Kansas Health Institute | Information For Policy Makers. Health for Kansans.

Late last year, as most other programs for people with disabilities were bracing for likely state budget cuts, the head of the state welfare department quietly approved $712,000 in "extraordinary" funding for a Lenexa-based program that specializes in caring for people with severe disabilities.

It was an unusual move that stood the normal process on its head, was done without legislative review or endorsement, and soon raised outcry from surprised service providers elsewhere across the state.

Some upset with the move said the increased payments violated the state's contract with service providers. Others have questioned whether the arrangement complies with the state's Medicaid plan and in protests to SRS even suggested it might be "Medicaid fraud."

States that run afoul of their Medicaid plans are sometimes required to refund the federal government or are otherwise penalized. For example, between 2002 and 2007, the federal government withdrew or took back from Kansas about $110 million after auditors said the state had misdirected Medicaid dollars to special education, mental health and other programs.

Don Jordan, secretary of the Kansas Department of Social and Rehabilitation Services, told KHI News Service he feels certain that — despite the controversy they have stirred up — the extraordinary payments he authorized were proper, legal and necessary.

"I believe I made the right decision," he said. "If I hadn't thought it was the right decision, I wouldn't have made it."

The question of Medicaid propriety was brought to the attention of the Kansas Health Policy Authority, which oversees the state's Medicaid program.

Officials there said they had not yet done their own review of the payments but had been assured by SRS officials that everything was legitimate.

"We have discussed this with SRS and were assured that the rate change was compliant with our Medicaid state plan," said Andy Allison, the state's Medicaid director. "We will follow up to ensure compliance with CMS rules."

CMS is the federal Centers for Medicare and Medicaid Services.

Others think the funding arrangement might warrant a closer look from federal officials.

"Does this constitute Medicaid fraud? That's hard to say, I don't know all the facts and all the details," said Martha Hodgesmith, a former SRS director of community supports and services for people with disabilities now working at the University of Kansas. "Is this something worthy of running by a federal OIG (Office of Inspector General)? Yeah."

Regardless of the Medicaid question, which isn't likely to be answered anytime soon, many believe Jordan's decision was based on the political connections of those most closely involved.

"The information suggests that but for political influence, this decision would have been handled differently," said Tom Laing, executive director at Interhab, an association that represents most of the state's community based programs for the developmentally disabled.

"To suggest that this one organization needed $700,000 of secretarial largesse is a slap in the face of every organization that is struggling right now," Laing said. "He (Jordan) can't have looked at every organization and concluded this was the one that needed help the most. He looked at this one alone."

Democratic ties

Jordan, after months of back-and-forth discussion and later consultations with the governor's office, apparently reversed his own earlier decision on the matter and approved the $712,000 in special funding for Community Living Opportunities, an organization that then included among its board members Larry Gates, Dan Biles and Lew Perkins.

Gates is chairman of the Kansas Democratic Party and a confidante of Gov. Kathleen Sebelius. Biles, then Gates' law partner, since has been appointed by the governor to the Kansas Supreme Court and has resigned his CLO board position. Perkins is athletics director at the University of Kansas.

Gates said he did nothing wrong by taking CLO's case to the governor's office after talks between CLO and SRS had failed to satisfy CLO's pleas for more state assistance.

And Jordan said it was not unusual for him to have discussed the details of the situation in personal meetings with Gates or in talks with the governor's chief of staff, Troy Findley.

"Did I ask the governor's office to help me at some point in time? Yes," Gates said. "But it was a long time after there was no action. I just said 'Please have them (SRS) make a decision because we need to know what to do.'"

Gates said he called the governor's office on CLO's behalf, acting as a "Kansas citizen," not as chairman of the Kansas Democratic Party or as an attorney for CLO.

Gates' law firm does some work for CLO, which has reported making annual payments to the Gates firm ranging between about $38,000 and $49,000.

"We have an ongoing discussion (with the governor's office) on big issues all the time," Jordan said. "I did not receive pressure from the people I work for. No one twisted my arm."

'Struggling to find a way'

According to SRS documents, since September 2007, CLO Chief Executive Officer Mike Strouse had been talking with agency officials, trying to persuade them that CLO should get more state funding because it served a disproportionately high number of severely disabled individuals.

According to an SRS analysis prepared for Jordan, CLO serves more "Tier One" individuals than any other provider in the state. Persons designated Tier One are those considered the most severely disabled.

