Is Walz’s $2.3M AI Audit Software Locking In Loopholes to Shield the Big Providers and Save Himself?
Republished with permission from AbleChild.
“Manual MN-ITS billing is an audit risk. A large-scale billing system could cost around $100,000 plus $200,000 in staff training, but it would protect against audit exposure.”
These are Dr. Eric Larsson’s words to the state advisory group that oversees Minnesota’s Early Intensive Developmental and Behavioral Intervention (EIDBI), which includes three major legacy autism and behavioral-health providers—Lovaas Institute Midwest, Behavioral Dimensions, and St. David’s Center, the Big 3. Larsson’s focus on “audit risk” shows how large mental health providers use government advisory groups to push policies that enhance and protect themselves instead of taxpayers and families.
MN-ITS is Minnesota’s online portal for Medicaid billing and eligibility, and Larsson framed normal manual use of the system as a problem for Lovaas because it left the organization more exposed to audits. Larsson was not simply “worried about audits”; in his own words, he labeled manual MN-ITS billing an “audit risk” and urged the state to invest in a six-figure billing system that would reshape and clean up provider claims before they ever reached the Minnesota Department of Human Services (DHS), making audits less likely to land on operations like Lovaas Institute.
The Big 3 wanted armor: expensive software to submit claims that look safer on paper. At the same time, Behavioral Dimensions pressed to loosen Level II staff qualifications, and St. David’s Center asked for grace periods so unapproved staff could still bill for services while paperwork wound through the approval process. The pattern is simple: use advisory seats to lower standards and make billing safer for providers, not for children or taxpayers.
The DHS Commissioner and Governor Tim Walz then carried these ideas into law, including changes under Minn. Stat. § 256B.0949 and related EIDBI policy. Providers with direct financial interests were allowed to design “audit-free” work-arounds, push for unqualified staff with vulnerable families, and stretch deadlines for basic compliance. The EIDBI advisory group, stacked with providers, functioned as a private bill-writing shop for the same Medicaid contractors it was supposed to oversee. That setup invited exactly what followed: abuse and corruption in programs meant to serve children with serious behavioral needs.
Newer, smaller providers saw the open door and rushed in. Some exploited weak rules and loopholes; others crossed into outright fraud. Prosecutors now allege roughly $14 million in fake EIDBI claims built on ghost services, sham clinics, and kids billed while they were in school, often tied to networks already implicated in the Feeding Our Future scandal. Yet even after a huge Medicaid scandal and multi-billion-dollar fraud headlines in Minnesota, the Big 3 have largely escaped deep, public audits and enforcement. Reforms promoted by Governor Walz and passed by lawmakers do not touch the core problem: a structure where a few powerful legacy providers helped write the rules, steered large amounts of Medicaid money toward their own models, and now sit mostly untouched while more recent operators take the heat.
This is not just a Minnesota problem. Federal rules require states to have Medicaid advisory bodies, but in practice many are dominated by the same providers who bill the system, giving them leverage to press for higher payments and weaker oversight. Minnesota DHS markets the EIDBI advisory group as a mix of “experts, parents, caregivers, and people with autism,” but the people with the most technical power and financial stake were the Big 3, whose businesses depend on how far EIDBI can be stretched in hours, rates, and staffing.
Other states show the same pattern and hostility to independent oversight. In Connecticut, AbleChild spent years in Medicaid and child-welfare groups, warning about conflicts of interest and heavy use of psychiatric drugs on children in state care. When those warnings focused too sharply on drug-company influence and prescribers policing their own systems, the microphones were cut off during a televised public meeting. That response says everything about provider-run “oversight”: critics are silenced.
In Minnesota’s EIDBI meetings, the Big 3’s goals were just as clear. Larsson presented Lovaas Institute Midwest as an intensive early-intervention provider already billing under Children’s Therapeutic Services and Supports (CTSS), Minnesota’s mental-health package for children up to about age 21 who have a diagnosed condition and need therapy, and skills work at home, school, or in the community. Those same children can then be moved into or layered with EIDBI, which often pays more for similar or overlapping services.
