Oregon’s top mental health provider ignored signs of own crisis

From the Oregonian, July 10 2008

Too much trust in leaders, too little oversight put Cascadia Behavioral on financial brink for years

The books were a mess. Staff shifted money around day to day just to keep clinics running and employees paid. The company was hemorrhaging cash and had maxed out its line of credit.

Less than two days into his new job as chief financial officer, Scott Dickison concluded that Cascadia Behavioral Healthcare, Oregon’s biggest provider of mental health services, was on the brink of collapse. He quit before his first week was up.

Before he left last October, he fired off a grim memo to Cascadia’s leaders. The company had “significantly more financial, operational, and system failures than had been disclosed to me,” he wrote.

More than 20,000 people relied on Cascadia’s extensive network of addiction treatment, counseling, emergency care and housing in Oregon’s five largest counties. But the people in charge of Cascadia ignored Dickison’s abrupt departure.

Leslie Ford, chief executive officer at the time, said she doesn’t remember him raising any particular concerns.

Wayne Miya [pictured right], then chairman of Cascadia’s board of directors, said he trusted Ford and her tightknit team of longtime colleagues who insisted that the company’s thin bottom line was standard in the nonprofit world and that their finances were actually improving.

“It didn’t set off that many alarms,” Miya recalled.

Six months later, Cascadia collapsed.

Risky financial practices and little government oversight had put Cascadia on the edge of bankruptcy for years, an investigation by The Oregonian found.

The company borrowed heavily and begged for government aid just to keep afloat, even for such basics as payroll. Cascadia’s leaders ignored or hid their teetering finances until it was too late to do anything about them.

Multnomah County managers, who had entrusted 80 percent of their mental health services to Cascadia, helped prop up the company by rubber-stamping its requests and downplaying escalating problems, at times actively suppressing staff warnings.

“It’s not that people didn’t listen, it’s not that people didn’t take it seriously,” said Rose Galante, a county contract specialist who warned her supervisors about Cascadia’s financial maneuvering. “People ignored it. They heard it, and they ignored it.”

“Fred Meyer model”

Ford described her business plan for Cascadia as “the Fred Meyer model” of mental health care — a one-stop shopping safety net to fill gaps in services — and Multnomah County not only endorsed her vision but also became a partner in building the company’s nearly $60 million-a-year enterprise.

That cozy connection gave Cascadia’s executives the clout to push for special favors from the county when they started to lose money, including advance payments and money retroactively awarded to contracts.

Cascadia had formed in the course of less than a year starting in 2001 through a merger of the county’s three largest mental health nonprofits. Ford was CEO of the healthiest and best-regarded of the companies and was the obvious choice to lead the new operation.

Peter Davidson, the county’s mental health director then, helped orchestrate the merger, pressuring the smaller nonprofits enough that they thought they would lose contracts if they didn’t join up.

Cascadia suffered financially almost from the start — closing clinics and laying off hundreds of employees — to consolidate work, pay off some of its initial debt and cope with cuts to the state’s mental health system.

After a brief period of stability, the company began bouncing from one financial crisis to another, even as it continued to take on an increasingly large stake in the local mental health system.

Nancy Winters, director of the county’s Mental Health and Addiction Services Division, told her staff in a 2005 e-mail to shore up Cascadia’s finances: “We will try to pay them a little more every time we end up with some money to do that with.”

Winters had spent nearly a decade working at Ford’s predecessor company and counted Ford as a close friend. But Ford’s connections went even higher: She once held a fundraiser at her home, attended by several top Cascadia executives, for County Chairwoman Diane Linn, one of Cascadia’s staunchest allies.

“We were just doling out money all the time, stripping money out of one place where we planned to spend it and giving it to Cascadia,” said Al Stickel, the former chief financial officer for the county Human Services Department, which included the mental health division.

“Cascadia was known to be extremely well-connected in the political environment of the county,” he said, “that if we said no, they would call up a commissioner, and the next thing you know, we would have a commissioner asking us why are we denying payment to Cascadia.”

