The goal of mental health reform in North Carolina is to improve medical services and get them to more of the people who need them. The main elements of reform are decentralization, privatization, and measuring the results of the treatments provided, not just the money spent on them. But the concept of privatization raises red flags with many, who equate it to the profit chase that’s taken control in other areas of medicine. Unless controlled by strong public managers, they warn, privatization of mental health could mean the hardest cases are avoided and cheaper treatments take the place of better ones. Because as Susan Deter, executive director of the nonprofit Durham clubhouse program called Threshold, put it, “there’s not much profit now in mental illness.”

Right she is. The treatment of mental illness–not just in North Carolina, but in every state–is “disorganized,” “overburdened,” “inadequate,” “unfunded,” “uninsured, and “a sea of chaos,” to quote from Governing magazine’s February 2004 Government Performance Project report. People with money can pay their own way. But increasingly, even middle-class folks, if hit by serious illness, find themselves without a job, without insurance, and needing help from a publicly supported system.

Drs. Marvin Swartz of Duke University and Joseph Morrissey of UNC-Chapel Hill, writing in the N.C. Medical Journal, describe North Carolina’s public system as “teetering on collapse” for a decade, with increasing demands for service met by repeated cuts in state reimbursement rates to providers. North Carolina is different from other states in one fundamental way, however, they note. We continue to use expensive state mental hospitals for basic services while the rest of the country has downsized the old “institutions” in favor of “community-based” services.

A report to the General Assembly last year by its fiscal research staff noted that 80 percent of the state’s $353 million appropriation for adult mental health services was spent in our four mental hospitals on just 7 percent of the total number of patients served statewide–17,000 in the hospitals versus 231,000 in local programs.

The hospitalizations are expensive; they’re also unnecessary in many cases, experts agree. Patients wind up in Raleigh’s Dorothea Dix Hospital, or in John Umstead Hospital in Butner, only because the preventive services they needed to avoid a serious breakdown weren’t provided in time.

Moreover, the state saves twice when patients are treated locally, because local programs are eligible for federal funding under Medicaid and the state hospitals are not. For low-income patients, the difference is between the federal government paying two-thirds of their bill–or paying nothing at all.

So that’s part one of the reform idea–get Medicaid to pay whenever possible.

Part two is breaking up the 39 public agencies (called “area programs”) that supply mental health services in North Carolina on grounds that they are, with few exceptions, inefficient.

Why? A report by the State Auditor in 2000 confirmed what many already knew: Because the area programs are both service-providers and also responsible for deciding what services are needed, they have no incentive to economize, nor–since the amount of funding available to them is limited by federal and state appropriations–do they necessarily focus their efforts on the toughest cases. Further, they are state agencies, but they’re only loosely governed by local citizen boards, making them answerable in reality to no one.

The Auditor recommended that the area programs be reorganized under county control (with smaller counties banding together) and be forced to divest themselves of all their service-provider functions. The new programs, called LME’s (“local management entities”) would “manage care” but not be the provider–that job would go to nonprofit and for-profit companies (and in some cases other public agencies) who would bid for work based on quality-of-care standards set by the state. By shopping around, the LME’s would get the best available services; clients, too, would be able to choose from among competing, qualified programs.

Legislation was duly enacted by the General Assembly in 2001, and a long-range plan for its implementation came out from the Department of Health and Human Services a year later. We are now two years into reform.

This session, the General Assembly comes up–again–against the chicken-and-egg problem that has plagued reform ever since. Put simply, the new “community-based programs” needed to replace the state hospitals, and the new private-sector and nonprofit providers needed to replace the area programs, don’t exist. Or they don’t exist in sufficient numbers. And they won’t until the state hospitals are downsized and the area programs close, making their employees available to hire. But the state promised not to get rid of the old programs until there were enough new ones to take over. So which comes first?

What’s needed, all agree, is “bridge funding”–money to help the new programs get started, or scale up, before the old ones have gone away. The 2001 legislation had a bridge–a $47 million Mental Health Trust Fund–and also held out the promise of larger annual appropriations as the state hospitals were downsized. Right after the law was signed, however, the recession hit, and Gov. Mike Easley seized all but $10 million of the trust fund to help balance his budget while also cutting–not raising–the annual appropriation.

Much the same scenario has been repeated in each successive budget year. Even this year, with state revenues finally moving up, Easley’s proposed budget contributed just $8.5 million to the trust fund, while holding other mental health appropriations steady. But last week, House leaders threatened a $10 million cut in mental health–part of a $90 million attack on social services funding–to pay for other programs and a bigger raise for state employees. Only a revolt by some progressive Democrats in a closed-door caucus on Wednesday stopped that from happening, and the legislature adjourned for the holiday weekend with the issue still hanging fire.

The absence of bridge funding, says DHHS Deputy Secretary Lanier Cansler, has caused the reform effort to hit the wall in a few rural counties, where the area programs have folded and employees left town, meaning the new LME’s can’t find anyone to replace them. “It’s forced us to go back to some areas where they’ve divested already and tell them maybe they should recreate the services,” he acknowledged in Chapel Hill recently.

Even in the metro areas, as Durham County’s experience illustrates, until the area programs disband, alternative providers exist mainly on paper–there are for-profit companies out there serving insured clients and children, but they have no staff yet for Durham’s public clients.

Nonetheless, Durham’s area program–called the Durham Center–is shutting down its adult mental health programs over a six-month period starting July 1. As a result, both its staff and clients are scrambling to relocate, putting longstanding patient-therapist relationships in doubt.

“It’s scaring the crap out of a lot of us,” Barbara Britto, a Durham Center client, told Cansler.

By contrast, Wake County isn’t shedding anything, declaring that it will not let go of programs until somebody comes along with a better one. Meanwhile, Wake is bracing for the impact of the state’s decision to close Dorothea Dix Hospital in Raleigh. The plan is to replace it and the aging Umstead Hospital in Granville County with a smaller hospital–in Granville County. Thus, Wake’s leaders want to add services, not merely replace them.

Because money is so short and alternative providers few, DHHS has changed its tune on reform.

Two years ago, it was all about the area programs reorganizing quickly and divesting virtually everything. Now, Cansler says they should ask his boss, DHHS Secretary Carmen Hooker Odom, for waivers, and she’s likely to let them continue their services “for a time-limited period, up to, say, two to five years.” By then, he told the Chapel Hill group, the General Assembly might well change the divestiture requirement anyway.

Indeed, added state Rep. Verla Insko, D-Orange, chief sponsor of the original reform bill and the legislature’s oversight co-chair on mental health issues, the existing law “is broad enough to make adjustments.” Her take? “I’ve always thought the LME’s would continue to provide some services.”

Karen Kincaid-Dunn, a therapist with the Orange-Person-Chatham Area Program, summed it up for Cansler during a Chapel Hill forum as all heads in the room nodded in agreement: “Reform is out of sync,” she said. EndBlock