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NC Medicaid Audits: Is There a Silver Lining? (Maybe Even Two!)

Normally I am “silver lining” type of person. You know…the whole, “The sun will come out tomorrow, bet your bottom dollar that tomorrow, there’ll be sun,” mentality…

But when it comes to North Carolina Medicaid audits conducted by Public Consulting Group (PCG) or HMS, I have failed to find the silver linings.  You, as a health care provider, receive a Tentative Notice of Overpayment (TNO) for $1 million and go through various stages of acceptance: surprise, horror, anger, befuddlement, and fear.  In order to defend yourself, you have to shell out tens of thousands of dollars for an attorney (hopefully one that understands Medicaid audits).  Then spend countless hours compiling all the documents for the attorney to review and use at the reconsideration review.  Then take off a day to attend the reconsideration review, losing even more clinical hours, only to disagree with the Department of Health and Human Services (DHHS) Hearing Officer’s decision.  Spend more money in legal fees to appeal the DHHS decision to the Office of Administrative Hearings (OAH).  Possibly hire an extrapolation expert at even more expense.  Only to prove, finally, that the PCG and/or HMS audit was erroneous and you owe nothing.  Or $100. Or $1000.

Where is the silver lining in that process?

That you owe nothing in the end? But you paid exhorbent amounts to the attorney.

Well, there could be a silver lining… (maybe even two)…

Recently, the IRS released a couple private letter rulings as to whether paid overpayments could be tax-deductible.

OK, what  the heck is a private letter ruling?

According to Wikipedia, private letter rulings “(PLRs), in the United States, are written decisions by the Internal Revenue Service (IRS) in response to taxpayer requests for guidance.  A private letter ruling binds only the IRS and the requesting taxpayer. Thus, a private ruling may not be cited or relied upon as precedent.”

The most important part of the above-referenced definition of a PLR is that the PLR is binding only on the IRS and the requesting taxpayer.  Obviously, this means that if the IRS wrote 2500 PLRs saying that paid overpayments in Medicaid audits are tax-deductible, those 2500 PLRs are not binding as to you (unless you were one of the 2500 taxpayers asking for a PLR).

Regardless, PLRs are demonstrative as to how the IRS determines [whatever is determines in the PLR].  Because, despite the fact that PLRs are not binding on all taxpayers, I would find it odd if the IRS issued 2500 PLRs stating that the paid overpayments are tax-deductible, then the IRS turn around and refuse to allow you to treat the overpayment as a tax deduction.  Although, I am sure stranger things have happened.

In the first PLR, which, BTW, is not fun to read.  Who uses all this legalese???  Taxpayer B asks whether (1) the money he paid to the insurance company could be deducted as a loss incurred in a trade or business; and (2) the money paid to a Government Entity E and Government Entity F in the tax years in which the installment payments are made under the settlement agreement can be deducted. (I made Taxpayer B a male because the PLR makes him a male.  I have no idea as to the gender of Taxpayer B).

In Year 1, the Insurance Company sued … Taxpayer B for insurance fraud, demanding both compensatory and punitive damages.   In the second year, the state of New Jersey indicted Taxpayer B… for insurance fraud.  Taxpayer B agreed to pay $X in restitution to Government Entity E and Government Entity F.

Taxpayer B has represented (a) that he previously included in his gross income in prior tax years the amounts he now seeks to deduct and (b) that he and all other defendants in [both] lawsuits are jointly and severally liable for the amounts due under the settlement agreement because the language of the settlement agreement imposes joint liability upon the defendants and New Jersey law imposes joint and several liability upon members of a limited liability company.

So…can Taxpayer B deduct the money paid to the insurance company and the government as a business loss????

Or, in other words, could you (a health care provider who accepts Medicaid) deduct any money paid to PCG or HMS arising our of a regulatory audit as a business loss?

According to the PLR: 

We conclude that Taxpayer B may deduct the payments he made to the Insurance Company and to Government Entity E and Government Entity F in the years the payments were made or will be made, provided that he received or will receive no contribution from any other party and included the amounts he paid or will pay in his gross income in prior tax years.


The second PLR is basically identical to the first, except that Taxpayer A is at issue.  For the PLR, click here.

So what does this mean?  Why should North Carolina Medicaid providers care that 2 taxpayers were able to deduct the monies paid to the government/insurance companies as a business loss?

