Former North Carolina government workers Rob Morehead and Rhonda Keyes-Morehead filed a federal False Claims Act lawsuit alleging that top state health officials used false information to secure federal funding for a Medicaid technology overhaul. The lawsuit, unsealed in federal court, claims years of mismanagement, noncompliance, and misrepresentation within the state Department of Health and Human Services and regulators at the U.S. Centers for Medicare & Medicaid Services.
Whistleblowers Allege False Claims and Falsified Documents
In the unsealed complaint, the whistleblowers stated they found evidence of a conspiracy among North Carolina Department of Health and Human Services employees to make fraudulent claims to receive federal funding. The complaint alleges that DHHS falsified documents provided to CMS to obtain Federal Funding Participation and project approvals for the transition to the Medicaid Enterprise System. According to the lawsuit, state officials used false financial statements and engaged in non-competitive bidding practices while failing to use federal funds for the purposes presented to CMS.
The federal government provides the majority of funding for Medicaid, while states administer the program for low-income and disabled individuals. More than one-quarter of North Carolina residents rely on Medicaid. North Carolina began planning its Medicaid system modernization in 2017 to replace outdated legacy systems and improve information sharing and fraud detection.
Allegations Against Federal Regulators and Project Delays
The whistleblowers also targeted federal oversight, claiming CMS failed to adhere to its own rules and regulations when approving funding. The complaint asserts that regulators continued providing money despite receiving inadequate responses to requests for information that normally would have triggered rejected funding. The lawsuit argues that CMS contributed to the software transition failure, which affected healthcare access for low-income residents.
State and federal officials acknowledge that the software transition project is years behind schedule. These delays have cost taxpayers hundreds of millions of dollars, according to prior reporting by WRAL.
State Response and Legal Status of the Lawsuit
The federal lawsuit, filed in Maryland where CMS is headquartered, has been dismissed by federal courts, representing a legal win for the state. However, the whistleblowers stated an intention to continue fighting in federal court. U.S. Attorney for Maryland Kelly Hayes opposed the claims during proceedings.
The lawsuit named DHHS, CMS, and numerous current and former officials as defendants, including current DHHS deputy secretary for Medicaid Melanie Bush, and former DHHS secretaries Mandy Cohen and Kody Kinsley. In a statement provided to WRAL on Tuesday, a DHHS spokesperson said the department addressed concerns from five years ago regarding the transition from NC Tracks to the Medicaid Enterprise System. The spokesperson added that NCDHHS made consistent and regular progress through a phased approach approved by CMS and funded by the NC General Assembly, emphasizing a commitment to managing public resources responsibly and protecting healthcare access.
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