If the regional entity lost the contract, it would have been forced to close.
In a letter dated May 25, Michigan Department of Health and Human Services officials said they will not terminate Lakeshore Regional Entity's (LRE) state contract to provide behavioral health services in a seven-county region in West Michigan.
LRE's state contract was put in jeopardy March 22, when state officials notified the regional entity it was in "material default." The notice outlined financial concerns as well as issues with the entity's governance structure and warned the state would pull the contract Sept. 30 if not satisfied.
Since the default notice, LRE has "conditionally addressed the material default of contract issues," the MDHHS letter states.
The last of the issues resolved was risk management, or how well LRE is able to weather deficits.
The system had a roughly $24.3 million loss in the 2016-17 fiscal year, which ended on Sept. 30. It wiped out the entity's coffers of $11.3 million brought into the region by merging county entities in 2014.
LRE was formed in 2014 and is responsible for management of Medicaid benefits in Allegan, Kent, Lake, Mason, Muskegon, Oceana and Ottawa counties. It serves about 260,000 people.
MDHHS blames LRE for administration and service inefficiencies, entity board officials previously said. The entity blames the state for inadequate funding to cover the changing costs of state-mandated services.
This fiscal year, LRE is expecting a $7.6 million deficit, according to LRE Chief Financial Officer Jeff Labun. Most, if not all, of that is expected to be covered by supplemental funds from the state legislature, he said.
If the legislature does not approve the supplemental, the state could go back to threatening termination of LRE's contract.
Any deficit over the supplemental funds will come from a pot that area stakeholders commit money to. Those stakeholders will be paid back from a $2 million state bonus awarded Oct. 1.
The much-lower deficit this year is due in part to cuts of positions and services not mandated by the state, Labun said.
The deficit funding structure will only last until the end of the fiscal year, as Lakeshore Regional Entity is planning to contract out Medicaid benefit disbursement and management services to a private entity starting the following fiscal year.
So far, there are three qualified bidders for the work. The move would allow the Lakeshore Regional Entity to maintain control over the contractor.