Creation of Superagency a Catalyst for Calamity

In the aftermath of former county manager David L. Baker’s departing shot that Ventura County faces “near financial chaos,” many local leaders have said the crisis stems from what happened following the Board of Supervisors decision to merge the mental health and social service departments.

The merger itself isn’t the reason the county is now stuck paying out millions of dollars in penalties. But it was the first domino in a line of audits, investigations and missteps that have cost the county at least $11 million this year alone, and will cost at least $12 million more over the next four years.

It was also a political battle royal, creating deep hostilities and divisions in county government that continue today. In Baker’s letter to supervisors, he said employees are still reluctant to speak up because they “fear for their livelihood.”

In the midst of this was a face-off between Health Care Agency chief Pierre Durand and Supervisor Susan Lacey. Lacey was looking for a way to protect top managers in the Behavioral Health Department whom she felt were being treated unfairly by Durand, known for an authoritarian style.

Her solution was to propose that mental health be moved out of the Health Care Agency and merged with the welfare department. This enraged psychiatrists, who felt their authority over medical decisions would be diminished in an agency headed by social workers.

The psychiatrists voiced their objections in a memo to then Chief Administrative Officer Lin Koester. The doctors’ professional group, the Southern California Psychiatric Society, rallied behind them, firing off their own letters to supervisors.

When the merger vote came before the board on April 7, 1998, Supervisors Judy Mikels and Frank Schillo argued that more study was needed before taking such a huge step. Only one public hearing had been held--on the day of the vote. Koester also recommended that the board wait.

It did not. Lacey told the board the reorganized agency would result in improved services for the mentally ill and the merger was approved on a 3-2 vote. Long and Flynn said they, too, believed the mentally ill would be better served under the new Human Services Agency.

But Schillo believed Lacey had been working with Stephen Kaplan, former director of the Behavioral Health Department, to get the merger approved so Kaplan would no longer be under Durand’s control. Further, Schillo believed Kaplan, along with welfare manager Randy Feltman and social services agency director Barbara Fitzgerald, had guaranteed success by securing votes from Long and Flynn.

Moments after the vote took place, Schillo walked over to Lacey and thrust out his hand. “Congratulations on the coup you just pulled off,” he said sarcastically.

Almost immediately, attorneys and, later, federal regulators, warned that the county would not be eligible for federal health care reimbursements under the new organization. The board majority persisted, however, making adjustments that it hoped would satisfy regulators.

Meanwhile, other events were occurring that would lead the county into deepening financial trouble. Here is a chronology:

May 19, 1998: Attorneys hired by the county warn that the new superagency might not meet Medicare billing requirements, putting the county at risk of losing millions of dollars in reimbursements. The merger took oversight of psychiatrists away from the Ventura County Medical Center, making their services ineligible for Medicare reimbursements.

Schillo and Mikels again ask their colleagues to postpone the merger until the problems can be solved, but are rebuffed. Lacey, Long and Flynn decide to attempt a fix by appointing Koester as “health care administrator.”

Flynn argues that the merger only needs a little tinkering: “I don’t believe in this worst-case scenario at all.”

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May: Veteran psychiatrist Jerome Lance, frustrated and certain that the psychiatrists’ concerns are being ignored and that illegal billing is occurring, consults with Orange County attorney Phillip E. Benson, a specialist in federal whistle-blower lawsuits.

Aug. 21: The U.S. Health Care Financing Administration says the county’s new department structure is not acceptable because the county hospital must be in control of the psychiatric services being rendered in order to bill Medicare. And it tells supervisors they cannot satisfy those requirements by placing Koester as a figurehead administrator.

September: Lance files a whistle-blower lawsuit alleging the county has fraudulently billed Medicare for a decade.

The U.S. Department of Justice joins in the lawsuit and launches an aggressive investigation of the county’s billing practices. The illegalities alleged in the lawsuit existed before the merger.

Dec. 21: Federal authorities reject, for the third time, the reorganized agency. In the same letter, they tell the county they are launching a review of 43 public health clinics to determine if the clinics are eligible for the higher Medicare payments they are receiving.

Dec. 22: Fearing the loss of Medicare payments, four supervisors vote to rescind the merger. Lacey refuses to back down and casts the sole dissenting vote. County staff members worked on the reorganization for nearly a year, she explains, and she can’t let them down. She suggests the merger failed because federal regulators had been too rigid. But Schillo says the merger failed because it was ill-conceived carried out with a cavalier attitude.

Jan. 12, 1999: The U.S. Health Care Financing Administration announces it will do an audit to determine whether Ventura County was in compliance with its rules during the merger and whether it will be forced to repay health care reimbursements. Eventual loss to county: $300,000.

February: FBI begins investigating whether there was criminal intent by county officials to defraud the federal government by submitting false Medicare claims.

March 1: Kaplan, the Behavioral Health director, is forced to resign for his role in the merger. “It wasn’t something that I ever dreamed could happen,” he says.

March 2: State Department of Mental Health announces it will audit the county’s mental health department to determine if $5.3 million in special funding is being used as the law requires. The audit is done at the urging of state Sen. Cathie Wright (R-Simi Valley), an ally of Lacey, Kaplan and Feltman.

June 1: State audit is released, citing numerous problems in the county’s delivery of mental health services. The state says the county must clean up its act or lose all $5.3 million in special mental health funding it gets each year.

June: After a consultant confirms that nearly every mental health billing submitted had improper information, supervisors agree in closed session to settle Lance’s whistle-blower lawsuit. Loss to county: $15.3 million, paid in annual $3.1-million payments over five years.

August: Lacey, in her first interview in months, says she has “no regrets” for the merger.

Sept. 21: Ventura County Grand Jury announces it will begin its own probe into the botched merger.

Oct. 28: After Flynn negotiates with state officials, the Department of Mental Health agrees to resume funding for mental health services. However, the county will lose a portion of the $5.3-million annual special funding due to deficiencies found. Loss to county: $1.1 million.

Nov. 22: David L. Baker, an experienced county executive from San Joaquin County, starts his job as the county’s new chief administrative officer, replacing the retiring Koester. He is shaken to learn that the county is facing a serious cash-flow problem because of the financial toll taken by merger-related losses.

Nov. 27: Baker resigns.

Dec. 2: Mahon issues a report showing that other costs associated with the federal fraud lawsuit, including the write-off of $4.1 million in mental health billings and the $1-million cost of instituting a billing monitoring system, have significantly increased the indirect costs of the merger. Loss to county: $6.6 million.