Because, these PLRs are demonstrative that, perhaps, the IRS would view regulatory audit paybacks to PCG or HMS as an allowable tax deduction as a business loss.

So, you receive a TNO in the amount of $1 million.  You spend $20,000 litigating the $1 million to $1000.  I know, it sucks, right?? (Not that the amount was decreased by $999,000, but that it cost $20,000 to reduce the amount $999,000).

The silver lining? Maybe you can deduct the $1000 paid as a business loss.

But what about the $20,000 attorneys’ fees???

Let me preface this with:

I am no tax expert.  I know Medicaid, not tax. If you want real tax advice, go to a real tax attorney.  But, I did find…Publication 529, which states the following:

Legal Expenses

You can usually deduct legal expenses that you incur in attempting to produce or collect taxable income or that you pay in connection with the determination, collection, or refund of any tax.

You can also deduct legal expenses that are:

  • Related to either doing or keeping your job, such as those you paid to defend yourself against criminal charges arising out of your trade or business,
  • For tax advice related to a divorce if the bill specifies how much is for tax advice and it is determined in a reasonable way, or
  • To collect taxable alimony.

 A definitive answer?


But…a possible two silver linings!  The sun will come out tomorrow, bet your bottom dollar that tomorrow, there’ll be sun!!!!

NC Medicaid Provider, “Yes, You Have a Case Against CSC,” and the Top 5 Reasons no Lawsuit is Pending Against CSC

62 days with no Medicaid reimbursements. Would you survive? Would your company survive?

Many providers are not surviving the switch to NCTracks.  Yet what do we hear from DHHS?  “NCTracks is on Track.”

Yesterday, during my lunch hour, I made a mad dash to the mall.  My daughter is starting 3rd grade tomorrow, and she was in dire need of some new jeans.

My phone rang as I was comparing the price of jeans.  Ann (short for anonymous) called.  She wanted to know whether I was bringing a class action lawsuit against CSC, the company that created NCTracks.  This is a common phone call for me.  Today, I received another phone call similar, but from Nanny (another short for anonymous). 

Both Ann and Nanny informed me that they run small, Medicaid provider companies.  Medicaid reimbursements constitute most of both Ann and Nanny’s companies’ income. 

Ann and Nanny have not been paid for Medicaid services rendered since June 20, 2013.  62 days ago.

Both want to pursue legal action.  And Ann and Nanny are not alone.  I have had approximately 25-35 Medicaid providers contact me since July 1, 2013, regarding bringing a lawsuit against CSC.

Do providers, who have not been reimbursed since June 20, 2013, have a legal cause of action against CSC?  I believe, yes.  Providers are entitled to prompt payments of Medicaid reimbursements.  In fact, per federal law, 90% of clean claims must be paid to providers within 30 days.  Obviously, 62 days is well-past 30 days.

My advice to providers who want to bring legal action against CSC?


BUT, understand what a lawsuit entails.  I have made a list below of the top 5 reasons, I believe, no lawsuit is pending against CSC now.  For those providers wanting to bring legal action, read the items below.  Make a reasoned decision as to whether a lawsuit is feasible for you.

So why is there not a lawsuit pending against CSC?

Here are the top 5 reasons a lawsuit is not pending against CSC:

(Disclaimer: I am neither pro nor con for bringing a lawsuit.  This blog is in no way an attempt to bring a lawsuit.  I am merely trying to inform providers as to what details need to be addressed before ever bringing a lawsuit.  In many cases, for the reasons stated below, a lawsuit is not feasible.  Each provider must make up its own mind as to whether a lawsuit would benefit them).

1. Lawsuits are expensive.

Except for plaintiffs’ lawyers, for the most part, attorneys require a retainer and are paid by the hour. 