Stickel made the comments in a deposition for a whistle-blower lawsuit filed against the county by a former employee who managed business operations for the mental health division. She accused Cascadia of fraud for allegedly misrepresenting requests for extra money, then was fired less than a month later. Her lawsuit was dismissed, though she has appealed that decision.

Although he shared the concerns about Cascadia’s financial management, Stickel said he didn’t like raising the specter of fraud. “Well, it may be,” Stickel said he told the employee. “But it isn’t our fraud, and we don’t have any authority over that. That’s not our issue.”

The same hands-off approach played out when Galante, who worked as a county fiscal compliance specialist before retiring recently, reviewed Cascadia’s contracts in 2005. She determined that the company’s operations broke state and federal contracting rules, standard accounting practices and presented “an unacceptable risk to the citizens of this county.”

When Cascadia managers pushed backed angrily, Galante said, her bosses told her to give the company a “temporary pass” in the follow-up report rather than a finding of noncompliance, which would have allowed the county to terminate its contracts with Cascadia. The county never conducted another review.

Financial “balancing act”

Many of the reservations about Cascadia’s finances led back to the company’s chief financial officer, Debra Humphrey-Keever.

In 2005, the company had started the year with savings in its bank account and ended the year leaning on its line of credit. Covering payroll had become a monthly ordeal.

But under Humphrey-Keever’s direction, Cascadia was skilled at shifting money around to meet costs, internal records and interviews indicate. Sometimes she slowed down bill payments, sometimes the company borrowed from the bank, sometimes Cascadia requested extra money or advance payments from the county.

“It was a constant balancing act,” Humphrey-Keever said last month.

The company later took money from restricted accounts to pay unrelated debts, commingled various funds and spent government money it was supposed to pass along to subcontractors, according to Cascadia records and interviews.

Humphrey-Keever confirmed all happened at least once.

One reason that strategy was successful was that Humphrey-Keever — who had run the nonprofit’s finances since before the merger — was the only one who fully understood how the “mom and pop” financial systems worked, Ford said.

Though Cascadia had long since become a large company, it was still operated like a small nonprofit. Billing and accounting systems were paper-based or run through nonintegrated computer systems, making it error-prone and difficult to quickly track down information.

“She had a lot up in her head that wasn’t documented and would have been hard to re-create,” Ford said.

Cascadia still acted like a healthy company. It continued to grow its portfolio. Top executives received unusual dispensations: Both the head of housing and the head of information technology kept their jobs after moving to New Mexico and France, respectively. The company regularly gave bonuses to executives and other employees — including $15,000 to Ford — leading the controller to e-mail a reminder one Christmas that the company was in no position to hand out bonuses given its struggles to meet payroll.

Cascadia’s auditor, Jones & Roth, gave the company clean reviews during annual audits required for recipients of federal money. “We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses,” said the most recent audit in March.

Billing system changes

Cascadia’s downfall accelerated when the county overhauled its billing system.

Under the previous model, the county gave Cascadia and other providers money upfront for each client they served. The provider then had responsibility for all of the client’s care. But the companies couldn’t easily show how they spent the money, and the county was losing Medicaid money as a result.

In 2005, the county began planning a switch to “fee-for-service” payments, reimbursing contractors for specific work — such as an hour of counseling — only after detailing who they saw and what they did.

Controller Roger Helt urged Cascadia’s leaders to take the change seriously, calling it “a major problem.” Helt previously worked as the chief financial officer at the failed Unity Inc. — the county’s largest mental health provider before Cascadia took it over — and warned that Unity’s demise was tied to a similar shift in county payments.

“Cascadia is not in a position to weather much in the way of either delayed or reduced payments,” he wrote in an e-mail to Ford and Humphrey-Keever.

Ford, who would later blame the company’s collapse on the switch to fee-for-service, initially appeared to dismiss the concern, telling Cascadia board members that the change would be “to our benefit” during a September 2005 meeting.

But Cascadia struggled badly with the new fee system — it had trouble tracking billable hours, for example — and was described by a top county official as “among the most ill prepared of all our providers.”

By last summer, Ford and Humphrey-Keever realized they needed help. They brought in consultants to evaluate employee productivity, began aggressively seeking a second loan and a searched for a replacement for Humphrey-Keever.

