’s Office on Tuesday ended a nearly three-year investigation into publicly funded behavioral health care, saying it failed to find evidence of criminal activity by any of 15 providers that Gov. Susana Martinez’s administration shut off from Medicaid funding over concerns they had bilked the program that covers low-income residents.

In a letter to state legislators, Attorney General Hector Balderas said investigators cleared the last two providers under investigation, the nonprofits Teambuilders Counseling Services Inc. and Pathways Inc.

While the criminal probe is over, administrative actions are not.

Balderas said his office uncovered a total of $1.16 million in overbilling among the 15 providers in what his investigators determined amounted to regulatory violations.

“Our thorough investigation of the providers concluded that there was not a pattern of fraud, despite the actions of the Human Services Department in finding credible allegations of fraud and freezing funding to 15 providers across New Mexico in 2013,” Balderas said in a statement. “It now falls to the Human Services Department to take timely and appropriate administrative action to resolve this regrettable situation to ensure that tens of thousands of vulnerable New Mexicans receive their critical services.”

He added, “The department must find a way to fight fraud that does not put services to the most vulnerable at risk or result in hundreds of New Mexicans losing their jobs.”

The Human Services Department, which has had to scramble to keep services available to some Medicaid clients, vowed to recoup what it says are millions of dollars in misspent funds.

And the Republican governor, who has avoided questions about the fallout from the behavioral health shake-up, continued to defend decisions made after the state commissioned an audit by a Boston-based company. The Martinez administration halted Medicaid payments to the New Mexico firms and brought in a group of Arizona providers as replacements — most of which have now either left or announced plans to leave New Mexico.

Funds from the state-federal Medicaid program “should be used to provide basic health care for those in need, and I will never turn a blind eye to wealthy CEOs who break the public’s trust and do things like funnel public money to family members and squander tax dollars on private planes,” Martinez said in a statement, pointing to allegations made in the wake of the audit.

Democrats in the state Legislature and in Congress were quick to react.

Senate Majority Leader Michael Sanchez of Belen called the behavioral health situation “one of the worst acts of a governor’s administration in New Mexico’s entire history.”

“While I am glad to hear the AG’s finding today,” Sanchez said in a statement Tuesday, “I still want to know why Gov. Susana Martinez’s administration cut funding and destroyed organizations that provided vital care for our most vulnerable citizens.”

All four Democrats in New Mexico’s Congressional delegation issued a joint statement that said it’s “clear that this was a manufactured crisis that dangerously left patients without the care they deserved and had come to rely on, caused hundreds of New Mexicans to lose their jobs, and wasted $28.8 million in taxpayer dollars.”

The Congressional Democrats said their Medicaid Program Integrity Enhancement Act of 2016, a bill introduced as a result of Martinez’s shake-up, “would protect Medicaid patients by establishing clear guidelines that ensure that state agencies investigating allegations of fraud do so in a manner that both protects health care consumers by ensuring continuity of care and affords due process of law to the health care provider.”

The shake-up became public in a stunning June 2013 announcement that an audit commissioned by the New Mexico Human Services Department had flagged $36 million in potential Medicaid overpayments to the 15 companies over a three-and-a-half year period. The companies cared for roughly 87 percent of low-income Medicaid and non-Medicaid patients in need of subsidized behavioral health care in the state.

Questions about the statistical methods used in the audit by Public Consulting Group arose shortly after June 24, 2013, when state officials used the findings to publicly justify suspending Medicaid payments to the 15 providers.

Public Consulting Group had entered into a no-bid, $3 million contract with the New Mexico Human Services Department to audit the providers that year. But a June 28, 2014, Santa Fe New Mexican investigation discovered the state began paying five Arizona agencies to take over services of the accused providers even before Public Consulting Group began the audit.

Three of five Arizona providers have either left or said they would pull out of the state, citing financial losses. The latest pullout was announced Friday by Agave Health Inc. The state initially entered into no-bid contracts with the providers for just over $17 million, but payments to the Arizona companies have ballooned to $24 million, The New Mexican reported in July 2014.

The Public Consulting Group audit scrutinized the 15 providers’ books for Medicaid payments from 2009 to 2012. During that period, the state paid all 15 of the providers a total of $260.6 million for treating Medicaid patients in need of behavioral health services.

