RALEIGH - Internal e-mail messages show the state's top mental-health officials ignored warnings from their own staff that they could get in trouble for improperly billing Medicare and Medicaid for treatment provided at a new state mental hospital in Butner.

Those warnings proved prophetic last week as federal regulators ruled that Central Regional Hospital violated Medicare and Medicaid rules and standards, likely adding further delay to the long-planned closure of Dorothea Dix Hospital in Raleigh.

An 18-page report released by the state Monday says inspectors found that staff members at Central Regional improperly restrained one patient and neglected another man who suffered hypothermia while sedated in his hospital bed.

But the biggest issue was that although Central Regional and Dix were operating as separate hospitals with separate procedures and separate chains of command, they were billing for federal insurance reimbursements as a single entity.

Central Regional, which partially opened in July with the closure of nearby John Umstead Hospital, has yet to pass inspections needed for accreditation to receive federal insurance reimbursements.

Instead, the state has been billing for treatment provided at Central Regional with the Medicare and Medicaid provider number belonging to Dix Hospital.

In meetings and e-mail messages last summer, Dr. Michael Lancaster, co-director of the state mental health division, and Jim Osberg, director of all state mental hospitals, were told that using Dix's number at Central Regional would potentially be a violation.

The warnings were summarized in a June 16 e-mail message from Dr. Susan Saik, then the medical director at Dix: "Changing to Dix's provider number while Dix is still operating leaves a number of problems that could lead to serious issues with regulatory agencies," Saik concluded in the lengthy and highly technical message.

Saik and others recommended using John Umstead's provider number at Central Regional instead. The move would avoid confusion and simplify the transfer of patients and staff from Dix, they argued.

Staff overruled

Lancaster and Osberg overruled them.

"I think we've now determined that we need to keep to the original plan of the Dix provider number moving to cover Dix and CRH," Osberg wrote in a reply. "I think this makes sense at this point."

The e-mail messages were among thousands provided to The News & Observer in August under a public records request.

Saik, now the deputy medical director at Central Regional, could not be reached for comment Monday night.

Though the state received the critical report Friday, officials chose not to release it until 4:55 p.m. Monday. By that time, Lancaster and Osberg could not be reached for comment.

In a news release, the state agency appeared to blame the failure to merge Dix and Central Regional, not administrators' decisions, for the problem with federal regulators. The merger has been delayed at least five times in the past year because of technical glitches and safety issues at the new facility.

"These conditions of noncompliance would not have existed if the hospitals had completed their merger in June, as planned," the release stated.

The new regulatory findings will likely make it impossible for the state to move forward for at least two months with plans to close Dix and transfer most of its patients to Central Regional. The new hospital will be reinspected within 60 days.

A state law that took effect in July mandates that Dix's patients can't be moved until Dempsey Benton, the health and human services secretary, can certify that Central Regional meets Medicare and Medicaid standards.

A state judge has also issued a temporary restraining order halting the planned transfer of patients in response to a lawsuit from Disability Rights North Carolina.

In an attempt to satisfy the regulators, the state has been scrambling to dismantle Dorothea Dix Hospital on paper, even though the staff and patients will remain on the Raleigh campus indefinitely.

Lancaster last week ordered employees not to use the Dix name when answering the phone. The 152-year-old institution is now to be called "Central Regional Hospital Raleigh Campus."

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