BreakDown: Part 2 - A Major Fumble

The HopeRidge Centers for Behavioral Health in Winston-Salem was supposed to be a model for the statewide reform of the public mental-health system in North Carolina.

The idea was simple.

Let the private sector treat state residents with a mental illness, an addiction or a developmental disability who had previously been treated by public agencies.

With privatization and competition, services would expand and improve - or so the theory went.

In Forsyth County, CenterPoint Human Services, the local public mental-health agency, decided to meet the state's requirement by creating a new private company.

The goal was to provide a seamless transition for more than 5,000 adults and children. They would go on seeing the same psychiatrists, therapists and counselors they had always seen at CenterPoint, in the same office space on Highland Avenue.

In July 2004, Centerpoint transferred its clinical staff and patients to the new nonprofit agency - HopeRidge Centers for Behavioral Health - and hoped for the best.

But one year after its creation, HopeRidge collapsed amid growing debt and angry recriminations between its leaders and officials at CenterPoint.

The collapse left an untold number of clients - most of them unable to afford care outside the public system - confused and clamoring for services.

"CenterPoint was one of the shining stars in the state," said John Tote, the executive director of the Mental Health Association of North Carolina, an advocacy group in Raleigh. "Clearly, now they're seen as a poster child for how not to do it."

HopeRidge's collapse is the single largest failure in the state's reform of its $2.3 billion mental-health system.

State officials are investigating what led to HopeRidge's failure while insisting that its demise should not be taken as a condemnation of the reform effort.

"This is the first time we had one of these organizations fail," said Leza Wainwright, the deputy director of the Division of Mental Health, Developmental Disabilities and Substance Abuse Services, a division of the N.C. Department of Health and Human Services.

"This is not something we were expecting."

Forsyth County gives CenterPoint $3.9 million a year to pay for care not covered by the state. County officials say that the state approved the plan for HopeRidge and should be held accountable for the turmoil patients here endured.

"The fact is, HopeRidge was part of the dream the General Assembly had to solve the problems of mental health: privatize it," said Dave Plyler, a Forsyth County commissioner.

"Even the people in the General Assembly said, 'We're not sure how it's going to work.' If you're not sure how it's going to work, that's a problem in my book."

Conflict from the start

According to internal correspondence and interviews with the key players, the creation of HopeRidge was marred from the start.

HopeRidge had its own board but remained closely tied to CenterPoint. Most of HopeRidge's 200 employees had worked for CenterPoint. CenterPoint held the lease on the Highland Avenue office and handled the billing and many administrative tasks for HopeRidge, including information systems.

But the relationship between the two agencies deteriorated quickly.

Ron Morton, the former director of CenterPoint, left for a job in Maryland in October 2004, before contracts detailing financial responsibilities between the two agencies were signed.

With his departure, misunderstanding between the two organizations grew, leaders from both sides said. The rift - primarily over billing, working capital and routine financial issues - ultimately put HopeRidge more than $3 million in debt and led to its demise.

Ultimately, the two organizations could not even agree on the number of patients treated by HopeRidge. HopeRidge officials reported a caseload of about 7,000 clients and CenterPoint reported a substantially lower figure of 5,200, which dropped to 4,000 by the time HopeRidge closed.

CenterPoint's new leaders blame HopeRidge for the failure, saying that the agency mismanaged its billing and cash flow. HopeRidge's former leaders say that CenterPoint failed in its obligations to HopeRidge and routinely ignored its officials when they tried to devise plans to stay open.

By June of this year, HopeRidge was unable to pay off its debt to CenterPoint and was struggling to operate under the state's complicated insurance-reimbursement system. Final figures for HopeRidge's finances - including total expenses and revenue - were not available from either organization.

By the end, officials from the two organizations were no longer on speaking terms.

"There was very, very poor reception to communicate on every level," said Homer Moeller, HopeRidge's former finance chairman. "Even in the worst situations, you can do things and you can shut places down in an open, honest manner, and that's not what was done."

The ill will is so strong that Peggy DeCarlis, who moved here from Maryland to run HopeRidge, has threatened a lawsuit against CenterPoint.

"The basic contention is that Peggy was recruited to come down here by representatives of CenterPoint, to take charge of HopeRidge and then almost immediately after she got here CenterPoint engaged in what appeared to be a strategy to dismantle HopeRidge," said DeCarlis' attorney, David Pishko.-

In the wake of the collapse, CenterPoint recruited five independent agencies to take over HopeRidge's caseload, but it continues to face challenges in managing mental-health services, officials said.

