New River Service Authority, the 10 member board tasked with closing down operations of mental health provider New River Behavioral Healthcare after the agency collapsed last fall, breathed a collective sigh of relief Thursday afternoon when it announced the NC DMA had dropped its demand for $2.1 million.

“This was an excellent resolution,” said Ashe County Manager and NRSA Board Member Pat Mitchell. “Our attorney had been working with the state to reach some kind of settlement and this takes that money out of the mix. This was a big one to get out of the way.”

The state agency that regulates Medicaid payments, the North Carolina Division of Medical Assistance, suspended NRBH Medicaid payments and launched an investigation of NRBH in October 2011 after receiving, “a credible allegation of fraud.” The suspended Medicaid payments were worth $626,977 to NRBH.

At the conclusion of the DMA’s investigation on Feb. 6, the agency said it had found numerous Medicaid claims, “out of compliance,” and demanded payment of more than $2.1 million it said the state had overpaid NRBH. Ashe County could have been responsible for as much as 21 percent of that bill, or $446,266.

The agreement between the NRSA and the DMA essentially means that neither New River nor the state will attempt to collect the money owed to the other.

Mitchell said current NRBH Interim CEO Peggy Wallace is also searching for an outside auditing firm to complete NRBH’s audited financial statements.

The NRSA, including Mitchell and Ashe County Commissioner William Sands who also sits on the NRSA board, were told in February by the director of the Fiscal Management Section of the N.C. Local Government Commission Sharon Edmundson they could be charged with class III misdemeanors, held personally liable, and fined up to $1,000 if audited financial statements could not be produced for New River Behavioral Healthcare.

Edmundson told the board that annual audits of the NRSA are required under the N.C. Local Budget Fiscal Control Act, and that audited financial statements of NRBH should have been completed by the firm’s auditor Lowdermilk Church by Oct. 31, 2011, and for the fiscal year 2011-2012 because NRBH was still in operation at the start of the fiscal year on July 1, 2011.

Mitchell said the audit had not yet been attempted.

“I think Peggy will have to continue to work on locating an auditor that will take this on,” said Mitchell. “Until she actually engages someone, we won’t know a timeframe for when it’ll be completed.”

The NRSA approved the hiring of McGladrey LLP in May, and approved payment of up to $35,000 to complete the work, but Mitchell said the firm had backed out because they couldn’t handle the request.

“Peggy is now talking to firms we’ve talked to previously,” said Mitchell. “We have to get that audit done, or get the LGC to say we’ve given our best faith effort. I think the LGC will require something in the way of financial statements.”

The board announced June 30 as the date for the NRSA’s official shutdown, and as the last date end of Wallace’s employment. Mitchell said Avery County Commissioner Kenny Poteat would also end his time as chair of the NRSA board on June 30.

“Kenny doesn’t want to retain the chair after we’ve finished regular meetings,” said Mitchell. Watauga County Commissioner Nathan Miller will take over as board chair on June 30.

“It makes sense for Nathan to chair the board now because (NRSA Board Attorney Bruce) Kaplan and Miller are both in Watauga and, if they need to communicate, that’ll make things easier,” said Mitchell.

Mitchell said the lawsuit filed by former NRBH employees in April, seeking compensation and punitive damages for unused vacation time they were not paid after the collapse of NRBH, is still underway.

“Where the employee lawsuit goes from now, that’s up in the air,” said Mitchell. “Probably the most important thing is to determine what court, if any, should have jurisdiction over the case.”

Mitchell said former employees had filed the lawsuit at the federal level. “Our attorneys say it shouldn’t have been filed at the federal level, if it should have been filed at all. Where it goes from here, we’ll just have to let the courts rule on that.”

New River Behavioral Healthcare provided mental health services in the five counties for nearly four decades. In 2006, Ashe, Alleghany, Avery, Watauga, and Wilkes counties signed a 160A agreement that made NRBH the sole mental health provider in the five counties. New River provided services for 13,000 patients in the five counties, 1,000 in Ashe County alone, and employed 300.

On Sept. 22, 2011, NRBH CEO Pam Andrews received a letter from the N.C. Division of Medical Assistance (the organization that handles Medicaid remibursements) that Medicaid payments would be suspended due to “a credible allegation of fraud,” until an investigation could be completed. The investigation suspended Medicaid payments worth $626,977 to NRBH.

The five counties then passed an amended 160A agreement that replaced NRBH’s 13 member board of directors on Oct. 7; the new 10 member board met for the first time on Oct. 12. During the meeting, the board accepted former CEO Pam Andrews’ resignation and Smoky Center announced Daymark as the new service provider in the five counties; Daymark began operations on Nov. 1.

Martin Starnes, and outside consulting agency, was hired by the NRSA to determine what brought about NRBH’s collapse. On Dec. 21, 2011, Martin Starnes released the results of its investigation and said, “Unreliable financial reporting, ineffective management of patients accounts receivable, and lack of operational controls over service delivery were the primary cause of the financial demise of New River Behavioral Healthcare.”

On Feb. 6, 2012, the the DMA released the results of its investigation and found numerous NRBH Medicaid claims, “out of compliance,” and demanded payment of more than $2.1 million.