New River Behavioral Healthcare losses put at $6.5 million over 2 years

With the losses at New River Behavioral Healthcare rising to at least $6.5 million over the past two fiscal years, the provider could become the single largest failure in the state's multibillion-dollar attempt at reform.

New River, based in Boone, serves nearly 13,000 clients in need of behavioral-health services in eight counties — Alleghany, Ashe, Avery, Iredell, Surry, Watauga, Wilkes and Yadkin. It has about 300 employees.

The $6.5 million figure was made public Tuesday at a Wilkes Board of Commissioners meeting by county manager John Yates.

Yates said Thursday that the source of his information was a preliminary, unaudited report by a consultant, Ann Wilson, hired by the previous board of New River Service Authority to look into the provider's financial status.

"We're very stunned that the losses have reached this level," Yates said, speaking of the county managers. "We knew it was going to be bad, but not to this extent."

Wilson's report showed New River's losses resulted largely from overestimating accounts receivable, Yates said. According to Pat Mitchell, interim manager of Ashe, overstated revenues and poor accounting practices also were factors in the losses.

Wilson reported New River lost $2.91 million in fiscal 2010 and $3.64 million in fiscal 2011.

In contrast, the Wilkes Journal-Patriot has reported an audit by Lowdermilk, Church & Co. of Morganton showed New River lost $765,705 in fiscal 2010. The firm hasn't provided its fiscal 2011 audit.

Renee McCoy, a spokeswoman with the N.C. Department of Health and Human Services, said it is accurate "to classify New River as one of the top-five largest providers to face this type of situation."

"It is certainly one of the larger provider failures in terms of number of consumers serviced and volume of service delivered. To my knowledge, we don't have data to compare the three to four other large failures we have had."

Some statewide advocates point to the 2010 shutdown of the Mental Health Association of N.C., based in Raleigh, as likely being one of the five largest with losses in the multimillion-dollar range. It refused to provide a public figure of its losses. It faced more than $1.5 million in Internal Revenue Service liens after failing to pay payroll taxes for years.

In 2005, when HopeRidge Centers for Behavioral Health collapsed, the Winston-Salem provider was considered as the single largest failure in the state, including owing at least $3.2 million in startup and administrative costs to CenterPoint Human Services.

New River's financial losses and recent media reports have gotten the attention of the Local Government Commission.

Julia Vail, deputy communications director of the state's Treasurer Department, said the State and Local Government Finance Division "is fulfilling its statutorily assigned oversight role to ensure that the financial issues and outstanding debt of New River Behavioral Health Care are properly addressed."

Brian Ingraham, chief executive of Smoky Mountain Center, said he has not received an official report on New River's financial status. The local management entity oversees New River in Alleghany, Ashe, Avery, Watauga and Wilkes counties.

New River is expected to be dissolved as an area 160A behavioral-health provider in the five counties by Nov. 15. The 160A program, created in 2006, allows multiple county governments to fund and oversee a provider's behavioral-health services.

Ingraham said those counties "were given lots of authority and oversight to go along with their liability. All along the only thing we understood was that New River was out of cash and that was going to be a huge problem in terms of their viability and ultimately access-to-care for individuals needing it."

Yates said he could not comment on whether Wilkes or the other counties are considering legal action related to the auditors.

"We are going to look into what happened," he said. "We plan to talk with the auditors at length before the next New River board meeting." The authority will meet at noon Tuesday at Watauga County administrative offices, 814 W. King St. in Boone.

"We understand better now that New River's problems extend back at least two years," Yates said. "Some very serious errors have been made, but we're not convinced where the liability falls and don't know at this point who will make that decision."

Ingraham said he does not believe there is anything Smoky Mountain can do related to the auditors' performance. "That would be outside our authority, responsibility and monitoring," he said.

Daymark Recovery Services Inc. said Monday it is rushing to take over New River's services by Nov. 1 as New River's funding stream continues to dry up. Yates said it is likely the five counties will not provide additional money after Oct. 31.

The N.C. Division of Medical Assistance alleges that at least four examples of fraud have taken place at New River. The provider has not received N.C. Medicaid payments since Oct. 4, "due to allegations made against the provider and deemed to be credible," said Brad Deen, a division spokesman. An appeal of the decision was heard this week.