PART TWO OF THREE
It's 2 p.m., second Tuesday of the month.
Time for Joy Allison, an official with the state agency that
licenses group homes for troubled children, to crank up her regular
how-to session for prospective owners.
As usual, she's got a full house, 31 people from all over the
state. She's running out of application packets.
"I don't know why," she says, as much to herself as to the
audience, "but for some reason, a lot of people in this state want
to open group homes."
Minutes later, a silver-haired teacher's assistant in the back
row supplies the answer in two quiet sentences:
"The pay is good," says Nellie Pettis. "That's what I've
Word has gotten around: If you've got a house, some start-up
capital and a good head for business, you can make a lot of money
operating group homes for North Carolina's mentally ill
With the state and Medicaid paying as much as $100,000 annually
per child, entrepreneurs have come running.
Since 2000, the number of group homes for mentally ill children
and adolescents has tripled, from 337 to more than 1,000. From 2001
to 2003, the amount of Medicaid money they got also tripled.
Group home consultants have touted possible profits of $20,000 to
$25,000 a month for a four-bed home. Industry professionals say
that's an exaggeration, but estimate an owner who skimps on staffing
and training could make a profit of $10,000 to $15,000 per
Many of those who have rushed to start the homes don't know what
they are doing. A state panel has concluded many homes are poorly
run, badly supervised and provide "less than optimal" treatment
services to children.
"We've got tons of work we need to do," said N.C. Health and
Human Services Secretary Carmen Hooker Odom. "The good (group homes)
are doing a really good job, but on the whole, I don't think we have
a real good measure of the impact we're having on children's
Larry King, head of Charlotte's Council for Children, puts it
bluntly: "This is the cash cow of North Carolina."
It's a problem the state helped create, a six-month Observer
Because of an administrative error, the state has paid tens of
millions of dollars to group homes during the past three budget
years for workers it never required the facilities to hire.
With workers' salaries taking up the bulk of any group home's
budget, the oversight artificially inflated profit margins for
"We have to fix it, and fix it now," said N.C. House Co-Speaker
Jim Black, D-Mecklenburg. "We can't allow these unsafe situations to
continue, and we can't allow people to continue ripping off the
Some in the mental health field say they've known about the
problem for years. State health and human services officials say
they'll fix the staffing error, and they've made changes to prevent
it from happening again.
They can't fully explain why it occurred.
"What happened ... is past tense," said Debbie Crane, an agency
spokeswoman. "Our goal is to ensure that the people most in need of
mental health services receive those services. Our eye is on that
prize, not looking backward to affix blame."
How did it happen?
The group home gold rush began in 2001, after two state
committees proposed increasing Medicaid payment rates and toughening
licensing rules.The state raised the rates that July. For homes with
four beds or fewer -- the most common type -- the rate jumped 49
percent, from about $155 to $232 per day, per child. In addition,
some homes get another $43 per day for each child's room and
The higher rates were supposed to help pay for additional workers
to supervise children, according to a study group convened by the
N.C. Commission on Children with Special Health Care Needs.
The increase was paired with a proposal to raise the minimum
staffing levels. Instead of requiring only one worker for four
children, it would have mandated two for every three or four.
The higher rates won approval. The additional staffing
"So they now have themselves in a position where the rates are
set to provide a Class B service and the licensure requirements are
set to provide a Class D-minus service at most," said Deanna Janus,
president of Pride in North Carolina, a Cary-based company that
operates group homes.
Janus, a member of the special needs study group, also served on
the two panels that recommended the higher rates and rewrote the
"I was furious when those rules didn't get pushed through," she
said. "I said we're going to see an explosion in these
She was right. In 2002 and 2003, North Carolina licensed an
average of five new group homes each week.
How much was misspent?
Some homes go beyond state staffing requirements, so in their
hands the extra money has been properly spent.
But mental health experts and group home operators say most homes
took the money without adding staff. They opted for the minimum
required by the rules -- one worker for four children.
When the Observer asked state health and human services officials
in November whether the oversight meant they'd wasted money, a
spokesman said all the agency could do is speculate, "and we don't
This month, however, the newspaper obtained a copy of the cost
model used in setting the 2001 rate. It showed that officials who
calculated the rate hike assumed homes with three beds would staff
with at least two $9-per-hour workers when children were home.
An analysis of the cost model shows the state has spent up to $66
million through June 2004 for improved staffing ratios it never
forced homes to obey.
Confronted with the cost model, state health and human services
officials last week acknowledged money has been misspent. They said
they believe the true amount of overspending is far lower than $66
million, but still runs into the tens of millions.
They didn't offer a specific total or detailed analysis.
