Pierce County's mental health provider scrutinized

Administration costs put Pierce County’s provider, Optum, in its own category

Staff writerMarch 31, 2013 

Suppose a deal that promised more for less turned out to be less for more.

Pierce County leaders are beginning to wonder whether that’s the takeaway from a 4-year-old experiment that handed the local mental health system to an out-of-state corporation.

“It’s hard to say,” County Councilman Stan Flemming said. “When I ask for accountability on the money we’re spending, no one seems to be able to provide that.”

In 2007, after a bruising tussle with the state over funding, county leaders pulled out of the mental health business, forcing the state to take over. The state, faced with an unprecedented problem, sought bids from private providers and ultimately chose OptumHealth, a subsidiary of Minnesota-based United Health Care.

Optum took charge in 2009. It now runs the county’s Regional Support Network, a designation applied to 11 such entities around the state, with one big difference: Other RSNs are public entities, typically directed by local government consortiums.

Optum is the only privately run RSN in the state. It’s not the largest, but it takes more taxpayer money for administration and profit than any of its public peers — sometimes three, four and five times as much, according to state records.

That money — almost $17 million over the last three years — doesn’t reach mentally ill patients in Pierce County. Instead, it flows into Optum’s coffers.

OFF TO A GOOD START

Early reviews for Optum gushed. Local and state leaders praised the company’s “living-room model,” which emphasizes recovery in the community over hospitalization. The approach had a fringe benefit: Recovery in the community is cheaper.

Optum touts its bottom line, boasting of reduced hospitalizations and mobile outreach to those in need, theoretically keeping people out of hospitals and jails.

Lately, Optum’s rosy claims have drawn more scrutiny. Deep state budget cuts have reduced mental health money across the state, resulting in a boarding crisis: fewer patient beds and less access to treatment.

The effects are pronounced in Pierce County, where mentally ill inmates are clogging up the jail; and in local hospitals, where the mentally ill are parked in emergency rooms, waiting days for treatment.

Those concerns have boomeranged on Optum.

A 2012 Seattle Weekly story raised questions about the company’s methods, linking them to a rise in local suicide attempts and a dumping-ground effect that sends Pierce County’s mentally ill to King County. Local mental health activists and workers don’t say it too loudly, but they reduce the worries to a snarky line: Optum doesn’t believe in beds.

Then there’s the money Optum takes for administration and profit: at least double that of every other RSN in the state.

“We’re paying a lot of money for administrators, but we’re not getting a heck of a lot of access, to include treatment,” said Flemming, a physician and longtime county resident who knows the county’s rocky history in the mental health arena.

CONTRACT DEFENDED

Those worries surfaced at a County Council committee meeting March 11, when Cheri Dolezal, director of the Optum RSN, gave a presentation that outlined the company’s services.

Dolezal cited Optum’s recent achievements and briefly touched on the question of its status as a for-profit entity.

“My greatest problem is for some reason if somebody says you’re a private company, that means all of your money is going to some place that no one knows about,” she told council members. “Our contract is exactly the same as everyone else’s — 90 percent to service, 10 percent to administration.”

The News Tribune sought comment from Dolezal on Optum’s administrative costs. She declined and forwarded inquiries to Brad Lotterman, an Optum spokesman based at the company’s Minnesota headquarters.

Lotterman repeated the point that Optum abides by the state’s contract.

“Optum is committed to helping people with mental health needs reach long-term recovery,” he said. “Since 2009 we have successfully managed the public funds available to help people get the care they need at the right time and place. All RSNs have the same contract with a requirement that 90 percent of their funds go to community services with a 10 percent cap on administrative costs.”

It’s true: State law sets a 10 percent ceiling for administrative costs tied to mental health services.

The limit, written into state contracts, applies to every RSN. The idea is to push as much money as possible toward people instead of bureaucracy. For longtime leaders of the state’s local mental health networks, it’s an article of faith.

“Our belief system — our mantra — is that you try to maximize dollars that can go to services. I think it’s pretty obvious,” said Anders Edgerton, director of the Peninsula RSN, which serves Kitsap, Jefferson and Clallam counties.

The 10 percent threshold is a hard line. Other RSNs duck below it with plenty of room, but Optum’s head grazes the ceiling. No other network in the state takes as much for administration and profit, according to annual records compiled by the state.

 • The statewide average for mental health administrative costs: 3.4 percent.

 • Optum’s average charges for administrative costs: 9.3 percent.

Real-money translation: In its first three years of operation (2010 through 2012), Optum received $183 million in state and federal money for services.

Over that same period, Optum charged $16.9 million for administration and profit.

That last number is a super-sized portion. No other mental health network in the state charged half as much for administration over the same period.

