Gov. Susana Martinez’s administration shook up the state’s mental health system last June when it said an audit had revealed 15 nonprofit groups that provided treatment to the poor had overbilled Medicaid by as much as $36 million. The groups were stripped of their contracts, and a handful of companies from Arizona were brought in to replace them.

But months before the audit was even complete, the Martinez administration was already paying at least one of the Arizona companies for salaries, travel and legal fees, state records show. At least one payment to the company, Agave Health Inc., was made before the audit had even begun, according to the records.

The state of New Mexico paid Agave $172,447 between January 2013 and June 30, 2013, and at least half of that total was disbursed before the audit was completed, according to the records. The audit, by Boston-based Public Consulting Group, began Feb. 25, 2013. The firm notified the state Human Services Department on June 20, 2013, that the audit’s findings supported suspicions of fraud by the New Mexico providers.

The state then proceeded to pay Agave over the next several months for salaries and other expenses at vastly higher rates than the ousted New Mexico providers had received, according to the records, which were obtained by The New Mexican under the state Inspection of Public Records Act.

Patsy Romero, chief operating officer of Santa Fe-based Easter Seals El Mirador, one of the New Mexico providers accused of billing fraud, said the newly revealed records show there was “no integrity in what the state did.”

“They already had a goal and objective in mind,” she said, “and it certainly wasn’t to protect services for New Mexicans. It wasn’t to protect the most vulnerable in New Mexico. It wasn’t to protect the businesses in New Mexico, the employees of New Mexico. There was no intention to protect anybody.”

Of the 15 ousted firms, Romero’s group is one of two that has since been cleared of fraud by the state Attorney General’s Office, which is continuing to investigate allegations raised in the audit. None of the groups has been criminally charged.

Matt Kennicott, spokesman for the Human Services Department, which ordered the audit, defended the early payments.

“Bottom line is that the transitional agencies were prepping in case a transition did need to occur,” Kennicott said. “Our responsibility is to ensure access to services for those most in need, and the transition agencies had to prepare. If a transition did not need to happen, then their services would not have been needed.”

But Romero says the records deepen her belief the shakeup was never needed, and that it has only served to disrupt services to the mentally ill and hurt New Mexico businesses at a high cost to the state.

“What that tells me is that the audit was already compromised, because you already have an expected outcome from your contractor,” Romero said. “They had an expectation that, No. 1, they’re absolutely going to find fraud, and No. 2, that they’re going to document an outcome so that the state can bring in outside providers to take over these operations.”

The audit has come under increasing scrutiny since a slow-moving review of its findings by the Attorney General’s Office cleared Easter Seals El Mirador and one other terminated provider of fraud. Instead of the $850,870 in overbilling that Public Consulting Group’s audit of Easter Seals El Mirador identified, the attorney general’s review found only about $34,000 in potentially improper billing over a three-year span that included $30 million in total billing.

Suspicions of fraud by the New Mexico providers were first identified in November 2012 by Optum Health New Mexico, the private contractor that oversees the state’s managed-care program for behavioral health, according to a timeline provided by the Human Services Department. The department began discussions with Public Consulting Group about conducting an audit of the providers’ billing in January 2013, according to the timeline.

Three days after the audit began in February 2013, representatives of the Human Services Department, Optum and Public Consulting Group flew to Arizona and met with representatives of two of the companies that later were brought in to replace the New Mexico providers. The companies were La Frontera Center Inc. and Southwest Behavioral Health Services, the parent company of Agave. On March 1, 2013, the Human Services Department sought and was granted emergency funds from the governor’s budget office to initiate a contractual relationship with La Frontera and Agave, according to the department’s timeline of events.

From April through June 2013, with the audit still underway, the same contingent from New Mexico visited the three other Arizona companies that would ultimately be hired to replace the New Mexico groups. The Human Services Department also sought and was granted a second emergency funding request.

The audit by Public Consulting Group was presented to the Human Services Department on June 20, 2013. Four days later, the department informed the 15 New Mexico providers that the state was terminating their contracts.

The replacement providers from Arizona began setting up shop in New Mexico immediately with help from the state, which guaranteed reimbursement for the companies’ transition costs.

A review of state financial records showed that when the five Arizona firms took the place of the New Mexico providers, at least one of them, Agave, billed the state for salary reimbursements that far exceeded the rates paid by the ousted New Mexico companies and even some of the other Arizona firms. Agave, for example, billed the state $75 an hour for a family support worker. Families and Youth Inc., one of the ousted New Mexico providers, paid workers in the same position $14.58 an hour. Open Skies Healthcare Inc., another of the Arizona firms, billed the state only $15.16 for the position, records show.

