For the first time in the two and a half weeks since the House investigative committee first convened to examine the finances of the Oklahoma Department of Mental Health and Substance Abuse Services, lawmakers heard a detailed report of the agency’s accounting practices this morning.
Monday’s meeting was dedicated to the testimony of Regina Birchum, the director of the Legislative Office of Fiscal Transparency, which lawmakers asked to review and validate a key question for legislators: whether the ODMHSAS request for $6.2 million in supplemental funding to get them through Fiscal Year 2025 truly would be enough to keep the agency afloat. After the first two meetings left legislators frustrated — with Thursday’s testimony from ODMHSAS’ interim CFO Skip Leonard leaving one lawmaker openly questioning why Leonard has his job — committee members seemed relieved by the comparative wealth of financial information given to them Monday.
“Appreciate you, Director Birchum, coming today prepared to answer questions,” said Rep. Dell Kerbs (R-Shawnee). “That’s a breath of fresh air.”
When Commissioner of Mental Health Allie Friesen’s team first identified a budget deficiency for the rest of the current fiscal year, the agency estimated it was $63 million short, but eventually revised that figure down to the $6.2 million request. According to a document provided to legislators at the first investigative committee meeting, ODMHSAS revised its estimate as follows:
- From a $63 million deficiency due to “not enough budgeted in FY 25 for Title XIX,” which is Medicaid funding, to
- A $43 million deficiency after “validated, unencumbered funds already within the agency’s budget” were reallocated to Title XIX, to
- A $20 million deficiency after the agency canceled two contracts and conducted “fixed rate reviews and (adjustments to) value-based payments,” to
- The $6.2 million deficiency after conducting a “budget review without encumbrances, only looking at actual year-to-date and estimated expenses, including the renewal of value-based payments to our substance use providers through June 30, 2025,” the end of the fiscal year.
Birchum said LOFT attempted to validate the reduction in the initial budget gap and presented what her office has confirmed as how ODMHSAS reduced its projected shortfall, beginning with an estimated $63.7 deficiency:
- $19.6 million in funding previously encumbered to an account for “social service grants” that was identified as being available for Medicaid reimbursements; and
- $10.5 in contract savings.
That leaves an upper limit of $33.6 million as LOFT’s estimation of the shortfall. How ODMHSAS bridged the $27.4 million gap from $33.6 million to $6.2 million is “unexplained,” the preliminary report given to lawmakers said. But the report noted “[ODMHSAS is] in the process of identifying available funds through budget review.”
“I do want to emphasize we’re not saying that their number is wrong. What I am saying is this is what we’re unable to validate,” Birchum said under oath. “The agency may very well get there. We just can’t validate how they’ll do that.”
Friesen and Leonard previously could not report what the “social services grants” account was originally intended to fund, baffling lawmakers.
“[ODMHSAS officials] had no explanation as to where those expenditures would be going, or if they would be going to anything. Is that kind of an accurate statement?” Kerbs asked.
Birchum said it was.
“When they were first asked about that account code by [Oklahoma] CFO [Aaron] Morris, they said the money had been encumbered, but they couldn’t find what it had been encumbered for, and so agreed to unencumber the funds and make it available for Title XIX reimbursements,” Birchum said.
Rep. T.J. Marti indicated the mysterious account hinted at larger issues within ODMHSAS.
“It is concerning. I’m sure most in here can share the concern with me that we seem to not be able to follow the money,” said Marti (R-Broken Arrow). “And if there’s accounts, account numbers, there should be transfer logs. I mean, if it disappears from one account, it should show up in another account.”
Later during her testimony, Birchum said ODMHSAS officials told her they are prioritizing finding other accounts without clear intent.
“I believe the agency is trying to identify what is truly encumbered for a planned expense, versus what has been encumbered without a clear plan for the money,” Birchum said. “And then they are freeing up those funds that they cannot validate what they were encumbered for.”
The existence of such accounts highlights longstanding issues with the way the agency handles its finances — not only how it has resulted in shortfalls like the one the agency is currently experiencing, but sometimes instead showing surplus money without an official revolving fund. In FY 24, for example, LOFT found that, of the 195 accounts budgeted by ODMHSAS, 115 were over budget to the tune of $29.3 million, while 66 were under budget by $57.6 million, leaving a $28.4 million gap.
“The agency does not have a revolving fund in which it carries over monies from one fiscal year to the next. The agency has stated that this is intentional, that they believe that every extra dollar they have should go out to providers,” Birchum said. “But we would note that the agency, in practice, has been having a revolving fund by over-encumbering funds to different account codes. And I suspect the reason that an agency might do something like that is to give themselves budget flexibility.”
Such practices are reflected in the agency’s budget for this fiscal year, which concludes June 30. Prior to ODMHSAS’ FY 25 budget request, its previous 12-month Title XIX spending stood at $170.4 million, but the agency’s FY 25 budget request totaled only $130.2 million. Internally, Birchum said the agency’s budget was even less, as ODMHSAS’ in-house workbook program lists a budget of $110.5 million.
