The federal government has withheld payment of $175 million for a state mental health program because of concerns that the state has been paying improper claims. And a federal official in Atlanta said Thursday that more money may be held back.

Dr. William W. Lawrence Jr., acting director of the state Division of Medical Assistance, said national and regional officials of the Centers for Medicare & Medicaid Services started asking questions about community support service claims last month after reading a series of articles in The News & Observer. The newspaper reported on the failure of mental heath reform in North Carolina, and revealed that the state had wasted at least $400 million on community support.

Lawrence said he received an e-mail Wednesday saying the federal government had decided to defer payment of its share of the cost of community support services for the last three months of 2007.

"While we realize some of the community support services expenditures may be legitimate, at this time we are not able to determine the 'good' expenditures from the 'bad' expenditures, resulting in us having to defer the entire amount," the notice said.

"They're not saying 'We're not going to pay,' " said Dan Gerlach, Gov. Mike Easley's senior policy adviser. "They're just saying, 'We need some questions answered about this.' "

Gerlach called it a "cash flow issue."

He said the state will contend that because of reforms it has already made, or plans to make, the federal government should pay.

Community support is a Medicaid service that is supposed to teach clients basic skills and help them control their behavior. Government audits show, however, that in some cases, companies charged as much as $61 an hour to take clients to malls or movies or to sit with them in school. In most cases, the work was done by employees with high school diplomas.

The federal government pays almost two-thirds of the cost; state and local governments pay the rest.

Lawrence, in response to questions raised by federal officials last month, has already sent a six-page memo outlining what the Easley administration has done, or plans to do, to fix the state's mental health system. The state says the cost of community support services has declined more than 20 percent in the past six months. That doesn't seem likely to satisfy federal officials.

"What we're really looking for right now is more documentation on the claims," said Lee Millman, a federal spokeswoman in Atlanta. "And that's about it in a nutshell."

Hugh Webster, another CMS official, said it was "entirely possible" that the federal government would also withhold its share of the cost for the first three months of this year if it is not satisfied that the claims the state is presenting for payment are clean.

Lawrence, the state official, said he knew that the federal agency could defer payment, but he was surprised when he received the notice. He also said the notice overstated the federal share of the community support services by $38 million, and that the money being withheld would be reduced by that amount, at a minimum.

"At this point, I think our focus is on corrective action," Lawrence said.

As of earlier this year, the state Department of Health and Human Services had demanded that community service providers repay $59 million and had recovered $14.8 million.

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