Interviews with some Agave employees, who asked not to be identified to protect their jobs, said they were paid only a fraction of what the company billed the state. One family support worker for Agave, for example, said the position paid $15.15 an hour, nearly five times less than the rate the company billed the state.

Agave officials declined to answer questions about billing during the transition, deferring questions to the Human Services Department.

All five Arizona firms billed the state between $200 an hour and $300 an hour for the salaries of their management and executive teams. A marketing and communications director from one firm, for example, billed at a rate of $250 an hour, even for time spent waiting in an airport for flights between Arizona and New Mexico. That works out to an annual salary of $520,000.

The eye-popping figures billed by the Arizona providers occurred during a transition period between June of last year and Dec. 31, 2013, when the state subsidized $24 million in costs associated with their takeover of the behavioral health caseload. During that time, the new providers billed the state for everything from employee salaries to phone bills, hotel stays, rental of ballrooms where they interviewed prospective employees, meals, legal expenses, office space rental, car rentals and airfare.

The state stopped subsidizing the Arizona companies for transition costs at the end of 2013. That meant that, effective Jan. 1, the companies were expected to rely on Medicaid billing for revenue, just like the New Mexico companies they had replaced.

Soon after the subsidies ended, some of the Arizona companies began laying off employees and cutting their salaries.

In a companywide email in March, Agave CEO Heath Kilgore, who had billed the state $28,200 for 94 hours of work during a two-week period a few months earlier — a rate of $300 an hour, warned employees of pending belt-tightening, including a 5 percent pay cut for all employees.

“After a critical review of increased expenses and insufficient productivity since Jan. 1, 2014, we have to make some significant changes in order to be financially stable as an agency,” Kilgore wrote. The Jan. 1 date was the very day the state subsidies expired.

Romero, of Easter Seals El Mirador, said the state’s willingness to subsidize the transition opened the door for wide-open billing by the replacement providers. With no such subsidy to rely on, the ousted providers were reliant on the Medicaid claims they submitted to receive fees for the services they provided.

For instance, she said, her agency never could have billed the state $6,474.98 for one month of Verizon cellphone bills, as one of the Arizona providers did.

“From that fee for service, I have to pay the salaries, the phone bill, everything,” Romero said. “I can’t send the state an invoice and ask them to pay me for these things. You have to provide a service. That’s the whole premise of a fee-for-service health care system.”

Kennicott said the Human Services Department thoroughly reviewed all of the expenses submitted by the Arizona providers during the transition, and all of the reimbursements were appropriate under the terms of their contracts.

“The transition agencies maintained services, employees, locations and continuity of care, all the while upgrading billing infrastructure and processes to ensure compliance with Medicaid rules and laws,” he said.

Enrique Knell, a spokesman for Gov. Martinez, said the steps the administration has taken have been in the interest of providing the best care and taking seriously the suspicions of fraud that were brought to its attention.

“Our highest priority is ensuring that the state is always in a position to provide services to those in need,” he said.

Contact Patrick Malone at 986-3017 or Follow him on Twitter @pmalonenm.

(36) comments

Albert Martinez

Well fellow voter's, and residents of New Mexico. What can I say about the way Susana Martinez is flushing this State down the toilet. The big Texas & Arizona companies think of New Mexico as a big money tree, where they can come in and get blank checks from Susana Martinez, who is just handing them out to these out town corps, like candy! She has so much money for her re-election because, the big rich Texans want her their so they can keep milking this state. Gary King is running his race on pennies alone! He not using State tax dollar's. like the GOV. is doing, to fly State Police officers around country to raise money for her bank account. What are the State police doing Fling around with the Gov. any way's? Shouldn't they be on New Mexico Highways, protecting the communities from drugs, gang's, and drunk driver's. what's wrong with this picture? If Susana Martinez get's re-elected, this State will go bankrupt. The middle and lower class will be pushed out, like if we were immigrants! I never thought that a hispanic would ever turn on it's own people, but she is doing it! All for the Power and the Money. That's all she want's. She needs to know that we are tired of her law breaking lie's! And us voter's need to take back our State before She give's it all away, and we all will be homeless!!! "Susana Martinez, what a joke!" [thumbdown]

Joseph Hempfling

QUEEN SUSANA does what she wants when she wants and does not answer to us serfs but to her KOCH BROTHERS PAY MASTERS. So where is the surprise and if re=elected stay tuned for more of the same as she has stacked the deck in her favor with all her already in place ideological friends. Loyalty as with Bush has become the name of the game.