Auditors, however, only analyzed 150 Medicaid reimbursement claims submitted by each one of the 15 providers over that three-year period, for a total of 2,250 claims.

That’s less than 1 percent of the 2.3 million Medicaid reimbursement claims submitted by the 15 providers to OptumHealth Inc., a UnitedHealth Group subsidiary that the state paid to oversee Medicaid payments for behavioral health-care treatments. OptumHealth had initially raised concerns to state officials about “suspicious activity” in the state’s behavioral health care provider network and conducted its own audit of the providers in June 2013.

Public Consulting Group’s audit flagged 531 questionable claims worth a total of $42,500 that officials said might represent overpayments to the providers. Auditors then used extrapolation to estimate that the state overpaid providers by $34 million over that three-year period and found another $2 million in overpayments through another auditing method.

Officials with the providers have since protested the state’s use of extrapolation, or the auditing method of estimating total overpayments based off such samples of claims data. Brent Earnest, the Human Services Department secretary, told The New Mexican last July that there’s no single rule about when it is appropriate for a government to recover Medicaid overpayments through extrapolation.

Public Consulting Group said in a draft report that it did not identify “credible allegations of fraud.” But the Human Services Department removed that statement from the audit. State officials said it was the state’s prerogative to determine what constituted a “credible allegation of fraud,” which is the threshold in the federal law that allows states to freeze Medicaid payments to providers.

Initially state officials insisted that new regulations passed under the Affordable Care Act forced the state’s hand in freezing the payments. But reporting by New Mexico In Depth revealed that state officials had other options — such as putting the accused providers under a monitor — that would have been less drastic that importing five providers from Arizona to replace the accused New Mexico firms.

Officials working under then-Attorney General Gary King as well as in Martinez’s administration refused to release the full audit to the public or to the providers. But Balderas released the full audit soon after taking office in January 2015.

The Human Services Department is defending itself in a federal lawsuit that 10 providers filed against the state over issues of due process and contract violations.

The Human Services Department has not said whether it intends to ask OptumHealth to go through with $11.5 million in Medicaid payments that the state froze after providers billed for services already rendered.

An OptumHealth spokeswoman told The New Mexican last week that it would make any such payments at the direction of the New Mexico Human Services Department and the New Mexico Attorney General’s Office. But James Hallinana spokesman for the attorney general, said in an email Tuesday that Balderas’ office “does not play a role in the distribution of these funds.”

In defending its actions, the department has said it acted on whistleblower complaints. The state has recovered roughly $4 million from providers. That money came from a settlement with Youth Development Inc. and Presbyterian Medical Services, which entered into an agreement with the state in what Presbyterian officials called a “business decision” that did not reflect whether the company properly billed Medicaid.

Many of the remaining providers went out of business. Bryan Davis, an attorney for 10 of the providers in a federal lawsuit against the department, guessed that a handful of those providers would like to get back into the Medicaid-funded behavioral health business. He said he anticipates asking a state court to issue a declaratory judgment that would force the state to pay some of his clients from some of the withheld $11.5 million.

Martinez’s reference to funneling public money to family members came from the audit, which said Shannon Freedle, CEO of Teambuilders, and his wife Lorraine Freedle earned money from leases paid by TeamBuilders to holding companies owned in full or in part by the Freedles and other officers of the nonprofit.

Shannon Freedle said Tuesday in a statement that he had mixed emotions about the news that his agency was cleared of criminal wrongdoing.

While he said he was grateful to Balderas as well as legislators who fought to “uncover the truth and prevent future tragedies of this nature,” Freedle said he is still sad about “the catastrophic damage resulting from the unsupportable actions of the New Mexico Human Services Department and OptumHealth New Mexico.

“This includes damages to the organization, its 600-plus employees, and to the thousands of children and families it served in dozens of communities across the state of New Mexico,” he said.

He said in his statement that his company is looking forward “to further resolution and recovery of the millions of dollars owed for services rendered in good faith and inappropriately withheld by HSD and OptumHealth.”

Asked whether he would try to contract with the state again to serve Medicaid patients, Freedle said he could not yet speak to that possibility.

Justin Horwath can be reached at 505-986-3017 or jhorwath@sfnewmexican.com.

Steve Terrell can be reached at sterrell@sfnewmexican.com. Read his political blog at tinyurl.com/roundhouseroundup.