The Philadelphia agencies overseeing distribution of $1 billion in Medicaid funding for mental health and drug and alcohol services have overpaid providers and lacked proper documentation and oversight, according to an audit by the city controller released Thursday.

Controller Rebecca Rhynhart’s office examined the administration of Medicaid funds in fiscal year 2017 and found $10 million in payments for services that were not actually provided, $4 million in temporary advances to providers that were not paid back, and money spent on employee perks such as fitness and yoga instructors.

“It is so important that this [money] is used well so that the people of our city can deal with addiction issues and trauma issues,” Rhynhart said in an interview.

The city’s Department of Behavioral Health and Intellectual disAbility Services (DBHIDS) distributes about $1 billion annually through the HealthChoices program and contracts with Community Behavioral Health (CBH), a nonprofit that acts as a quasi-governmental agency and administers funds to health-care providers. Money for HealthChoices comes from state Medicaid funding and does not include money from the city’s coffers. But Philadelphia, like other counties in Pennsylvania, is responsible for distributing and administering the Medicaid funding.

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Mayor Jim Kenney, who often trades barbs with Rhynhart over her audits and reports, criticized the audit in a statement Thursday and said the agencies’ work has “established Philadelphia as an internationally recognized model for managed care.”

“There is little value to the public in a single audit looking at data that is nearly five years old – especially when CBH has successfully completed multiple rigorous accreditation and oversight reviews from national and state experts since that time,” Kenney said.

The agencies said in a news release that much of the “narrow set of recommendations” had already been implemented through changes in policies and leadership since 2017.

Rhynhart, however, said she still recommends that Community Behavioral Health implement stronger internal controls to monitor health-care providers and compliance with city policies.

Community Behavioral Health runs a recovery center program through which 13 different providers offer services to Medicaid patients in Philadelphia. The audit found that the providers were paid $33 million in fiscal year 2017 based on estimated services but did not reach full capacity and therefore were overpaid by $10.4 million.

Rhynhart’s report asserted that while auditors reviewed only one year of payments, “it is likely that CBH has paid providers millions of dollars annually for services not rendered to actual patients since the program’s inception.”

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DBHIDS acknowledged in its response that recovery center providers had been receiving flat-funding while their numbers of patients decreased. The department said that issue was fixed in 2018 with a new payment system.

The controller’s office found instances of Community Behavioral Health giving temporary advances to providers, for which two providers defaulted on about $4 million in repayments during fiscal year 2017.

The audit also found that the city reimbursed Community Behavioral Health for more than $200,000 in “questionable” operating costs. That amount included $149,000 to celebrate the organization’s 20th anniversary with a day off for employees, buffet meals costing $11,000, promotional gifts, and a photo booth, as well as $54,000 for fitness and health programs for employees that included in-house massages, yoga, personal training sessions, healthy snacks, and FitBits.

The audit said that the city’s contract with Community Behavioral Health does not define ineligible costs, and the city does not review submitted expenses to determine whether they are appropriate. Rhynhart recommended improving oversight and implementing a formal review process.

The city’s response maintained that the 20th anniversary and employee wellness costs “are well within the purview of reasonable administrative expenses of a nonprofit organization.”

Rhynhart disagreed in a letter to DBHIDS Commissioner Jill Bowen. “I would like to emphasize that they are not necessary for the administration of the HealthChoices Program and come at the expense of Philadelphians in need of the essential services CBH provides,” she wrote.

While issues with overpayments or eligible reimbursements for an anniversary celebration do not affect the city’s operating budget, the Medicaid programs are funded with federal taxpayer money. And Rhynhart said that inappropriate spending uses up money that could be spent on helping needy Philadelphians with mental health and addiction.

“There’s this multitiered structure that exists, but despite that structure there really is a lack of oversight and accountability in many of our findings,” Rhynhart said.

Bowen said in a statement Thursday that the city “will continue to evolve and improve our services.”

The controller’s office also found issues with documentation, based on sampling 284 transactions and finding 149 instances of noncompliance with the documentation that health-care providers must give to Community Behavioral Health.

“That sounds very technical,” she said, “but it’s also the basic requirement and building blocks for services.”