The region's largest community-based provider of behavioral health services said it may have to slash valuable programs and lay off staff if the state insists on cutting its Medicaid funding by $10 million this year.
New York health officials say Buffalo-based BestSelf Behavioral Health received more money than it should have through a federal community mental health demonstration program because its revenues far exceeded the cost to serve clients enrolled in the initiative.
The state intends to claw back more $10.2 million in what it considers overpayments to BestSelf since 2017 by reducing the agency's future Medicaid reimbursements. But BestSelf insists the state acted without giving the agency a chance to respond and in violation of the program's guidelines.
Losing this funding would damage the organization's ability to provide badly needed mental health and substance abuse treatment to the thousands of adults and children it serves, BestSelf said.
"If they insist on taking it in one year, that would be very, very difficult," said Howard Hitzel, who served as CEO of the agency for the past three years before retiring Wednesday.
BestSelf filed a petition in State Supreme Court seeking to block the state from taking back any money until the organization has a chance to make its case to program administrators, a request the judge granted. Citing the pending litigation, a Health Department spokesman said he couldn't comment on the matter.
BestSelf was formed by the June 2017 merger of Child & Adolescent Treatment Services and Lake Shore Behavioral Health. It now has annual revenues of $75 million and 1,000 employees at its clinics and offices throughout Erie County.
The nonprofit agency focuses on helping children and adults with mental health and addiction disorders, and provides school-based, vocational and mobile programs for at-risk young people, those in recovery and the homeless.
The financial dispute centers on a federal pilot program that was meant to help community-based health networks improve how they deliver behavioral health care.
The idea was to offer standard counseling and medication with additional monitoring of the client's overall health, support for people trying to find a job or reliable housing, crisis management, peer counseling and guaranteed same-day access for clients through an integrated, clinic-based model, Hitzel said.
BestSelf and other agencies had to apply for selection into the initiative and figure out how to get it up and running. This complicated process included figuring out how much each of the organizations would be reimbursed for treating patients enrolled through the program.
"There's a lot of assumptions you have to make," Hitzel said.
The federal government, working through New York and other states, would pay the agencies a flat rate based on the expected cost of treating a patient on a daily basis. It gets technical, but if a patient meets with a social worker and a nurse on the same day, the agency is paid the flat rate for one day of treatment.
If the same patient had seen a social worker on one day and a nurse on the next day, the agency would receive double its flat rate, said Joseph DiStasio, BestSelf's chief financial officer.
BestSelf says it invested considerable time and resources to prepare for the program, including hiring 100 new employees, and converting some of its clinics to the new model required for the pilot program.
BestSelf ended up serving more clients than it expected, bringing down the organization's per capita costs to operate the program.
The agency served about 9,000 people in the year prior to the start of the pilot program. In the first year of the program, just through its clinics, the agency served 13,000 clients, then 15,000 in the second year and were on track to serve 17,000 in the third year.
"I think we've just seen an increased demand for behavioral health services in the community," Hitzel said.
State administrators took notice of this development and engaged in considerable back and forth with BestSelf over the appropriate rates for past and future years of the program.
BestSelf received about $82 million in funding for the demonstration project over 2½ years. The state decided it had the authority to take back about $10 million paid between July 2017 and December 2019 from the organization's future Medicaid payments.
It's a technical issue, but essentially the state argues the rates paid to BestSelf and other program participants should reflect the actual cost to serve their clients and not provide those organizations surplus revenue.
BestSelf officials say they followed the program rules, with the rate for the program's first year approved by the state, the rate for the second year changing only based on inflation and the rates for the third year that ended in June and the fourth year that started this month based on the agency's costs.
"They felt very comfortable with our assumptions and they approved our rate," DiStasio said.
The approved first-year daily rate for a unit of service was $263. It was reduced to $216 by year three. But that still was higher than the agency's actual service unit cost of $162, according to George Zimmerman, an assistant state attorney general arguing on behalf of the state agencies.
"So it's not like BestSelf is being hurt. It's being compensated and then (some) for the services it's providing," Zimmerman said in a court proceeding, according to the official transcript.
BestSelf said the state can't retroactively alter the regulations.
"They're changing the rules, and they've never told us by what authority," DiStasio said.
The state, for its part, said BestSelf is misinterpreting the federal guidelines. And, state officials said in responses to the legal challenge, it's improper for BestSelf to retain this overpayment – especially at a time when the coronavirus pandemic has ravaged the state budget.
"Again, the goal here was for the project rates to cover operating costs," Robert E. Blaauw, project manager for the clinic pilot program at the state Office of Mental Health, said in an affidavit.
The state starting in January recouped $850,000 over two months from BestSelf before agreeing to stop, and to return this money, until hearing the agency's administrative appeal of its decision.
"I'm sure they're looking for any dollar they can get," Hitzel said of New York's budget crunch.
BestSelf now has 400 people working in the demonstration program, which the agency said already has shown positive results.
The state informed BestSelf that, just in the first year, the intervention services offered by the agency through the demonstration project saved $2.6 million in Medicaid payments for emergency room visits and hospital inpatient stays, according to DiStasio.
Hitzel and DiStasio emphasized the agency is a nonprofit and said money BestSelf received in excess of its program costs did not go to shareholders of any kind. Instead, this funding helped BestSelf better serve its clients.
"No one's getting rich off this. We've invested it," DiStasio said.
And, the agency said, it's the people who receive those services who will suffer if the state insists on taking back the money all in one year.
BestSelf officials said they likely would be forced to make substantial staff cuts but didn't have a firm number in mind yet.
DiStasio said BestSelf is willing to negotiate as part of its appeal and expects to reach a compromise with the state that would see the agency pay back some, but not all, of the $10 million over a period of time.
"The state has been a good partner. I don't think their intention is to put us out of business or to devastate us," Hitzel said. "And, quite frankly, we have a lot of people in the community that depend on us. So I would hope that there'd be no draconian measures here that would harm us in any significant way."
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