A lawsuit against CSC would require:

  • Research for filing the complaint (Which venue is best? What defenses will CSC raise? What causes of action do we assert?
  • Drafting/Filing the Complaint
  • Defending against CSC’s Motion to Dismiss
  • Drafting Written Discovery
  • Taking Depositions (each deposition COULD run $10,000+)
  • Responding to Written Discovery
  • Defending Depositions
  • Hiring Expert Witnesses
  • Depositions of Expert Witnesses
  • Motions to Compel/Defense of
  • Motions for Summary Judgment
  • Defend CSC’s Motions for Summary Judgment
  • Pre-Trial Motions
  • Prepare for Trial
  • And probably much more

2. Lawsuits are the opposite of fast.

If you want an immediate remedy (such as getting paid for work rendered, a civil lawsuit for damages is not the way to go, at least, it should not be sole remedy sought).  An injunction may be the better approach…or taking the time to personally drive to NCTracks…

Think of this: After filing a complaint, the defendant gets 30 days (in state  court) to file a response; however, it is pretty standard for the defendant to request an extension.  Then the defendant gets 60 days to answer the complaint.  Filed concurrently with the defendant’s Answer, most likely, would be a Motion to Dismiss.  A hearing would have to be scheduled for the Motion to Dismiss, plus the legal briefs that would need to filed.  We are talking about 4-5 months before we even get into discovery.  Then written discovery and depositions over the course of 9 month to a year.  If trial is scheduled within the first year and a half, you have to understand that whoever loses will appeal…. You get the point….

3. Damages are….?

Here’s the problem with bringing a lawsuit against CSC. You file a complaint alleging over $10,000 in damages (the minimum amount of damages to meet jurisdictional requirements of Superior Court).  Then 1 day later, CSC pays 100% of your claims.

What are your damages?

It depends.  Have you had to terminate staff? Obtain loans and pay interest?  Close an office? 

Obviously, the above-referenced examples would be damages above and beyond the mere payment.  But if your only damages is nonpayment, you may want to re-think a civil suit for monetary damages.

4. Lawsuits are Time Consuming.

Not only are lawsuits time-consuming for the attorneys, but the plaintiffs also will need to devote time to the litigation.

5. Plaintiffs must be deposed.

If you bring a lawsuit, you have to be deposed.  I have never been deposed, but I have deposed enough people to know that depositions, generally, are not fun for the person deposed.

So there you have it.

“The Top 5 Reasons a Lawsuit is Not Pending Against CSC.”

Do you have a legal cause of action against CSC?  Most likely.  Are you entitled to prompt payments of Medicaid reimbursements?  Yes.

But before filing that lawsuit, remember what a civil lawsuit for monetary damages entails.  Make sure you are prepared! 

If you ARE prepared, GO FOR IT!!!!

Watch WRAL 6pm News Tonight! NCTracks: Potential Lawsuit…

I was interviewed by WRAL’s Bruce Mildwurf today. Be sure to watch WRAL at 6pm for the NCTracks story to air.

Meanwhile, also see the Channel 9 Charlotte story that was aired a couple of days ago.

Channel 9

NCTracks, Monetary Damages, and Kudzu

So many providers in North Carolina who accept Medicaid have contacted me asking whether they have a legal case to bring a lawsuit against Computer Sciences Corporation (CSC), the company who created and is running NCTracks, for monetary damages.

In order to determine whether grounds for a lawsuit exist, you need to determine, generally: (a) Did CSC have a duty to timely pay Medicaid reimbursements to you; (b) Did CSC breach that duty; (c) Did you suffer monetary damages?

42 C.F.R. 447.45 states, in pertinent part, (a) Basis and purpose. This section implements section 1902(a)(37) of the Act by specifying—(1) State plan requirements for—(i) Timely processing of claims for payment…”

What does “timely” mean?

  • The agency must pay 90 percent of all clean claims from practitioners, who are in individual or group practice or who practice in shared health facilities, within 30 days of the date of receipt.
  • The agency must pay 99 percent of all clean claims from practitioners, who are in individual or group practice or who practice in shared health facilities, within 90 days of the date of receipt.

90%….within 30 days.  Let’s see…last payments were June 20, 2013.  It is July 26, 2013.  No payments have been rendered to many providers in 36 days, and, according to one provider, he was told that he will receive reimbursement for at least another 2 weeks.

Hmmmmm….I do not think NCTracks is adhering to the 30 day rule.  That said, if I were the attorney for NCTracks, I would argue that the providers not receiving payments within 30 days were not submitting “clean claims,” to which I, as myself, would say, “Prove it.”

I don’t think the Department of Health and Human Services (DHHS) is intentionally not paying providers Medicaid reimbursements for services rendered.  I don’t think that DHHS meant for NCTracks to not pay some providers.

Regardless of intent, it is correct to say that DHHS went “live” with NCTracks without a “live” trial run and without conducting proper tests necessary prior to going “live.”