Without data on group home staffing patterns for the past three
years, it is impossible to say exactly how many millions were
No answers from state
Many in children's mental health are aware reimbursements don't
match the state's requirements."It's sort of common knowledge," said
Carol Clayton, a child psychologist who serves on the special needs
panel. "Anybody who's close to children's mental health (in North
Carolina) knows about it."
You wouldn't know that from talking with state officials.
Asked months ago to explain the pay and staffing problem, none
contacted could give a definitive answer.
Hooker Odom and others in her agency say the pay and staffing
changes had been set in motion before they arrived. She took charge
in early 2001, at a time of heavy turnover in the two divisions
overseeing group home pay rates and staffing levels.
The divisions didn't communicate well, she said. That could have
been a reason for the oversight.
Efforts to change rates and staffing began around 1999.
The staffing changes needed the approval of the N.C. Mental
Health Commission. The proposals went before the commission, but
weren't voted on. The reasons aren't clear. Some say the state
administrators presenting the rules didn't push hard enough; others
say commissioners weren't receptive.
Commissioner Floyd McCullouch, who headed the subcommittee that
considered the issue, recalled that around mid-2002, mental health
administrators learned they needed to revise the proposal concerning
the staffing increase.
McCullouch recalls asking them to bring the proposal back before
the subcommittee. But it never came back.
He says he doesn't know why mental health officials wouldn't have
wanted the staffing increase. "Jesus, it just gives the children
Who was responsible?
McCullouch said the top state employee working with the
commission on the changes was Tara Larson, then the mental health
division's deputy director.
Larson, who has since moved to another state job, declined to
Health and human services spokesman Mark Van Sciver said the
decision on whether the rules would be adopted was in the hands of
Larson's boss, then-mental health director Richard Visingardi.
Visingardi said he couldn't recall the proposal to raise staffing
levels. He said his employees might have misinterpreted a more
general caution he gave about pushing for specific rule changes.
Pending mental health reforms could have overridden such changes, he
Visingardi, who took charge in February 2002 and left two years
later, said the rules problem wasn't his fault.
"That's a bunch of bull----. Period," he replied. "And that's a
"The rate was structured around the staffing needed," he said.
"They didn't go into this blindly. They built that into the
Glut creates competition
Critics say the low staffing ratios and upgraded payment rates
turned the difficult job of caring for mentally ill children into
big business.State records show owners of homes with four beds or
fewer took in about $122 million in state and Medicaid money last
The big-money mindset has taken such firm hold that some group
home owners also double as consultants, helping eager newcomers get
started. One such owner from Cumberland County drafted a flier
asking anyone interested in "an awesome business opportunity" to
give her a call.
"You don't have to have a degree or be a wealthy person to make
this work," she wrote. "Just being determined is enough."
She added that such homes offer a chance to make "a remarkable
income" while helping needy children.
Patsy Pressley, a Charlotte grant writer, has been approached
repeatedly by prospective group home operators looking for start-up
grants. She said she's been asked by everyone from ministers to bank
employees -- so many ill-informed folks that she's getting
"Everybody wants to open up a group home, and it's people who
have no experience working with children," Pressley said. "It's a
recipe for disaster."
State officials say they'll look at raising staffing requirements
as they overhaul licensing and rules this year. New, tougher
standards would cut into group home profit margins.
Already, the group home boom has created a glut. Many homes are
now struggling to fill their beds.
That oversaturation has made competition between owners so
intense that the state has alerted local mental health officials
about "questionable practices."
Among them: operators paying mental health case managers
"referral fees" for new residents, and group home owners offering
competitors' employees pay raises if they'll come aboard and bring
residents with them.
Last year, authorities launched an investigation of alleged
kickbacks-for-residents deals in Fayetteville. No criminal charges
have been filed.
The lure of money attracts all types.
That much was clear at Joy Allison's how-to session for those
interested in starting group homes.
Many in the audience seemed to know little about mental health
One man, a funeral home owner, was interested in a second
business. He was considering a group home to serve adolescent sex
Another person asked Allison: "How many citations can you get
before they close you down?"
With state officials cracking down on rogue group home operators,
such questions will be increasingly relevant.
Authorities want to impose tougher penalties for rule-breakers,
and eventually, they plan to increase the staffing ratios -- a move
expected to drive substandard homes out of business.
Hooker Odom said she's made changes to help prevent mistakes like
the one surrounding the 2001 rate hike.
Since becoming secretary, she has created a rate review panel to
check the accuracy of pay hikes. Her department's leaders meet once
a week to make sure they coordinate their efforts.
The pay and staffing mix-up "should not have been allowed to
happen, but it did for whatever reason," she said. "We have to look
to the future and get this corrected."
Little or no experience needed.
Entrepreneurs came running.