Former North Carolina government workers allege that top state health officials used false information to secure federal funding for a Medicaid technology overhaul, according to a newly unsealed federal lawsuit. The whistleblowers also allege that federal regulators kept approving funds for the state — despite lacking key information typically required for approval.
The claims were made under seal more than two years ago, part of a lawsuit claiming years of mismanagement, noncompliance and misrepresentation among leaders within the state Department of Health and Human Services and regulators at the U.S. Centers for Medicare & Medicaid Services, or CMS.
The federal False Claims Act lawsuit, unsealed this month, has been dismissed — a win for the state. But the whistleblowers say they plan to keep fighting in federal court as they seek to expose what they allege was fraud — even though federal courts said the lawsuit failed to state a valid claim. While the allegations haven’t been proven in court, they provide new perspectives on a project that state and federal officials acknowledge is years behind schedule — delays that are costing taxpayers hundreds of millions of dollars, WRAL previously reported.
CMS has been distributing money to North Carolina and other states to do away with a tangle of outdated legacy systems and to help states to get on the same page technologically — mandating use of the Medicaid Enterprise System, or MES, to more easily share information and spot potential fraud.
In the unsealed complaint, former state Medicaid workers Rob Morehead and Rhonda Keyes-Morehead alleged that they “found evidence of a conspiracy among NC DHHS State employees to make fraudulent claims to receive [federal funding].”
They alleged that DHHS “falsified documents to the Centers for Medicaid and Medicare Services (CMS) to obtain Federal Funding Participation (FFP) and program and project approvals” for the transition, adding allegations that state officials used false financial statements and statements that were key to funding requests. They also alleged that state officials engaged in non-competitive bidding practices and “did not use FFP dollars for the purposes presented to CMS.”
Morehead and Keyes-Morehead also alleged that CMS didn’t adhere to their own rules and regulations for approving the funding, calling it “a significant departure from expectations.” They also claimed regulators “knew something was wrong with NC’s implementation” but continued providing funding despite receiving inadequate responses to requests for information that normally would lead to rejected funding.
Morehead and Keyes-Morehead further alleged that CMS caused the state’s software transition project to fail — affecting healthcare — because the regulators themselves failed to follow basic project-management practices.
“Because it failed to regulate NC Medicaid properly before and beyond 2018, CMS contributed to the conditions preventing low-income North Carolinians from receiving quality, affordable healthcare,” Morehead and Keyes-Morehead said in the federal lawsuit.
When asked to respond to the allegations in the federal lawsuit, a DHHS spokesperson sent a statement to WRAL on Tuesday.
“NCDHHS has addressed concerns from five years ago regarding the transition from NC Tracks to the Medicaid Enterprise System,” the DHHS spokesperson said. “The department has made consistent and regular progress transitioning our systems through a phased approach, which was recommended and approved by CMS and funded in stages by the NC General Assembly.”
The spokesperson added: “We are committed to delivering high-quality care while responsibly
managing public resources. Protecting the integrity of NC Medicaid is essential
to both safeguarding taxpayer dollars and protecting the live saving care
people depend on in North Carolina.”
‘Degradation’ in services
The lawsuit was filed in Maryland, where CMS is based. The U.S. attorney for Maryland, Kelly Hayes, opposed the whistleblowers’ claims. The complaint named DHHS, CMS and numerous current and former state and federal officials as defendants, including Melanie Bush, who is the current DHHS deputy secretary for Medicaid, and former DHHS secretaries Mandy Cohen and Kody Kinsley.
Kinsley, Bush and spokespeople for CMS didn’t respond to requests for comment. Cohen told WRAL Tuesday that she wasn’t aware of the lawsuit and declined to comment further.
“None of the named defendants affiliated with NCDHHS were ever
formally notified or served with notice of the lawsuit, to our knowledge,” a DHHS spokesperson said in a statement.
The federal government provides the majority funding for Medicaid, but the states have to administer the program, which provides healthcare to low-income and disabled people. More than one-quarter of North Carolinians are on Medicaid.
North Carolina began planning its Medicaid system modernization in 2017. By 2022, the state had received $120 million in federal funds for planning and management — but a dozen of the planned upgrades were behind schedule, according to a draft state audit that was produced in 2022 but wasn’t released to the public. WRAL obtained a copy of the audit and verified its authenticity.
As early as 2022, at least one CMS employee had warned officials of potential cost overruns tied to delays and found that limited progress had resulted in “a degradation in program services,” WRAL previously reported. In a memo obtained by WRAL, the federal employee questioned whether the state’s Medicaid technology leaders had the experience needed to oversee such a large project.
The new system was supposed to be fully installed by the end of June 2024. State officials now tell WRAL the remaining work won’t be finished until the end of 2029, making it a nearly 13-year rollout. That’s twice the amount of time it has taken some other states, including Virginia and Texas, to implement the same system.
In the meantime, North Carolina is paying a contractor more than $600 million to keep its existing Medicaid system running. And the state might have to shell out even more to keep the legacy system — called NCTracks — running after summer 2027.
When asked about the cause of the delays that began in the project’s infancy, Bush — the top NC Medicaid official — previously told WRAL: “I don’t think anything went wrong. I mean, these are incredibly complex systems.”
She added that the state has made changes since concerns about the project were raised by federal regulators and state watchdogs. “Overall, I think we’ve turned it around and I think we are on a very solid path forward,” Bush previously told WRAL.
‘Still blowing the whistle’
The federal lawsuit was filed two years after the state auditor’s immediate predecessor halted the release of the findings of the office’s audit into the system upgrade — and after the federal memo alleging the deterioration of Medicaid services.
The decision to reopen the audit was made after WRAL Investigates began asking questions about why findings in the initial audit were never made public.
Rob Morehead, who was a DHHS project manager, previously told WRAL he was fired after raising concerns while working on the state’s Medicaid modernization effort. The state later settled a separate whistleblower lawsuit he brought.
In federal court, he and his wife, former DHHS consultant Rhonda Keyes-Morehead, had sought damages under the False Claims Act, as well as attorney fees and expenses.
In a ruling, a judge ultimately agreed with federal prosecutors that the allegations didn’t provide a basis for a claim under the False Claims Act.
However, the judge left the door open for the whistleblowers to file a new lawsuit. They told WRAL they plan to do so.
“I sat in meetings and watched this develop,” Morehead previously told WRAL. “And it just got to the point where enough was enough. I blew the whistle. I’m still blowing the whistle and I continue to blow the whistle.”
WRAL News anchor Ashley Rowe and WRAL News reporter Megan Cloherty contributed to this report.