TRAVERSE CITY — The community mental health agency that serves thousands of adults and children in northwest lower Michigan is preparing for significant spending cuts in the face of large revenue shortfalls.
Brian Martinus, interim CEO of Northern Lakes CMH Authority, told board members Thursday the agency is facing a projected $7 to $8 million budget hole by the end of the fiscal year on Sept. 30 unless changes are made.
Shrinking that shortfall will entail “some hard decisions that will have to be made by the board,” Martinus said. “There could be some sacred cows for some people sitting on this board that might be reduced or eliminated potentially.”
A detailed plan with three options for cutbacks is due to the Northern Lakes executive committee by May 1.
Exactly what that plan will entail is unknown, but officials said the goal is to reduce the shortfall to about $5 million by the end of September.
Martinus said he is looking at nine spending areas that could be cut with a goal of preserving core client services. He did not specify what those nine areas are, other than to say some provider contracts and non-core services may be cut with input from utilization management data.
“I want to emphasize that no programmatic services will be cut without a board vote,” said Northern Lakes Board Chair Greg McMorrow.
RIGHTING THE SHIP
Completely righting the financial ship at the agency is expected to take at least 18 months, officials said.
Northern Lakes is overseen by the Northern Michigan Regional Entity, a state-chartered organization that manages overall behavioral health services for people enrolled in Medicaid. Based in Gaylord, NMRE has purview over five CMH agencies in northern lower Michigan.
Officials said Northern Lakes is required to submit a balanced budget proposal to NMRE on Oct. 1 when the new fiscal year begins.
Board member Mary Marois is one of the state’s most experienced leaders on mental health issues and indigent care. She urged her fellow board members to dig into the “serious financial problem” as soon as possible.
“It is the responsibility of this board to set priorities that we hold sacred,” Marois said emphatically. “I want to see some choices and options — not just one recommendation.
“This decision is one of the toughest we will make in my time here. It doesn’t make sense if nothing is implemented until October.”
Meanwhile, Northern Lakes is still awaiting audited financial results from 2023 and 2024. The delays were caused in large part by a major leadership upheaval in 2023 that led to high-level firings, lawsuits and considerable turmoil within the mental health agency.
At least one lawsuit from that period is still underway and another has been threatened.
POST-PANDEMIC FUNDING CUTS
Northern Lakes isn’t alone in its financial crisis.
Community mental health agencies throughout the state are facing deep funding shortfalls in the current fiscal year, due in large part to massive cuts in Medicaid eligibility after the COVID-19 “public health emergency” officially ended in May 2023.
During the pandemic, Medicaid re-enrollments and redeterminations across the country and within Michigan were frozen. This increased the number of eligible Medicaid recipients.
However, after the pandemic eased, the situation changed dramatically. State officials started requiring that people receiving Medicaid be “re-qualified” and “re-enrolled” every year. As a result, more than 700,000 Michiganders lost their Medicaid coverage.
In 2024, the state’s 43 mental health agencies faced an estimated revenue shortfall of $93 million, even after a partial rate adjustment was made in April of last year, according to Robert Sheehan, CEO of the Community Mental Health Association of Michigan (CMHA).
The pain may be even deeper in 2025, he added.
Adding to the uncertain fiscal picture, White House officials have hinted about further cuts to Medicaid funding as part of President Donald Trump’s pledge to downsize the federal government.
“The moral of the story is that NMRE knows this (shortfall at Northern Lakes) is a trajectory that cannot continue,” said Laura Argyle, deputy chief financial officer at Northern Lakes. “We could be looking at a $12 million overspend by Sept. 30.
“That’s particularly concerning to NMRE because it’s a financial risk for them as well in terms of their ability to remain solvent,” she added. “NMRE is putting up a stop sign.”
Unlike a small business or single-purpose nonprofit, the reimbursement process for community mental health agencies is both complicated and sometimes unpredictable.
For example, some Medicaid-eligible clients of Northern Lakes may have an inaccurate address in the NMRE database that indicates they live outside the agency’s “catchment area” (six counties).
In those cases, Northern Lakes won’t get properly reimbursed for the services it provides. Argyle and others have focused new resources on updating those old records to help improve revenue flow.
Other complex rules in state programs and grants can lead to further payment delays and troubling periods of uncertainty, she said.
On the positive side, Northern Lakes has amassed several million dollars in an “unrestricted fund” that could potentially be used to close some of the budget shortfall — but only if that approach is approved in a new contract with NMRE.
“Our current contract with NMRE is ‘net zero,’” Argyle told the board. “We would need to make sure (such a use) would be seen as ‘actuarially sound.’”
McMorrow responded that using the unrestricted funds might be worthwhile.
“As draconian and as dark as the numbers may be now, this could potentially be a way forward,” he said.
Other board members said they want to wait until the 2023 and 2024 audits are complete before considering that step.
While the 2023 audit is 90% complete, the 2024 fiscal year audit began on March 21, Argyle said.
CEO SEARCH
In other business, the Northern Lakes board agreed to contract with the Meyers Group, a specialized executive search firm based in Bethesda, Maryland. The company will soon launch a search for a permanent CEO to serve at the agency.
Kathy Adams, a new board member from Wexford County, voted against the Meyers Group contract, saying more detailed information is needed to ensure a successful CEO hiring process. A previous search earlier this decade did not result in a permanent CEO.
The next regular meeting of the Northern Lakes CMH board is scheduled for April 17 at 1 p.m. at the agency’s Traverse City location at 105 Hall St.