‘EXTREMELY PROFITABLE’

Statewide, mental health administrative costs pencil out to $54 million over the last three years.

Picture the number as a pie shared among the state’s mental health networks. Optum’s slice is twice as big as anyone else’s — almost one-third of the state pie. The Grays Harbor RSN, smallest in the state, could run its entire operation for two-plus years with Optum’s administrative share.

King County houses the largest RSN in the state.

It’s twice the size of Optum in terms of revenue, and serves more than twice as many people. It received $446 million in state and federal money over the past three years. In that timeframe, King County’s administrative costs averaged 1.7 percent. Real-money translation: $7.7 million, less than half of Optum’s costs.

Sliced from a different angle, Optum charged more than twice as much for administration as King County while providing less than half the service.

“They’re extremely profitable,” said Amnon Shoenfeld, director of King County’s RSN and an Optum critic. “They’re making a lot of money.”

The pattern repeats itself across the state. Networks comparable with Pierce County in size charge the taxpayers far less for administration than Optum.

The North Sound RSN, which includes Whatcom, Skagit and Snohomish counties, is the state’s second-largest network — slightly bigger than Optum, which ranks third.

North Sound received about $202 million over the last three years and charged $6.2 million (3.1 percent) for administration — less than half of Optum’s take.

The Greater Columbia RSN, a consortium of 10 counties in Eastern Washington, ranks fourth in the state, just behind Optum, but not by much. Greater Columbia received about $169 million and charged $3 million (1.8 percent) for administration. Optum took almost five times as much.

Spokane County’s RSN is the fifth-largest network. It received $157 million in taxpayer money, and charged $5.6 million (3.5 percent) for administration. Optum’s administrative costs tripled that number.

A direct comparison with Pierce County’s now-defunct RSN is difficult; the county’s last year of operation was 2008. But records show its administrative costs were lower, running at about 5 percent.

Fran Lewis, now retired from county service, ran Pierce’s RSN that year and directed the local mental health system for years before that. She still believes in the nonprofit model.

“I think that works best,” she said in a recent interview. “I was extremely disappointed that it was contracted out. I thought it was something that the county would grow to regret.”

STATE’S ROLE QUESTIONED

Optum’s administrative take is legal, but is it right? Pierce County Executive Pat McCarthy doesn’t fault the company for acting like a business — but she questions the state’s oversight of Optum, and a contract that allows so much public money intended for mental health services to leave the state in the midst of crisis, when funding is precious.

“I think that’s poor contracting,” McCarthy said. “I find that incredible. I guess I would go back to the state and say, where is the fairness in this?”

While McCarthy voices concern, she has little power to act. The county’s 2007 decision to pull out of the mental health business also meant loss of direct control and leverage.

McCarthy has met with Optum representatives and mental health advocates regularly in recent months, seeking to resolve a series of emerging issues, such as a glut of Pierce County jail inmates with mental illnesses.

So far, she’s been pleased with Optum’s willingness to come to the table and offer potential answers.

“I’ve told Optum I’m not here to point fingers,” McCarthy said. “I just want to find some solutions.”

Still, McCarthy can only ask for help. She can’t dictate. Optum contracts with the state; the county is a bystander. Local leaders can’t do a thing about Optum’s administrative charges. The state would have to address the issue, and its leaders say they aren’t worried about Optum’s overhead.

“I guess we don’t see the administrative costs as concerning,” said Michael Paulson, office chief of the state’s behavioral health division within the Department of Social and Health Services.

That makes little sense to Shoenfeld, the King County RSN director. He wonders why state leaders aren’t more concerned about Optum’s administrative take.

“They seem to be ignoring the fact that the money is not just salaries — it’s going out of state to United Health Care,” he said. “They’re totally ignoring the fact that dollars are leaving the state of Washington.”

Paulson and other state-agency leaders say it’s not fair to compare Optum’s administrative costs to those of other RSNs. The for-profit company runs its business differently, using a managed-care model, they said.

Optum’s critics from other RSNs have their own interests, Paulson added.

“They’re threatened by the existence of commercial managed care in their world,” he said.

MORE SERVICE, OR LESS?

In published materials and public statements, Optum leaders contend they’ve served more people with less money since taking the reins of local mental health management.

“Since we began working in Pierce County in July 2009, we have increased the number of individuals served by 26.52 percent,” a company spokesman said in response to an inquiry from The News Tribune.

It’s true on one level — but it’s also statistical sleight-of-hand.

“If that were the case, why do we have a crisis on our hands?” said Flemming, the county councilman. “The numbers just don’t add up.”