The organization was receiving about $15 million a year from SRS for services provided to those and other less disabled persons in its care. And according to SRS documents, of the 110 people provided residential "supports" or services by CLO, 64 were designated Tier One.

Months went by, but Strouse made no apparent headway with SRS officials.

In a July 1, 2008 letter to Jordan, Strouse wrote: "Unfortunately, the reimbursement system for community services was not designed to support the needs of an agency like CLO ... CLO provides $20 million of services each year (one of Kansas' largest providers) but rarely has it broken even on Kansas operations across its 30-year history (e.g., in 2006 CLO lost approximately $1 million on its Kansas operations.)"

CLO operates several residential homes and day activity programs in northeast and southeast Kansas. Most are in Johnson and Douglas counties.

Strouse proposed various ways SRS might be able to pay more to CLO, including changing the state's Medicaid plan and/or changing the state's financial test for "special tier" funding.

"We propose that the financial need test be different for the very few agencies like CLO that serve a large and disproportionate share of special need persons," Strouse wrote, "(e.g., be based upon the agency's financial capacity.)"

Jordan asked his staff to prepare a response to the letter and that request was pushed down the line.

"Would you have someone prepare a response," Ray Dalton, deputy secretary of disability and behavioral health services, wrote in a July 2 e-mail to a subordinate. "I skimmed the letter (from Strouse) it looks pretty much the same as the others so we should be able to use work you have already done."

A draft letter dated Aug. 7 was readied for Jordan's signature.

It would have informed Strouse that SRS faced certain "constraints ... that currently affect the way we are able to respond to your concerns."

There were two cited in particular: One was the state's bleak budget situation. The second was federal guidelines.

"Per federal regulations," the letter read, "if changes are made to the reimbursement rates for CLO, they must also be applied to other entities...This greatly increases the costs of options considered for CLO."

In short, if SRS were to increase funding for CLO, federal guidelines would require additional state spending on other provider organizations, too.

Strouse would have been told that SRS had "little or no ability at this time to divert funding to other priorities."

But that bad-news letter was never mailed.

On Aug. 14, several days before the Democratic National Convention in Denver, the governor's chief of staff e-mailed Jordan asking for an update on the status of the letter, about which they had previously communicated.

"I know you are on the road this week," Findley wrote, "but thought I would check in and see if there was any update on that draft letter? Just dawned on me that I am going to be spending the entire week of August 25th in Denver with Larry Gates (as will the Governor). So ... if there was a potential for us to have an initial meeting with him next week ... or at least have one solidly scheduled for the week of September 2nd ... that might be beneficial."

Later e-mail exchanges with Findley, obtained through an open records request by Interhab, showed that Jordan agreed to meet with Gates the first week of September.

Apparently, Gates was more persuasive than Strouse in making the case for additional funding, but Jordan said it wasn't Gates' political connections that made the difference.

"What influenced me from him was his passion and commitment to the organization. He's been on that board 30 years," Jordan said.

Jordan then had a Sept. 10 meeting with Findley and after that the response letter to Strouse was shelved.

"We just talked about the situation," Jordan said of the meeting. "He asked that I give it another look, that I keep looking, and I said I would," Jordan said. "The letter doesn't say we didn't want to help them, it says we were struggling to find a way."

Finding a way

Jordan instructed workers from SRS central office in Topeka to review the case files of 43 individuals in the care of CLO to see if their conditions were severe enough to qualify for a higher level of payments known among services providers as "extraordinary funding."

Kansas has a long-established process for deciding if people qualify for "extraordinary funding."

Those determinations normally are made at the regional levelby the Community Developmental Disability Organizations, commonly known as CDDOs.

Programs such as CLO are allowed to ask their regional CDDOs for the additional funding when a developmentally disabled person's services cost at least 150 percent more than the program is reimbursed by the state.

Normally, once a CDDO reviews and verifies a request for the special funding, the applications are then forwarded to SRS. If SRS has enough money in its extraordinary funding account, the increase is approved; if there's not enough money, the request is put on a waiting list.

Waiting lists

Records show that in early November 2008, 10 requests were on the SRS extraordinary funding waiting list.

"Shortly before all this happened, we'd been told there were 10 people on the waiting list, and that the reason there was a waiting list was because there wasn't enough money to fund the first person on the list," said Maury Thompson, executive director at Johnson County Developmental Supports.

Thompson said many program directors don't bother to apply for extraordinary funding because the application process is time-consuming, cumbersome, and they expect the client will likely end up on a waiting list.

