Legislators called health and human services officials to Raleigh for a committee meeting to explain $3 million dollars in losses at the Western Highlands Network, one of the state’s new mental health managed care agencies.

By Rose Hoban

State legislators grilled leaders of the  Department of Health and Human Services, as well as the interim head of Western Highlands Network, at a legislative oversight hearing at the capitol Tuesday.

The discussion was held in response to WHN’s recent revelation that the mental health agency had come up $3 million short in the six months since converting to a managed care organization in January.

Legislators also learned that consultants had warned DHHS officials last fall of problems at WHN as the organization prepared for making the transition, but state health leaders allowed the changes to go forward anyway. But some at the meeting defended the agency, which was only the second mental health local management entity (LME) to make the switch from being providers of care to managing what is essentially a small insurance company (see background box).

The only point of agreement is that there is plenty of blame to go around.

Already, In a board meeting on July 27, the WHN board fired agency CEO Arthur Carder, Jr after learning that Carder had been aware of financial problems for several months before notifying board members.

Consultant warnings

In Raleigh, legislators heard from an outside consultant brought into Western Highlands to do an emergency audit in mid-July once state officials learned about the shortfall.

Michael Prinski, from the consulting firm Mercer, detailed multiple problems with the agency’s management processes, especially the ability to track how much care was being provided to individual patients.

“One of the key aspects in operating a managed care entity is having data and utilizing it to effectively manage care,” Prinski said. “The different clinical areas and financial areas didn’t have specific processes within those areas to identify issues.”

Prinski also detailed problems with tracking outstanding payments due to the agency and whether payments to care providers were being processed in a timely manner.

“This is critical… for the financial operations of an MCO, because if you don’t know how much claims are yet to come in, then it’s hard to predict what the proper loss is going to be and what your outstanding liability is to providers,” Prinski said.

But what disturbed lawmakers most was realization that Prinski’s firm found similar issues at Western Highlands last fall before the agency made the switch to becoming a managed care organization. In audits done 120 and 45 days before the Jan. 1 transition date, Mercer consultants found similar problems in the IT systems.

“What you’re telling us is that these things were identified as potential problems, but they were never corrected by Western Highlands,” asked committee co-chair Rep. Nelson Dollar (R-Cary).

“Yes,” replied Prinski.

“That speaks volumes,” responded Dollar.

When asked by lawmakers why state officials allowed WHN to make the conversion Jan. 1, even though they knew about problems, then-chief deputy secretary of DHHS Mike Watson responded, “The decision came out of a review of Mercer’s insight reviews, a look at a plan of correction from Western Highlands and a discussion with them around what they felt was their ability to address the concerns and move forward.”

But when pressed, Watson admitted that he would not make the same decision today. He pointed out that another LME due to convert has been delayed by several months because of similar administrative issues identified by the state.

What we have asked LMEs to do is a huge transformation from service providers to insurance companies,” said DHHS Secretary Al Delia. ” We’ve asked these folks to make these changes quickly. So it’s not surprising that we’ve had these kinds of problems.”

Putting the losses in context

This year’s budget at WHN is $138 million.

In defending some of what happened at the agency, Sen. Martin Nesbitt (D-Bumcombe) pointed out that WHN received 15 million fewer dollars from the state this year than last in order to provide services.

Mike Watson, Director of the state Medicaid program responds to lawmaker questions at Tuesday's meeting.
Mike Watson, Director of the state Medicaid program responds to lawmaker questions at Tuesday’s meeting. Photo, Rose Hoban.

“The managed care assumptions were that there would be about an 11 percent reduction in costs,” confirmed Steve Owen, chief business operating officer for Medicaid.

“So it’s up to the LME to figure out how to save 15 million dollars right out of the chute,” asked Nesbitt, who co-chaired the legislative oversight committee on mental health reform for close to a decade.

“I think the issue for Western Highland is they have very strong clinical people. I think the problem is having the data about where money is being spent where services are being utilized, the ability to apply that data into their care management system in a way that generates both the savings and the clinical outcomes,” said Watson.

“If my my figures are correct here, Western Highlands in fact saved about 4 million over what it had been run for the year before,” Nesbitt said. “it just didn’t save 7 million in the first half of the year, in the first six months of operation.”

“When we originally came up with the idea of these waivers, it was never my intention that we were going to command a cut of 10 percent, or 11 percent the first year.  We were going to turn it over to them, let them manage it, and hopefully they could find savings that we could reinvest into the mental health system,” Nesbitt said. “You’ve took one of the LMEs that probably has the best record of serving people in the state, and then destroyed it.”

Even as committee Republicans took Nesbitt to task for the failures of the 2001 mental health reform effort, Sen Fletcher Hartsell (R-Cabarrus) pointed out that it took Piedmont Behavioral Health years of tinkering to come up with a system that works.

“There are going to be fits and starts in any kind of… I’m not trying to condemn or condone,” Hartsell said. “We’re not turning back, we don’t have a choice.”

“We probably have some blame, Western Highlands has some blame, the department has some blame. We also deserve some credit… if we’re going to say that this model is what we’re going to use, then lets use the model.”

State officials and legislators agreed with Hartsell that the issues at WHN could be a useful lesson for other LMEs in the process of making the conversion to managed care organizations.

Watson told the panel that in the past few weeks, the department has been working closely with WHN to revise their budgeting and WHN has been required to hire a consultant to make improvements. He also said WHN has submitted a plan of correction to the state that includes meeting with state officials weekly, and creating a deadline to address the IT problems and internal audits at the agency.

Watson also pointed out that the $3 million represents only about 3-4 percent of WHN’s annual budget. He said the agency still has enough cash on hand and reserves to make up the losses by year’s end.

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Rose Hoban is the founder and editor of NC Health News, as well as being the state government reporter. Hoban has been a registered nurse since 1992, but transitioned to journalism after earning degrees...

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