Lacey Has ‘No Regrets’ Over Merger Debacle

The architect of Ventura County’s failed merger of mental health and social services has maintained her silence for months, even as the financial damage stemming from her plan reached into the millions of dollars.

Usually loathe to make public comments, Supervisor Susan Lacey said she is speaking up now to defend her decisions and the reputations of former mental health officials.

Lacey defended the merger as necessary to preserve a mental health system she says was slowly deteriorating. The reorganization would have resulted in better services for the mentally ill, Lacey said, if not for a handful of opponents determined to see it crash and burn.

“I have no regrets. It was the right thing to do,” Lacey said in an interview with The Times, her first wide-ranging comments on the mental health debacle in months. “This is a very small group of people who caused a lot of harm and expense for their own personal gain and revenge.”

Lacey also addressed other allegations made by her detractors surrounding the merger: That she has failed to assume her share of responsibility for a financial fiasco that will cost the county at least $15.3 million, that she voted for the merger as a favor to unions, and that she stood by silently while former mental health managers--some of her closest supporters--took the fall for problems uncovered as a result of the reorganization.

“Where I made a mistake about this was not naming names or hurting anyone,” Lacey said. “I tried to be positive.”

The two other supervisors who voted last year for the merger --John K. Flynn and Kathy Long--have already taken some of the blame for the financial mess.

In addition to being forced to repay $15.3 million in fraudulent Medicare billings dating back to 1990, the county’s health system will lose millions of dollars more in coming years because of problems uncovered by a series of state and federal investigations sparked by the merger. In recent weeks, Flynn has said the board is ultimately responsible for any financial risk the county faces as a result of the merger.

Last week Long said she does not regret voting for the reorganization, but is sorry the county will face financial penalties because of it.

“I am sorry that we have to pay that money back,” Long said. “I feel the board is responsible to get the house back in order now so this will never happen again.”

Both Flynn and Long are seeking reelection next year. It is not clear whether the failed merger will hurt either, though it is sure to be brought up by challengers.

Lacey said she pushed the merger for several reasons. But the primary motivation was to halt what she said was an erosion in mental health services under Health Care Agency Director Pierre Durand.

Durand controlled Behavioral Health, which was part of the Health Care Agency. He was trying to cut mental health costs by leaving positions vacant and was interfering with decisions made by then-Behavioral Health Director Stephen G. Kaplan, Lacey said.

Durand declined to comment for this story. But he has maintained in the past that his cost-cutting was aimed at administration, not patient services.

Lacey Gathered Her Own Information

Lacey brought up the possibility of merging Behavioral Health with the social services agency at a Board of Supervisors meeting in June 1997.

None of her colleagues objected and Lacey directed Chief Administrative Officer Lin Koester to look into the idea. Koester was supposed to report back in three months and when he didn’t, Lacey said she began gathering information herself.

She talked to “30 or 40” mental health employees and made a presentation to the Mental Health Board, a community group that advises the supervisors, Lacey said.

“I was being the CAO at the moment, which I shouldn’t have been,” she said.

Lacey’s fellow board members, Judy Mikels and Frank Schillo, have accused her of secretly plotting the merger. Schillo said he was never given a copy of a draft proposal outlining the merger.

But Lacey insists she followed normal procedures in lobbying support for the new structure.

“I was out talking to people for weeks,” she said. “We had a public hearing the day of the vote. It was agendaized as a discussion of a merger. It was like anything else we would have done at any other time.”

Lacey also denies the accusation by some that the merger vote was a payoff to unions, which have heavily supported her reelection campaigns. Records show that in the last election cycle 38% of Lacey’s campaign contributions came from labor unions. By contrast, labor accounted for 17% of Long’s contributions, 5% of Flynn’s and 2% of Schillo’s and Mikels’.

Citizen activist Jere Robings said he believes Lacey “pandered” to the Service Employees International Union, the labor group that represents social workers, psychiatric technicians, clerical workers and others in the mental health agency.

“It was a payoff to SEIU,” Robings said.

Schillo and Mikels said they too believe the merger was orchestrated by Lacey and the union.

“Lacey is very much known as a person favorable to the unions,” Schillo said.

Lacey flatly denies pressure from labor officials unduly influenced her decision. The supervisor said she listened to the concerns of mental health employees, many of whom are also union members, but made her decision independently.

Barry Hammitt, who heads the Service Employees International Union local, said his union supported the merger and was lobbying for every vote it could get on the Board of Supervisors. Union leaders knew that Lacey, Long and Flynn have been friendly to labor in the past. But they talked to all five supervisors and there were no secret pacts, he said.

“We didn’t know for sure that we had three votes,” Hammitt said. “We had lobbied John [Flynn] and given him all the arguments to vote for it. But until he walked into the board meeting that morning and voted for it, we weren’t certain.”

Tape Shows Confusion Over Merger Item

The day of the vote, April 7, 1998, the supervisors’ boardroom was packed with so many people eager to speak on the reorganization issue that then-Chairwoman Judy Mikels limited comments to one minute each.