Those problems are consistent with findings articulated in a 2020 audit Birchum cited Monday.
“The agency does not have appropriate internal procedures for calculating and reporting accounts payable,” the audit said, as quoted in Birchum’s preliminary report. “The current review process in place at DMHSAS did not detect the errors in the agencies’ methodology for calculating accounts payable or errors in the sources of data used in the calculation.”
Birchum emphasized the agency’s current issues are not unique to the new ODMHSAS administration, but rather the result of years of poor practices. (Friesen was appointed commissioner in January 2024.)
“I think new leadership identified longstanding budget problems,” Birchum said. “In full disclosure, we had a conversation with the former CFO (Rich Edwards) about some of the budget practices that were in place when he was CFO, and his contention was, ‘This is just routine business. This is what we do, and the new leadership didn’t understand it.’ And, I have to say, I’m on the side of the new leadership not understanding how this budget works.”
‘Name your price’: LOFT report highlights leeway given to CCBHCs
Rep. Carl Newton (R-Cherokee) asked whether Birchum, in her professional opinion, thinks ODMHSAS’ longstanding budget issues are the result of “malfeasance” or simply poor budgeting practices.
“From our observation, it’s poor budgeting — poor budgeting practices that were never corrected, perhaps poor budgeting practices that were created to build in flexibility,” Birchum said. “And I think a lot of this got worse when the [certified community behavioral health centers] came on board, because it was an unknown cost. And because of the way the contracts are written, I would say another significant gap for the agency is its contracts are not well-written, nor are they well-managed, and you’ve got to have some cost certainty in contacts. And I think the fact that we don’t allows for a lot of this maneuvering.”
Certified community behavioral health centers, which provide behavioral health care to Oklahoma’s uninsured population by leveraging enhanced reimbursement for Medicaid patients, have been a hot topic among the committee’s legislators after a trio of Tulsa-based CCBHCs had their contracts with the state canceled in the wake of a disputed 2023 shift in catchment areas. Although the cancellations were unrelated to the budget shortfall and ODMHSAS officials have expressed their intent to create new ones, Birchum said the issues the agency had with the existing contracts once again highlight flaws in its system, especially with regard to CCBHCs.
At Monday’s hearing, Birchum and her preliminary report said CCBHC providers set the rates charged to the state for patients based on their “overall cost of care for their CCBHC from the prior year,” and there is no set cap on their consumption. She acknowledged health care creates unique demands within state governments, and Oklahoma has the most CCBHCs of any state, in her opinion partly because they have been “profitable.”
Marti, a pharmacist who also has a business venture in chronic care management, said Oklahoma’s system “seems crazy to me.”
“Of course we’re the leader in this space. ‘Name your price and come do it.’ Like, I mean, that’s — do we all hear that?” Marti said, looking around to his colleagues incredulously.
Healthy Minds Policy Initiative, a nonprofit that examines the state mental health industry and makes recommendations for policymakers to consider, recently released a report on Oklahoma’s CCBHCs that concluded the state should “control costs by deploying appropriate CCBHC expertise in ODMHSAS’ rate-setting process,” among other recommendations. Those other recommendations include updating the way ODMHSAS monitors and incentives good performance from CCBHCs.
Beyond the CCBHCs, Birchum said LOFT is working on a report with other recommendations for ODMHSAS. She referenced a few during her testimony, including a zero-based budget where all expenses must be justified, quarterly external reconciliation of the budget to actual transactions and ensuring every account has a code that makes the account’s purpose clear.
“I believe that the agency does need a new budget, one that reflects reality,” Birchum said, earning hearty laughter from many of the legislators. “I don’t know if it’s their plan to write a new budget.”
Chairman Mark Lawson (R-Sapulpa) said at the end of Monday’s meeting that he believes LOFT’s goal aligns with the committee’s: “Get a budget for the Department of Mental Health and Substance Abuse Services that reflects reality.”
“And I know that there were some giggles, but that is just out of frustration. We have a very serious job to do before us, and you have been a great assistance toward that effort,” Lawson said.
After adjourning, Lawson said Monday’s meeting was more helpful than the first two, which featured testimony from Friesen and Leonard, respectively.
“That’s concerning that the department, who was made aware of this a whole month before LOFT engaged, has had two opportunities to talk to this committee and has produced nothing in comparison to what LOFT was able to give us today,” Lawson said.
While acknowledging it is concerning that there is a $27.4 million difference in ODMHSAS’ request and the budget gap LOFT was able to validate, Lawson said he has “faith and confidence” in the work done.
“With the help of LOFT, we have a much better idea of where we need to go,” Lawson said. “I certainly appreciate the summarization and recommendations that Regina Birchum handed out today. I really look forward to the finalized LOFT report, which will have those recommendations in there, and I think that we’ve got an idea of where we need to go from here. But that is with not a lot of confidence in what the department themselves have presented this committee.”
Read the LOFT review of ODMHSAS finances