Patricio R. Downs

Funny how things like this story - as well as the story about the cockfighting complaint brought to the AG's office - are coming out now, rather than a few weeks before Election Day.

Just a friendly reminder that you get the government you vote for. [innocent]

Philip Taccetta

I have to agree with most of these comments. The one that comes closest to asking the question I have is in the first comment by Michael Numan. I'd like to know how involved Agave and the others are in the republican party nationally, in AZ., and in particular, Susana's re-election campaign.


The Governor, Susana Martinez is guilty of criminal fraud. She abrogated state contracts under fraudulent terms, violating all due process.

Ironically, Gary King should be prosecuting her. What's up, Gary? Too busy running for governor to do your job?

Jerry Wise

So as far as the governor is concerned it's Liar, Liar pants on fire. But the press Mr. Reporter needs to find the answer to the question of why? Who got the money? Why? Where did it go and how big a scandal is this. Is it just our governor wanting, sadly to be someone or is it larger. Please let us know.

Kenneth Davis

The Martinez administration brought down the behavior health system in a premeditated attack using false accusations of fraud placing over 30,000 new Mexicans lives at risk. The so called fraud was purposeful on incompetent misdirection in billing procedures on the part of the state, HSD and OptumHealth New Mexico all of whom spent years correcting the way billing was done but could not give clear cut guidelines. All 15 agencies had passed numerous audits over the preceding year but failed an audit on commission by a company with a reputation for finding non existent fraud as was the case in their audit in North Carolina. The agencies were replaced by agencies from the home state of both governor Martinez and the secretary of HSD with contracts that paid the CEOs up to six times the salaries of the CEOs they were replacing (nothing suspicious about that?) At this point in time around 20,000 sick people are not receiving care, many have died. This blood is on governor Martinez's hands. It's also on Gary King's hands because he could have stopped this on a constitutionality basis due to the civil rights violations.

Max Mastellone

[thumbup]. Yes. And unless we the people demand accountability, there will be none. By being passive and complacent we are enabling the Gov.

Emily Koyama

This earth -shaking, Susana - destroying article couldn't even muster 20 of you in the first day? The apathy will guarantee her another term, and plenty of entertaining reading for me on these forums....

Pierce Knolls


King was “the worst attorney general” - Democratic Party Chairman Sam Bregman

King should “consider recusing himself from office…” – The New Mexican

“Fat girls should not wear bikini’s!” – Gary King’s campaign manager

Gary King - “average capabilities.”


Careful what you say here the Koch brothers maybe keeping track. Arn't the Koch Brothers the independent Contractors being paid to run The National Security Agency.

Pam Walker

I bet this would just be the tip of the iceberg if they really dug into our govenors affairs. She is crooked as they come.

Comment deleted.
Max Mastellone

Copy link and paste in browser address line:

Comment deleted.
Mel Hayes

I tried this search but could not match any documents........

Comment deleted.
Mel Hayes

Perfect discription Chris, "Sara Palin with a law degree". [thumbup]

Rosemary Blanchard

This is why I subscribe to the SFNM, while living in Albuquerque. The ABQ Journal has been distressingly silent on this whole situation -- both the scent of corruption, the waste of money and the tragic loss of services to New Mexicans in need. This kind of investigative reporting needs to continue. And, AG and Candidate King, will you please get on this case with a little more energy!!?

Max Mastellone

As NM citizens whom do we have to turn to when our governor and her/his administration take actions that are clearly against the public interest, clearly unethical and possibly illegal? The State Legislature? The Attorney General? Given they have had a year to act, they have been useless. Who else is there? The politicians are worried about the next election--can't be bothered with matters directly affecting the public. What, then, is our recourse? We should have learned by now that relying on politicians to get the people's work done is generally futile. Shouldn't be that way but it is.
Governments do what people joined together force them to do. We need to organize and resist, statewide.

Michael Numan

Gary King, the Attorney General, is investigating the issue of whether the NM mental healthcare providers that were accused by the Martinez Human Services Dept. actually did anything wrong, and two of these providers have already been cleared. Although this appears to be a slow process, realize that for just one provider, over $30 million of billing have to be carefully reviewed.

I am not sure who would investigate the hiring of AZ companies prior to any accusations of over billing. Perhaps the AG office could look into this, now that the New Mexican has brought this new information to light. But if King got involved, people would cry politics. Maybe an Asst AG could spearhead such an investigation.

Jennifer Bizzarro

When the Albuquerque PD was accused of malfeasance, the Feds were called in to investigate. Among several other reasons, this was done to assure the public and injured parties a certain degree of fairness in the outcome of the proceedings.