According to the May 2013 State Auditors’ Performance Audit of NC DHHS’ Implementation of NCTracks:

The Department has failed to fully test the system, and the production testing process has flaws.

• Key decisions about the addition of 1,500 user accounts and privacy and security procedures have yet to be made, increasing uncertainty about project readiness.

• A vendor hired to oversee the project did not conduct independent verifications as expected by the federal agency that administers Medicaid, and another vendor was permitted to set its own guidelines for whether its work was acceptable.

• No formal criteria exists to determine whether the new system is ready to go-live.

Why DHHS pushed NCTracks to go “live” on July 1, 2013, despite obvious concerns cited by the State Auditor, we may never know.  It reminds me, somewhat, of kudzu and the fact that humans like to think that everything is controllable.

Kudzu is not native to America. Kudzu was originally introduced to America from Japan at the Japanese pavilion in the 1876 Centennial Exposition in Philadelphia. Kudzu was touted as a high-protein content cattle fodder and as a cover plant to prevent soil erosion. So people planted kudzu, thinking that kudzu would be an asset to our environment. Instead, kudzu had drastic negative effects on our environment. Kudzu is often dubbed “The Vine That Ate the South.” It has spreads at the rate of 150,000 acres (61,000 ha) annually.

The problem with kudzu is that kudzu kills or damages other plants by smothering them under a blanket of leaves, encompassing tree trunks, breaking branches, or even uprooting entire trees.  Kudzu’s ability to grow quickly, survive, and acquire resources quickly allows it to out-compete native species.

So, think about it, we wanted kudzu because we thought kudzu would be a good thing.  We did not research kudzu’s growth rate or kudzu’s interactions with American foliage.  We did not perform test sites of kudzu to analyze the effects of kudzu on our environment. We didn’t even grow kudzu in a controlled environment to determine whether kudzu’s rate of growth would negatively impact our plants.  Oh no, we saw kudzu, and, like a kid in a candy store, we said, “Oooohhhh….we want kudzu!”  So we planted kudzu.  We thought we could control kudzu.

 I don’t think the Japanese, who introduced kudzu, nor the Americans, who accepted the kudzu,  intentionally planted kudzu in order to kill plants and trees.  I don’t think that the people who planted the kudzu meant for kudzu to have drastic negative consequences to our environment.

Regardless of intent, people who planted kudzu did so without fully testing kudzu’s impact on our environment.

In reality, kudzu is estimated to have lost us approximately $100–500 million per year in forest productivity…as in what we could have made by trees actually growing.  In addition, it takes about $5,000 per hectare (2.5 acres) per year to control kudzu.  For power companies, it costs about $1.5 million per year to repair damage to power lines.  See Forseth. Jr., I.N. and Innis, Anne F.“Kudzu (‘‘Pueraria montana’’): History, Physiology, and Ecology Combine to Make a Major Ecosystem Threat” Critical Reviews in Plant Sciences, Vol. 23, 401-413, 2004.

Similarly, DHHS (regardless which administration) saw a new computer system, NCTracks, and like the kid in the candy store, said, “Ooooohhhh…we want NCTracks!”  So we purchased NCTracks.  We thought we could control NCTracks.

We certainly did not perform all necessary tests on NCTracks before going “live.”

Now, due to the failure to fully test NCTracks and the “glitches” surrounding NCTracks, NCTracks, like kudzu, is producing drastic negative effects on our health care providers. Some providers are losing hundreds of thousands of dollars per week due to NCTracks.  One provider told me that he already closed one location and terminated 6 staff due to NCTracks.

NCTracks is not, at least for many, many health care providers, timely paying Medicaid reimbursements.

But what are the monetary damages? What if you file a lawsuit against CSC and the day after you file a lawsuit you are paid in full? Do you still have any damages?

It depends.

I got an email from a pediatric physician; we will call her Amy.  For the past few weeks, Amy has been unable to sleep. She has not been paid since June 20, 2013.  Unlike most providers, she does not limit the number of Medicaid recipients at her practice, and Medicaid is 85% of her income. 

Amy spent her one-week-long vacation on-hold with NCTracks 70% of the time.  She is behind on work.  She has decreased her clinical hours.  Amy was forced to ask her parents for a loan to make payroll, and still has not paid all her staff completely. 

Last week, Amy and her husband did not have enough money for groceries until her husband was paid on Friday.

