Auditor relaunches review of NC Medicaid project that costs hundreds of millions of taxpayer dollars

North Carolina has spent hundreds of millions of taxpayer dollars trying to modernize the computer system that helps run the state’s Medicaid program — an overhaul intended to improve care, pay healthcare providers faster and give the state better tools to detect waste and fraud.

The state auditor is now reopening an investigation into the nearly decade-old project, WRAL Investigates has learned. 

The move comes years after the auditor’s immediate predecessor halted the release of a probe into the system upgrade — and after federal oversight officials found that Medicaid services were deteriorating because of the delays, according to state and federal documents reviewed by WRAL and interviews with people directly involved in the project. 

The decision to reopen the audit was made after WRAL Investigates began asking questions about why details from the initial inquiry were never made public. 

The new computer system was supposed to be fully installed by the end of June 2024. But state officials now tell WRAL the remaining work won't be finished until the end of 2029. 

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.

Documents obtained by WRAL Investigates show that concerns about the project emerged years before the state’s 2024 completion deadline passed. 

North Carolina’s Medicaid tech transition has been overseen mostly by the Medicaid division of the state Department of Health and Human Services. The North Carolina Department of Information Technology has also played a key role in the project.

Federal regulators monitoring the installation questioned the experience of the project's leadership and projected that delays could add hundreds of millions of dollars to the project’s cost, according to a 2022 memo on the project written by a federal employee and obtained by WRAL. 

The North Carolina Office of the State Auditor separately examined the project's planning, spending and delays, producing a draft audit in 2022 that was nearly complete but never released. WRAL obtained and reviewed a copy of the draft audit. The auditor’s office verified its authenticity. 

The documents, plus interviews with state officials and staff members who have worked on the system’s transition, offer new details about how costs ballooned as the tech update — one that has gone relatively smoothly in other states — fell deeply behind in North Carolina.

‘Degradation’ in services

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. 

States have long followed federal Medicaid technology guidance when developing computer systems that process claims, pay healthcare providers and flag possible waste and fraud. But the diversity of products used by states led to a confusing mishmash of technology. As a result, the federal government has been pushing 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. 

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 the draft audit.

The 2022 federal memo said the limited progress on North Carolina’s transition had resulted in “a degradation in program services” and it raised concerns about whether the state's Medicaid technology leaders had the experience needed to oversee a project of that scale.

“Medicaid IT leadership for the project does not have practical experience with large, multiple stakeholder initiatives,” the memo said. 

The memo was produced by an employee of the U.S. Centers for Medicare & Medicaid Services, or CMS, the agency under the U.S. Department of Health and Human Services that  was overseeing North Carolina's transition. A CMS spokesperson declined to comment. The center hasn’t fulfilled a WRAL request for public records related to North Carolina’s funding requests. 

Melanie Bush was part of the leadership team during the planning phase and launch of the modernization project, serving at the time as assistant secretary and chief operating officer for the DHHS’s Division of Health Benefits, known as NC Medicaid. She was promoted this year to deputy secretary for NC Medicaid and now oversees the technology project. 

Any major system transition is bound to have some hiccups. When asked about the cause of the delays that began in the project’s infancy, Bush said: “I don't think anything went wrong. I mean, these are incredibly complex systems.”

Bush said North Carolina is replacing what had been one large, integrated system with separate components in a piecemeal fashion. According to Bush, the state has made changes since the concerns 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 said in an interview with WRAL.

The federal memo warned that North Carolina was anticipating a four-year delay, pushing the project beyond 10 years and likely adding hundreds of millions of dollars in costs. Bush now says the remaining work is expected to be completed by 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.

As North Carolina’s timeline has grown, so has the cost of maintaining the system North Carolina intends to replace. The unreleased draft state audit estimated that the state would spend about $200 million to keep NCTracks operating during the transition. The state is now paying a vendor more than $600 million to keep the legacy system running through next summer, according to a contract obtained by WRAL Investigates.

While Bush said the state has been fiscally responsible and that CMS is purportedly pleased with its progress, the 2022 federal memo painted a more dire picture of the project at the time.