I am not familiar with the workings of the NMAG's office, but as he is running for office, any findings of impropriety against the governor would be challenged as would that of anyone working for him.

What a mess! We will count on the "Freedom of the Press" to act on our behalf. Good story and excellent work, SF New Mexican![beam]

Michael Numan

It would be interesting to investigate whether these Arizona health care companies are or were contributing, directly or indirectly, to the Martinez re-election campaign.

Chris E

Steve Terrell hopefully is bird dogging this. Perhaps Pat Malone, Staci Matlock, Phaedra Haywood, and Robert Nott are also digging around


Optum seems to be everywhere, except in the public hearings, of course.

Ella NM

Keep digging, SFNM. This WAS a conspiracy, and I am betting that there was money or political favor exchanged for shutting down these organizations with false accusations of fraud. THIS, I predict, will be the final undoing of a very corrupt and incompetent Governor's career. Thankfully for New Mexico.

Kathy Smith

Thank you for reporting on this farce perpetuated by the Martinez administration. HSD's report to Medicaid in December noted that 23% less people were receiving services after the transition. There are 60 children in the Mora school district that no longer receive services, and countless others statewide, and now these providers are cutting pay and workers. For shame, Suzanna, for shame!

STEVE Solano

I too wondered about the timeline of the AZ contractors and the need for such preparations for a rapid take over of services. I too wonder about Agave corporation and Jays relationship to them. Martinez did not do this on her own. As District Attorney she should have known that evidence of wrongdoing is what was needed not suspicion's..before actions were taken. What happened to innocent until proven guilty.

How much more can we take before impeachment can be started.

I am looking forward to Phillip Howells defense of Martinez administration now.

Ella NM

"As District Attorney she should have known that evidence of wrongdoing is what was needed not suspicion's..."

OF COURSE she should, but then, this is evidence of just how mediocre a DA she REALLY was. She's from my city, so I can tell you: She is just not that smart, and she was no where NEAR the big, tough DA here campaign ads made her out to be.

Jennifer Bizzarro

Fat fish in a very, VERY small pond.

Kenneth Davis

Should also wondered about the state requiring the agencies in question to take new medicaid patients after the freeze without any reimbursement.

adam eisman

What does she have to say? And all this says nothing of the harm done--and the neglect of--thousands of struggling children and families.

adam eisman

Please keep this story alive with this kind of in-depth reporting, SFNM. What was done by the Martinez administration represents an astonishing breach of public trust. It was an act of dishonesty, ripping us all off and sending millions of dollars out of state, and a kick in the face to organizations doing great and important work for those most in need. Further, families of honest, hard-working people suffered financially. Whom does the Governor stand for? Wat does she have to say about all this?

This story needs substantial national attention as well. Please, SFNM and its readers, do what you can to bring this issue to the nation at large.

Fred Stokes

Good research and writing in the New Mexican -- congratulations.

Eli Chavez

Martinez supported and continues to support AZ and their New GOP KKK Party. I miss the Old GOP which was hijacked by the New GOP KKK Party. Martinez and her recorded statement about the "Land of Enhancement" is true. The closing of a New Mexico company also shut down Jobs. The AZ company given up front CASH by the State of NM is scary. Was their any cash under the table coming back? Martinez Likes CASH ($$$$$$$$$$). The New Orleans Mafia paid Martinez upfront cash for the State Fair Casino. Did the upfront money go to the State? Are New Mexicans going to stay home in November and allow Corruption at high levels to continue? It is time to open a complete investigation of Martinez and her administration. Martinez "forgave" her Chief of Staff who used a TAX PAYER CREDIT CARD to further his Enterprise. Can you imagine if a New Mexico State Government Employee would use the mentioned Credit Card. Remember Block from the PRC, he went to Jail. Did Martinez ask Gary King to investigate the theft? Martinez complains about Bill Richardson and his corruption and when the COS used the Credit Card Martinez protected and forgave her Chief of Staff. Martinez that is Corruption. A/G Gary King your Investigators must investigate Martinez and her COS.

STEVE Solano

I agree with you Eli...good post..Northern NM democrats WAKE UP she is not one of us.

Diane Senior

Outrageous but, sadly, not surprising. Thank you for continuing to shine a light on these kinds of questionable practices. Please continue that service with a follow up story on whether this has any impact on the post-term employment opportunities of Martinez administration officials.


Thank you for sharing this story. Another example of Martinez hurting New Mexicans.
I knew there was more to this story! It's good to have the facts.

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