Optum reaches the claim by comparing figures from fiscal 2010, its first year of service, to numbers from fiscal 2009. The trouble is that 2009 was a weird year, unlike any other in the history of Pierce County mental health services.

In 2009, the state ran the county’s mental health network. The arrangement was a one-time stopgap — a byproduct of the county’s battle with the state over money for mental health.

County leaders, citing what they saw as inadequate funding from the state, dissolved the local RSN and handed the responsibility to the state. The state, while searching for a contractor, ran the operation temporarily.

The result was a bare-bones year for local mental health service, and a corresponding drop in the number of patients — a fact noted by King County’s Amnon Shoenfeld in a 2012 letter sent to state leaders.

“(Optum is) using for comparison a year when the state ran the RSN and the number of people served dropped dramatically from previous years,” Shoenfeld wrote.

Using the atypical 2009 example allows Optum to claim a big increase in service at lower cost. But the claim evaporates when matched against 2008, the last year that Pierce County ran the RSN.

State records show Pierce County served more patients in fiscal 2008 (19,425) than Optum served in fiscal 2010 (15,880), 2011 (14,865) or 2012 (16,225). The county did it with less money and lower administrative costs (5.3 percent, according to state records).

TAX EXEMPTION

Optum enjoys another perk — a tax exemption passed by the Legislature in 2011, originally sponsored by state Rep. Tami Green, D-Lakewood.

The law revised a state business tax exemption that applied to the state’s RSNs, and extended it to Optum, the only for-profit provider of RSN services. For Optum, the exemption translated to $1.4 million in 2012 and 2013, according to a state fiscal note. The idea, Green explained, was to treat Optum like other RSNs.

“The deal behind that was they would pay B&O (business and occupation tax) on the admin piece but they wouldn’t pay B&O on the money going to direct patient care,” she said. “It was not a level playing field for them. You could say, yeah, but they’re making a profit — but we said that was OK.”

The last comment came with a small dose of sarcasm. Green, a psychiatric nurse, opposed Pierce County’s dissolution of the RSN in 2007 to no avail. She questioned Optum’s entry into the local mental health market and even sponsored legislation to bar for-profit companies from providing RSN services. That effort also fell short.

“I fought it, but could not prevail,” she said. “We have what we have. We have a for-profit RSN. I’m not excited about $17 million not going to patient care — but it’s what we have. (Optum) has also done a better job, I think, than any RSN of using a recovery model and actually doing it.”

To some extent, Green said, county leaders are paying the price for a rash decision.

“They shouldn’t have given up on services for the mentally ill,” she said. “When you pick up one end of the stick, you pick up the other end of the stick.”

Green now sits on the six-member governing board of Optum’s RSN. The governing board is one of two bodies required by the state’s contract with Optum.

Similar boards are required for all RSNs. An advisory board meets monthly. The governing board meets four times a year.

The governing boards of other RSNs typically include local elected officials, such as county council members. The state’s contract stipulates that board members must be free from conflicts of interest.

“Each member of the governing body must be free from conflicts of interest and from any appearance of conflicts between personal, professional and fiduciary interests,” the contract states.

Optum’s governing board includes four Optum employees: the chief operating officer, the chief financial officer, the medical director and the vice president of consumer affairs. With four seats on a six-member board, the employees make up a majority.

Asked whether the board’s composition creates conflicts of interest, Paulson, the state’s behavioral health leader, said no.

“I do not view that as a conflict of interest,” he said.

McCarthy, the county executive, disagrees.

“That’s totally inappropriate — that’s the state’s responsibility to be on top of that,” she said.

Green said she didn’t know about the conflict-of-interest requirements in the contract.

“Yeah, that’s probably not OK,” she said. “They might need to make some changes on the board. They probably ought to look at that.”

CALLING FOR AUDIT

While state mental health leaders say they’re not concerned about Optum’s, administrative costs, they add that they played the only card available to them. Paulson remembers the scene in 2007, when Pierce County backed out of local mental health service.

“That was not a cordial, friendly process,” he said. “I think the state made every effort to negotiate with Pierce County to continue to have Pierce County run the RSN and to have the operation remain as a governmental entity. Where we are is sort of a result of that process.”

Flemming wants a closer look, including an audit of Optum’s books. He’s starting to think the county made a bad decision five years ago when it dissolved the RSN.

“It was a big mistake to get rid of that program,” he said. “Then we took on a contract with Optum that was gonna pick up those pieces and provide those services — and this is what we’re getting.”

Would Flemming support a reboot, a rebuilt county mental health system with more control of the money?

“If we were to bring that back in-house and operate it, if we can get even some increased access over what we have, I would certainly favor that,” he said.

Sean Robinson: 253-597-8486 sean.robinson@ thenewstribune.com

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