Entry into EIDBI runs through a Comprehensive Multi-Disciplinary Evaluation (CMDE), the assessment that decides if a child “qualifies” and if services are “medically necessary.” It is a powerful gatekeeper, and the criteria for many behavioral labels are inherently subjective: checklists and judgments rather than objective tests. When those subjective criteria are stretched, children still get labeled, turning diagnosis into a billing tool. The Individual Treatment Plan (ITP) then converts that label into hours of therapy and other services and is often paired with psychotropic drugs.
Behind this structure sit big, multi-state businesses. The Lovaas Institute, led by CEO Scott Wright, runs regional divisions throughout the country with autism programs in states including California, Minnesota, Nebraska, New Jersey, and Pennsylvania. Behavioral Dimensions operates multiple sites serving families across Greater Minnesota. St. David’s Center runs autism day-treatment and in-home services and piloted EIDBI with new CMDE and ITP paperwork. From those seats, the Big 3 pushed for weaker staff-qualification rules so more employees could bill, retroactive billing and grace periods so providers still got paid when approvals were late, softer limits on service amounts and intensity, and six-figure billing systems presented as the answer to MN-ITS “audit risk.”
Larsson’s “audit risk” pitch—spend $100,000 on a billing system and $200,000 on training—is not about protecting children or taxpayers; it is about building custom loopholes that keep the largest providers safer from scrutiny. The people at the table are writing the rules that shield their own billing, while the public gets three minutes at a hearing and no real power over how those rules are shaped. A CMDE is the gatekeeper that decides who “qualifies” and what is “medically necessary.”
Lawmakers and DHS under Governor Walz completely went along, using the “autism provider shortage” story. The providers presented the commissioner broad power to loosen staffing rules and let partially qualified workers bill while they finished training. EIDBI is now presented in state and industry documents as more financially attractive than CTSS for intensive Applied Behavior Analysis (ABA) programs, turning it into the richer billing path for similar services.
ABA fits this setup perfectly. Programs can run 20–40 hours a week of one-on-one sessions, generating very large Medicaid bills. Once a CMDE assigns a label, that label is used to justify long-term ABA and, often, medication. Nationally, investigations and lawsuits have shown how false or inflated diagnoses and misrepresented ABA services have been used to bill Medicaid and TRICARE for care that is not truly needed or not actually delivered, making misdiagnosis itself a core fraud tool.
Recent behavioral-health providers did not get a free pass; about $14 million in fake EIDBI claims were quickly exposed and charged, ghost services, sham clinics, and kids billed while in school, sometimes tied to the same networks behind Minnesota’s food-program scandal. If the Big 3 actually bought the same “audit-risk” billing software they were urging the state to adopt, that raises a blunt question: did those tools help their claims stay just inside the rules and escape the Medicaid scandal while newer providers without that armor were dragged into court?
What remains clear is that the state has now added its own black box filter. Governor Walz signed a $2.3-million one-year contract with Optum for an AI-driven prepayment review system on 14 “high-risk” Medicaid services. Optum markets these platforms as program-integrity tools that score claims before payment and can hold or deny them based on patterns and rules, creating a dangerous software gap. If the Big 3 are using sophisticated billing systems tuned to yesterday’s rules, and the state is relying on an opaque Optum algorithm to police today’s claims, then provider-side camouflage and state-side analytics can cancel each other out.
The most polished, high-volume claims from powerful legacy providers are exactly the claims most likely to slide through an algorithm trained on patterns those billing engines are designed to mimic, while messy, small-provider claims get hammered.
With Minnesota analysts already warning that Medicaid fraud losses could reach into the billions of dollars, that gap—between subjective labels feeding the billing machine and a black-box filter that may never truly see how those labels are manufactured—is where the greatest fraud can hide in plain sight.
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