RALEIGH, N.C. (AP) — Using outside companies to help detect Medicaid program fraud and abuse ultimately will reap significant savings for the state of North Carolina, despite a recent audit critical of contract terms and the initial yields, the state Medicaid director said Wednesday.

Mike Watson with the Division of Medical Assistance stood by the long-term efficacy of entering into agreements with firms such as IBM Corp. and SAS Institute while speaking to a government watchdog panel within the General Assembly hearing about the audit by State Auditor Beth Wood.

"I think it's going to pay off," Watson said after his presentation to the Joint Legislative Program Evaluation Oversight Committee. "There's going to be a very positive return on investment."

The report from Wood's office three weeks ago found the state had recovered overpayments at a rate much lower than initially projected. The software and other analytics bought from IBM and SAS was projected to uncover $81 million combined in improper payments, but less than 1 percent of that amount had been actually recovered by the end of January, Wood said.

Another firm hired to conduct reviews of Medicaid providers with questionable billing practices, is now following a corrective plan to increase the accuracy of its reviews. A fourth vendor looking for ways that medical bills could be paid by someone else besides Medicaid has recovered several times more than the amount that it was paid, the audit said.

Medicaid is the federal-state health insurance system for nearly 1.6 million people that spends more than $12 billion annually.

Committee members said they were surprised by contract language that allowed some firms to get paid even if funds weren't recouped.

IBM's payments in its original 2010 contract with the state also had been based on a percentage of the total monetary value listed in letters seeking the recoupment of funds, rather than the amounts directly attributed to the use of IBM software. A new contract with IBM in 2011 limited the payments to those that could be attributed directly.

Watson said upfront fixed costs for the software development will pay off in the years ahead. North Carolina is the first state to use the IBM software to pursue Medicaid fraud, the state Department of Health and Human Services said. The IBM software alone has helped identify $200 million in questionable claims being examined, Watson said.

The actual collection of the funds depends on many factors, Watson said, since the Attorney General's Office may have to take legal action to do so, or the service provider has gone bankrupt.

Watson said there's also a deterrent effect that can't be easily calculated monetarily when people decide not to attempt to defraud the state Medicaid program, which he said the SAS software is helping do.

"These are not your standard kind of contracts," he said. "It's very difficult to define what is a fair price."

Sen. Dan Clodfelter, D-Mecklenburg, said the state needs to have a more robust contract negotiation system that takes into account these tricky situations involving computer software so the state isn't left holding the bag if there's failure.

The state needs "to be sure your payments are linked to those milestones and deliveries being met," Clodfelter said. "If they're not, then you're just paying money out there and taking the risk that the vendor may never perform."