The county, too, began to tighten oversight, ending the practice of awarding contracts to Cascadia without bids and then cutting off new clients in the fall until the company dealt with financial and caseload problems.

Karl Brimner, the current county mental health director, assigned an aide to plan moving the county’s mental health services away from Cascadia. The employee predicted in a September e-mail to county mental health managers that Cascadia would seek a government rescue.

Despite the concern, neither Brimner nor Joanne Fuller, director of county human services, said they had any idea that Cascadia could fail until the company announced it couldn’t pay its bank loan this past spring.

Fuller said she, too, had concerns about Cascadia’s size and the quality of its services but didn’t doubt the information that CEO Ford provided — as recently as January — asserting that the company simply had a cash flow problem because of the fee-for-service switch.

Ford said she wasn’t trying to hide the company’s problems. “I was definitely giving them the story as I understood it,” she said. “I wasn’t, in retrospect, accurate, but I was doing my best.”

Last month, Fuller apologized to county commissioners for not asking harder questions. “If we had been more aggressive at that point, I think we would have uncovered more information,” she said.

Lack of skepticism

That’s the line many people are repeating today.

Even now, Multnomah County officials don’t know how many cash advances — usually about $500,000 each time — they provided to Cascadia over the years or how many contracts they increased after the fact. The transactions weren’t always recorded, Ford acknowledged.

Miya, Cascadia’s board chairman until his resignation in June, said he didn’t know until too late that the company was moving around money.

He described the board as an unpaid, volunteer group trying to help a worthy cause and trusting the people who had successfully steered the company through tough times.

That trust was all the more striking because of Miya’s previous tenure as board chairman of Unity, which collapsed under debt after a period of rapid growth.

“The financial issues were very similar to the financial issues happening with Cascadia in that I don’t think the reporting of the finances were, I don’t want to say accurate, but not in enough detail to let the board know how bad finances were,” he said in a recent interview.

Ben Wood, a former Cascadia vice president, remembers being struck by how Cascadia’s Ford and Humphrey-Keever put a positive spin on the worsening financial situation at board meetings. He was equally struck by the lack of skepticism from the directors, leading him to start an unsuccessful effort to replace most board members.

“I’ve never seen a board as devoid of critical questions as that one,” Wood said. “Even if you accept the excuse of being misled, if you are not getting enough information, shame on you for not demanding it.”

It took a new finance manager to snap people to attention.

Chip Burczak came out of retirement after 25 years at Intel to take over as Cascadia’s chief financial officer in February. No one told him that his predecessor quit after less than a week on the job, he said. No one told him that the company was past due on a $2 million loan with no prospect of repaying it.

Burczak also discovered a bookkeeping error showing Cascadia was about $1 million more in the hole than it thought.

With the force of his brash personality and the financial time bomb he unloaded, Burczak made a lasting impression when he walked Cascadia, county and state officials through the financial morass.

This was the moment that everyone — Ford, the Cascadia CEO; Miya, the board chairman; and Brimner, the county mental health chief — said they realized the company was in danger.

Finally, the response was swift and decisive.

It took just weeks for Cascadia to oust its entire executive team, Ford and Humphrey-Keever included. The company’s bank, Capital Pacific, swept Cascadia’s cash accounts to pay back the overdue line of credit.

The county and state agreed to a $2.5 million emergency loan in May to keep Cascadia’s clinic doors open and employees paid. Almost immediately, county leaders began working with Cascadia to dismantle the company.

But the changeover has proven messy, with Cascadia and county leaders publicly deferring to one another while privately bickering about what to do. In the meantime, cash is running out again.

County officials said this week that Cascadia has enough money to carry it through the rest of the month but maybe not enough to cover August payroll. If that happens, Cascadia could receive another government bailout or declare bankruptcy.

On Tuesday, the chief financial officer quit.

“When I was hired, it was my intent to try and help improve a struggling organization,” Burczak said in his resignation letter. “However, it has become increasingly clear that for many reasons, Cascadia is unlikely to take the actions necessary to ensure the long-term viability of the company.”