ComCare and LDI agree on little, not even on the number of clients involved. LDI records indicate that about 750 seriously mentally ill adults lost services when ComCare canceled its contract in April 1994.

Pam Hyde claims far fewer LDI clients were affected, and that all problems were easily resolved.

"I'm not aware of anyone who was put on a waiting list," Hyde says. "We did a lot of work to make sure people were specifically transitioned."

However, Pat Pugliese, one of four state workers who advocate for the mentally ill, says she alone logged more than 50 complaints from former LDI clients who had been expelled from treatment programs.

"Most of those people didn't know what was going to happen to them," Pugliese says. "They were scared and ComCare was not doing anything to ease their minds."

Hyde also insists that ComCare case managers told every LDI client "face to face" that they'd be getting new counseling.

In fact, many people didn't learn they could no longer see their therapists until almost three weeks after ComCare canceled the agency's contract. That's when ComCare--prodded by the Arizona Center for Law in the Public Interest, which had received a flood of complaints--informed LDI's clients by letter. The letter apologized for having violated their rights to prior written notification of major service changes.

Newton Henderson is a genteel 45-year-old whose two decades in the mental-health field culminated with the founding of Living Dynamics Incorporated in 1989. The firm steadily grew into a counseling agency with 40 employees at five Valley offices.

When ComCare lowered the boom, LDI was treating more than 1,000 clients a month; its contract with ComCare brought in about $2.6 million a year.

Henderson claims his political naivetā prevented him from understanding that when you deal with a monopoly like ComCare, it's best to play by its rules.

He suspects LDI crossed ComCare with plans to open all-night crisis centers around the Valley. ComCare ordered the crisis-center plan shelved, because it had similar plans.

The biggest bone of contention, however, was LDI's plan to expand dramatically into the traditionally underserved west Valley. Henderson met with west-side leaders, and even rented an office.

ComCare president Pam Hyde wrote Henderson on April 11, 1994. She said, "ComCare is not in the position to support LDI's expansion into this or into any other area," though she didn't offer specific objections.

ComCare employee Roger Nash believes he knows what those objections were. Nash, a budget analyst, gave a startling deposition last September that vividly describes the political landscape.

In his sworn statement, Nash said that Sam Ortega, ComCare's director of community programs, told him that LDI was "growing too fast, growing too big, they could become another political pain."

Nash said ComCare feared that LDI would become as powerful as Phoenix South, a provider ComCare has had difficulty controlling.

"Phoenix South pretty well gets their wishes because they're a strong agency," Nash said, "and we have hard times dealing with them sometimes because of their strength--political strength, monetary, the number of clients handled."

ComCare found a way to deal with LDI, thanks to Lynn Galloway, who had been hired in mid-1993 to do LDI's books. Galloway, owner of the accounting firm Galloway & Associates, wooed LDI's business by promising to computerize LDI's bookkeeping.

Unfortunately, Galloway had a long history of stealing from employers.
Between November 1993 and February 1994, Galloway stole $54,269 from LDI and covered it up by submitting bogus bills to ComCare. ComCare knew of irregularities in LDI's billing as early as February 1994 and sent in auditors, who failed to solve the riddle.

Even after their suspicions were aroused, ComCare officials gave Galloway access to confidential ComCare records, which he used in an unsuccessful attempt to collect on nearly $70,000 worth of phony claims within one week. After ComCare discovered Galloway's embezzlement in March 1994, Galloway destroyed the computer records.

LDI hired Jim Sell, a well-known CPA and certified fraud examiner, to reconstruct the records and to determine the extent of the fraud. Sell is a former director of regulation for the Arizona Corporation Commission, and his experience includes stints as a federal defense contract auditor and at the Arizona General Accounting Office.

During his days as a defense contract auditor, Sell had encountered some outrageous expenses, but he says nothing prepared him for what he found on this job.

"There is nobody watching the house in the health-care industry," he says. "Compared to the health-care industry, the federal government is squeaky clean."

Sell says ComCare deserves some of the blame for Galloway's scam. He says ComCare had shut off its own fraud-detection system, allowing Galloway to attempt such bold acts as billing ComCare for 20 therapy sessions a month for clients who were only authorized for two.

After Galloway's rip-off finally became apparent, ComCare launched a series of audits that Henderson assumed would retrace Galloway's steps and result in new safeguards.

But Henderson soon discovered that ComCare had another agenda: freezing out LDI.

Nine days before the audits began, someone at ComCare leaked LDI a copy of an internal memo dated March 21, 1994. In the memo, ComCare's acting director ordered the firm's case managers to "stop all referrals of ComCare clients to Living Dynamics." The case managers were also told to begin looking for "alternative placements" for clients already getting counseling through LDI.

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