Mental health and substance abuse treatment providers are losing out on more than $5 million budgeted for them this year because the state hasn’t yet received federal approval to spend the money.

That’s led some who oversee the public mental health coverage system to warn of dire consequences, including reduced access to services.

“Children and families are negatively impacted when the adult caregiver cannot access needed services, often resulting in the removal of the child from the home,” Rep. Phil Miller, Hal Gibber and Sharon Langer, the co-chairs of the council that oversees the state’s Behavioral Health Partnership, wrote in a letter to budget director Benjamin Barnes.

“The combined effect of cuts to grant programs and inadequate Medicaid rates will result in increased costs to the health care delivery system through the use of emergency rooms and unnecessary hospitalizations,” they wrote.

The affected funding was put into this year’s budget to make up for a $25.5 million cut in state grant funding to mental health and substance abuse treatment providers. That cut was included in the two-year budget passed in 2013 and was based on the assumption that providers wouldn’t need the state funding once the federal health law rolled out and more clients had insurance. At that point, the thinking went, providers would be able to make up the lost state funding by billing their clients’ insurance.

But an analysis by the state Department of Mental Health and Addiction Services found that the providers weren’t likely to make up the difference because Medicaid – the source of coverage for most of the newly insured clients – pays low rates for outpatient services. In some cases, officials and providers have said, the rates are so low that providers lose money delivering services.

Concerned about the effects of the cuts, lawmakers last year devised a way to avert them, using $10 million in settlement funds the state receives from tobacco companies and $5.4 million from raising the Medicaid payment rates for outpatient clinics. DMHAS officials are using $10.1 million from elsewhere in the agency’s budget to fill the remaining hole.

But the Medicaid rate increase hasn’t happened because the state Department of Social Services has not yet secured the needed permission from the federal Centers for Medicare and Medicaid Services. The federal government reimburses the state for more than half of its Medicaid spending.

Officials from DSS and Gov. Dannel P. Malloy’s budget office said the delays are related to the potentially complex process involved in getting approval to change Medicaid rates. The process allows federal officials to question and require justification for other Medicaid rates, they said. The attempt to raise outpatient mental health service rates is being delayed in part because the approval process is not complete for a separate rate request from 2012.

Langer, the advocacy director at Connecticut Voices for Children, asked whether state funds could be used to maintain the mental health grants as budgeted while waiting for federal approval to raise the Medicaid rates.

“Is there a state workaround?” she asked during a meeting of the Behavioral Health Partnership Oversight Council last week. “Is there something that the state can do in the meantime?”

But Judy Dowd, an official in Malloy’s budget office, said that without federal permission, the state wouldn’t be able to receive any federal reimbursement for the payments. And she said that if the federal government approves the rate increase, the money would be needed then, to pay for services and generate federal reimbursement.

Heather Gates, president and CEO of treatment provider Community Health Resources and a member of the oversight council, said the situation raised questions about why a state budget was built to rely on raising Medicaid rates given how difficult it can be to get them approved.

Gates is one of several leaders of treatment providers worried that Malloy’s next budget will make further cuts to the system, including eliminating the full $25.5 million in grant funds that lawmakers tried to restore in the current budget. She said she understands the challenges to the budget, but said people who rely on the adult mental health and addiction treatment system have no other options.

“Those individuals have no other place to go,” she said.

Janine Sullivan-Wiley, executive director of the Northwest Regional Mental Health Board and another member of the oversight council, said she thinks Connecticut residents believe the state expanded mental health care after the Sandy Hook Elementary School shooting and are “shocked and appalled” when she tells them she’s seen reductions in services.

“I think the citizenry of the state is under the impression that the resources have been put there, and it’s really scary to me to see that they’re not,” she said.

“We are hoping that there is money, and money stays in the budget next year to do these rates,” Dowd said.

Malloy’s budget will be released Wednesday.

Arielle Levin Becker covered health care for The Connecticut Mirror. She previously worked for The Hartford Courant, most recently as its health reporter, and has also covered small towns, courts and education in Connecticut and New Jersey. She was a finalist in 2009 for the prestigious Livingston Award for Young Journalists, a recipient of a Knight Science Journalism Fellowship and the third-place winner in 2013 for an in-depth piece on caregivers from the National Association of Health Journalists. She is a 2004 graduate of Yale University.

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