Under the gun

After a consultant discovered a $3 million shortfall, the Western Highlands Network must undergo close state oversight aimed at getting the agency back on track. And if the managed-care organization doesn't strictly adhere to the recommendations in the state’s Aug. 1 correction plan, it could face severe consequences. The board has already fired CEO Arthur Carder Jr.

"The last resort would be for the state to take over their operation and either merge them into another MCO or find another provider to manage that," Department of Health and Human Services spokesperson Julie Henry explained in a July 31 phone interview.

Western Highlands provides mental-health, substance-abuse and developmental-disability services to residents of Buncombe, Henderson, Madison, Mitchell, Polk, Rutherford, Transylvania and Yancey counties. But on Jan. 3, the agency changed the way it operates, becoming just the second managed-care organization in North Carolina. Under the General Assembly’s 2011 statewide Medicaid expansion, all local management entities must make the switch by next January.

Based on a system pioneered by Piedmont Behavioral Health in 2005, the managed-care model ensures each agency a set amount of Medicaid and state funding. For Western Highlands, however, the switch hasn’t come without trial — and, more recently, error.

Blind-sided

An erroneous financial projection poked a $3 million hole in the agency’s once-balanced budget. Board members met July 27 to find out how it happened.

After passing out four spreadsheets, Chief Financial Officer Sharon Lentz said she hadn’t spotted the loss until the first week of June. At that point, she recalled, "I said, 'Whoa, we're in trouble.'"

But Lentz didn’t tell the board, and most members said they’d learned about the budget troubles via a July 18 article in The News & Observer of Raleigh. A frustrated-sounding Mandy Stone, Buncombe County’s assistant county manager and director of social services, demanded clarification.

"I sent you an email about this on May 30, and you said, 'We're fine,'" she told Lentz, adding, "I sit in Finance Committee [meetings] every month, and I didn't hear 'Whoa.' I went back and read all the Finance minutes and didn't see anything."

As the meeting progressed, however, Carder said he’d also known that something was wrong. But before the board went into closed session, firing Carder and naming Charles Schoenheit as interim CEO, state Medicaid Director Michael Watson weighed in.

"I tend to see this, really, as an issue of management, accountability and — maybe even more important — just having the right information to carry out the role that you've assumed," he said. Going forward, Watson told the board, "What you're going to get from us is a lot of attention" — specifically, a detailed plan for putting things right.

Close scrutiny

Issued Aug. 1, the state’s 10-page plan of correction says the organization must reach certain benchmarks and follow strict guidelines. Western Highlands, for example, will have to hire a consultant other than Mercer (a contractor the state sent in to assess the situation), meet weekly with state staffers, and, beginning in September, submit weekly management-team minutes to the state Division of Medical Assistance.

All this came as no surprise to Schoenheit, however. In a later interview, he said, "Going forward, the plan, in simple terms, is to respond to the request for corrective action," he said, adding that the board had already held preliminary discussions concerning what must be done to continue providing services and stop operating in the red.

Most of the state’s recommendations come from Mercer’s July 23 report. Piedmont Behavioral Health, says Henry, experienced similar problems when it first became an MCO. For Western Highlands, she added, "It's just that the time frame is compressed, and there's more scrutiny now."

Watson, however, assured the board that the state isn’t looking to interfere with Western Highlands’ mission. “We're not talking about having to slash services," he said. "What you're talking about is having to manage toward where you ought to be."

And Steve Owen, chief business operations officer for the state’s Division of Medical Assistance, added, "I think you can turn this thing around."

Looking ahead

The board, Schoenheit explained later, will do its best to follow the state’s guidelines. "One of my goals is to develop better collaboration between staff and the board; expect the board to be a bit more involved than in the past. That's what I want, and that's what they want until we can sort of get this under control and go back to more normal operating procedures," he said.

In the meantime, Schoenheit said he wanted to reassure clients, stressing that while a $3 million deficit is not ideal, it represents only about 5 percent of the organization's budget.

And the state, noted Henry, hopes Western Highlands can serve as a lesson. "We hope this will help the other MCOs learn from this experience. Hopefully,” she said, the state won’t “find ourselves in this situation with the [other] MCOs coming online. This is not a death knell for Western Highlands: We really do think that with some guidance and making some of these adjustments, they can get back on track."

— Send your health-and-wellness news and tips to Caitlin Byrd at cbyrd@mountainx.com or mxhealth@mountainx.com, or call 251-1333, ext. 140.