“This program is at a crossroads,” the memo said. It recommended CMS leadership take “decisive action on this failing program.”

Unreleased audit

In addition to the federal scrutiny, the state auditor’s office examined the modernization effort, delving into its planning, schedule and costs. The draft of the audit said system planning, which began in 2017 and was supposed to be finished by June 2020, was not expected to be completed until at least July 2024. That was one month after the entire system was originally intended to be online.

At the time, auditors raised questions about the project's cost and timeline.

Nearly all of the 16 project components auditors tracked were already behind schedule, and the estimated cost to implement the project at the time was more than $500 million. Auditors also cited a March 2022 independent progress report that found the project's “scope, schedule and success are at substantial risk.”

The audit’s authors added: “Without business involvement and approval, there is potential program failure, extended costs or schedules.” 

Rob Morehead, a former state employee who worked on the modernization effort, said he had raised similar concerns from inside the project. He said he was fired from his job at the Department of Health and Human Services after speaking up. The state later settled a whistleblower lawsuit brought by Morehead.

“I sat in meetings and watched this develop,” Morehead told WRAL in an interview this year. “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.”

State audits are normally released to the public with findings and, in some cases, recommendations for improvement — provided the state auditor signs off. A person who worked on the audit but is now retired said the audit was mostly finished — including findings and recommendations for leaders of the Medicaid project — but was surprised when it never became public. The person spoke on the condition of anonymity.

Beth Wood was state auditor in 2023 while the audit was ongoing, but she never saw the nearly completed audit because she stepped down in December of that year. She resigned after pleading guilty to hit-and-run and misuse of a state vehicle. 

WRAL provided Wood with a draft of her former office's findings. She said the audit’s findings pointed to a project in disarray. “There was a lot of evidence that there was a lot wrong here,” said Wood, who served in office as a Democrat but is no longer affiliated with a political party.

Wood says the audit's findings should have been made public, adding: “Somebody should have seen this, because it is damning.”

After Wood resigned, then-Gov. Roy Cooper appointed former Wake County Commissioner Jessica Holmes, a fellow Democrat, to serve the remainder of Wood's term. Under Holmes, the audit was canceled. 

WRAL Investigates requested the letter Holmes signed terminating the audit, but the request was denied. The document is protected from state public records laws, the auditor’s office said.

The new state auditor, Republican Dave Boliek, described the contents of the termination letter during an interview with WRAL. Holmes cited a lack of resources and a desire to pursue other priorities, he said. Boliek, who defeated Holmes in the 2024 general election, added that employees who had worked on the audit wanted it completed and released. 

Holmes said in a written statement: “I do not specifically recall this audit.”

Wood said political pressure was common during her 15 years as state auditor, adding that the pressure came from Democratic and Republican administrations. But nobody tried to influence her work on the Medicaid audit while she was in office, Wood said.

Medicaid expansion was a major political issue in North Carolina and a key priority for Cooper. Wood, who endorsed Boliek in his 2024 campaign for office, questioned whether politics played a role in Holmes’ decision not to release it. “I think there's a good chance,” Wood said. “Look at who appointed her.”

When given the opportunity to respond to Wood's comment, Holmes rejected any allegation that she suppressed the audit for political reasons. “I was not involved in any effort to bury an audit,” Holmes said.

Cooper is the Democratic nominee for North Carolina’s open U.S. Senate seat. In response to Wood’s statement and questions about why the audit might have been withheld from the public, a spokesperson for Cooper’s campaign said in a statement: “The auditor operates independently and this allegation is categorically false.”

The investigation is now being revived. The auditor's office informed the state Department of Health and Human Services in recent months that it has officially relaunched the audit to examine the project's nine-year history. 

Wood was hired earlier this year by Boliek as a contractor to help the auditor’s office with an investigative review, according to a contract obtained by WRAL through a public records request. The specific focus of the investigation she was hired for was redacted. 

WRAL News anchor Ashley Rowe and WRAL News reporter Megan Cloherty contributed to this report.