Yesterday, when Amy contacted NCTracks, she was told that, according to NCTracks’ records, Amy was paid. But no money is in Amy’s bank account.

Even if Amy were paid tomorrow by NCTracks, don’t you think that Amy suffered additional damages?

Maybe we should just plant a bunch of kudzu around NCTracks and CSC.

REGISTER TODAY: NC Medicaid Lawsuit: Telephone Conference Friday

Join the June 14 Teleconference on NC Medicaid Audit Multi-Party Lawsuit to Recoup Monetary Damages


Thank you so much for coming to the presentations on May 11 in Durham and June 1 in Charlotte. We had a great turnout at both and most attendees have confirmed they plan to join in the multi-party lawsuit against the state. To view a copy of the original presentation, please click here.

On Friday, June 14, 2013 from 12 noon to 1:00 p.m., we will hold a teleconference call for health care providers interested in joining the suit and learning more about the next step. To sign up for the teleconference, please click the Register Now link and enter your information. Once we receive your registration, we will email you the dial-in information directly.

To date, we have approximately 30-40 interested health care providers, so we are close to our goal of at least 40! We will continue to add interested providers to this case up to 30 days after our teleconference. Therefore, you have from June 14 to July 14 to register and join in. Registration for the multi-party lawsuit will close July 14.

We look forward to moving forward with this lawsuit to seek monetary damages for all the providers. Thank you and please contact me directly if you have any questions!

Knicole Emanuel

June 1st: Medicaid Behavioral Health Provider Meeting!! Recovering Monetary Damages!!!

This is a solicitation. (This is an effort to thwart any possible assertions that my disclaimer is not enough. I have put my warning.  See also my disclaimer). 

In fact, this is a group of providers meeting together who have been wronged monetarily by the Medicaid system, whether by DMA, the MCOs, and/or the RACs, to discuss future options.  We had a similar group session May 11, 2012, in Raleigh and it was met with great success! Many providers attended.  We were able to share stories.  At the end of the meeting, everyone was excited for the future. So we wanted to host one more meeting in the western portion of the state to invite additional providers.  June 15th will be our cut-off.  If you are interested in this cause, please come to our June 1st meeting!!!

WHEN: 06.01.2013

WHERE: The Cornwell Center at Myers Park Baptist Church, 2001 Selwyn Avenue, Charlotte, NC

WHO: (Any provider that answers “Yes” to the following questions)

  • Have you been placed on Pre-Payment Status and been unable to meet the standards to get off of Pre-payment Status?
  • Have you been told that you are not in good standing with DMA and have been unable to receive assistance restoring your standing?
  • Have you been wrongly denied access to one of the new MCO provider networks?
  • Have you been told that your Medicaid number is being terminated or has been terminated?
  • Have your Medicaid payments been wrongly suspended?
  • Have these actions resulted in loss of income, your business closing, emotional stress, or other negative consequences?
  • Have you received a Tentative Notice of Overpayment stating that you must pay back money to the State?

If so, please join us!


Knicole C. Emanuel

Lunch will be provided so please RSVP to by clicking the REGISTER NOW link.

Questions? Please contact Caitlin Williamson at or 804.420.6267.

Knicole C. Emanuel – 919.981.4031 –

NC Medicaid Audits: Are There Legal Grounds to Recoup Monetary Damages?

Speaking Engagement! 05.11.2013 12:00pm — 2:00pm (Lunch will be provided)   To register, please contact

3326 Chapel Hill Blvd, Suite D, Durham, NC

Presented by: Williams Mullen and AHB Psychological Services

Providers of Medicaid Behavioral Health Services: 

Have you been placed on Pre-Payment Status and been unable to meet the standards to get off of Pre-payment Status?
Have you been told that you are Not in Good Standing with DMA and have been unable to receive assistance restoring your standing?
Have you been wrongly denied access to one of the new MCO provider networks?
Have you been told that your Medicaid number is being terminated or has been terminated?
Have your Medicaid payments been wrongly suspended?
Have these actions resulted in loss of income, your business closing, emotional stress, or other negative consequences?
If so, please join us!

Guest Speaker will be Attorney Knicole C. Emanuel of Williams Mullen Law Firm. Ms. Emanuel focuses her practice on Medicaid Law and has assisted providers in navigating Medicaid investigations and audits.

Lunch will be provided so please RSVP by Thursday, May 9th at 5pm to