The other agencies are: Triumph LLC, a private, for-profit company in Morrisville; DayMark Recovery Services Inc, a nonprofit agency in Kannapolis; Charles Hines & Son, a home-health agency in Winston-Salem; Youth Opportunities Inc., and Step One Substance Abuse Services, both in Winston-Salem.

CenterPoint officials have been unable to track how many clients lost service in the turmoil, but they acknowledge that an increase in complaints suggests that many clients who relied on HopeRidge were lost in the confusion.

Complaints to the agency's customer-service department peaked at 78 in September, up from 12 in January. Meanwhile, CenterPoint's caseload, which includes clients treated by HopeRidge as well as by other agencies, fell to 10,434 in the fiscal year that ended in June, from 11,180 the year before.

Kathy Holland was one HopeRidge client who had complaints.

Holland, a Winston-Salem resident, said that HopeRidge officials never told her that it would be closing. She says she suffers from depression and heard about the shutdown from other HopeRidge clients.

CenterPoint held classes in the summer to inform some HopeRidge clients about future services, and Holland signed up with one of the new providers that took over from the dismantled agency.

Still, long waits for service have left Holland skittish about the future of her care.

"I'm trying to figure it out," Holland said. "I know they should be doing a better job than they're doing. Especially when they're talking about people's mental health."

CenterPoint officials acknowledged that some patients have not been getting the care they need.

"This is our most vulnerable population that really isn't assertive and really isn't capable of managing a transition like that," said Betty Taylor, CenterPoint's director.

"How in the world do you transition thousands of vulnerable people without there being people who fall though the cracks?"

Clinic and hospital on Highland

CenterPoint has a long history in Forsyth County, dating back to the 1970s when the county ran a mental-health clinic and a small psychiatric hospital on Highland Avenue.

When the legislature passed its sweeping reform bill in 2001, local mental-health officials were reluctant to dismantle a system of clinics, day treatment and outreach that was considered one of the best in the state.

Morton, CenterPoint's former director, had other worries about turning the treatment of seriously mentally-ill clients over to private agencies.

Like many other area programs, CenterPoint used money it collected for services that paid well, such as case-management, to subsidize services that didn't pay well, such as psychiatric care. CenterPoint officials hoped that a spinoff would have the same financial flexibility that the public agency always had - to use payments for one set of clients to subsidize care for another.

Morton said that he and others at CenterPoint knew that HopeRidge would need some help in its first year with working capital. They just didn't know how much.

The easiest way to help the fledgling company "was to provide cash flow that would allow them to pay their bills as they started to generate earnings," he said. "I think realistically we were talking about some level of cash-flow assistance for the first year."

CenterPoint's board of directors hired Taylor, a former corporate lawyer from Texas, to replace Morton. Shortly after her arrival, she said, she discovered significant financial problems and few documents to guide her.

CenterPoint was regularly advancing HopeRidge about $510,000 a month for its services, regardless of whether it was collecting that much in state payments. The idea was that CenterPoint would recoup those payments at the end of the year. HopeRidge had also never paid CenterPoint back for start-up and administration costs.

Taylor said that the gap between the advances CenterPoint paid HopeRidge and the money it collected from HopeRidge grew at an alarming rate, to almost $2 million by March. "I knew we had serious issues that had to be addressed," she said.

The leadership of CenterPoint's board had also changed during the transition, with Richard J. Dorgan replacing Jim Gallaher. Dr. Richard Brunstetter replaced Dorgan in October.

Still, Morton said, he left confident that HopeRidge would succeed without him - even though the contracts had not yet been signed.

"Absolutely, I was confident that there was a clear plan in place, that there were contract documents that identified all the components that needed to be there," he said. "That there were operations under way to make it happen and that I was leaving behind an intact management team who had been party to the discussion all along."

He and other CenterPoint officials had been used to doing business on a nod and handshake - but Taylor, new to town, said that the gentlemen's agreement that created HopeRidge was too haphazard to sustain the agency.

"HopeRidge was not financially viable," she said. "They had an expectation that CenterPoint was able and should fund" the agency. "We had a disconnect," she said.

"I think Peggy DeCarlis and Ron Morton are the only two individuals who know what was negotiated and what was promised and we had no signed documents to give us a map," Taylor added.

