Feds withhold $175 million from state

The federal government has withheld payment of $175 million for a key state mental health program because of concern that the money was improperly spent.

The Centers for Medicare & Medicaid Services informed the state in an e-mail that it would defer payment for claims in the community support program during 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," wrote a financial analyst for the federal government.

The e-mail, addressed to Dr. William W. Lawrence Jr., director of the Division of Medical Assistance, arrived Wednesday.

Dan Gerlach, Gov. Mike Easley's senior policy adviser, told The News & Observer Thursday: "They're not saying 'We're not going to pay.' They're just saying, 'We need some questions answered about this.'"

Gerlach called it a "cash flow issue" and said the state will contend that because of reforms it has already made, or plans to make, the federal government should pay.

In a five-part series published six weeks ago, The N&O reported the state had wasted at least $400 million on mental health reforms. Most of the money was spent on the two community support programs.