Government and Health Care

LRE in danger of losing state contract

Organization oversees funding for five community mental health centers in West Michigan.

April 6, 2018
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HealthWest
One of the sites Lakeshore Regional Entity oversees Medicaid funding for is HealthWest in Muskegon. Courtesy HealthWest

(As seen on WZZM TV 13) The organization that oversees Medicaid funding for five community health centers in West Michigan is at risk of having its state contract canceled.

Lakeshore Regional Entity, which distributes Medicaid funding to five community mental health organizations that work in Allegan, Kent, Lake, Mason, Muskegon, Oceana and Ottawa counties, has 30 calendar days to correct issues outlined in a letter from the state dated March 30. Otherwise, the contract will be canceled effective Sept. 30.

If the contract is canceled, the CMH organizations will receive Medicaid dollars from another source, and services will not be affected, said Lynn Sutfin, Michigan Department of Health and Human Services public information officer.

The letter outlines five main issues LRE needs to address: lack of an approved risk management strategy; need for changes in LRE governance structure; inconsistent performance of managed care functions; data reporting inaccuracies; and ensuring ongoing communication between LRE and MDHHS.

According to the letter, MDHHS contracted Beacon Health Services in 2015 to audit LRE regarding concerns of “managed care function and other contractual responsibilities.” LRE submitted an action plan in 2016 to address issues outlined in the audit. MDHHS said the plan has “failed,” and LRE is in “material default.”

Sutfin said LRE and the other nine prepaid inpatient health plan organizations are responsible for covering up to 7.5 percent of costs above revenues.

“Lakeshore is not in that kind of shape right now,” she said. “And they don’t really have a good strategy, so they’re not prepared.”

The total Medicaid revenue for LRE was $240 million in 2017. The organization ended the year with a $24.3-million deficit.

The operating reserves, meant to cover potential deficits, were $15.5 million that year.

When the PIHP organizations were formulated four years ago, each of the CMH organizations contributed funding to the LRE’s reserves, which totaled about $11 million. Other funding of the reserves comes from the state.

“I think that the state’s position has been, essentially, that the operating deficit is due primarily to operational weaknesses, and as a consequence, that’s why they asserted there was a default in the contract,” said Stan Stek, a Kent County commissioner, board member of the CMH Network180 and board chair of LRE.

Stek said the Community Mental Health Association of Michigan’s position has been there was “significant underfunding from the state” in 2017.

“The current economic crisis at the LRE is due primarily to a funding failure by the state,” Stek said, adding autism services and Healthy Michigan were among programs underfunded. LRE is receiving $10 million more for autism services in 2018 than last year, according to Jeffrey Labun, LRE CFO.

A resulting deficit was not uncommon for other PIHP organizations in the state, Stek said, but LRE was the only one with insufficient reserves to compensate.

A risk management strategy LRE submitted to the state earlier in 2018 stated the five CMH organizations would help cover financial risk, but the MDHHS requested confirmation of this and learned they were “unwilling or unable” to commit.

Another piece Stek said he believes contributed to the deficit is LRE’s work toward managing care equally in all five of the CMH organizations under LRE’s jurisdiction. Ensuring the full spectrum of services is being offered causes costs to rise, and the state accounts for that, but there’s always a “lag time.” The annual allotments are based on data from two years prior, he said.

The reserve funds are meant to cover increased costs in this type of situation, but the reserves were not high enough to cover such significantly higher costs, he said.

Stek said the unanticipated migration of users away from the services has cost the overall system nearly $97 million over the last two years, and there has been some disagreement between the state and the PIHP and CMH organizations about whether it was really unanticipated. PIHP organizations receive funding per enrollee.

“It’s really a multifaceted dynamic here that has led to this,” he said.

However, he did say the board has recognized the organization can do better.

“We’ve accepted that there are overall approaches on how we manage this risk that need to be improved,” Stek said.

The board decided last year to contract management care services from a private company, and there is a request for proposal in process for the job.

LRE submitted risk management plans April 5 to meet that piece’s earlier deadline. Plans include standardization and redirection of services that should save an estimated $14.1 million in 2018, which includes savings from work done to standardize services earlier this year, Labun said.

“It demonstrates to the state that we have taken an honest, deep look at ourselves and found some ways we can save some dollars. So, it’s not insignificant,” said Allen Jansen, LRE’s transition manager.

But unless there is a change in revenue, LRE’s 2018 budget projections see a deficit of $5 million-$6 million, Labun said.

There’s a point of contention on “who is ultimately responsible,” Stek said.

“Ultimately, the tension that stands behind this is the state’s perspective that it is the CMHs that should ultimately cover that shortfall, and the CMHs’ perspective that it’s ultimately the state,” Stek said.

He said LRE is doing its best to present a “realistic and appropriate” response to the state’s requests.

The second big issue is regarding governance, which he said has been a point of tension in the system since the PIHP organizations were created.

The state’s concern after the 2015 audit was CMH organizations had too much control over the LRE board. That structure was reorganized, but the state would like further reorganization to “reduced potential conflict of interest issues” and ensure LRE can focus on its responsibilities.

He said the CMH organizations believe they are “statutorily given the right” to control and govern the PIHP organizations, and the state believes the PIHPs need to function without control that control.

Stek said LRE is looking for “middle ground” on the issue.

If the state chooses to cancel the contract, Stek said LRE plans to contest the decision, as is the organization’s right, though he hopes the issue does not reach that point.  

“At the end of the day, it’s a process that’s focused on and intended to serve the clients, and we’re all looking for the most effective way of doing that,” Stek said.

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