Problems with billing

At the heart of the problem between the two agencies lay a disagreement over billing procedures.

Under mental-health reform, area programs like CenterPoint serve a function similar to a medical managed-care company, overseeing and paying for the care provided by HopeRidge and other private agencies.

The biggest pot of money for mental-health treatment comes from the state, which covers clients who have no medical insurance. During the period in which HopeRidge was starting up, the state was in the middle of changing the way it paid for indigent care.

Until reform, the state paid a set amount to each local public agency, in regular monthly installments. With reform, the state required local agencies to bill for services for each indigent patient, with payments allowed only for patients with more serious illnesses who met income guidelines. By last year, agencies were required to get the paperwork right if they wanted to be paid.

HopeRidge's staff was to fill out paperwork about a patient's condition - called claim submissions - needed to bill the state. CenterPoint was to process those claims.

Both CenterPoint and HopeRidge officials agree that CenterPoint was responsible for processing the claims, but the two sides argue over who was to blame for any claims rejected by the state.

Officials at CenterPoint say that HopeRidge's staff made so many paperwork errors that many of its bills were rejected. HopeRidge officials say that CenterPoint didn't file the bills on time, and didn't provide HopeRidge with the information it needed to correct mistakes, costing HopeRidge more than $1 million in lost revenue.

The two organizations could never resolve this crucial disagreement.

In April, Morton wrote DeCarlis and Taylor to explain the plan he had worked out for HopeRidge, including the need for working capital. But Taylor said that the explanation came too late.

Taylor said that the memo was self-serving. "Any of its contents should be viewed as such," she said.

By June, officials at CenterPoint decided that the financial problems were beyond repair.

Officials at HopeRidge said they continued to lobby for time and money. During the turmoil, staff members left and some clients found that the case manager or psychiatrist they relied on was gone. Taylor said that HopeRidge was forced to recruit temporary psychiatrists from other states and pay for their airfare and lodging. Clients complained of waiting for as long as six hours for a scheduled appointment and waiting weeks for follow-up care.

Taylor began looking for agencies to replace HopeRidge so that clients would not lose care. In August, many former HopeRidge workers, who had been CenterPoint employees just a year before, went to work for one of the five new agencies.

CenterPoint officials say they did everything they could to guide clients through the changes. The new agencies work out of the same space on Highland Avenue where clients had gone for years. But the changes left an untold number of clients unable to get care.

Some turned up in emergency rooms. Stephen Kramer, a psychiatrist at Wake Forest University Baptist Medical Center, said he saw many HopeRidge patients in the emergency room as the agency fell apart.

"Some had to wait a long time to see a psychiatrist and would relapse from their condition before that appointment took place," Kramer said.

Doctors at Winston East Pediatrics scrambled at the end of August to figure out the psychiatric needs of about 40 of their patients because the new agencies couldn't refill their prescriptions. The confusion put pediatricians in the potentially risky position of prescribing powerful drugs without fully understanding the risks for their young patients.

Meanwhile, officials in Forsyth County say they are still trying to restore the region's mental-health-care system - but they acknowledge that progress is slow.

CenterPoint officials estimate that it could be next year before the region's mental-health system runs efficiently.

The agency's new providers are more experienced at treating - and processing - their patients, they said. For example, DayMark Recovery Services Inc, one of the five new providers, has enrolled nearly 3,000 new patients and expects to add more, said Billy West DayMark's executive director. DayMark, a Kannapolis organization, is primarily providing substance-abuse services for HopeRidge's former clients.

CenterPoint plans to monitor monthly payments to their agencies more closely and will scale back payments to those agencies that see fewer patients, according to Kevin Beauchamp, CenterPoint's director of financial services.

"The five providers are experienced in providing these services," he said. "They're familiar with how this works. They're already established and they have a proven track record."

Taylor said she wants to put the turmoil of the past year behind her and focus on lowering the region's admissions to the state hospital by improving services for clients.

"I want this portrayed accurately so we can focus on getting the community the services it needs and stop the witch-hunt over HopeRidge," she said.

Still, mental-health advocates remain skeptical. Some said they are worried that CenterPoint's private agencies could drop programs they consider unprofitable and leave clients once again searching for services.

"I still have reservations, and I'm going to be very clear about it," said Andy Hagler, the executive director of the Mental Health Association in Winston-Salem, an advocacy group.

"I don't want us coming back a year from now saying, 'This didn't work.'"