Most of the 35 speakers were Service Employees International Union members. They were mainly county social workers, nurses and psychologists who strongly favored creation of a new Human Services Agency.

Comments from a tape recording of the meeting show Mikels and Schillo were confused over why a merger vote was on the table. It seemed that mental health employees knew more about the proposed merger than they did, the two supervisors later said.

County executive Koester had recommended supervisors put off a merger vote until the proposal could be more thoroughly reviewed. A consultant hired by the county also recommended no action be taken unless the county was certain it would have no problem converting its license. Schillo and Mikels supported Koester’s recommendation to wait.

Before he voted “no,” Schillo told his colleagues, “I’m just kind of confused. I’m not privy to getting the information on this. I don’t quite understand it. Was this meant to be conceptual, because you talked about all kinds of people coming back and . . . “

“No!” Lacey loudly replied.

“Well, it doesn’t really give the public an opportunity to evaluate what this is,” Schillo said. “I just don’t have enough sufficient information.”

But the majority of supervisors apparently felt they did. The Human Services Agency was created on a 3-2 vote.

Robings, who watched that day’s exchange, believed Lacey, Long and Flynn may have privately discussed their vote before the meeting, a violation of the state’s open meeting laws. The district attorney’s office investigated the matter at Robings’ request, but found no evidence of a Brown Act violation.

Almost immediately, other problems began cropping up. The U.S. Health Care Financing Administration sent a letter warning the county the new structure violated Medicare billing rules.

Disgruntled psychiatrists and a handful of advocates for the mentally ill who favored remaining in the Health Care Agency began notifying federal agencies about problems in the Behavioral Health Department.

Lacey contends this was an effort to sabotage the merger.

“Never once did I have a psychiatrist tell me that we had a problem,” she said. “I had the doctors on board. But I didn’t have three of them.”

Merger Prompts U.S., State Probes

By December it had become clear the federal government was not budging from its position that the merger violated billing rules. The board voted 4 to 1 to rescind the merger. Lacey was the only dissenting vote.

A series of state and federal investigations prompted by the merger began. And the people Lacey had intended to protect saw their heads on the chopping block. Kaplan was the first to go, resigning under pressure two months after the merger was rescinded.

Kaplan’s top deputy, Kevin DeWitt, took a stress leave and then saw his position eliminated. He transferred to the Human Services Agencies, where he served as an aide to director Barbara Fitzgerald for several months.

But DeWitt later resigned after admitting he had hidden a criminal past. Information on 10-year-old bank fraud convictions was given to county officials by the FBI, which was conducting its own probe into possible criminal violations.

Randy Feltman, the former director of mental health and one of Lacey’s biggest supporters, was also blamed for allowing the faulty billing system to continue, even after federal officials advised the county to change procedures in 1993.

Feltman, in turn, blamed Durand. Feltman said Durand controlled all billings and set up the financial structures for all departments under his control. Durand, however, did not become Health Care Agency director until 1995.

Feltman is still employed as director of the county’s welfare-to-work program, but an internal investigation into his involvement in the billing problem is underway.

Lacey never stood up to defend her allies during these rounds of finger-pointing. Nor did she attempt to deflect responsibility to herself, Robings said.

“She should have been a statesperson and stood up and shouldered that responsibility,” Robings said. “And she should apologize to those people who she has hurt.”

But Lacey says she didn’t make any public statements because the county was in the midst of multiple investigations and board members had been advised not to talk. Besides, Lacey said, “I’m just not very good at picking a fight.”

But Lacey now defends the performance of Kaplan and Feltman, whom she believes are being smeared for no good reason.

“I don’t think Steve or Randy needs to make excuses or apologies,” Lacey said.

“They are fine men who have done wonderful things for the county.”

The county’s troubles are not over. The state Department of Mental Health is threatening to cut off a $5.3-million special subsidy the county receives for mental health services.

The U.S. Health Care Financing Administration has tentatively ruled it will no longer pay the county a higher Medicare rate at 34 health clinics. If that sticks, the county will lose at least $2 million in annual revenue.

And the FBI has said it will continue its investigation into whether any criminal acts occurred. So far, no one is saying anyone had personally profited.

Lacey, meanwhile, is swatting off attacks from enemies as she prepares to return to private life.

She says she is not worried this black mark on her fifth, and final, term will tarnish her legacy of service to children and the mentally ill.

“I don’t worry about that,” she said. “The bottom line is we have people hurting who need [mental health] services and they are not getting them. . . . This system was put in danger and that is why this happened.”

But colleagues privately say Lacey does not want to be seen as the politician blamed for triggering the county’s worst financial blunder.

Flynn said the final chapter is not yet written. It’s possible the county’s mental health system will not only survive but improve because of many changes underway.

“I hope we can remove this cloud,” he said. “This is her legacy that’s being destroyed.”