Mounting debt threatens West Michigan Medicaid mental health agency

Update: State ends ties to West Michigan mental-health agency for poor and disabled

Citing severe financial distress, state officials are threatening to pull the plug on a regional agency that coordinates behavioral health care for roughly 30,000 West Michigan poor or disabled residents.

In an April 25 letter to Lakeshore Regional Entity near Muskegon, the Michigan Department of Health and Human Services cites a history of multi-million-dollar losses by the agency in overseeing community mental health services, with more red ink expected in 2019.

“This instability puts the health and safety of over 30,000 beneficiaries at risk should LRE not be able to maintain the provider network that has been established,” Jeffrey Wieferich, director of MDHHS’ Bureau of Community Based Services, wrote in the letter, obtained by Bridge.

The state told Lakeshore it has 30 days to correct what it called a “material default” of its management responsibilities or it would cancel its state contract, effective Sept. 30.  

According to MDHHS, Lakeshore’s fiscal problems date back years, including:

• In 2017, when its expenditures exceeded revenues by $23.6 million. The debt “exhausted” Lakeshore’s reserves “and the state was contractually obligated to cover approximately $7 million of over-expenditures.”
• In 2018, when losses were pegged at $16 million, with Lakeshore responsible for $14.9 million of that.
• In 2019, Lakeshore is projected to again lose $16 million. Lakeshore “was unable to show how it would be able to cover any portion of their obligation,” the letter states.

Lakeshore Regional Entity is a public behavioral health plan formed in 2014 when Michigan consolidated 18 prepaid inpatient health plans (or PIHPs) into 10. It coordinates Medicaid benefits in seven counties (Allegan, Kent, Lake, Mason, Muskegon, Oceana, and Ottawa) for people suffering from mental illness, developmental disabilities and substance abuse disorders.

MDHHS had threatened to kill Lakeshore’s contract in 2018 for similar issues, but ultimately reached agreement to keep in open. The April 25 letter describes an organization in administrative chaos, citing everything from a flawed business model and lack of managed care experience, to an inability to project expenditures, creating a “negative effect on consumer services.”

Kent County commissioner Stan Stek, who is also Lakeshore’s board chairman, told Bridge Sunday he considers the state’s shutdown threat “totally ill advised and short sighted.

“The department has been systematically underfunding the system. It is critical they look at their rate setting to be sure it’s adequately funded,” Stek said.

Stek shared a PIHP document that showed that nine of the 10 regional agencies in Michigan had operating deficits in fiscal 2018 that exceeded $100 million, with nearly $40 million in overall PIHP deficits projected for fiscal 2019. He confirmed that Lakeshore’s fund reserves are exhausted.

“We are not the only one in this position,” Stek said. “It’s a statewide problem.”

As negotiations with MDHHS proceed, he said the agency is considering filing an administrative appeal or even a lawsuit to block its closure.

“Our conclusion is this is not legally permissible by the state. This is only just beginning.”

Bridge was unable to reach Greg Hofman, CEO of Lakeshore.

Lynn Sutfin, spokesperson for MDHHS, told Bridge Sunday that should the contract with Lakeshore be cancelled, the state will work with the state’s other regional agencies “to move the community mental health services programs.”

“MDHHS is firmly committed to protecting the citizens in the LRE region during this transition. With MDHHS oversight and guidance provided in the contract, services will to be provided through the established provider network.”

Sutfin added that it’s possible the state could be stuck with the tab for Lakeshore’s projected deficit: “When a PIHP’s expenditures exceed its revenues, it is contractually required to use its reserves to cover those costs. When those reserves are expended, the state must cover all legitimate services expenses afterward.”

Given Lakeshore’s history, one statewide mental health advocate put its chance of survival at less than 50 percent, even though the state has never before shut down such an agency.

“I don’t think their chances are good,” said Mark Reinstein, president and CEO of the Okemos-based Mental Health Association in Michigan, a statewide advocacy group for people experiencing mental illness.

Reinstein added his stated belief that LRE has been given enough chances.

“Their contract should be terminated,” Reinstein said. “I’m basing that on the fact that LRE has been cited so many times for so many problems by the state.”

Reinstein said it also remains unclear how cancelling the agency’s contract might impact client care, though he said it “could” have an effect.

As Lakeshore tried to balance Medicaid receipts and expenditures, community mental health providers within the region have also struggled.

Network180, the community mental health authority in Kent County, anticipated $104 million from Medicaid patients but came in more than $9 million short in fiscal 2017. Consequently, it cut services and slashed 17 positions from its staff of 200. Network180 also threatened to close Sheldon House, a Grand Rapids “clubhouse” mental health program, though that program was spared after receiving last-minute foundation support.

Kent County officials attributed its deficit to shifts by some clients from Medicaid to Michigan’s Healthy Michigan plan, which expanded health care coverage to those making up 138 percent of the poverty level.

Network180 Executive Director Scott Gillman said in 2018 a smaller percentage of funds from Healthy Michigan are sent back to local mental health authorities, posing a threat to its budget and other agencies like it. He resigned from the agency in June 2018.

Lakeshore’s struggles may also cast a spotlight on three pilot projects to test an alternative to the state’s current mental health system.

Under Michigan’s existing Medicaid structure, there are two separate delivery systems. Physical health is managed by 11 health plans in a $9 billion managed care system. The 10 regional behavioral health authorities manage a $2.6 billion system.

Beginning in October, MDHHS is funding three pilot programs in six counties that will put Medicaid HMOs in charge of both physical and mental health services.
The pilots include Genesee, Saginaw, Muskegon, Lake, Mason and Oceana counties, and a separate demonstration project in Kent County.

Reinstein said he isn’t convinced it will be any better than the current system, which, as LRE shows, has its own share of issues.

“Does it auger any better for the Medicaid money being given to private HMO health plans?” he asked. “Not necessarily. That’s replacing one problematic system with another.”