Mounting debt threatens West Michigan Medicaid mental health agency

If Lakeshore Regional Entity is closed, up to 30,000 poor or underinsured people receiving behavioral health care in West Michigan may be impacted

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.

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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.

Mark Reinstein of the Mental Health Association in Michigan told Bridge the chances of Lakeshore Regional Entity surviving “are not good.”

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.”

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Paul Jordan
Mon, 04/29/2019 - 9:20am

This possibility should surprise no one who has followed the decline of Michigan's public mental health services since the 1980s.
One of my greatest regrets is that while my father helped to provide public mental health services as the system improved from the 1930s through 1970s, I worked in public mental health during its decline from the late 1980s onward. During this later period, under anti-government Republican leadership Michigan has steadily backed away from its responsibility to care for vulnerable people with developmental disabilities or mental illness. The state has gradually walked away from its responsibility for care, while steadily working to also diminish its financial responsibility. The state's highest priority has become its bottom line: To pay as little as possible for as much as possible, of minimal quality.
It is very sad. We used to be a great state.

Kathi Geukes
Mon, 04/29/2019 - 10:06am

Thank you for telling the truth about the state of the mental health facilities in this state...since MI...under Rethuglican rule...closed most of the mental hospitals many people haven't gotten the help they need.....and it's only gotten worse under Snydley!! Hopefully Gretchen can give it the attention it so desperately needs!! More money and open them back up!! Stop transforming them into condos for rich people!! Build more if need be!! Stop thinking outpatient works!! IT DOES NOT!!!!!

Mon, 04/29/2019 - 10:08am

When will we as a society realize the importance of preventive medicine and care? Mental illness is just that an illness. Remove the stigma that it carries with it. Peace R.L.

Tue, 04/30/2019 - 1:39am

I don't where you read about a 'stigma' in this article, I would say the public recognition and acknowledgement of mental illness as a health issue and one that deserves treatment is the best in my lifetime, I grew up in the shadow of Eloise state hospital.
It seems the problem, albeit a state wide issue, is one that is being exacerbated by the administration at the Lakeshore facility. They seem to making no noticeable effort to manage their facility and be accountable with in the budget constraints they are to live with. They are working to the stereotype of government programs and spending. My perception maybe wrong, but that is what I have gleaned from the article.

Tue, 04/30/2019 - 11:43am

Always interesting how two people read the same article and see different things. The take away, for me, was that ALL agencies supplying mental health treatment are going broke and this particular agency has been cited for more egregious failures than others. However, it is so shortsighted to simply close it (will it be replaced by one if the new pilot programs?) Many of these patients will wind up in jail, which would generate even more costs and pain. The jails and prisons have become the new defacto inpatient treatment centers. One cannot make chicken salad from chicken feces. Stuff costs money.

Tue, 04/30/2019 - 1:46pm

No disagreement on the problem and the needs of the individuals, but if they can manage something as simple as their budget why should we expect them to be the best for the people they are to be serving?

As long as someone is serving a noble cause should we continue to give them money? Do taxpayer deserve responsible stewards of the tax dollars?

Wed, 05/01/2019 - 10:14am

Its easy to make blanket statements about how someone is dealing with their financial situation without having first hand knowledge of what they are going through on a day to day basis. Mismanagement is not always one sided, perhaps they never got adequate financing in the first place leading to their current situation.

Wed, 05/01/2019 - 10:05pm

It is and it isn't one sided, but is managements responsibility because that is the function of management. Who would you hold accountable for a surgery if wrong kidney were removed the surgeon or the patient, who would you hold accountable if the pipes in a new house fail the plumber or the home owner, who would you hold accountable if the brakes on a car are improperly installed the mechanic or the car owner? When you role/responsibilities are for the management of an organization then you need to be held accountable for the organization.
As for being underfunded from the start, that was reality they knew from the start, you pare back until you are at the point of paying your bills. Money is the 'lifeblood' of any organization, because without sufficient money eventually supplier will stop and the organization will not exist.

West side William
Wed, 05/01/2019 - 6:43pm

Hey Duane,
The Lakeside Regional Entity provides no direct services. It is basically the fiduciary between the State and 7 West Michigan County Community Mental Health Agencies. The deficit is a culmination of the 7 Counties. The CMH ‘s throughout the state are struggling with this same issue. LRE is the 1st to fail. If it were a business it would be bankrupt.

Thu, 05/02/2019 - 4:44pm


Are you trying to justify forgoing management accountability because other similar organizations are struggling? Are you suggesting that none should be fiscally or managerially accountable because it is hard to do so or are you relying on these organizations doing 'good work' that they shouldn't be held accountable? If so, I understand not only why government programs and most not for profit organization are always struggling with finances, they never have to learn fiscal responsibility.

When do taxpayers deserve fiscally responsible programs/agencies/spending? When are taxpayers put on the same plane as those spending their money?

Fri, 05/03/2019 - 4:15pm

It sounds like a symptom of a fatal flaw and as much as the service is needed maybe it should be allowed to go 'bankrupt' and restart from the ashes. The other alternative is for those with the fiduciary responsibilities is put in place a discipline [that will most likely reduce services] that will live with in the funding and begin to build taxpayer trust.
Do you have any thoughts on why they continue to financially [don't/can't live within their funding] fail in each of the reasons or why faster in the west region?

Mon, 05/06/2019 - 9:08am

What is their role/responsibilities? What is their supposed 'expertise'? Are you suggesting they are being successful? Are you saying that because others are struggling, simply going down at a slightly slower rate, that they should be hailed or allowed to continue without accountability?
How do we get new approaches, new means/methods, how do we get a chance at improvement if all we do is justify failure by rationalizing it because others are failing? Why can't we point out failure and ask for accountability?