"It's like: 'Why go through all this work only to be told you'll have to wait, the money isn't there?" he said.

Reaching the 150-percent-of-cost threshold isn't easy, a point Strouse also made in his pleas to SRS on behalf of CLO.

"You may have people with all kinds of challenging behaviors, but you can't get to the 150 percent if you can't hire the staff," said Carolee Miner, executive director at the Occupational Center of Central Kansas in Salina. "It's retrospective, it's not prospective. You have to show that you've actually spent 150 percent more on this individual than you get from the state. Right now, just about everybody's having trouble hiring staff. It's hard to do."

So, most providers had complaints similar to CLO's.

'Standard criteria'

But for CLO, Jordan bypassed the routine CDDO case review process and instead had SRS workers in Topeka review which of the organization's cases might qualify for extra funding.

"We used standard criteria for determining eligibility," he told KHI News Service. "But we did it ourselves."

After the SRS review, Jordan then approved extraordinary funding for the 10 people who were already on the waiting list from other service providers.

And he also approved extraordinary funding for 43 people in the care of CLO whose case files had not been cleared by the regional CDDO; 39 of those CLO case files had never been submitted to the CDDO for consideration. Four had been submitted to a CDDO but had been rejected for not meeting the criteria for extra funding.

Uproar

When news of the SRS approvals filtered out to CDDO officials and Interhab, the association that represents them, there was an immediate uproar.

"If I'd known there was an alternative like this available, I'd have been standing in line," said Jerry Michaud, president and CEO at Developmental Services of Northwest Kansas. "But none of us knew because over the years, we've been led to believe something like this wouldn't happen. It's not supposed to happen."

Jordan said he decided to approve the funding for CLO because he feared the organization would fail and potentially leave its clients struggling to find services.

"I'm always concerned that our providers be viable organizations, I don't want them going belly up, leaving clients high and dry," Jordan said.

"The amount of money they received in reimbursement didn't cover the cost of serving these particular individuals," he said. "At the same time, these individuals appeared to be eligible for what's called 'extraordinary funding,' so I told staff to go ahead and fund them."

Others hurting, too

But Michaud said he doubted CLO was in any worse shape than his organization which provides services in 18 northwest counties.

"We've had to close our center in Colby and move everybody up to Atwood," he said. 'We've had to downsize our office in Oakley by two-thirds...So, when I hear a deal was made because this one program was having difficulty, it's .... well .... curious."

"The thing you have to understand is that all of us are under contract with SRS, and conditions in all of our contracts are the same," Miner, of the Salina CDDO, said. "So here, all of a sudden, those conditions — conditions that took years to develop and that everybody's agreed to — were violated for the sake of addressing the circumstances of one provider."

"All of us have had to take draconian measures to live within our budgets, and we've all got waiting lists — people sitting at home not receiving any services," said Carolyn Risley Hill, chief executive officer at Starkey Developmental Services in Wichita. "For CLO to get money that's not made available to the rest of us is just not right."

Broken system?

CLO is not a member of Interhab. And Gates said the complaints from Interhab members about CLO's new funding were little more than "a turf fight."

He said CLO desperately needed and deserved the extra money.

"We actually had to send a client back (to a state hospital), which absolutely broke my heart," Gates said. "I fought it even though it was completely irrational to fight it when you're losing thousands of dollars a day.

"None of these (other) agencies want to take the people we serve," he said. "Their answer is for us to take people of lesser disabilities because everyone knows you can make money on people with lesser disabilities. But that's not why CLO was founded, that's not why I've always been passionate about CLO. I'm passionate because we try to be providers of care for those who are the most profoundly and severely retarded. These are the people (the state) used to warehouse before CLO came along."

Gates said CLO turned to SRS and, later, to the governor's office because "... the system is broken and we can't fix it."

But others said CLO officials know the system well and have created their own problems.

"The state of Kansas has said 'We're going to fund services based on a reimbursement system that's built around averages," said Thompson of Johnson County. "We know we're going to lose money on some people, but we're also going to make money on some people. Now, if you chose to serve one certain group, there is the potential that that funding mix will not work for you."

Jane Rhys, executive director of the Kansas Council on Disability Services, said she wasn't surprised that SRS took unusual steps to help CLO.

"I've worked in state government since 1981," Rhys said, "and one of the things I've learned is that no matter where you are, some people have the ability to get away with things that nobody else can get away with. That's certainly been the case with CLO."